How to negotiate for Ownership/Partnership

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Hanksmoney
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Joined: Fri Feb 24, 2017 9:04 am

How to negotiate for Ownership/Partnership

Post by Hanksmoney »

I apologize in advanced for speaking a little vaguely as I am currently employed and don’t want to risk that. However, I’m seeking some negotiating advise.

Three of my close work associates, one is my boss, started a consulting/engineering firm in the last year on the side and will be splitting away from a fortune 200 company. We all have unique skills in demand. Firms of this nature are turning down work there is so much and it’s only going to increase with the nature of the business. We all have 15-20 years experience. My boss wants me to plan on leaving my current job in the next year to create and run a wing of this business which would be the main breadwinner. I have an additional skill that they don’t in that I could also startup and run and additional major breadwinning sector. My boss is good and bringing in work/networking and I’m good at training people to get it done. They are essentially lining up engineering contracts and need people to build teams to do it.

They currently each have 33% ownership but want me to come in with a salary and profit sharing of my sector. My boss knows my current salary. They haven’t gotten to the point of making an official offer but I’m expecting something like my current salary plus profit sharing. Benefits will likely be a step down.

I know that if I come over as the 4th employee of this company, I will allow this business to grow substantially, making their shares worth a whole lot more. If they went to 20% ownership, it’d still be a win for them. I don’t want to come across as greedy bc that’s not it. I’m just uncomfortable with building a company and not being able to enjoy that. Curious if any others have been in this situation and have advise on proposals for working into partnership. TIA
fabdog
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Location: Williamsburg VA

Re: How to negotiate for Ownership/Partnership

Post by fabdog »

I think the simplest thing is just to say something along lines of

I'd love to join but as I'd be standing up a significant portion of the business I want to come in as an owner/partner. They may or may not go for that.
But why would you leave your current job for similar pay and worse benefits to make them rich?

Maybe they offer you less than a full partnership... but I wouldn't go without getting some piece of the business. They may want you to "buy in" and maybe you do that over a number of years

Mike
adamthesmythe
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Re: How to negotiate for Ownership/Partnership

Post by adamthesmythe »

If they value your participation as much as you think they should value it they will make a persuasive offer. Then you can try to get a bit more by negotiation.

If the offer is not truly persuasive- not enough to take the risk and compensate for the reduced benefits- then just pass.

Partnership may not be attractive if it requires you to take out substantial loans and/ or if it comes with some liability risk.

On the other hand a successful partnership may be your ticket to becoming truly prosperous.
Last edited by adamthesmythe on Sat Jan 29, 2022 1:34 pm, edited 1 time in total.
crefwatch
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Re: How to negotiate for Ownership/Partnership

Post by crefwatch »

--We all have 15-20 years experience

So you are not a wet behind the ears fresh-out demanding the keys to the car! But you have also learned that there are good and bad things about working for a big company. Do you have experience at a startup or tiny company? There's a difference between having a bad boss at a giant company and having one at a four-person company. (I'm talking about the Great Resignation supposedly meaning the end of having to suffer a bad boss ever again!)

That is, you get along now. But the new arrangement will have very different personal dynamics. Do you have enough money saved to survive months before the receivables start to come in? What if you are asked for more capital because it takes longer than you promise in the OP? What if you are wrong about your personal benefits to the company? What if you don't have time to keep up with new technical developments because you have so much more to do owning and running a company? (I mean, a huge company gladly paid my wife to attend week-long ISO conferences all over the world, several a year, because the information she brought back was of such strategic value that it paid for her time before she even got to the departure airport!)

I'm not trying to sound like you are overselling yourself, I'm just suggesting that you step back and look critically. My wife went from a Fortune 100 to a tiny Software Quality company (not quite a startup) where the personality of the principal owner and founder (not a co-worker at the big company job) made it apparent that the company would never go or grow as far as it could have. But you don't find that out right away. My wife was glad to get out with her Subchapter S investment intact, and go back to another, different, Fortune 100. But there were problems there, too, mainly with badly behaved First Generation Professionals. Live and Learn.

It's not a fair comparison, but I have never had the slightest desire to "be my own boss." Are you sure you want to be? What will this get you personally (other than money, which is mainly what you chose to post about. NOT accusing you of greed, only asking for viewing a wider picture.)
WildBill
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Location: San Antonio, Texas

Re: How to negotiate for Ownership/Partnership

Post by WildBill »

Howdy

In this kind of business ownership and profit sharing are pretty similar - a consultancy will scale linearly but unless you have something really unique and scalable you are basically just selling employee’s expertise on an hourly/project basis. The business will be worth some multiple of revenue/profitability, much less than eg a scalable software company.

I would negotiate compensation based on achieving measurable goals in standing up these new businesses you say you can build, not necessarily profitability, although that could be a component. I would be quite aggressive on compensation based on hitting goals - it is a win-win for everyone if you can do it.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
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8foot7
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Re: How to negotiate for Ownership/Partnership

Post by 8foot7 »

I think your senses are right on. If you are being asked to stand up a breadwinning portion of the business as employee number four I would want a significant part of the profit — I don’t know that 40%ish would be inappropriate in your case, if there is no ownership piece — or less profit sharing but an ownership stake.

One of the questions to ask is, what are they providing in exchange for your salary that you couldn’t do on your own for 100% of the revenue and control? I doubt I’d say stability. Is there significant overhead to what you do? Could you stand up that business by yourself? That’s the bit to compare to.
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