Contracts are a Fickle, Necessary Beast

Greetings, folks, and welcome to DBA, the small business show at businessshow.co here in Durham, New Hampshire. As always, I'm Dave Hamilton and from.

Northern California, I'm Shannon Jean.

I think we're going to drop the dba, Shannon Jean.

That sounds good to me.

Right? We don't need it. It was the name we used initially. It actually made a lot of sense to us because we're. We're Americans.

I like that.

Right.

But are you staking a claim there?

Well, we are Americans, but.

We are.

And so DBA means to us, and we're also business owners. But. But TBA means to us, in this context, it was doing business as. Right. Which makes sense. It's kind of one of the first steps you take when you. When you're starting a business. But DBA means database admin. And I'll tell you what, the first time I posted it to Facebook and said, I've got this new shoe, dba, somebody's like, oh, that's awesome. You're doing a show for database admins.

I like it.

Which is totally legit. They weren't actually poking fun at me. They were just saying, oh, yeah, you do this stuff all the time. This is great. Yeah, not so much. I mean, I do, but that's not. That's not this show.

Yeah, I like it. So I'm a big fan of acronyms. So we'll be sbs. Right.

SBS I like.

And BS is good because, you know, I spent a lot of a big portion of my life.

That's right.

Yes.

So it's small. Small. BS is the name of the show.

Yeah.

Yeah, that's right.

I like it. I like it. That's good.

BusinessShow Co is in fact, where you go if you want to send us feedback. And no, we're not ending this episode quite yet, but if you want to send us feedback. FeedbackusinessShow Co is the address. Send it to as well.

Yeah. And, you know, we have a lot of listeners now. I see the. The ranks just growing and growing, which is awesome. I love it. That feedback is great. It also. If you're. If you're putzing around or messing around on the iTunes store and you want to leave a review of the show up there, we would love it. We've got a few up there and we'd love to have a few more.

Yeah, yeah. The reviews are awesome. They really help. They, frankly, they help us help you because they. That. That's an easy way to tip the folks at itunes to the fact that you're listening and it's really the only way they know you're listening. And then when they see that, they'll feature us more and get more exposure and then more listeners means we get more content and so on and so forth and it's good for everybody.

Yeah. And eventually T shirts and that we can give out to people. That kind of thing.

I like it. Yeah, man.

Too. It's good.

Can I. Hey, if. I know we've done some listener questions in the past and maybe someday we'll do T shirts for listeners whose questions we feature on an episode as well.

Good idea.

I want to put myself on that list today, if that's okay.

Yes.

I have a question that I want to pose to us and I'm not sure how this is going to come out because it. It is a real scenario that I'm involved in. I have. It's very new to me. It's only about 48 hours old. I mean there's a lot of history. But this particular issue is only about 48 hours old. And so I'm not sure if I'm going to. If I'm going to present it in a way that's even appropriate, let alone informative for our listeners. But I'm hoping you can help me.

It's a little raw.

It's really raw. Yeah.

Okay.

Yeah. Raw is the right word. Okay. So I'm involved in this project that's actually still kind of in stealth mode, honestly, for the most part. And what we do is not important. Although I'll say it's a software based service kind of thing that we're creating. And I will say it's freaking awesome and I can't wait to tell you about it. But that's not why I'm bringing it up here.

Okay.

So we're probably about two months away from. From us being able to do some stuff with it. And it's actually very cool.

Very good.

It's the first company that I've ever been involved in that is actively seeking investor money. And. And that process is actually part of the reason I got involved in. In this because I've never done that. I've always bootstrapped things and I thought it would be interesting. When I was proposed, you know, somebody came to me and said, would you be interested in getting involved with this project? This was about a year and a half ago. So this has been going on a while. We had to kind of build a proof of concept first. So that was self funded by the founder of the company. And then now it's time to kind of bring it to the next level. And we're. So, we're seeking investor money and actually bringing in some investor money and probably bringing in a whole lot more as we kind of ramp it up to the next level. So that, that's, that's the. I mean, there's, there's the opportunity to potentially change the world with this and, you know, in a. In a very minor way. And that's cool. And, and then what's also cool is that, you know, I get to experience this whole venture capital thing.

Yeah, that's great. Maybe we want to talk about that. Yeah, we want to talk about that in the future. Yeah, that'll be good.

Well, we can start talking about it now. Well, in a. In a weird way. So when we formed the company, there were three of us that, that really were at the core of it. And we've brought some more people in since then. And we all have business experience. Some of the folks are like me that have, you know, small business bootstrap experience. And some of the folks are coming from like, middle manage in corporate America and. Which is, you know, it's fine. It's good, right? Having different perspectives and all of that. But we, we did things a little bit differently, partially or largely because we've all had at least a little experience. So we formed an LLC right out of the gate. In fact, it was like on day one, we formed the llc, which is sort of backwards from the way I've ever started anything before. It's always been just fire and ready, aim later, you know.

Yeah.

Start building and then build the corporate structure whenever it needs to be there. So I formed an LL and we actually put together an operating agreement, which is also something that I've. I've done businesses for nearly a decade before forming an official operating agreement.

That's great.

Thankfully, it never bit me in the butt. Right. But it was good because we needed to be able to bring other people in and, and it was just good for us. Contracts, like anything, you know, are reflective of the beliefs of the people that are involved at the time they write them. And that's, that's, you know, the best kind of contract there is. And so one of the folks, you know, we're right at this point where I mentioned where we're bringing in investor money and we're moving really, really fast right now. You know, we, we had to do a. We had this idea. The first question we asked ourselves was, why hasn't anybody else done this? And so we had to Prove to ourselves why we had to answer that question, why hasn't anybody done this? And the way to do that was to actually build the back end of what's going to run this thing. And so we did that and we built it and we answered some of those questions of, oh, this is, you know, harder than we thought, or there's these weird little pitfalls. And we navigated around those, and so we got this thing working. Very much proof of concept, very functional. Looks very crappy. Right. So now we're at the point where we're putting a good face on it, and we decided to go big and go with a very well established design house, which costs lots of money. But we're moving really, really quickly at this point. We've got this back end that works, we've got the front end is halfway through development, then we're going to need to stitch it onto the front end. We need money to do that. And like I said, I'm doing things a little differently this time because I want to operate at this higher level in terms of cash flow, or not cash flow, but really, frankly, burn rate and see what it's like to do things with investor money.

Yeah, it's great experience.

Yeah, exactly. Exactly. Yep. So, yeah, you get it, right? When I explain this to other people, sometimes they're like, that sounds crazy, dude. Why don't you do, you know, one of your. Your classic, you know, find one of your designers that does it for two grand? Like, well, you know, let's not have that conversation. So. Because. Because that. That comes at a cost, right? It does, it does. So we're bringing in money, and yesterday I wake up to a note attached to which was a proposed update to our operating agreement and a massive change to things.

Oh, yeah.

Now, thankfully, the current OA is written in a way that the. The three of us that started things kind of together have to be unanimous in changing anything in it, regardless of ownership percentages. It has to be unanimous.

That's great. The power of three is really important, too.

Killer. That's right. And I was really happy with that when we did it, because I thought, well, it was a very simple operating agreement, but it has the power of three and it has some protections and it's an LLC and all that stuff. It's not perfect, but it doesn't need to be perfect. And so suddenly, halfway through the day yesterday, and, I mean, this new one is like forming separate corporations and separating things out and all this stuff. And it was like, the first question was, why? Where is this coming from. Right. All this stuff. And. And then it was. Well, finally I kind of came. At first, it was line by line. I'm going through, you know, Lawyer Dave comes up. I'm not actually a lawyer, but, you know, I've done enough contracts, I'm sure, like, you. You know, you read through these things, and you're like, red line, red line, red line.

Yeah.

And so I started. I started doing that, and then it was like, no, I got to. I got to take a step back here, because, I mean, this whole thing was just going to. It was wholly different. It wasn't clear who was in control anymore, which is not good.

You know, and this just. Did it come out of the blue, or was there foreshadowing that, hey, things were going this way so you thought maybe some change would come up?

We knew. No, this was the. The. The. The radical change was out of the blue, but we. We were. I was expecting a draft of what the operating agreement would look like with these investors that we're bringing in.

Okay, I see.

Which is fine. I mean, we have to change it, and therefore, we have to approve it as per the. Per the agreement. Right. And. But this new one, I mean, I started reading, it was like, this is nowhere near what we are, and it just got a whole lot more complex. And. And the person who kind of drove the draft, I got on the phone with, and. And it was not entirely. This person wasn't even clear on why they were doing this, which means now somebody else is, you know, feeding them ideas.

Yep.

Which really started concerning me. And we've had.

I would agree.

Yeah. And we've had these discussions. I mean, yes, I'm. I'm speaking about this, and. And obviously keeping people's names out of it and even the name of the company out of it, but it's important to. To. I. I felt like it was an important topic, even though it's very fresh and very new and probably not entirely thought out, but, you know, and there is. It seems like there is somebody else driving the, you know, the discussion here. And I. And I. I'm not convinced that anyone's intentions are bad. I don't think it's that, but it's. I feel like part of what's going on is we're doing. We're moving very quickly, and momentum is really important, and we're doing things that none of us are comfortable with, simply because none of us have done before, at least at this level or in this capacity. And I feel like there's some level of, well, it's comfortable to sit in the mire of a legal discussion instead of actually just getting stuff done. And you and I have seen lawyers kill deals, in fact. Yep.

Over and over and over.

In fact, I think we had one that was. We could, if, I think if we looked back, we could say the lawyers certainly were involved in killing a deal. It wasn't thankful. It wasn't between us. It was us and another party. But, yeah, when we were trying to sell deals on the Web. And I don't, I don't think the lawyers were entirely responsible, but I think they were responsible for slowing it down.

That's correct. And, and that's, I think, pretty common and not to disparage, you know, attorneys, and you need, you need protection. But I, I think your point that really hits me is when you started to think, wait, someone else is, you know, really driving this. And in my experience, what happens is when some. One of the entities you're working with takes this, like, to their attorney and says, hey, you know, I just want to be sure I'm protected. These are great guys. We have this kind of informal, you know, operating agreement, and the lawyer says, okay, great, it's my duty to protect you. As bulletproof as I can.

That's right.

So I'm going to write up this thing. And then when you hand that to your other people, you're like, dude, what is all this? I mean, you know, the, the trust and goodwill that you've built up for the last year and a half or however long, you know, a project you're involved in can quickly go by the wayside because it changes the whole discussion from a we discussion to an I discussion.

You got it.

And, and I've been there too, and it is very difficult to, to deal with. And I, I commend you for having the, the foresight to kind of step back and think about it from that aspect, because most likely the person you're working with, especially when they don't really know. Well, I don't know why we need that paragraph in there. I don't know why. That. They're probably just following someone's advice.

Yeah. Yeah. And. And it, you know, that part of it initially frustrated me. Like, well, if you don't know exactly why you're proposing this, then why are you telling me that you're proposing this? Right. I mean, that.

Yeah.

And it's, I mean, it's natural frustration there, but it also made me a little more comfortable because it was like, thank you're not the one actually Proposing this?

Yes.

Yeah.

Yeah. And I think that's a good sign in the sense that that's a great place to start this discussion versus if somebody starts spouting. Well, the reason why I need Paragra 4 and subset A, B and C is if, you know, you do this and my. This and my errors and this kind of thing, that's a much more difficult discussion to have. And so starting from that, like, well, look, man, you kind of have to bring the human aspect back into it. And I'll bet you, you know, maybe it's related to, I would imagine, even investors that would be coming in, especially if it's significant chunks of money and if. Or if they're a sophisticated investor that had been down this road before, they look at this and go, oh, hey, you. We really have to tighten all this up because if something goes this way, some other attorney is going to totally take advantage of these guys. Right? Yeah. And. And so, you know, you and I are a lot alike. We kind of run our businesses by our gut and use our instincts a lot.

Yes.

And I don't know. And I don't think contracts and attorneys and those kinds of things are not. They don't do that. I think as much.

No. Well, they can't. I mean, they can't. Right. I mean, are either one of us. If, if it is. And, and you're right, I totally run by my gut. Right. Because it's worked for me. But if I go to my attorney and say, hey, man, okay, I'm coming to you because I'm about to do something that's, you know, either crazy or not usually crazy, you know.

Yes, that's right.

I need to make sure that I don't just ramrod this through in a terrible way for me. And I, I know I will, or at least have the potential to, because I'm not going to pay attention to the, the. I'll pay attention to some of the nuances. I'm actually pretty good with it. But there are things that I'm just not, you know, I'm not versed in and I need somebody who is. So when I bring an attorney into something, I actually rely on him to not operate with their gut. Now, but the difference is, and this is where I think the lesson comes in, in this. I think there's many lessons. I think we've actually gone through about six of them so far. But, you know, but one of the lessons is, you know, when my attorney brings hands me something, I say, look, I'm going to do this crazy Thing I'm going to, you know, orchestrate. Like when I, when one of my partners wanted me to buy him out, you know, I brought my attorney in and we had to sue somebody and really kind of carefully orchestrate the way we garnished them when we won the suit. You know, I needed my attorneys involved in that. And that's actually a great story. I'm happy to. That's, it's actually a really fun story. But, but, you know, so you need that. But whenever, especially with like the buyout with my, with my former partner, my attorney delivered this stuff to me and then I sat down and read it and anything I didn't understand, I asked my attorney about first. I made sure I was 100% clear on what we had and why. And then I sat down with my partner and, and during that, you know, kind of Q and A process with my attorney, I nixed some things. Like, dude, I get why you. Thank you for putting this in. Now we're going to go ahead and take it out. You know, and my attorney's like, okay, you know, I put it in to protect, like, I don't know. I know you put it in to protect me, but this is, like you said, there's a human element here. I've got to, and I need this, I want this buyout to succeed or I want this, you know, whatever it is I'm doing to succeed. And I need to convince another human that this is good, at least mutually good. You know, and the thing, and so I make sure I understand all of it and, and, and, you know, especially based on the experience you and I had, rarely do I want the attorneys for both parties communicating directly.

No, it just, it's, it's bad. And you know, the, the thing with contracts and agreements like that is you have to really ask yourself, you know, how bad. I mean, if, if you can fine tune it, that's awesome. Sure. And, and oftentimes, you know, my attorney, who, like yours, I often come to, and usually it's not, hey, I'm going to do this crazy thing. It's like, hey, I'm, I'm already doing it. Yeah. So how do we, how do we protect ourselves? So my guy, you know, I've been with forever and we'll have him on the show sometime. He's kind of got it figured out. He says, hey, why don't you write up what you think you would like to have in this contract?

Yes.

And because I kind of have some boilerplate stuff that I like. And he said, you write up what you think it should be, and then. And then I'll look at it and I'll add what I think is the minimum kind of protections and things that, you know, things like exit strat, you know, how does it end? You know, which I always forget. Well, it's never gonna end. We'll be married forever. It's perfect. Yeah. There's nothing wrong. Because that's the optimism in you. Right. You can't. I mean, you can't. I can't go into a deal focused on the. The potential of the future and spend a lot of time talking about how we're going to dissolve it. It doesn't. It doesn't motivate me.

But you have to. But. But your. Your attorney is right. And you and I both know this. You have to talk. You have to plan the divorce.

Correct.

At the beginning.

Yeah. You really do.

Yeah.

So it's a nightmare. Yeah. Because everybody. Everything changes. So, you know, like, I. I'll give you an example. You know, with Tech Restore, we're always trying to get access to product and things that are broken so we can repair and refurbish and sell that kind of stuff. And a lot of these products are in the hands of giant corporations that don't have to call an outside attorney because they have whole legal departments in them. And you build up relationships with people over time at those organizations and you do some business and you start to do more and start to do more and more. Well, at some point, there's going to be a contract introduced into that relationship.

Yes.

And what. What I've learned over the years is, to this big company, your relationship means absolutely nothing. It is kind of a CYA thing. They do not want any liability for any of the business that they're doing with you. And just recently, I had to sign a document related to conflict minerals and blood diamond and this kind of thing. And I told my contact at the company, I said, you know, this is so far out of the realm of the business that we are doing together. And he's like, I know, I know. But nobody gets to do any business with us unless they sign that document.

Yeah.

You know, so that's a different experience than you're going through because you're really not in a position to bargain and try to, you know, humanize it or do whatever you have to decide, is it. Is it for me or not?

Do I take it or not? Yeah, we had to deal with that. With. We took some. We. Seagate is an advertiser with us, and they're one of those companies that, because they're going to pay us for ads, we have to sign that agreement that says we're not going to, you know, harvest blood diamonds. Yeah, it's exactly that. I mean, it's very relevant. Very. Oh, yeah, My goodness. Yeah. Geez. That changes everything, you know, because back.

In the day when we did harvest blood. Great.

Yeah. Right. Yeah. But. But I get it. Right. Yeah. There's some of those deals where the contract shows up and, and we get them all the time. You know, not so much the blood diamond thing, but sometimes it'll be like, you know, terms of, here's how we're gonna pay you, net 90, you know, that kind of thing. And you just gotta look at it and say, all right, it's. It's. We have to assume that it's yay or nay, you know, so if there's something in here that is so overreaching that we just can't live with it, then we'll come back and say, we can't work with you, and here's why. Right. And perhaps they'll say, oh, well, we might be able to change that particular clause. But we don't assume. In fact, we assume the opposite. That it's just. Yep. Sorry, it's not going to work out. You know, especially as with a larger company or something, you just. You got to take it or not, you know?

Yeah. And they're. They're such targets for legal actions that they have to just have, you know, reams and reams of this stuff to try to protect and limit themselves to, you know, in this liability. I, I understand it.

Yep. But it's different when it's a partnership.

Yes.

Yes, it is. And, and my. The biggest thing I'm worried about. I really think that if we dig through this, you know, murky process of redoing our operating agreement, and I'm not the CEO of this company, so, I mean, like I said, I have the vote that. That can. That can keep things exactly as they are. But I feel like my, My job here is to step in and say, just ask the question. Why are we. We have so many other things going on and very limited resources, you know, why. Limited time, frankly, and, and limited focus. Right. I mean, that's really what it means.

Yeah.

And this is such a distraction. This is not what our company is not set out. I, I can't tell you yet what our company is doing, but I can tell you what we're not doing, and that is drafting legal agreements. Right. That is. It's like, you know, we have an operating agreement that really, truly is good enough. Is it perfect? No, it will never be perfect. There is always going to be yet another hole. And. And so I just feel like, especially right now, I mean, if this was three months from now, it would be different. But we are in such a critical time right now that, you know, I mean, there's talk of, oh, well, if. If, you know, Joe investor wants to. To sign here. You know, like, some of our investors were bringing him one way and someone another, and it's like, oh, we might need to wait three weeks to take his money. It's like, no, we don't need to wait to take their money. Time kills all deals. There's no such thing as wait. Our operating agreement is actually fantastic. It's the best one I've ever had.

Yeah. And, you know, maybe I think the thing to point out is these guys came to you for a reason, and one of the things that you bring to the table is your business experience. And this is probably a critical time for you to interject that, like you say and say, look, guys, the why and the focus, I think that's a really important thing that you mentioned because we have limited resources, and time is the most valuable thing we have to get going. And maybe the way to do it is. I know we've done this in the past, Dave, with working agreements is we put benchmarks in that agreement and said, okay, this document, you know, we kind of hash out ourselves, is good for whatever your benchmark is relevant to your business. But, you know, for us, it was always like, okay, when we start generating this kind of revenue, we're going to, you know, introduce something a little more formal, and we're going to talk at that time, we'll talk about a revenue split or whatever it is, but, you know, you can introduce it. And so maybe that something like that makes everybody more comfortable. This is. Okay, you know, you're right. We need to focus on this for the next three months or whatever it is. But at this point, when we've taken in, you know, when we raise our 50 millionth dollar, these things are going to kick in, and this is going to happen because we have to. But then you're all kind of on the same page. You're moving towards that thing.

We see it coming, right?

That's right.

Yep. Yeah. Yeah. This was a surprise. And. And really, like I said, I mean, there's the surprise factor, which. Which never comes across well. But. But even once I stepped back and thought, okay, you know, I don't want to blow this thing up. You know, thank goodness I'm not 20. You know, I've. I've learned a few things since then, and one of them is you just got to kind of get over that initial react. Gut reaction and take a step back. But, but the step back made me realize it's that focus. If we spend energy. I mean, it's bad enough I'm talk. It's actually a great topic. No, it's good. And honestly, right now I'm skipping a conference call with all of them to talk about this with you, which is the best thing for me right now. And frankly, I think the best thing for that company too.

Yeah.

Because I agree. Yeah. I needed to sort this out and they needed to do whatever they need to do.

Yeah. It's great to get. And one of the things we have an upcoming show on what happens when disaster strikes. And one of the things in my show notes are, you know, talk to someone that's distant from what's going on to maybe give you a different perspective or reaffirm the perspective that you already have.

Yep.

And I think we've been able to do that here and I think it's really valuable not only for you and, you know, certainly for me, but for our listeners to be involved in. You know, this is real world stuff. I mean, we're not talking totally real world stuff. Yeah, yeah. This is not business experience that we've experienced in 1985. This is stuff that we're doing every single day and we really enjoy it and that's why we're here talking about it and hope that, you know, everybody can learn from it.

Yep. Well, I appreciate it, man. Thank you. Thanks. Thanks to all of you for, for listening along and sending in your feedback and hopefully it helped. And Shannon especially, thank you for being in the my ear on this one. I really appreciate it.

Yeah, no problem. We'd love. Anybody else have any advice for Dave feedback@businessshow.co will get it to us and we'd love to continue talking and we'll come back and revisit this one.

I'm sure I will. Yeah. Yeah, I'll come back around. Give me about a month and, and we'll, we'll, you know, I'll get through my summer and stuff and then we'll talk about it. Yeah, cool.

Thanks for sharing. Take care, everybody.