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Calling all business owners! Maybe you have been in the same situation. I am a first generation business owner and have learned everything I know "on the job." Looking for some advice and/or anecdotes.
Background:
I have owned a business in a niche sector since 2005. It's been my baby for all these years and I have put serious blood, sweat, and tears into it, even having innovated a few key products and services that my competitors now emulate. There are less than 5 companies in my field in the US and they are run by the "Old Guard." Their websites are old and clunky, they have antiquated business practices, and are content to remain small but profitable. Over the past few years I have explored ways to scale within the larger field my company fits into that have until recently gone unnoticed. I have been trying for years to partner up with a larger firm in my industry at-large but all have ignored my niche until now... because it is exploding.
I found a credible, vetted company willing and eager to partner. They want to give me what I am worth and are flexible with all options because they need me. My niche is an incredibly hard one to break into (and you also need to be bilingual in a rare language to do so...) and they are chomping at the bit seeing dollar signs.
I want to be prudent but at the same time I know my value. I have a team that is ready to work and too much business than I can handle. I need their manpower and money, they need my experience and connections.
What I want:
I want to be compensated fairly and treated as an expert in my field (and rightfully so). Here are some options I am thinking of:
-They continue to operate under their own branding but add this niche to their roster of services, liaising with the clients on the front end with us handling the work on the back end and receiving the bulk of the fees.
-They re-brand and we form a new company together, keeping everything 50/50.
-They market this niche and send clients to us, with us giving them a referral fee.
- Best option for me: we form a new company, I am Managing Director and I receive both a salary and a portion of all profits from this niche.
Thoughts?
Last edited by supermarketsushi; 09-18-2021 at 03:50 AM..
As far as anecdotes go, You know that a successful negotiation has been achieved when all interested parties are equally UNHAPPY with the outcome.
I think the best way for both parties to approach this is with open minds and open books. Each company, yours and theirs should disclose their respective perceived valuation and the ledgers to back it up. Then vet each others valuations. The finesse, accuracy and tactics employed by each side (in the exercise of adjusting a possible over-valuation back to earth) will help confirm whether this team is a group that you'd want to be in business with, or send you running. If they're truly interested in supporting both you're and their interests and growth consider a partnership model. If conversely, they're vindictive unreasonable chiselers, the best value might be in a referral fee model.
Other thoughts in no particular order:
Be realistic - If you're at a $5MM valuation with 8 employees vs their $200 MM valuation and 40 employees, you're going to have a rough time justifying a 50/50 split.
If you see bloat in their org (or vis-a-versa) how much influence would you/ they have it correcting that?
Have an amicable dissolution clause that protect both parties in the event things go sideways.
Last edited by AKA Bubbleup; 10-01-2021 at 07:30 AM..
Reason: bold
My option would be to sell everything for mega dollars and retire.
However, not knowing your niche, something to consider is the SBA Mentor Protege program. It's intended to help small businesses make that transition.
I like the idea of selling it and walking away.
Make a list of all the things that could go wrong with another company getting involved in your niche. They don't market the product, they don't train people how to use it, they don't pay you on time, they have other priorities, they take away your ability to sell it directly, etc.
Partnerships are tough.
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