Are You Getting a Partner or an Employee?

Business brain episode 533 for Wednesday, March 20th, National SBDC Day. That's Small Business Development Center Day 2024. Greetings, folks, and welcome to Business Brain, the show where we take an idea or six, we dissect it, we analyze it, we peruse our reactions to it so that we can each tune our business brains every single time we get together. Sponsors for this episode include shopify.com businessbrain, where you can go and sign up for a $1 per month trial period, and gosquaredaway.com contact squared away empowers highly.

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We'll talk more about both of those in a little bit. For now, back here from south by Southwest last week.

Now here in Durham, New Hampshire, I'm Dave Hamilton.

And in sunny California, I'm Shannon Jean. And I love both those sponsors because Shopify rocks. It's amazing. All of us have used them at one time or another and everybody needs an executive assistant. It'll change your life. There's the old saying, you want to double your income, get an assistant.

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So true. So happy to have you back, Dave.

I'm happy to be back. Yeah. For sure, man. Yeah, it's, it's, it was a great trip. I have lots of things to share. We've got some weight. We've got some things, I think in Friday's episode and then probably something next week too. There's make sure you always lessons always.

Make sure you stick around for casual Friday. So the way we do this is we live stream this every week up on all these various platforms, X, YouTube, LinkedIn, Facebook, and, and then we cut the show in half and we do a Wednesday podcast and a Friday podcast. So we're glad to have you here, certainly X promoting the show more because we have more listeners than we typically have, which I love. And before we get into the, the kind of meat of this, I, I did a post this morning about the Reddit CEO's total compensation. I know how the, the media likes to play this trick. They say this guy's getting paid $193 million. Not really, but he's getting paid about a half a million dollars. And the rest is based on how Reddit does. They're, you know, they're going to, they're getting ready to and as part of this roadshow and all the paperwork for going public, all the unpaid moderators that actually make the site work, see, you know, are up in arms a bit that when they see that $193 million possible payday. And I just thought it was interesting, you know. So I want to talk about unpaid people. There's a spider on my screen, so let's get it out of there.

It's bonus unpaid. An extra co. It. Yes.

Extra protein. There he is.

We don't eat. Our co host, Shannon. We're both going to make an agreement here.

Okay, good. But you know, I've used unpaid workers. You know, we had unpaid interns. We've done some episodes about it. It was awesome for them. It was great for us. They were from a technical school and they needed, you know, actual real life credit as they were growing up. And yep, we tried to work really hard to make it beneficial for them. I don't know, there's a lot of people. And I posted that when I posted this morning, the number of folks are like, I don't believe in using unpaid people at their business. And so I responded to, well, the school wouldn't allow us to pay them.

Yes.

Not to justify that my way because I know they got a lot out of it. But what's your thoughts on the whole unpaid.

Well, I just came back. I just came back from south by Southwest where they like all, not all. Most of the people that work at the actual festival during the week of south by Southwest are volunteers. Now, they are paid in trade. They. And I don't know the exact structure, but I know that you work a certain number of hours and you qualify for, you know, one type of badge and you work more hours and you qualify for a different type of badge. And then the badge, of course, gets you in to other events at south by Southwest.

So the more they do, the more exposure they get and to experience the different. The bands and the speakers.

The bands and the movies and the speakers and all that stuff. So, yeah, it's a trade. They aren't. To call them volunteers is probably technically inaccurate. But it is always interesting to me how, like, the staff of south by Southwest celebrates the volunteers. And that part, of course, I get there. Like, I don't know how they would do the festival without them. Every time they celebrate the volunteers, the room full of people, most of whom, I presume, paid cash money for their tickets.

Yep.

And, you know, not insignificant cash money for their badges. Like, I think you could pay 1500 bucks for a platinum badge. Like, you know, they're not cheap. Maybe not quite that much, but over a thousand, you know, like they applaud, like these people, you know, it invented like sliced bread for the first time.

So yeah.

And it's just interesting to me that there's this dynamic. I, I think it's great that these people.

Yeah.

Are appreciated, but it's just like, I don't know that anybody really thinks about it, but.

Yeah, I wonder.

Everybody seems okay with it. Like, I talked to volunteers. They are stoked to be able to do it. They like the deal. So it's not like they're being exploited or.

No, no, no, I agree. And I would argue that the moderators on Reddit have some power over content, what shows up.

I think we saw that last year.

Yes, yes. When? What was it? I forget the community that went dark or whatever.

Oh, yeah, when the communities went on.

Yeah, that's right. So it's a fascinating discussion. I'd love to learn more. Maybe there's a whole episode in it. If we could get, you know, some feedback from you at, you know, at your business feedbackusbrain show. Tell us if you' or have ever used unpaid workers and how it, how you structured it and whether, how you made it beneficial. But it wouldn't surprise me to read another article soon about Reddit moderators unionizing.

Oh, all right, folks, look, you know.

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All right, you know, we talked, we were going to talk about this last week and then we had a weird scheduling thing and it didn't happen. But we talked two weeks ago about partners and compensation and all of that stuff.

That's right.

And a topic kind of came up that I wanted to take a little bit more time to dig into. And that is beware the partner who actually is or at least wants to be an employee.

That's a big. That's beware with capital.

B.

Yes, yes. Yeah, capital and E. W, A, R and E as well. Because there's a lot of people out there who love whatever their idea is of being a business owner and like, you know, and they're going to be right about some things. Maybe the idea of having some flexibility, the idea of having I'll say unlimited upside. It's not actually unlimited, but it's, you know, not like exponential.

Opportunity.

Opportunity. All of those things. The control. And it might not be all of those things. It might be, you know, one or one or more of those things. But they also want the safety, the comfort of a salary or, you know, or a job.

Mutually exclusive ideas.

Yes.

Yeah.

And I've been there before because the, the idea of starting a business and being a swashbuckling entrepreneur, it's so darn sexy. From the outside, huh? Yeah, from the outside and, and magazines promote it. Websites are heroes.

The American dream. Shannon.

Yeah. Jeff Bezos started on a door and this and all these guys. And it does sound. I, you know, we, we celebrate the end state instead of recognizing the struggle, the grind. Years and years. The grind. Yeah, the grind. And so, and I do it too. I mean that's just the way it is.

Oh I, I, I've lived it as well. And I do it because it's way more satisfying to talk about the successes than it is.

Sure.

Oh my God. Like I always say, and this is true, you know, time heals all wounds. And, and so like it's easy to forget how much it sucked at some points in time. We both are recalling on our memories right now and we're wrong. I know that we aren't remembering how bad it actually was. Right. And so this idea of a partner that wants to be an employee, this is something to look out for. And I really feel like the working agreement is a good place to start this. And my advice is put in how the, the money's going to flow. If the word compensation ever enters the conversation about the working agreement, end it.

And I guess I agree with that. But I have a comment too that'll interject. Unless someone's an. Is one of the partners or one of the people are actually operating the business.

Yes.

If they're having to trade time and their skills, then certainly that, that that person should be compensated at some level. But they all. To your point that it's. Nothing is guaranteed.

That's the part that guaranteed part.

So if you're making money and you're generating cash flow, the operating partner or whoever needs to.

Partners.

Partners. You could agree on some compensation.

But all partners, all equal partners need to be treated equally. I think maybe that's the place where let's say the two of us are going to start a business. Right. Just for the sake of argument. I know. Let's go. Yeah. God grant me the serenity not to start another business. I, we, we would. And we both were going to work in the business. In fact, let's pretend we're starting a podcast. Right?

Let's do it.

And so that we're going to split up the labor. We're both going to be hosts on the show. So we're going to do this together. I'll do the pre production work of building the thing and mixing the episodes. You do the post production work of putting the show out. For those of you who are terrific, haven't picked up on it. I literally just described what Shannon and I do here. Like it's, it's exactly this. And so. Okay, all right, great. Here's the working agreement. How's the money going to flow? And I say, well, you know, I'm, we're both equal partners in this. We're, we're both putting time in. But you know, Shannon, you've had a.

Little more success than me.

You don't need the cash flow like I do and so run. Right? So, but we both agree that to make this business succeed, we both have to put time in. And I can't afford to put time in without being paid. So I want to make sure I get paid first and still maintain my 50% interest in this business. How does that sound to you?

If you're listening in the car or on your run or exercising, you can't see me shaking my head side to side vigorously, but that's the deal. These types of things never work. And I don't use the word never. I try not to use it. But that's a mindset and a mentality in the person that you are ready to launch. Something very important is not on the same page as you. And the framework for how the business will operate is different than what you're thinking, I guarantee it. Or if you're that person that's asking for the compensation, no problem. I get it. We all have to live.

But yeah, I explained a very reasonable scenario. But what it can't remain that way if, if both partners, you know, are working equally in the business and have decided that they own an equal share of the business for whatever reasons, you know, like, there's a lot of reasons to get there. And that would actually be a good thing to talk about in another episode is how to decide on the. That for a partnership. But if you are in that scenario, it is my advice and certainly my opinion that everyone needs to be paid equally and simultaneously or at least commensurate with their shares. So let's say, you know, we had three partners and one was 50% and you and I were each 25%. Well, if $100 comes in, we give the other person 50. We each take 25. Right. Like, unless there is an. Unless one of us is a silent partner and not actively working in the business. That's different.

Correct. And that should be spelled out.

And that's going to be spelled out. But if both people, or if all partners are working, and that's why I said equal partners need to be treated equally. If everybody's working in the business, if one person needs to take money out, everybody needs to take money out.

Because if you can't, if the business doesn't have the money, nobody gets it.

Nobody gets it. Correct.

You're not going in the hole because of one person's particular needs. That's a different discussion altogether.

Well, that's a loan.

That's a loan.

And if you're gonna do that, and sometimes you might decide this is the right person for me to have in this business with me, I'm willing to do this.

Sure.

Great. But my advice is figure out the repayment of that loan, how that's going to happen, and in the event. And you might say, well, we'll repay it out of future earnings. Right. That might be one way.

That's fine.

Fine. Would you agree that put a time limit on it, and if the loan can't be repaid by future earnings by that time, give the partner the option to repay it out of their personal holdings, whatever that is. And if they can't also describe how the shares in the company will shift to the person who didn't take the money out from the person who did. And it's essentially a purchase of the shares at a predefined price based on the day that the money was. Was given out. And as long as you do that, you'll be okay.

Yeah.

But my guess is many people who want, who want the. To be paid, like employees, don't want to think of that as a loan or a purchase or, you know, somebody purchasing their shares from them because they want their shares.

Yeah.

And I go back to the comment I, the phrase, I often say all of these things as you're developing this idea and this, the working agreement and who's going to do what. These are all tests.

Oh, yeah.

Because they are harbingers. I really like that word, harbingers on the future and how it's going to look and how it's going to be handled when problems come up. Because I guarantee you they're going to come up. And if your prospective, quote, partner is arguing a certain way or is not, doesn't seem reasonable to you, that's how it's going to be in the future. And maybe you're okay with that because maybe they're super talented and this thing.

The devil you know.

Yep, yep.

That's fine. Like, one of the things I really find distasteful is getting nickeled and dimed. And I'm a very generous person and I'm willing to go all in, man. Okay, great. I'll do it. I'll pay for it. Let's get it going. I'll subscribe to it, I'll register it. I'll do it. Dave and I do this back and forth for decades.

Yep.

And just know that if you're in business with someone or considering being business with someone and they're hitting you up for small, little, oh, I need to get this, and I need to get that. That's how it's going to be, because that's how they think. And if you're okay with that, that's cool.

Then that's okay. Right?

It's up to you. It's up to you.

Yeah, yeah.

It's. It's crazy. But, you know, the working agreement, it. It just solves so many of these problems because you, it's like, remember, if you, if you get married, there's a prenup wedding. Yeah, prenup.

Or.

I was gonna say wedding encounter or engaged encounter, they call it.

Some people do it.

And before you get married, you sit down, like, for a weekend and answer all these tough questions about kids and how are you going to handle this and what happens with the money and how we handle finances. Very difficult questions. Well, the working agreement is kind of like engaged encounter for business in the sense that. And we'll put a link in the show notes. We created a template and put it up on the, on the website years ago. You should go get it and keep it because then you don't have to have that uncomfortable discussion. You just drop this in their lap and say, okay, great. You fill this out the way you think it should look, and I'll fill out mine. And then you try to bring them together and build. Boy, you'll learn a lot.

Yes, but that. You need to learn this. Yeah, it's great.

It's a great topic. And we'd love to hear your stories, how you've done this, what's worked, what hasn't. Feedbackusinessbrain show. Reach out. Let us know, man. We're in this together.

Yeah, absolutely. Feedback at BusinessBrain show. Dissect it with us. Join the conversation. We'd love to have you here. Make sure you go check out shopify.com businessbrain and go squared away.com contact. Keep living that charmed life. We'll see on Friday.