Would you go into business with someone without an agreement in place?


8

Would you go into business with someone who has asked you to come on board and help to get things launched, but has not yet decided how to compensate you, or whether to give you part ownership of the company? Things seem to be a mad dash to get the product developed and sold, but very little time has been put into planning and modeling the business.

I know that is a very rudimentary question, but I'm curious if this type of "head-first" approach has any chance of success, or if I should bail out before I get in too deep. This person does not have any prior business ownership experience to my knowledge.

Co-Founder Planning Business Plan Partnerships

asked Dec 11 '09 at 17:07
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Jz199
59 points

9 Answers


6

Yes you need an agreement, no it doesn't have to be written by a lawyer (yet).

The fact that the business and product is in flux, that there's no business plan, that you both have no prior experience -- none of that bothers me in the slightest. Sounds like most startups, both the successful and unsuccessful ones.

What does bother me is that he's not interested in putting anything in writing. You'll be pouring your work and heart into this company, right? Investing your life for the foreseeable future? And he's not even willing to take the time to agree to what that's worth?

It's a classic mistake to run without an agreement and then disagree about value later on. There are countless stories about founders fighting and companies disintegrating because of disputes. In fact, it's common to have disputes even with "tight" legal agreements, e.g. on whether the company should be sold and to whom and for how much, or whether and how much to distribute profits.

There's enough problems and struggles without this one too. A hand-written note is still legally binding.

answered Dec 12 '09 at 01:48
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Jason
16,231 points

2

Even if you trusted the person completely, I would advise you to get a founders agreement that covers both compensation, and also what happens when things go wrong (like one founder unable or unwilling to work).

The business model, develop fast - sell, without the needed experience seems unlikely to succeed in most cases. While this case may be different, you should keep that in mind.

If your gut feeling is that it "feels like a possible recipe for disaster" I would say trust your gut.

If you are unemployed, have nothing going on, and have nothing to loose, then thats one thing, but you should take into account your alternatives before getting into any venture.

answered Dec 11 '09 at 18:55
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Ron Ga
2,181 points
  • +1. Doesn't matter if you trust them. – Jason 9 years ago

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Unless you really, really trust this person, I wouldn't start working on the project until the compensation agreement is settled -- and be sure to get it in writing.

The fact that you're asking this question makes me think that your gut is telling you that something is fishy about this situation. Your gut feeling is probably right.

answered Dec 11 '09 at 17:26
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Aaron Q
101 points
  • I do trust the person, and there is no doubt in my mind that there is a very large market for the product. These facts are what really make me want to stick with it, but your right, I have a gut feeling that things may not be thought through enough. He'd really like to proceed on a fundamental level of trust, and little more. To me that feels like a possible recipe for disaster. – Jz199 9 years ago

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I think it depends on the roles. If the "someone" is a technician who knows how to develop the product but needs you to take the management role, it shouldn't be much of a problem. Such a person probably expects you to make a proposal about the compensation.

On the other hand, if the "someone" is supposed to be a general manager, but has no idea about the compensation he will offer you, chances are that he hasn't done his homework in other areas as well, so you shouldn't take the risk as this enterprise is clearly too chaotic and they probably will just make you a scapegoat.

answered Dec 11 '09 at 20:29
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Ammo Q
561 points

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It seems a pretty easy answer:

No I wouldn't get into business with them, and the chance of them succeeding is very,very slim.

If this individual isn't willing to put in the time & effort to take care of you properly, especially if you are expected to put in the time & effort to build the product, then they are unlikely to put any more attention towards client retention, sales, or marketing - all requirements of startup success. Without that due diligence they will likely realize that properly taking the product to market will require much more money and effort than they have avaialable.

Also, on the question about trust: trust isn't just blind faith, it's also founded on a basis of respect and openness. If you trust this person then you should repect them enough to explain your position, and to let them know your concerns. Likewise, they should respect you enough to understand you can't work for them without any assurances. Even if there are ties as close as blood, you should both be open at the beginning to set and manage expectations.

Regarding the opportunity - rest assured, there are many opportunities out there with a huge market and much more organized entrepreneurs.

So there - three reasons to say no:

  • Liklihood of success is low
  • There doesn't seem to be sufficient respect and trust
  • There are many other opportunities
answered Dec 12 '09 at 00:38
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Joseph Fung
1,542 points

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Even if I did trust them, no.

Every business I've ever started has gone through problems with those starting it. Even when we all knew each other for 10+ yrs and trusted each other.

answered Dec 12 '09 at 01:35
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Mitch
659 points

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A legal contract doesn't make a lot of sense in this situation. You both loose a lot of time and effort just to be ready to fight in a court where you would loose more money and time.

No matter what you do you are going to fight in some years about your situation, your efforts, your risks and your opportunities at the time, and your biggest problem is going to be about what was discussed at the time.

So, get something simple like a note or an e-mail that you both agree. Ask for an e-mail with some words explaining the situation, or write it yourself and ask for a reply acknowledging it.

And small fights along the journey are easy compared to a big fight two years from now, avoid postponing this discussions for too long.

answered Dec 12 '09 at 03:22
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Fabio Ferrari
321 points

0

Knowing what i know now, i would not go into any buziness without first having a detail plan on how everything works special home much we each take and how we get paid

answered Dec 9 '10 at 08:04
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Frank
2,079 points

0

NO! The situation you describe does not bode well. Either the folks don't get what a large part of running a company entails, or they aren't telling you. Bad either way.

answered Sep 11 '13 at 14:19
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My Cat Herder Llc
91 points

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