Author Topic: 50-50...?  (Read 923 times)

chris316

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50-50...?
« on: March 15, 2017, 11:43:47 PM »
Hi I'm in a unique situation where I work for a small company and have an opportunity to start a new company that does something similar to what we already do but I would have to go in 50-50 partnership with my current employer. the reason I cant break off completely on my own is because it most likely falls under a no compete contract I signed, and he doesn't want to assume all liability. I understand having solid founders agreement is important, and there can be pros and cons. I guess I'm just looking for ideas or any pitfalls I may be missing or things I could do to protect myself and help the situation. thanks.

bwall

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Re: 50-50...?
« Reply #1 on: March 16, 2017, 06:31:23 AM »
To get meaningful advice, we need more specifics, such as: How long have you known him? How long have you worked in your industry? What are the barriers to entry? How similar is the new business idea? How will it compete with your current business? Why does he want to start a new business that will compete with his current (successful?) business? How small is your current company (under 5 employees? under 25? Or under 50?)? Potential upside vs your current situation?

Some thoughts, though:

If you live in California, non-competes don't hold up in court. That said, it still might be a good idea to go into business with your current employer. If you look at it from his point of view, why doesn't he just start another business by himself and find good employees and take 100%, instead of 50%? Clearly, you have something to offer beyond liability mitigation. What is it?




khizr

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Re: 50-50...?
« Reply #2 on: March 16, 2017, 06:28:19 PM »
Hi I'm in a unique situation where I work for a small company and have an opportunity to start a new company that does something similar to what we already do but I would have to go in 50-50 partnership with my current employer. the reason I cant break off completely on my own is because it most likely falls under a no compete contract I signed, and he doesn't want to assume all liability. I understand having solid founders agreement is important, and there can be pros and cons. I guess I'm just looking for ideas or any pitfalls I may be missing or things I could do to protect myself and help the situation. thanks.
He can release you from that non-compete with 1 page, so that is a pretty weak reason on his part.

A 50/50 relationship is a marriage. Part of that setup is that you have to constantly be striving for good communications, goals you are both working too, and fair compensation. It is a massively important relationship and is going to take a TON of hard work to maintain and grow. I generally recommend people go 51/49 or more depending on the situation, and then switch it to be more about someone who has to make a final call and is thus the listener, and the other can pitch ideas but understands the role...

Like the other poster said, we need more info too :)

good luck!

chris316

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Re: 50-50...?
« Reply #3 on: March 17, 2017, 06:14:50 PM »
To get meaningful advice, we need more specifics, such as: How long have you known him? How long have you worked in your industry? What are the barriers to entry? How similar is the new business idea? How will it compete with your current business? Why does he want to start a new business that will compete with his current (successful?) business? How small is your current company (under 5 employees? under 25? Or under 50?)? Potential upside vs your current situation?

Some thoughts, though:

If you live in California, non-competes don't hold up in court. That said, it still might be a good idea to go into business with your current employer. If you look at it from his point of view, why doesn't he just start another business by himself and find good employees and take 100%, instead of 50%? Clearly, you have something to offer beyond liability mitigation. What is it?




Hi I'm in a unique situation where I work for a small company and have an opportunity to start a new company that does something similar to what we already do but I would have to go in 50-50 partnership with my current employer. the reason I cant break off completely on my own is because it most likely falls under a no compete contract I signed, and he doesn't want to assume all liability. I understand having solid founders agreement is important, and there can be pros and cons. I guess I'm just looking for ideas or any pitfalls I may be missing or things I could do to protect myself and help the situation. thanks.
He can release you from that non-compete with 1 page, so that is a pretty weak reason on his part.

A 50/50 relationship is a marriage. Part of that setup is that you have to constantly be striving for good communications, goals you are both working too, and fair compensation. It is a massively important relationship and is going to take a TON of hard work to maintain and grow. I generally recommend people go 51/49 or more depending on the situation, and then switch it to be more about someone who has to make a final call and is thus the listener, and the other can pitch ideas but understands the role...

Like the other poster said, we need more info too :)

good luck!


Ive known the owner for 3.5 years with a good relationship

Ive worked in the industry for about 5 years

the barriers ill try and explain further...

the business im currently in is water pipeline leak detection and the new endeavor would be oil and gas pipeline leak detection, similar but different.
work and skill are similar but client base would be starting from scratch knowing no one and no networking.
there is competition but not against our current work.

Our current company is 5 full time and 2-3 part time employees

I would work for at my current job and when demand is there go to work for the new company for as long as that job is (could be 3 days to 5 or 6 weeks at a time)

Potential and outlook in the market seems good for future growth
but the demand is unknown. as far as I know there is no immediate competition nearby.

I think that my boss has good trust with me and looks at me as doing a lot of heavy lifting. I pull my weight very well and am a good employee. I have motivation and skills most typical employees don't or wont have.

Pretty much I want to make my economic value of what im worth, reasonably of course, with out someone taking advantage of me or making money off my hard work. but I still might need some help to be able to succeed...






DocMcStuffins

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Re: 50-50...?
« Reply #4 on: March 19, 2017, 07:04:37 AM »
Who gets what???
Get what you kill???
What if you do all the work and he gets 50%???
If it becomes a success and you work a lot that will become a problem. Have some kind of buy out in the contract. With partnerships always look at what happens if the fails bad or is a huge success. That is where issues arise. The middle ground you can work through.

bwall

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Re: 50-50...?
« Reply #5 on: March 20, 2017, 10:10:43 AM »
Chris316; thanks for the information. It makes it a bit easier to provide helpful information.

Here are my thoughts:

The non compete won't hold up in court, IMO. It still might be a good idea to go into business with your current boss instead of going it alone, but fear of a non compete shouldn't be a reason.

Five years experience is normally more than enough to be able to go it alone and make it.

3.5 years of knowing your business partner is. . . .. a little bit on the 'not enough' side. The best rule of thumb that I heard was '10 years of knowing someone before going in to business with them'. In that time, you should have been able to experience them through the ups and downs and see how they are in both good times and bad. What they didn't say was that 10 years of socially knowing them, or 10 years of working with them. To me, there's a difference. The main thing (besides the usual caveats of competence, hard work, etc) that you want to look for in a business partner is integrity. What does he do when no one is looking? How does he treat the customers he doesn't like? How does he treat the employees he doesn't like? How does he solve conflict? Is he fair to everyone or just the people he likes? Does he under-promise and over-deliver? Or does he over-promise and under-deliver? As his employee, you are in a unique position to make this determination.

 The reason I ask is that as DocMcStuffins says, at some point there will be conflict and you want to know how he will act and react. The best way to know this is by looking at how he acts and reacts in these situations now.

I can see the value in the go-it-slow approach to the new business. You can slowly transition from one job to the other, all the time keeping a 40hr work week (and paycheck!). This is a good reason to go into partners with someone; there is no risk of paying someone 40 hrs/wk but only 10 hours/wk of work. As the workload builds up to 40 hours, you'll slowly transition to the new position and someone at your old job can move up (I guess?).

As an employer, this is how I could potentially see the thought process from his point of view, he says: "I've got a great company in the water pipeline inspection business. I know there's opportunity in inspecting other pipelines, but I can't manage both at the same time. Dammit. How do I get a piece of that other business? I've got one great employee. He knows what he's doing and I can depend on him. But, I don't want to open a new business, shift him over, and not have the work, piss him off, lose him and then be worse off than before b/c good workers like him are hard to find. I know, I'll offer him a piece of the new business. Then, I know he'll bust his ass and get the most out of his crew. I'm giving up half, but I'll still get 50%, which is better than the 0% I'm getting now."

Of course, he may have a different reasoning entirely, but that to me is the most plausible.

I understand the sentiment, but your sentence:
"Pretty much I want to make my economic value of what im worth, reasonably of course, with out someone taking advantage of me or making money off my hard work. but I still might need some help to be able to succeed..."

is pretty off the mark. Here's why; someone is making money off of your hard work and taking advantage of you right now (!!!). If this weren't the case, he'd fire you right now. For example, Apple employees are some of the best paid people in Silicon Valley and the jobs are coveted by many in the tech world, but they are also incredibly abused and not receiving anything close to the value they provide the company. We know this b/c Apple has over $200billion in the bank. This is money earned by the employees hard work, but they will never get it. It's going to the shareholders, not the employees. My point is that a person may be exploited, but it still might be a good deal for them anyway.

By going into business with your boss, you will be both an employee of the company and a shareholder. Depending on how the company develops, your company may be billing out hundreds of hours of work every week at $75/hr and paying $20/hr. Then *you* will be the one exploiting the employees.


Liberty Stache

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Re: 50-50...?
« Reply #6 on: March 20, 2017, 10:57:57 AM »
Control: I would recommend 50.1/49.9. Who or what is the tie break if both of you have different opinions on a business decision in the future?
"Sloth, like rust, consumes faster than labor wears, while the used key is always bright" ~Benjamin Franklin, The Way to Wealth

soccerluvof4

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Re: 50-50...?
« Reply #7 on: March 21, 2017, 06:38:10 AM »
I've owned several business over the years in different industries and also have dealt with non-competes on both sides. 1) 50/50 ..no way! nor would I take a partner. 2) non-competes are not to hard to beat! So many ways around them. Talk to a Lawyer for some advice if need be as well as understanding the 50/50.  Good luck to you! Hope all goes well.
" In life you don't get what you deserve you get what you negotiate"

BAMxi

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Re: 50-50...?
« Reply #8 on: March 27, 2017, 11:16:18 AM »
you said this is basically a new business/industry, so I don't see how a non compete in a different type of leak detection business is enforceable by any court unless you signed something that said you wouldn't look for leaks ever again. Even then, a court would probably rule that as unjust and too vague and let you out of it. If you have other reasons for making this guy a partner, that's fine but definitely don't do it just because you assume you have to because of the non compete. If you think the biz can take off on its own and you wan to run with it, then do it. I think it would be a weird situation to be basically an employee at your current job and work for your boss while also being equal partners with him on another venture. that would be a strange dynamic and i can see how you'd end up being an employee in both situations so as not to upset the established role between you and your boss.