My firm has been propositioned more times than I can count to “partner” with a client. That is, share in the risk, and share in the reward. At first, I was more than happy to engage in these partnerships, but over time I have become less and less enthusiastic and more and more selective. Why? Because out of the 10 or so partnerships I have entered into I have ended up spending a significant amount of money and have never made a dime.
What I’ve come to understand is that when someone wants to partner with me on a web development project it is generally because they don’t have any money, or they don’t believe in their idea enough to risk their own money. However, they are asking me to risk my money. Just because I own a web development firm doesn’t mean I can build whatever I want for free. If I put a developer on a project full-time for a month that just cost me $6-7K.
The idea guy who comes to me generally puts little effort into the project, whereas I am putting hard money into the project. If it fails, he walks away with nothing more out of pocket than a few hours of his time, while I’m out thousands of dollars. And what I’ve seen happen all too often is that the idea guy loses interest in the project, and without his ideas, or his connections, or whatever he brings to the table, we can’t continue the project. There’s nothing like putting a lot of effort into a partnership only to have the partner say “You know, I’m actually going to put that project on hold for the time being, I’ve got some other things I’m also working on that need my time.”
What?! What about the thousands of dollars I just put into your idea? Am I supposed to just be happy to sit by until you want to pick up the project again? I was counting on you to make this project work. I thought you were excited about this partnership. You sure were when we started.
In fact, I’ve written off partnerships altogether many times and swore I would never enter into one again. And yet I find myself getting drawn into them somehow. Maybe it’s my unfailing optimism that somehow, some way, one of these will work out. Maybe it’s the depression I feel when I find out that the equity stake in that startup that I turned down several years ago in favor of cold hard cash would be worth several times the cash I took (i.e. Logoworks).
I just recently I entered into a partnership, and to add to the cardinal sin it’s with a family member, another thing I constantly swear I’ll never do. But the risk is low, the investment is low, and if it fails miserably I won’t feel too put out. If it succeeds it won’t be a huge deal, but it could provide a nice little stream of recurring revenue. I’m considering another partnership right now with a former client. In this case I know the background of the guy who would become my partner and I believe him to be honest and smart with a clear business plan based on good due diligence and years of experience in the industry and a commitment to see it through. And that’s pretty much what I would look for in any partnership, kind of like how VCs evaluate deals. Not just a good idea with great potential returns, but a good team that’s committed and willing to work as hard as I am. Maybe I’ll still miss out on a good deal here and there, but for now I’m playing it safe.
I’m still trying to “partner” with a BMW. Still can’t talk the dealer into yet, though.
Great post and thanks for the response. It seems that “venture Web development” is no different then venture investing. It also looks lke you are willing to do it under some very tight conditions, which is really the only way to do it.
If I were going to do it, my conditions would be:
– No idea guys. Here’s my post on that: http://www.chrisknudsen.biz/?p=196
– Only do deals with people that you have done business with before or who have a proven track record
– Require a real business plan
– Make the “partner” invests the majority of the money in the company and take a minority stake for services rendered. Make the partner prove he has the cash.
– Require a revenue share on each sale on top of the “investment”
– Establish up front and in writing how much your firm is willing to spend out of pocket on the project thus setting the expectation with the partner before you ever do anything
Bottom line is that when you are a small business and cash it tight it’s smart to play this game safe, which might mean not doing it at all.
I’ve pinged quite a few web developer friends over the years about this exact issue and the response is almost always the same: just say no. There are just too many quality paying clients (who themselves represent long term opportunities if the relationship is kept strong) to endure the upfront costs for questionable rewards.
It’s not just web developers. During my MBA time at the U of U I had the opportunity to learn from a number of VC’s. Each one expressed that a leading factor for investing in an opportunity was the commitment of the business owner to making things work. And a large part of that was demonstrated by the amount of personal investment that was involved. In a logical twist of irony, existing investment engenders more investment.
Don’t get me wrong – there are excellent opportunities for partnership but both sides need to bring quantifiable assets to the table. An ‘awesome idea’ is not a tangible asset – that’s something that dawned on you while shampooing your hair.