How to not get screwed over in a business partnership.

November 15, 2009 10:35 PM

How does the tech person in a business partnership avoid getting screwed over by the business person?

We are four people talking about starting up a small software development business. Three of us are software engineering students who know crap-all about business, and the fourth is an experienced businessman who is more or less going to take care of all the non-technical stuff. He will be our Steve Jobs to us three Steve Wozniaks.

I'm a little paranoid because I've read a lot about the history of various technological developments, and it seems that engineers and developers have a habit of getting screwed over by the businessperson they partner with. The businessperson uses their tricksy business skills to swipe the intellectual property and get all the money and credit while the developer is left wondering what on earth happened.

Am I overly paranoid from the history I've read or is this likely? How can I avoid it? We'll be working on a project that has been a long time dream of mine, so I feel very overprotective about it.

I'm trying to educate myself about this situation, but it feels like I need a degree in business, and another in accounting and another in law in order to understand everything I need to know to answer this question. It seems like a paradox, because if I knew enough to answer this question, I would know enough that we wouldn't need someone taking care of the business end of things in the first place.

posted by giggleknickers to work & money (13 comments total)

Find a qualfied and reputable lawyer who is independent of this business-savvy partner. Retain the lawyer's services. Make it a priority to cultivate a professional relationship with this lawyer.

Make sure you understand the implications of any docments you sign.

Don't get suckered into the attitude of "I'm the tech guy and so don't have to worry about stupid stuff like accounting and taxes and all that."

Bottom line: if you're smart enough to develop software you're smart enough to understand all the things you claim not to understand. You just don't seem to want to take the time to understand them. Don't fall into that trap.
posted by dfriedman at 11:23 PM on November 15, 2009 [2 favorites]

Well, frankly, anyone can screw anyone. If you spend all of your time worrying about this businessman, you might get caught with your guard down about one of the other techies. You just generally gotta brush up on your people skills, figure out who can be trusted, and keep close tabs on whoemever can't. And if you have significant reasons to mistrust this business man, then why are you working with him?
posted by randomstriker at 11:38 PM on November 15, 2009

I second dfriedmam except in retaining a lawyer. About the only thing He/She would do is BE a retainer (for your cash). A lawyer will rob you quicker than a business man. Handle it all yourself. If it's in English read it. If you don't understand it, read it again. If you can read and write computer code you had better know how to read and write English.
posted by Student of Man at 12:03 AM on November 16, 2009

dfriedman nails it. If there is the potential for IP and patents, then you need to deal with that possibility up front. You sound like you're still in school, so make sure that whatever contracts are drawn up don't lay claim to your university related research / spare time. I've seen contracts that try and do that. Obviously read and re-read your contract, but if in doubt, find a lawyer who will do hourly work and go over the contract with / for you as well. Retaining might be a bit much.

Never forget it's YOUR business too and depending on what type of structure you're setting up, potentially your butt on the line. You NEED to take an interest in all aspects of it. It sounds like you're lucky to have someone with experience you can learn from. Use that opportunity but be vigilant. "Business is business" is a phrase for a reason. Ask questions and if you're not happy or trusting of the answers, verify with a 3rd party.

Startups are hard work but can be one of the best learning experiences you'll ever have in addition to the potential financial rewards.
posted by cloax at 12:18 AM on November 16, 2009

A lawyer will rob you quicker than a business man.

I'll agree that some lawyers are (too) expensive. However, the right lawyer will recognize a potentially thriving business, give you appropriate advice, and work within whatever budget you can handle. Gather recommendations from people in the industry you trust and shop around.

The business partner may hire a lawyer to represent the partnership. This lawyer will not represent you personally or, for that matter, any one partner personally. At the outset it would be appropriate for you to find your own lawyer to give you advice about protecting your interests within the partnership.
posted by GPF at 12:53 AM on November 16, 2009

"The businessperson uses their tricksy business skills to swipe the intellectual property and get all the money and credit while the developer is left wondering what on earth happened."

This happened to me, so you are not being paranoid. I am not the world's greatest developer, the software that was stolen from me was not the world's greatest either. But my former employer took it and built a business around it anyway, and I didn't get a penny from it.

I started writing it as my own personal project. My boss saw it, said I could develop it in the office because the business we were establishing had a need for it, and promised to release it as GPL code in the not-too-distant future. But when it came to it, he claimed "all intellectual property rights" to the code (in a letter he wrote) and basically challenged me to do something about it. Since I was leaving the business to move on to something far more lucrative, I wasn't too concerned, but maybe I should have been. He has been selling that software for more than a decade and, as I said, he has never paid me a penny.

So make sure you have it in writing. As others have said, you need a lawyer, and your attitude should be informed by healthy suspicion. Get a lawyer to protect your IP, but if you really don't trust these people, don't get involved. Also, be aware that software you write which you feel is fairly minor, or niche, or not very clever can still be marketed and used to generate money. Give nothing away, not even the trivial stuff. Make sure, for example, that you have a percentage of the business and its profits, and that the code you write (both individually and as part of a team) may not be used in any other business without your explicit written permission.

I can't say what the product was, but giggleknickers, you can mail me if that fairly minor fact is of any interest to you.
posted by BrokenEnglish at 12:54 AM on November 16, 2009

A good lawyer will help you figure out how to deal with the things you think might go wrong. Turns out, it's cheaper and better to have plans in place for contingencies, than to fly by the seat of your pants. A really good lawyer will also point out things you haven't thought of, and craft plans to address those, too.

Some lawyers, it is true, will bill the bejeezus out of you, and deliver reams of paper that you don't understand, that may or may not do what you want and need.

If you're smart enough to get through college and develop software, you're smart enough to understand everything your lawyer might draw up, with the possible exception of tax boilerplate. If you don't understand something, say so; if the explanation doesn't help, then seriously consider ditching your lawyer. S/he may be a bad writer or a bad explainer, or may simply not be a good match for you.

The selection of a lawyer should be one of the first tasks you undertake with your partners. You need somebody you're all comfortable with, not just a guy one of you has used before, unless the rest of you are really happy with his/her work.

Incidentally, although I've cast the lawyer's role as trying to reduce the risk or downside of things that might go wrong, I would even consider business/financial success to be one of those things, if you don't have a plan for splitting or using the money that everyone agrees with. Once there's enough money to be worth fighting over, the fights tend to get Really Expensive. Good lawyering can forestall fights, or at least set the rules so that they don't cost so much money.

IAAL, IANYL.
posted by spacewrench at 1:02 AM on November 16, 2009

In my experience a good lawyer in the beginning can save a lot of money in the long run.
But you should also be able to understand your business contracts and accounting, because this is your business too. If you are successful you may want to have a say in the direction the company goes and especially because ripping you off is only one of the many ways that your partner(s) can mess things up.
posted by psycho-alchemy at 2:32 AM on November 16, 2009

Some of the best tech people are ones who have a talent for explaining their tech in a way ordinary people can understand. You need someone (a lawyer or maybe some kind of consultant) to explain business to non-business types. I've heard that once you understand the mindset and attitudes of business, figuring out what makes "business sense" becomes pretty intuitive (not unlike the scientific method). But be careful, because once you apprehend that business sense, it's very easy to be tempted by the Dark Side. Use the Force for defense only, never to attack.
posted by Jon_Evil at 8:27 AM on November 16, 2009

ditto the very good advice above. One thing I'll add is that while any good lawyer should be able to explain the partnership/corporation/tax/whatever aspects of a particular problem in a way that you can completely 100% understand, only your lawyer will be able to do so in a way with your interests in mind. That is, Mr. Biz might have as his own counsel someone very smart and nice and willing to help, his duty runs to Mr. Biz only.

I was a programmer once in an early dot com startup. I had a good relationship with the company's attorney, who was precisely the smart, nice person I'm describing above. At one point certain concessions were asked of us by the management, and the attorney at that point explained to me that he was the company's lawyer, and not mine, and that he couldn't advise me fully. I was put off by this at the time, but in fact he was not only correct but (as I've later come to learn) he was obligated by the ethics rules to make that speech to me.

To someone more used to the collaborative and open model of programming or science the "lawyer up!" thing still bugs me. But the fact is that you want someone looking after your interests and the time to do that is before you sign the papers.
posted by lex mercatoria at 10:15 AM on November 16, 2009

You should always read everything you sign. (this is not a substitute for a lawyer)

I see a lot of smart people who act like contracts are some sort of magical scroll that will blind them if they don't understand every single word, and later find out that they have no idea what they or others have even agreed to do, when they will be doing it, how long they will be doing it for, and how much they will pay or be paid for it.

Even if you are going to a lawyer, you want to read things over first.
posted by yohko at 10:40 AM on November 16, 2009

I agree with the generic advice w/regards to lawyering up. Making sure that it's your lawyer is also important. Personally, that fact holds for -all- contracts and when drawing up a partnership, while it might feel like a formality better to get it all out and on paper ahead of time so everyone knows what they're getting into. That said ... finding a lawyer that you can trust and that works well with you is the challenge. Get recommendations and interview a bunch before you move forward on a selection.


Now in terms of your gang of four --- there is a limitation to contract enforcement. Simply...

Contracts only protect you if you have the wherewithal to enforce them

If you and your business partners have something to lose, contracts have a countervailing effect on bad behavior. Hence why big companies with deep pockets generally spent loads of time negotiating contracts in the western world.

However if asymmetry exists in the relationship (much like asymmetric information in the market); one could argue that rational actors would tend to purse their best interest which may not always be in line with the partnership's best interest.

So my advice... before you even think about getting into bed with someone a couple of questions:

1) What does your gut say?

Do you trust this person? After you do the gut check, think about your feelings and try to understand why it is you feel this way. Are there any red flags?

2) Do you know -why- you're doing business with this person?

What does this individual do that you can't do? In every good partnership, each partner plays a specific role that advances the partnership. This symbiosis is what drives the partnership forward. If you don't have a clear eyed understanding (or respect) for what your partner brings to the table, it's only going to breed conflict.

You may want to look beyond just functional skills (e.g. the finance person) and consider temperament and experience when determining why you're getting into business with this person. Some people can't work in teams, others can't bear the uncertainty of working in a startup environment, many can't make decisions -- when you consider your team does this person bring some thing that the others don't that adds/detracts from your success.

Good luck
posted by cheez-it at 1:02 PM on November 16, 2009

Thanks everyone. What I'm taking away from all this is:

- Get a lawyer and make sure they represent me.
- Make sure I fully understand everything I sign (Duh, but probably worth reinforcing).
- An important one I could have easily overlooked: Assume everything I create has market value and don't give anything away unless I can really be sure I'm willing to let it go.
posted by giggleknickers at 6:52 PM on November 17, 2009