Reward Without Partnership

Shea is starting a business, and she’s thinking about a partnership with a family friend. Dave advises against a partnership and explains why.

QUESTION: Shea in Austin is starting a business, and she plans to start slow. She’s been presented with an opportunity to go into business with a family friend as a partnership. She didn’t want to take out any loans, but she needs to hire someone to help her. Dave advises against a partnership and explains why.

ANSWER: You’re being wise to not take out a loan. This thing can organically grow, which means as you make some money, you put more money into it. But if it’s not making money, you don’t put money into it, and as it’s making some money steadily, then and only then do you hire employees. You do not take on a partner period. You need to remember that the only ship that won’t sail is a partnership. You’re going to get yourself into a mess.

All he wants is some fruit for his labors, and all you’re trying to do is give him some fruit for his labors. My wife Sharon and I own 100% of the stock in this company, and yet we have lots and lots of people who participate in the profits. They’re called employees. Their compensation plan is a percentage of the profits on the deals that they bring in. You can say, “I’ll give you 30% of the profits on the deals that you do.” It’s not necessarily commission; it’s profit. If he does a deal and he’s on commission, it’s a percentage of the total ticket. If he does a deal and he’s on profit, he gets a percentage of what it nets after you pay whatever expenses there are. This is a service, so you don’t have heavy expenses.

Leave in your agreement with this person the right to renegotiate this as the business develops. It may not be fair for him later, and it may not be fair for you later. But for right now—for the first year—we can start it off this way. Whatever you bring in, you don’t have to share it with him. That’s yours.