On Startup Partnerships
As a contractor, I’m often approached by startup founders (or founders-to-be). They’re looking to reach some kind of partnership deal, where I would do backend development work without charging any money. As a wantrepreneur, I’m sometimes approached to fund some sort of startup. When, or rather, if the startup becomes profitable, I would get a cut of the profits.
I’ve learned some important lessons in the past 10 years. These help me deal with new partnership proposals without getting carried away, and steer some of friends and colleagues away from lucrative business proposals.
Your sister-in-law approaches you with this “amazingly unique” idea.
“What is it?”, you ask.
“Oh, you’ll need to sign a non-disclosure agreement.”
“I don’t want you to steal my idea.”
Many people have a lot of trouble understanding that ideas are worthless. Without a solid plan, good execution, great timing and a bit of luck the idea will fall flat.
Lesson: If they’re protecting the idea so vigorously, then there’s probably nothing else backing it up.
Most “plans”, if lucky, come in the form of a document that outlines the features that the product should have. Filled with marketing jargon and tech-blab. That’s not enough.
Unless the startup is a non-profit one, then the plan should outline much more than “what you need to program for me, but for free”.
Lesson: Always ask for a business plan. A good one.
Convert your hourly rate and time into a project budget. Imagine you’re giving this money as a loan to this startup. You would want to know everything. The following areas should be properly explained to you:
Is the idea viable? Who’s the competition? How will this startup be different? Oh, there’s no competition? Why? Is this really needed then? Are many people willing to pay for this? How will people find out about something that doesn’t exist yet?
Who’s doing the branding, the copy? How much will this cost? What about paid marketing channels and budgets?
What’s the required number of sales? Who will do the selling, how and for how much?
The business plan should give you the answers to all of the questions above. At least roughly. You can come up with many others.
Lesson: The more skeptical you are, the better.
The plan should state what sort of budget is required to create, deploy and maintain the startup. Who’s paying for the design? The domains? The hosting?
A lot of startups just run out of investor money and are forced to stop operating. Is your potential partner relying on some abstract angel investor or covering out of pocket? Are they expecting you to split the costs perhaps?
Will revenue be enough to cover potential maintenance costs?
Lesson: Nothing is free.
The fabled minimal viable product. Does it have enough M in it? Or do you sense the seeds of feature creep here? Is it too difficult or perhaps undoable?
Like here’s a million dollar idea: autofill job application forms on any website. Nobody has managed to do this yet.
Probably because it’s very technically challenging and nuanced. Would you be able to pull it off?
Lesson: Not everything can be done. Not everything should be done.
This is not a lottery, not a charity. How will the business make money? How many customers are required for profitability? Is the marketing part of the plan adequate enough to achieve the required performance?
“We’ll make millions!”
How much is that exactly? And when?
Lesson: Show me the money.
There will always be a risk. If you hear “guaranteed”, “absolutely sure”, “literally can’t fail”, “100%” – run. Nothing is guaranteed. Failure is always an option.
My go to troll response is usually this: “If you’re so sure, just take out a loan.”
There are risks. Always. What happens if one of us dies? What happens if there’s a pandemic like the one right now? What happens if laws change? What happens if public opinion changes? The market crashes? Nightmares.
Lesson: There’s always the getting hit by a bus factor.
At this point I’m usually satisfied by the plan and am ready to give it a try. But there are a couple of other important things:
The Fair Share
What share of profits will I be getting? 10%? For doing 80% of the work? That isn’t fair. Unless my partner is financially funding operations. Or perhaps there are 8 other co-founders besides you and I.
“I need you to work full-time on this. Probably weekends as well.”
“What exactly will you be doing?”
“Oh, I’m just the mastermind of the operation. It’s my idea after all…”
Convert work hours to money, share the converted “costs”, agree to keep track of working hours. Openness never killed anyone. I think.
Lesson: We all work; we all bring something to the table. We get rewarded equally.
You might need a lawyer for a formal partnership agreement, but drafting out a prototype agreement and even signing it can usually be done beforehand, even before any sort of official corporation entity exists.
Lesson: Words are words. Signed agreements do the talking.
If during any of the steps above you are met with reservations, denial, manipulation tactics, aggression then you should probably not be entering the partnership.
Family might pressure you. Friends might turn away from you. But money is money. We’re not on r/ChoosingBeggars, are we?
Speaking of charity. I’m offering my WordPress expertise free of charge to tiny businesses in distress throughout April, 2020. I’ll help fix emergency issues, modify mission-critical functionality, etc. in wake of the pandemic. No strings attached. Just shoot me an email at gennady[at]kovshenin[dot]com