Going into business with a friend - contracts and percentages ect.

parc

Hi there
Just wondering what you think of this;

I came up with this idea for a business. My friend liked the idea and is going to be my business partner. Basically, it's writing content/guides on complex subjects and selling it to the public under a brand name. Because my friend has a PhD in a related field, he wants to do most of the writing on our first project (which is fair, as he technically has more experience and the PhD gives the project more weight). I will be handling the business side. Marketing. Promotion. Design etc. He's not too well up on this.

So two questions:

1. For this first project, how do you think we should split any profits? Should it be 50:50, as the project was my idea initially and I will (hopefully) be handling marketing/getting it out there? Or should it be around 60:40-ish to my friend as he is producing the bulk of the content (I will be producing a smaller proportion)? It's feasible that he may want a greater share because of his PhD/his position in the field, and the fact that he's producing most of the content.

2. Afterwards, we plan on getting some more experts in complex fields (mostly friends at first) to write guides under the brand name. I'm thinking we give the content producer 75% of sales, while we take a cut of 25% each.

How does this sound? I have no idea really about contracts in business

ironclaw

Firstly, you probably won't be friends after this. I'll be straight up by saying that. My business partner is just that, a partner. Thats first and foremost. We get on great, would consider him a friend but he's also well up for having a good row and coming back the next day to shake hands. You can't do that with a friend. Business and money change people, and you need to take that into account.

Secondly, your idea has no value. Its just an idea. What has value is execution. Uber wasn't the first, they were just the best at doing it. Your friend currently has the most value as they have the technical skills to produce something that you will try and sell. Your ability to sell cannot be valued until you actually sell it. Its inherently a chicken and egg problem, which leads me to the next question, have you scoped your target market? Building a brand is insanely expensive unless you have existing connections or network, and then considering you are making content, whats to stop it being plagiarised or otherwise distributed without royalty? Do you have a market at all is the real question.

As regards percentages, assume neither of you are stumping up capital, I'd go 50:50. I'd also agree on a capital injection of equal amounts as you are going to need capital to sell your product, be that Ads or just plain time. You should equally contribute. If not, change the share agreement or assign a weight to your capital e.g. More money in, gets first pay out plus percentage.

With your second question, depends on your margins. It makes no sense to get 25EUR from a 100EUR sale if it costs you 1000EUR to make it. You'd need to factor that effort and volumes to make a true assessment of what you should take. Alternatively, you could agree a set fee for content producers either flat or a sliding scale based on sales. The latter however would be unfair as your ability to sell would drastically affect their earnings. Personally, I'd just pay them outright for the content and own it.

sysprogrammer

It seems like your friend is a content writer, treat them as such, with percentages specific to their content only.

Same deal for all content writers , and at a lower percentage than you are suggesting.

lawred2

ironclaw wrote: »

Firstly, you probably won't be friends after this. I'll be straight up by saying that. My business partner is just that, a partner. Thats first and foremost. We get on great, would consider him a friend but he's also well up for having a good row and coming back the next day to shake hands. You can't do that with a friend. Business and money change people, and you need to take that into account.

Secondly, your idea has no value. Its just an idea. What has value is execution. Uber wasn't the first, they were just the best at doing it. Your friend currently has the most value as they have the technical skills to produce something that you will try and sell. Your ability to sell cannot be valued until you actually sell it. Its inherently a chicken and egg problem, which leads me to the next question, have you scoped your target market? Building a brand is insanely expensive unless you have existing connections or network, and then considering you are making content, whats to stop it being plagiarised or otherwise distributed without royalty? Do you have a market at all is the real question.

As regards percentages, assume neither of you are stumping up capital, I'd go 50:50. I'd also agree on a capital injection of equal amounts as you are going to need capital to sell your product, be that Ads or just plain time. You should equally contribute. If not, change the share agreement or assign a weight to your capital e.g. More money in, gets first pay out plus percentage.

With your second question, depends on your margins. It makes no sense to get 25EUR from a 100EUR sale if it costs you 1000EUR to make it. You'd need to factor that effort and volumes to make a true assessment of what you should take. Alternatively, you could agree a set fee for content producers either flat or a sliding scale based on sales. The latter however would be unfair as your ability to sell would drastically affect their earnings. Personally, I'd just pay them outright for the content and own it.

you can't?

scoopdog

I'm sort of in a similar situation , I'm tying up with going into a partnership with a mate , we have looked into opening a small coffee shop on a very busy cycle route. Firstly I'm anxious about the friendship aspect as he's a good friend. I'm essentially looking at being a silent partner , investment will be 50:50 but he's looking at running the place. With me in the background ill look after logistics of goods , accounting etc.

The pitfalls I'm worried about are employing other people , insurance, a business loan etc etc , Ive worked in the private sector for years and plan to still do so while this will be an earner for him.

So essentially are we mad or is this just a pipe dream. You hear about the idea of mates doing things like this and it destroying your friendship???

50/50 shareholding is the only way to do it. Otherwise there is much pain in your future....If there is a labour issue as in who is doing more work, split the revenue accordingly at the time.

gargargar

Careful with the 50/50 split that you have some form of conflict resolution. I knew of a case where there was a 50/50 on a business and the principles had a falling out, They could not resolve it and had to shut down completely. Madness but there was no contract in place to handle the situation of a buyout or whatever. These guys were college friends when starting out.

Neon_Lights

If you guys get vc how would this be diluted also would be a point to make

Pivot Eoin

I Just wouldn't. The likelihood that one of you loses the passion for it before the other is really VERY high. This is when commitments will be called into question, accusations of f**king each other over, Stranding them etc. Like there is always the exception to the rule, but rare. Most businesses fail.

ironclaw

lawred2 wrote: »

you can't?

Well, I can't. At least in my eyes and the opinions of many others. Don't get me wrong, my business partner is a great person and we get on well, rarely on different pages. But you have to be business partners or mates, not both. You're going to have moments where you really don't see eye to eye, and have a friendship there just clouds your judgement even further.

Put it another way, most people would struggle to have a serious conversation with their spouse about finances if times turned rough, could you do this with your mate from college?

BarryD2

Maybe look into the publishing industry and norms there. If you plan on developing/ publishing guides on varied topics and getting other experts to contribute, you're in that space. You could even discuss this modus operandi with your friend as regards his input. Depends how much you want to put into it I guess and whether you want to share the risks and possible profits etc.