pinch — 2013-03-03T22:40:59-05:00 — #1
I am a software developer and for the past 4-5 years I've worked part-time on an application related to fantasy sports. I enjoy toying with the marketing side of things but I focus mainly on writing code and improving the functionality of the application. My application is completely free but I do make money off advertisements and affiliate sales. The idea is down the line I will charge a small fee for 'premium features', but that a free version will always be available.
I was recently contacted by someone who is a sales/marketing specialist and they are proposing to form a partnership where they would promote/market the site and I would focus on the coding side. This person has offered to use his own money to finance the marketing of the website in exchange for a partial ownership of the company. I've never considered a partner so I'm in uncharted waters here.
Because I've already put in 4-5 years of sweat-equity into this business it would be very difficult for me to give up any ownership in the short-term. I could definitely use the help promoting the site, and would be more than willing to pay this person for their efforts, but I'm not sure what would constitute a fair deal at this point.
My traffic/income has grown steadily over the years without much marketing; last year the numbers jumped by around 300%. We're not talking big-bucks here, but I have total belief that with the right promotion and approach the sky is the limit. For the longest time this has just been a hobby site for me, but the new guy believes it has much higher potential.
Some of my out-standing questions are:
Should considering a partnership even be an option at this point? I believe it is way too early to even think about since I barely know this person, but even if trust was built how would they ever make up for my 5 years of sweat-equity? I don't know how you quantify that.
If I choose to simply pay this guy a percentage of the profits for his promotional/marketing work, what is a fair number? If I theoretically made $2000 last year, would I only pay him a percentage of the profits over and above $2000 (the logic being that $2000 is the floor since this was made the previous year)?
In regards to splitting up the profits, would 50/50 split be the only fair spit? Would there ever be trust that we both put-in the same hours? I'm not even sure that this is possible.
Has anyone else ever been in this situation? I'd love to have some feedback and maybe some lessons learned so that I go down the right path.
mikl — 2013-03-04T06:42:57-05:00 — #2
Given the situation you have described, this could be a good move for you. If you are essentially a programmer, and you feel you don't have the time, or skills, or inclination to handle the marketing, it would make sense to bring a marketing specialist on board. And it would be reasonable for that person to have an equity stake in the business, assuming you can agree terms.
However, the most important factor by far is not the equity split, or how many hours you each put into it, or what profits to expect. What's far more important is how well you get on with the person in question: how well you trust each other; how well you can work together; whether you have the same views as to your overall goals.
You say you barely know this person. I would strongly advise you to rectify that situation before going too much further. Have you met face to face yet? If not, that's definitely something you need to do. Try to get together to discuss your aim and your goals, and also try to meet socially if at all possible. Be open about your own aspirations, and expect him to be the same.
If, after all that, you feel this is a person you can work with, then you should definitely explore it further. But if you are in any doubt, don't even entertain the idea.
shadowbox — 2013-03-04T07:29:57-05:00 — #3
It certainly sounds promising, assuming you get on with this person and share similar visions etc. I don't think it matters how many 'hours' the guy puts in, as its his results that matter - if he brings you in an extra $15,000 a year in revenue who cares if it only took him 2 hours? As for your 5 years of sweat, he's also bringing along many years of experience in marketing (allegedly!), so that kind of balances things out. Basically you have to decide whether you are happy to keep things as they are or take a risk and move things up a few notches.
I think you should meet up and discuss all the various options and see how you feel at the end of it. If the idea of giving up equity is completely unappealing you can offer him a salary, commission or just hire a different marketing company. You have plenty of options. But remember it sounds like he is not only offering his expertise, he's also offering to fund the marketing himself, so it's certainly a good offer in theory. Make sure you check out his previous work though, make sure he can actually deliver what he's promising!