Topic: Starting the Business - business models

A few friends and I are considering banding together and starting our own company. Wanted to know if there are any models of how to spread the love (the profit) amongst partners who do play similar and different roles. What value is assigned to attaining new clients (if one person primarily does this) vs. design vs. development? What do you guys put back into the company? If you know of any models, links, research, whatever please let me know. And if you have any other nuggets of wisdom you'd care to share, please do.

Re: Starting the Business - business models

Ben -

beno wrote:

A few friends and I are considering banding together and starting our own company. Wanted to know if there are any models of how to spread the love (the profit) amongst partners who do play similar and different roles. What value is assigned to attaining new clients (if one person primarily does this) vs. design vs. development? What do you guys put back into the company? If you know of any models, links, research, whatever please let me know. And if you have any other nuggets of wisdom you'd care to share, please do.

Approach with caution.  Unless you have excellent communication between all parties, friendships can be lost.  A partnership is in many ways a marriage and should be considered in that light before jumping into the arrangement.  Consider how things changed in your relationship with your wife from when your were dating, first married, pregnancy, with babies under foot.  There are parallels in a business partnership.

That being said, an equal sharing of the profit is usually best unless some of the partners are only wishing to participate minimally.  Any single function cannot exist in a vacuum, so it should not be valued any differently than the others.  Though all may be able to contribute towards all functions, each will have strengths in one or more of the functions and weaknesses in others.

That's my 2 cents :^{>

Honored to Serve for Him - Tom ('Mas) Pickering <)><

Re: Starting the Business - business models

thanks mas. will definitely keep it in mind.

Re: Starting the Business - business models

This is a good topic.  I'm sure all of us that freelance have given thought to starting up a business.  I'd be interested in hearing stories (good and bad) of those who have gone before.  Thanks for starting this up beno.

Re: Starting the Business - business models

Thanks zac. I'm genuinely seeking wisdom here.

@maspick: the one downside I see to an equal division of all revenue is that it does not acknowledge different skills, activities and positions. For instance, in a more established company the differing jobs pay different salaries. Not all are paid the same thing. When we first start, we will all be holding other jobs. The company would not immediately be able to pay a salary and if it did I think we'd all agree that they should be different. So we're trying to divide revenue in a way that acknowledges the differing abilities, activities and positions that would most reflect a salaried position prior to having salaries that we can definitely guarantee.

Re: Starting the Business - business models

We did a 50/50 split on ownership and profit/liability. Honestly I would gather everyone around a table and hash it out. Let people say what they think they are worth and work it out if they need to realize they aren't as important as they think smile If you are going to business together you need to have respect and trust with every owner of that business and having everything in the open is the only way to do that.

As far as money into the company, we currently put 20% off the top back into the company for client lunches, supplies and books, etc.. We are however looking at formalizing these costs into a tangible number to be able to budget correctly. but the percentage works well for now. The only time we deviated from that was during the initial buy of software. WE devote the majority of some projects profits to that because it was a couple thousand dollars.

I dream with an XML intereface

Re: Starting the Business - business models

In terms of pay, you need to all be in agreement. I would certainly heed maspick's advice above and proceed with caution. Great friendships can easily be lost when you go into business with one another, particularly if you're expectations are not aligned and clearly articulated. I would recommend that you be very clear as to what everyone's roles and responsibilities are and put it down on paper. That process might be very helpful in coming to agreement on each others' pay. I would also recommend that you guys make sure that you prioritize your friendship/relationship over and above the business.

There is a great book by Michael Gerber called "The E-Myth Revisited" with "E" standing for entrepreneurial. It is a book that was recommended to me originally by a group of Christian business owners that I am in a Bible study with and now I recommend it to everyone who has or is starting a small business.

The difference between sacred work and secular work is not what we're doing but why we're doing it. - AW Tozer

Re: Starting the Business - business models

tank, crandaddy - thanks much for the advice and word of caution, particularly of keeping the friendship relationship over the business one.

we are good friends and have been open but this is a good reminder to really get stuff out in the open. I'm going to be pouring through Proverbs in the next month or so. I think it is the essential business guide. I'll also have to take a look at the E-myth book as well.

@tank - thanks for the concrete numbers. there's no beefing going on with anybody. I just know that I'm not the first person who had to ever think about this and I want to be as wise and judicious as possible when discussing something that could get volatile (not that it has at any point). The difficulty comes in with the different jobs we do.

I do very little print work but somebody else does. so how does profit that comes from print jobs get split when 2/3 of the guys involved didn't touch it. I do programming, writing some custom CMSs when needed, something my friends don't touch. So we're just starting to think through these issues. Again, thanks much to all.

Re: Starting the Business - business models

You may just want to assign $/hr to different jobs and get paid accordingly. I'm just not real sure how to approach that. We are really only 2 owners so it was a bit easier. There are projects that I do that my partner has no input on and those that he does that I have no input on. WE still take equal share home in the end. We will probably be moving to more of a salary based payment systems and then take home bonuses is the company made a lot of money, God willing smile

I dream with an XML intereface

Re: Starting the Business - business models

beno wrote:

@maspick: the one downside I see to an equal division of all revenue is that it does not acknowledge different skills, activities and positions. For instance, in a more established company the differing jobs pay different salaries. Not all are paid the same thing. When we first start, we will all be holding other jobs. The company would not immediately be able to pay a salary and if it did I think we'd all agree that they should be different. So we're trying to divide revenue in a way that acknowledges the differing abilities, activities and positions that would most reflect a salaried position prior to having salaries that we can definitely guarantee.

This will all hinge on what y'all define the word partnership to be.  As I mentioned before about the partnership relationship being similar to a marriage, each person having different skills to bring to the "relationship" and different responsibilities towards the goals of the whole doesn't mean that there's a different level of participation.  Is one person who participates more on the coding more involved than the person who does most of the design work?  Is the person who's in the position to make most of the customer contacts more involved than the person(s) who never do?  The idea of a partnership is taking the collected strengths to make a whole, much like the church body is made up of individuals who have a part to play in God's design, no matter how big or how small, but are all considered children of God.

When you're at the drawing board stage of the partnership, it's may be difficult to predict everyone's level of participation.  Perhaps start with an equal split and agree to review things on a monthly or quarterly basis to evaluate each partner's degree of involvement.

That's my 2 cents :^{>

Honored to Serve for Him - Tom ('Mas) Pickering <)><