How can I leverage my potential business partner 's interest and solidify a business idea?

May 25, 2006 7:42 AM

Hello. Here’s the lowdown: I’m the senior sound designer / managing director for a leading international sound library company who’s been successfully running a company that doesn’t belong to me for 6 years. I’ve exhausted this opportunity, as the company is limited in its ability to grow due to the owners methods. In short, although I still have my job (and could have it forever, so to speak), I need to get out. I’m striving to create an opportunity for myself (and potentially for some of the other amazing employees I’ve hired who are looking for better opportunities) by starting a new company, and I must act now as I am not getting any younger.. I’ve been thinking this through for almost 6 months now, and something seeming great has just happened. Can you help me make the most out of it?

I rent a house from a very successful business owner / investor who has grown to respect my methods and abilities in many ways. After a long conversation with him a few weeks ago, he became very interested in my situation. After hearing that I was looking to pursue new options, he suggested we consider getting together on a partnership to develop a new enterprise in the ‘digital audio media’ domain. Even though he’s a very well-versed business wiz, he is somewhat limited in his knowledge regarding ‘up to date’ technology, Web 2.0, etc. I’ve been educating him via news clippings and links for a while now to supplement his knowledge.

We met for our first ‘formal’ meeting last week, and the results were confusing. At first, we were speaking about developing a local ‘post production’ audio facility that would utilize our current resource-pool (we have myself an about 5 others who are audio experts all willing to jump in) to get us off the ground. During our meeting, we were going over larger-scale ‘broader’ concepts regarding the future of digital media distribution, user-content models, emerging technologies, etc, and the interest swayed from our initial ‘tried and true’ concept completely. We both decided that we wanted to ‘go bigger’, as he is looking to sell off his current software company and get into ‘the next thing’ anyway, and from our discussion many larger-scale topics were covered. This was great, but actually left me a bit disjointed. He was speaking about getting actual Venture Capital and pursuing financing, even before we had decided on any business strategy or direction. He then suggested that we abandon our initial local post-production audio venture in order to somehow secure our ability to ‘get financing’, as it would somehow ‘look bad’ to potential investors if we were to show a related business pursuit before our larger model was introduced. Firstly, does anyone know anything about this method / strategy so that I can confirm its basis?

Aside from that, I’m…well - confused! I finally have a partner with the resources and know-how to really lift our ‘startup-to-be’ off the ground, but I am totally lost in terms of finding a business idea that suits my skills and satisfies our desire to ‘play in the big game’. All I had initially wanted was to find a way to make enough money without working for my current employer on my own, and now I’m in much deeper then I had expected. I want to make sure I can feed my prospective partner with a concept that he will find worthy of pursuit, but now that we have established a desire to ‘aim higher’ I am getting lost in these larger concept models. How can I come up with a business idea that satisfies my interests and skills while at the same time fulfilling his (and now my own, i think) desire to ‘hit it big’?

Aside from that, can anyone think of a way to maximize my potential within this situation? I want, at minimum, to leverage his resources in terms of business know-how and financing for developing something that will grant my independence from this annoying job. I fear, however, that if I cannot now come up with something lucrative enough to inspire his pursuit I will end up just where I began! I’m looking for advice, ideas, and help. I need to navigate my way out of this (decent) job and into freedom…badly. I feel like I’m right on the edge of having a serious advantage through my ‘almost-mentor’, and I do not want to blow it.

Thanks!

posted by AdInfinitum to work & money (13 answers total)

No offense, but this guys sounds like he's looking to get that VC captial and leave you holding the bag. Be cautious. Very very cautious.
posted by cosmicbandito at 7:52 AM on May 25, 2006

I like Seth Goodin's advice in his ebook called "The Bootstrappers Bible," but I can't find it on his site. He recommends doing something pretty revolutionary in business -- making money from day 1. I would work hard to convince this guy that you guys should start making money before a) trying to get money or b) revolutionize the entire world. Starting small has many benefits, but the most important one is freedom (and ownership for you and your partner).

You should convince him to give you a chunk of money to get this venture off the ground (get space, get equipment, get bodies, etc.) and make him the founder and VP of Strategy or whatever. Then he can tinker around on the biz plan for months, in consultation with you, and then you guys can shop the new compnay. That could be a totally separate venture, if he think's it'll look bad (it won't, but, er, IANA-VC-ist), so that on the "about the team" pages, it would look like he was hiring you away from another venture, your NewCompany, LLC or whatever. I guess I'm suggesting that you start 2 companies with this potential partner. This is much less than twice the headache (to get biz papers and shit), but then you can be flexible while still doing gainful work.

I say this because if you quit your job to work at a company with no clients and no hope of having clients for a minimum of 12 months, who pays your salary? I mean, this guy might front the company and you'd draw a salary from it, but this is not tenable over any long period of time. It's like him gifting you a way to live at your current lifestyle on his dime. Weird, to say the least.
posted by zpousman at 7:56 AM on May 25, 2006

I want to second zpousman - I started a small company with two other folks that had one month's free rent and that was it for startup capital. We were covering everything by that second month! So, we had lots of freedom (the person providing that first month's rent was good about not meddling anyway) and even better, pride and resiliency in our business. We did Web development and outlasted a lot of local agencies that had deep pockets, but no revenue. The company ended, with positive cash flow, when two of the three founders left for other opportunities (grad school and the nonprofit world).

I would also suggest considering whether the limitations of your current boss might not be better than the limitations of your hypothetical new boss. Specifically, having worked in small companies where the founder didn't care about the industry so much as making money, I can tell you that attitude will wear you down after awhile (especially when you say you're looking for freedom). Think about whether this fellow might not be the same way.
posted by Slothrop at 8:09 AM on May 25, 2006

In response to the first reply, he's defnitely not looking to scam me. He's a very reputable guy who I've been dealing with for over a year. I've grown to respect his methods sincerely, and trust is not an issue. Thanks!
posted by AdInfinitum at 8:12 AM on May 25, 2006

No chance, fortunately of this guy being anything like my current employer...at all. This guy is interested in the industry, actually, but he hasn't had a good avenue to get inside of it yet - I am his gateway, so to speak.

I like the concept of the 'two company' model, but I'll have to run it by him to gauge his reaction. It seemed as though he was saying that we couldn't be involved in any related endeavors as we approach funding, for some technical finance reason. Perhaps we were just not communicating properly, but this is what I got from his closing statements.

Anyone else have any suggestions? I want to present him with an intelligent approach, and even more so - an idea to get us 'out of the gate' and to satisfy his interests simultaneously.

Thanks!
posted by AdInfinitum at 9:03 AM on May 25, 2006

As a strategic communications consultant, I work both ends of the partnership -- the guy with the idea and the guy with the cash. I usually get hired because Money Man has investment experience and understands the need for an intermediary who can help the new partners find a common language.

You instinctively know this -- it's right there in all the words you enclose in quotes. What you're saying is -- these are terms getting thrown around that have too much wiggle room in interpretation for my comfort level. It's at this very early stage of a partnership that this common language is critical. It sets the tone for all that follows. I can't overemphasize how important simple, basic communication tools are right now. Confusion breeds conflict.

A few strategies:

Never attend a meeting without an agenda -- your agenda. You can both have one, but don't adopt his. Go in knowing what you want to come out with (consensus, knowledge or cash, whatever), and have tactics in place to get there. There will be a point when it feels like the meeting is at a natural conclusion -- that's when you consult your agenda. Make sure you have covered what you need covered.

Take notes if you don't already do so. When you meet, say, do you mind if I take notes -- that's respectful.

If you don't understand something, let him finish and then say, "Are you saying ..." and paraphrase in your own words. He will definitely correct you if you've missed his point or changed the meaning. Stick with a point of confusion until you are clear. Be polite, even apologetic, but don't leave a point until you understand it completely. Don't be afraid to say, "Exactly what do you mean by 'go bigger'?"

At the end of every discussion/meeting, write up a brief post-mortem and send it to him. Include a hit list of what was discussed, what was agreed to, what more needs to happen, who's doing it. Ask him to confirm your understanding.

Create your own personal business plan for this venture. Executive summary, competition, financials, the whole bit. Remember, it's only a plan, not a doctrine, and as such is to be modified, revised, expanded, contracted as the idea gets built out with experienced brains, savvy money, infrastructure. This will help you stay close to your core strength and not overcommit in the heady spirit of deal-making. You can share it or not, based on how well you are communicating in meetings and the post-mortems. If you feel things are off track -- your track -- use it.

And of course, money changes everything, so stay nimble in your thinking.
posted by thinkpiece at 9:03 AM on May 25, 2006 [3 favorites]

^ Excellent information, and very well targeted to my situation. More like what thinkpiece dropped, please. ;-)
posted by AdInfinitum at 9:13 AM on May 25, 2006

[on preview, what thinkpiece said, but since I typed my comment already I'll let it fly...]

It sounds like a bad idea to tailor the business plan of a startup to fit the supposed expectations of VC firms. My feeling is that VCs nowadays are less excited about the next revolutionary wonder-company and more interested in backing compentent people with an existing product/service that has an actual, identifiable customer base. I only have a little experience working in VC world (most of my experience has involved more mature companies), but this sounds like a management/investor dynamic that would scare away potential VC investors. A track record of starting and running a company and then gradually expanding into more advanced, high-growth areas sounds much more appetizing. And more than anything, VCs will want to know that your heart is in this and you have set your sights higher than anyone else involved.

I'd present your investor with a business plan that you can implement now and perhaps include a roadmap for gradual expansion into untested waters. But make clear your expectations and desires--e.g., you want a stable job, not a lottery ticket. If that isn't sexy enough for him, perhaps you can find another investor. Google "[your state/city] angel investors" and try to make some contacts--you'll probably find investors that are looking for stable, less-risky investments rather than just the next home-run.
posted by mullacc at 9:21 AM on May 25, 2006

are you talking with this man out of convenient opportunity (you are renting a house from him, you have access to his time, your conversations are interesting) or because he would make a good business partner?

eg would you seek him out if he wasn't already invested in another (unrelated) business relationship with you?

It appears to me that you have different business styles. He seems to love the ideation process and throwing terms about whereas you appear to have clear goals and direction. He is unclear about the current technologies you wish to pursue (this is a big red flag) and you feel compelled to educate him. He talks about investment money before you have the direction in place, the team in place - another red flag.

I must say that, when I was reading your post, I was not convinced that this business relationship would work well - you appear to be in different stages of ambition: you have a clear direction, he wants 'a change'. You have a more precise idea of what you want to achieve, your discussions with him generate concepts and possibilities that only de-focus you.

He might not be the best partner for you - please remember that he's not the only person that can help you. Have you thought of networking in technology associations that support and mentor small entrepreneurial companies? You might find more appropriate mentors, financiers and potential partners there. Maybe you can have your business plan reviewed by a person that you trust, whose temperament and drive are more in line with yours.

Keep pursuing your original idea - the local post-production audio venture - use your current experience and contacts to grow it, succeed, keep building a name for yourself and look for funding for the next step. It's so easy to enter into big-concept discussions with a successful business person, but it appears to me that he is less grounded than you, and certainly has less invested in it, than you.

Seek advice, keep discussing, but also seek additional mentorship and financing opportunities while quietly continuing to develop your original idea.
posted by seawallrunner at 9:30 AM on May 25, 2006

Excellent, thanks ^^. He is a smart business person, with a unique approach to life in general. I respect his methods, but we'll have to see how our relationship plays out over the next few weeks. I'm still lost as to why he wouldn't want to develop the local venture as a basline structure for other possible extensions. I'll consult with him again and report back.

Thanks so much. If anyone has any other ideas or advice, feel free to keep it coming.
posted by AdInfinitum at 9:49 AM on May 25, 2006

seawallrunner, it has been my experience that venture guys and idea guys are very different breeds.

The venture guy often appears vague, fuzzy-focused, blue-sky, non-commital. He asks a zillion left-field questions, and most annoyingly, runs an idea past everyone including the fed ex guy and generally looks at an issue from every possible angle before the very last moment before the checkbook comes out. They are thinking about six other components in the portfolio and how this one might work with those.

The idea guy -- particularly someone new to raising capital, a skill set that is counterintuitive -- is fixated, narrow-thinking and targeted, and by nature, resistant to the idea of being a cog in a venture play. He is typically reluctant to give over the idea for fear of inviting criticism and having to go back to the drawing board to bulletproof his thinking (or business plan)-- the very attribute that defines the Money Man: a nose for a winner, ability to coax success from an idea. And of course, the idea guy feels a keen sense of go-to-market urgency which the Money Man does not share.

Having said that, I heartily agree with your last two paragraphs!
posted by thinkpiece at 10:12 AM on May 25, 2006 [1 favorite]

Sounds to me like you thought you had a pragmatic idea that could actually make money, and then got distracted by bigger dreams. The easiest way to "hit it big" is to start by building a business that actually works, and then use that as a base to go for the more ambitious concepts.

It's normal that you got caught up in his enthusiasm, but you should stop talking about the business until you agree on what you're trying to achieve. You need to first work out exactly what are your personal goals in starting a business, and then sit down with him and try to make sure his goals are completely compatible with yours. A startup partnership is like a marriage. If you don't agree from the beginning on what you're doing together, it's going to end badly.

Some of what you say makes me suspicious that you both want the same thing. At the very beginning, a business needs someone who can actually stay focused on the boring, stressful, day-to-day things that keep the business running. The high-concept stuff is fun, and maybe your friend has earned the right to play in that sandbox, but for you this business will be your livelihood.

Venture capitalists, as well as a lot of successful software people who try to stay in the game as angel investors, want something to shoot for the moon and grow very fast. If most of those attempts fail, it's not a big problem for them, as long as one becomes a huge hit. You don't have that luxury.

You have a lot of options for working with him in ways that sit in between taking him on as a full partner and breaking off the relationship completely. You can offer him a small stake (say 10-20%) that will allow you to retain full control but still benefit from his interest and advice. You can tell him that right now, the most important thing is for you to start your post-production facility, but that once you've built that into a working business, you'll be interested in bigger things and he'd be the ideal partner/investor for those high-growth phases. You can ask him to be your business mentor, in exchange for you mentoring him on new technology. You can suggest that you're talking about two separate businesses here, and your post-production business can provide services to the new digital media business (which he can start now, or you can start together later on).

(on preview: The good advice here makes some of what I say redundant. Listen to the advice about developing your own business plan.)
posted by fuzz at 10:23 AM on May 25, 2006

I've raised venture capital, but situations are always unique. The advice here is good. Random points:

1. A startup concept often takes a while to gel, and a startup always end up adjusting its business plan, sometimes radically, in the course of its growth. That you came out confused after the first brainstorming meeting is not surprising.

2. A VC may look on your local production business and ask "OK, AdInfinitum is a great guy and a good choice for a founder, but he and his buddies just started a local production business. How can he now pull out and spend 200% of his time on your new Podcast/Media 2.0/Social Networking startup? Won't his attention be divided?"

3. At the end of the day, it has to be something you are comfortable with, and a business partnership is like a marriage. Be open-minded & flexible at this stage, but you have to be excited and comfortable with the business and the partnership details.

4. Being owner of a local production company with an investor is very different than being the co-founder of a venture-backed web company. Different company growth paths imply different cultures, headaches, personal skills needed, personnel needed, ownership percentages, and exit strategies.
posted by troyer at 4:39 PM on May 25, 2006