So You Built That Killer App...
This a follow up to my previous post "Developers are from Mars, Business is from Venus". In it I argued that developers should be willing to work with business people in their ventures and that communication is critical in this relationship. If I sold you, then your next question is well who do I work with? All these business types are pretty slick, not straight-forward like fellow coders. Often coders fear that business people will take advantage of them; choosing not to have any partner (often with disastrous consequences for their venture). I totally agree, you need to be very aware when choosing a partner. I pass on ten things to think about when deciding on a business partner.
Top Ten Developer Considerations When Choosing a Business Partner
- Talk to people you trust - ask for recommendations - a business person's reputation will generally follow him/her.
- Talk to people who have done it - Talk to other coders that have partnered up. Ask who they talked to and if there were any other good candidates.
- Network - Coders, I know this may be hard for you, but talking to people at events is a great way of identifying people to work with.
- Twitter Network - Call out to your followers for advice.
- Interview Candidates - take your time talking to candidates. Look for ability, accomplishments, personality fit, and similar views on how businesses operate. I can't stress personality fit enough. You will need to have great rapport and trust with your partner, so look for someone you can work with.
- Candidate's Business Network - I like business candidates who have an extensive list of people to call on. Those networks will accelerate your business development process.
- Skin in the Game - Sweat equity is nice, but a person willing to put some of their own money into the venture demonstrates their commitment to the project.
- Ask for a Strategic Plan - If sweat equity is a big deliverable for your business partner or you have uncertainties about their ability, protect you interests by having an equity vesting schedule based on certain targets (I am ignoring the concept of equity options since we are talking a novice business). Ask your business person to deliver a high level strategic plan for your business. It doesn't need oodles of detail, but it should indicate where the business will go, how it will get there, and certain metric targets at various points in time (ie, revenue or install base in year 1,2, and 3. Use those metric targets to create a equity vesting schedule. Therefore, you don't need to immediately grant equity in the company - it will only vest if he/she delivers on their promises (and we know how business can promise).
- How Much Equity to Give Up - There is no easy answer; it is a function of how far along the business is, revenue coming in, and how badly you need additional capital or skill set. My rule of thumb (please don't take these as correct or precise instruments): Idea/rough prototype stage (50/50); Working Product no or little revenue (60/40); Working Product modest revenue flow (65/35); Working Product good revenues (70/30); Great Product and strong revenues (80/20). Careful, you don't want to drop the equity interest to an early partner too low - you need a partner who stands gain substantially from the business's success.
- Get a Pre-Nup - Give some thought on how you will separate if things don't work out. Likely, you will want to buy him out to keep the company assets. Your agreement should stipulate this and reference a formula or process to value the company for the buyout. For example, maybe you both agree you will value the company at a multiple of operating cash flow over the past 12 months or you agree to have a designated person conduct a valuation. By setting the rules of how to handle a difficult situation while relations are good, you will minimize future headaches.
