Advise for starting/becoming a partner/becoming a silent partner in a business

I’m going to keep the service/product private, since the success of this really depends on being the first [good] player in a specific geographic area—SvRex, I’ve already picked your brain on the specific topic, so please don’t disclose what it is I’d be going into. The groundwork has just started to be laid for this, and it is only in the extremely rudimentary planning stages right now. There are a lot of pieces that need to fall in place correctly for this to happen, but at this point everything is pointing in the right direction.

My brother is planning on starting a business in the next 2-5 years with another person. I want in, and have expressed interest, and so far have been met with support from relevant parties (including my wife). My brothers potential partner (“Ron”) in this hasn’t been informed of my interest yet; that is one of the pieces that needs to fall into place—he both needs to approve of me joining in, and I will not join my brother without Ron whom I consider essential to the endeavor. So this could all be irrelevant.

Whatever happens, I will not need to go all in in the sense of selling everything, mortgaging the house, etc. That being said, it will not be an insignificant investment on my part, as I will likely need to sell the Miata (if it is still around) and take out my Roth IRA contributions (penalty and tax free—this is only about 10% of my total retirement savings, and I’m only 27).

The business is part retail, part wholesale. Ron has launched and helped launch numerous successful and unsuccessful businesses in this field, and has been in the field off and on for 15 years (he’s 30). I’ve studied him online (blogs, podcasts, his website, etc.) and have sold myself on him being among the premier minds in this space—he’s both the sales guy, and the big picture guy. My brother has been in this area for about a year working for Ron in another of his startups, and quickly went from errand boy to assistant manager of the store. I have full faith in him to run the day to day operations. I am learning what my brother has been teaching me over the past few months, but realistically I’d leave the decisions regarding the product to them—I’d be more of the spreadsheets/bookkeeping/financials type of guy (EDIT: And janitorial, maintenance, E36 M3-grunt work type of stuff).

There are four general ways that this could go:

• I quit my job and go all in; this will be my full time job (est. 90-100 hours a week)
• I do not quit my job, but take this on as a part time job doing the “bookkeeping” stuff that doesn’t need to be done during normal working hours (est. 30-50 hours a week)
• I do not quit my job, and am a silent investor (and I could lose everything, same as both of the above)
• Business doesn’t come into fruition/I’m not involved

What advice/anecdotes/words of wisdom do you folks have here? Warning stories about quitting the corporate life to run a business? Warning stories about going into a business with partners instead of all in yourself? Success stories? The same as a silent investor instead of active participant? I’ll be meeting with my brother and Ron within the next few weeks informally to discuss this and see if we want to take it further with me or not, but I want to get the hives thoughts before we get there.

Note: My brother and I have worked together in two “jobs” in the past—one was our own “business” in which we basically just coordinated who’s lawns we were mowing and who’s driveways we were shoveling—and the other was as caddies, including in somewhat supervisory roles. We work very well together. He is probably the only friend I would ever consider going into business with (other than my wife). I have seen firsthand within our extended family siblings who have ruined their relationships while building a successful business together, siblings who have tanked businesses while maintaining relationships, and siblings who have tanked both. I’m well aware of potential mines that we could step on if we go into business together, both personally and professionally, but welcome your thoughts on it nonetheless.

Drat. Silenced before I even had a chance to open my mouth!

Let's talk about Ron for a second...

"Numerous successful and unsuccessful businesses" by the time you are 30 is a sketchy resume. 15 years experience is a lot for a 30 year old.

A solid presence online (blogs, podcasts, website, etc) does not necessarily make one a premier in a brick-and-mortar dominated industry. It makes one good at blogs.

Why do you feel he is key to the business? Do you know some of his financials?

Exit strategy up front.

May or may not apply but I like shotgun clause.

Sweat equity a part of this?

Why are you doing this?

Owners get paid last, where are you with this?

Done this twice. Takes a lot of effort to not learn to hate your partner. Matrimony is easier!

I like your financial limits.

10% of your retirement at the age of 27 with the understanding that you could loose it all is a reasonable approach.

I don't like you quitting your job for this at all. That would make it significantly more than 10% on the line.

I would seriously look into setting up a Corp. S/C/LLC. Whatever works best. That way, You all can raise captail better. I liked to invest a little in Private Businesses, but as an Investor and nit a Partnership.

SVreX wrote: Let's talk about Ron for a second... "Numerous successful and unsuccessful businesses" by the time you are 30 is a sketchy resume. 15 years experience is a lot for a 30 year old. A solid presence online (blogs, podcasts, website, etc) does not necessarily make one a premier in a brick-and-mortar dominated industry. It makes one good at blogs. Why do you feel he is key to the business? Do you know some of his financials?

He started working in these places when he was 15. He's been involved in management (not ownership) at a few as startups--including those that failed, I think mostly when he was in college--but his current (where my brother works) is his second as owner. First was sold. This one likely will be as well as it continues to grow. But beyond that, he has a consulting business specifically for this business. Other people have put faith in him, and it's turned out well for them--and after enough did this, he started the side gig consulting.

As for why I want him to be involved? He is able to see diamonds in the rough as far as location. I've seen two now that no one would have thought were good locations. He has better vision than my brother or I do. And besides that, he has run a business. We haven't. My brother can run/manage the store. But there is more to the business than running the store. I havent done that either.

The web presence though is not his. Other than his consulting business (and his current Shops website) the blogs, podcasts, and articles are about him, by other people.

SVreX wrote: I don't like you quitting your job for this at all. That would make it significantly more than 10% on the line.

Yes it would. But my wife would still be working. And, to be honest, I'm ready to jump out of the big corporate world anyways.

Study both of your partners. You are fixing to marry them. As in they will be a major part of your life until this endeavor dissolves. You will talk to them more than you will your wife and kids. You will know them as well as you do your wife. You will probably spend more time with them than you do your family. Their moods will affect your moods. They will piss you off, you will piss them off. Make sure you fully understand that and can live with it every day.

That said, I've had a business partner for 12 years. We still get along very well. We have very clear areas of responsibility and we do our jobs. When issues come up, we discuss it as adults. No name calling, no cussing. If it's in his area of responsibility, I generally let him make the decision, even when I would do things differently. The reverse is also true. Two mules, same team. You have to trust your team to get the job done and make money. It works for me. My partner is strong in areas I'm weak, like sales. I'm strong in areas he's weak, the technical end.

I strongly advocate taking the chance to be self employed. It is by far the most rewarding and smartest thing I have ever done.

SVreX wrote: I like your financial limits. 10% of your retirement at the age of 27 with the understanding that you could loose it all is a reasonable approach.

It would be more than that, but I wouldn't go into debt and only reduce my retirement funds by 10% or less. I'd lose my toys and fun-fund for a while though.

What is the upside?

LOTS of businesses make money, but many times the work/dollar is not as good as a corporate job (see: owning a Subway franchise). I would know, I started one of em.

Robbie wrote: What is the upside? LOTS of businesses make money, but many times the work/dollar is not as good as a corporate job (see: owning a Subway franchise). I would know, I started one of em.

Obviously the whole thing could go belly up. No upside in that situation.

But various potential upsides include:

• helping my brother in a career instead of just a job
• getting myself out of corporate America
• Depending where this ends up geographically, potentially getting my wife and I to a place where we've been talking about moving to for the past 5-6 years. This is a big unknown, the location hasn't been locked down. 75% chance we wouldn't have to move though
• A real chance at selling for profit. Think along the lines of a... I dunno, GRM buying a smaller but successful magazine.
• In the best case, having the business become wildly successful, and becoming the next Jeff Bezos/Zuckerberg/Mark Cuban (no, I don't think that will happen... especially since it's not an IT type bidness)

I worked for three brothers who owned equal shares in decent sized HVAC rep firm in the Midwest. Two got together and fired and bought out the driven brother. Five years later the two brothers are fighting and one buys out the other and he leaves employment of the company. It was a flipping soap opera.

Partners are tricky and family is harder.

This is only me, but I absolutely cannot imagine owning a business where I wasn't right in the middle. I have seen too many people try to slide out of the day to day, wind up losing a pile of money, and have to step back in to salvage it all.

In reply to mtn:

It sounds like you are saying you do not know Ron's financials. Am I right?

You need to, or else he's not worth partnering with.

You wouldn't marry someone without asking, would you?

I think you should share more about your brother.

Equal partnerships are risky.

I don't want to be in a 50/50 partnership. Perhaps 49/51.

When the E36 M3 hits the fan, someone needs to have the final say.

And Ron has a risk too- if things go badly, you and your brother are family. You could easily gang up on him.

In reply to mtn:

If you're mainly looking to get out of the corporate world, you should just come work for us.

mtn wrote:

SVreX wrote: I don't like you quitting your job for this at all. That would make it significantly more than 10% on the line.

Yes it would. But my wife would still be working. And, to be honest, I'm ready to jump out of the big corporate world anyways.

I respect that.

I just think that if you are jumping out of the corporate world, you should have a viable plan.

Investing in the business as a part-timer would let you get your feet wet before making the leap. There is nothing stopping you from quitting your job later if the business is successful.

SVreX wrote: In reply to mtn: It sounds like you are saying you do not know Ron's financials. Am I right? You need to, or else he's not worth partnering with. You wouldn't marry someone without asking, would you?

No, I don't have a view of it. From what I can surmise, they're very solid--but for all I know they're not.

In reply to mtn:

Pretty much ALL businesses look good from the outside (especially in the space you are referring too). They HAVE to.

Here's why it matters...

You are putting your money and your career into a partnership with someone you have admitted is much more business savvy then you are. There will be many, many opportunities for him to "cook the books"- draw out more money than you are able to. Especially if you are "hands off", and he is in an operating position (able to direct funds).

I am not accusing him of anything, but there is a very large percentage (majority? Vast majority?) of businessmen out there who are perfectly willing to operate a business at a loss on borrowed money, as long as they can draw out what they need, and live the life they want. Percentage is much larger for young businessmen.

This is very nice for an operating businessman. It is terrible for an investor. He could live for a long time on YOUR money, and you could go very negative.

Unless he can provide some financials which would stand some sort of scrutiny (forensic accountant), he's not a good business partner.

(I once bought a business from someone who understood this better than me. He over-valued the assets, and I based the purchase price on that value. Basically, I inherited his debt. He's been gone for almost 10 years. The business is closed. I'm still paying the debt, and will be for 10 more years)

Pete Gossett wrote: In reply to mtn: If you're mainly looking to get out of the corporate world, you should just come work for us.

Sent you a friend request on LinkedIn with a message

In reply to mtn:

Sent you a PM

SVreX wrote: I think you should share more about your brother.

He's very smart, but been without direction for most of his post-high school life. Has had half a dozen majors but no degree. He dropped out of college, and now might be in community college? But he's among the more competent people I know. If this was 1955, when a college degree wasn't so commonplace, he'd already be wealthy because he'd have found his way into a Fortune 500 company, and worked his way up. I'm exaggerating, but not by much. He's a skilled salesperson, quickly becoming a skilled woodworker, when my wife and I need help with some carpentry/electrical/mechanical, we usually call him for advice. Aside from that, he's a people person. Everyone likes him for his honesty, loyalty, and work ethic (just not in school).