your help: negotiating a good percentage

Discussion in 'Growing and Managing a Business' started by thedusen, Aug 8, 2012.

  1. thedusen

    thedusen
    uix_expand uix_collapse
    New Member

    Joined:
    Aug 8, 2012
    Messages:
    2
    Likes Received:
    1
    Hey all,

    So I'm in an interesting position... one that I have no experience with.

    I currently work with a 2-man business as a marketer/copywriter/programmer/jack of all trades. I pitched them an idea for a completely new business project where I would do and run everything. They basically are supplying the infrastructure and some of the licensing agreements that would make it possible. They're into it, but want my terms for my compensation. I have no experience with this... so any advice would be more than welcome. They're nice guys and we get along famously. But obviously they're interested in making money first and foremost. Here is my current thought:

    Given that I'd be doing all the work (they can focus on other things completely), I'd be doing something they couldn't do on their own, and the growth potential is impressive, my instinct was to ask for 25% of the net profit from this venture, arrived in stages (performance based) starting at 15%.

    Any thoughts/advice/recommendations?

    Thanks!

    M
     
  2. ArcSine

    ArcSine
    uix_expand uix_collapse
    Member

    Joined:
    Jun 2, 2010
    Messages:
    233
    Likes Received:
    187
    It's unfortunately difficult to advise on percentages without seeing and evaluating every element in the picture, as profit-split issues turn on a large number of situational-specific details. Instead I'll end-run that question and toss in a couple of points that might be helpful a bit...

    • To the extent possible, try to develop some projections / forecasts that put the venture into numerical terms. Revenues, expenses, net cash flow; how would you expect them to develop over the near future? (You'll probably be better off expressing things in terms of reasonable ranges rather than trying to laser-point specific numbers; you might also want to play with multiple scenarios: the ol' "pessimistic", "most likely", and "optimistic" are the ubiquitous Big Three of forecasting, but don't feel constrained thereto.)

    The purpose is that it's only after getting a feel for the expected profitability of the venture can you really begin thinking about percentage splits. X% of a very lucrative cash machine might be well worth your full-time efforts to develop, but for a biz that'll barely tread water for the foreseeable future, you'd probably need something north of X% to cover your time investment. It's a similar analysis for the other guys, assuming that supplying the infrastructure and the licensing agreements is not a costless proposition---may or may not be the case, but they certainly have to consider all opportunity costs involved---and so they'll be interested in cash flow forecasts to evaluate whether any particular percentage split represents a good deal or not.

    On a kinda-sorta related point, the very exercise of putting together a disciplined and carefully-considered set of forecasts will itself help you crystallize your thinking on what sort of profit-sharing arrangement would be equitable. As you look at the specific revenues, customer growth strategies, and so on, you'll really develop sharper thoughts on just how much your inputs (expertise, time) and their inputs (infrastructure, licenses) contribute, relatively speaking, to the overall fortunes of the venture.

    • In defining "net profit" (the number on which the percentages will be based), take extra time and thought to anticipate all the possible misunderstandings that might arise in defining this number. I see a fair number of partnerships come off the rails when (e.g.) one party never figured that "net profit" would include all the wining and dining expenditures that the other partner racked up in every swanky joint in town, and then called them "business entertainment and public relations" (a classification that might've been dubious in some cases ;)). You get the idea; just make sure all parties have the same clear vision of what items will be included in calculating that bottom line. An accountant's input might be valuable here.

    Just a couple of thoughts; hopefully they'll add a little something to the process. Congratulations on the new business, and best of success with it!
     
    • Like Like x 1
  3. thedusen

    thedusen
    uix_expand uix_collapse
    New Member

    Joined:
    Aug 8, 2012
    Messages:
    2
    Likes Received:
    1
    Interesting. A lot of good food for thought. If it changes anything, here are a few more details:

    they are essentially a small time publishing company. They market and sell a whole slew of products that a hypno-therapist put together. My role would be:

    - going in, completely rebranding the whole thing (products included)
    - designing a new website (structure and approach... they're predominantly a web-based business)
    - managing all the new technical set up
    - writing the marketing copy
    - managing all the freelancers (developers, graphic designers, etc.).
    - basically managing anything and everything that needs to get done

    In some ways its almost like starting from scratch... new product designs, new brand, fresh leads, etc.

    What they're bringing to the table is this:

    - they've got the licensing arrangement with this guy already. They've got other licensing arrangements that could eventually be tied in. So product creation would be no concern
    - although I'll be starting by generating new lead sources, they've got an extensive network of affiliate partners who would promote this down the road
    - they've got the financial resources to fund it

    The nice thing is that this can get started and grow without competing with their current offerings. So there's no risk for them. All it means is that I wouldn't be there to work on growing what they have now... which frankly isn't worth growing how they have it currently modeled.
     
    • Like Like x 1
  4. jackflaming

    jackflaming
    uix_expand uix_collapse
    New Member

    Joined:
    Feb 3, 2012
    Messages:
    26
    Likes Received:
    1
    I think this is a good idea and there is no harm in giving it a try. Once you get a good start, you can start your own business without taking their help anymore.
     

Share This Page