When I refer to a business partnership, I'm not talking about the partnerships or relationships we have with suppliers. I'm talking about when a percentage of the equity in the business is not solely yours, but it’s split with somebody else or with another business entity.
On today’s episode, I dive deep into the pros and cons of building your business with a partner.
What's Covered in This Episode:
When they’re worth it:
When they’re not worth it:
Links From This Episode:
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Hey, what's up everybody? Anton Kraly here from ecommercelifestyle.com and in today's podcast we're going to be talking about business partnerships and if they are worth it. The reason this is the topic for today is because a few weeks ago now, you might've even heard the podcast, I recorded an episode where I was talking about four beginner mistakes to avoid when drop shipping and one of them was forming a partnership early on. Now, I didn't go deep in that episode, but what I said is if anybody wants me to talk more about partnerships, just let me know. Leave a comment, send me an email, and on the YouTube version of the podcast, we actually had a bunch of comments saying they wanted to hear more. So that's why doing this right now.
With that being said, it actually was kind of scary because there were at least two comments on that video of people saying they lost their businesses because they formed partnerships early on. So we're going to get a little bit more into that in this episode and talk about why that can be and of course, how to avoid it.
Now, the first thing I want to say is when I'm talking about a business partnership, I'm not talking about the partnerships or relationships that we have with suppliers and things like that. I'm talking about literally where a percentage of the business is split, where the equity in the business is not just yours, it's yours with somebody else or with another business entity.
Now I'm also going to say before I talk about the problems with this with drop shipping and lifestyle businesses is that there are definitely times where business partnerships make sense. These would be what I consider or would refer to as moonshot ideas. So these are the ideas that are high risk, that are super high barrier to entry, that require maybe more than what you have or then what you can do on your own.
But something that's important to note about these scenarios where you have one of these moonshot ideas is that it's not going to be something that you're getting into for the most part where you're looking at it as a cash cow, right? Something that kicks off cash every month to you. Instead, the goal is typically to build really big and then sell to some massive company for a ton of money and then that's when you and the partners would make their money.
So a couple of different things that would fall into the moonshot category. One would be if you needed someone that had opposing skillsets. Now the most obvious examples I can give you here is something technical. So for me, back in the day, it was like 2006, and I wanted to build a website that was for people to sell their homes by owners. So it was going to be a website for Long Island in New York, where I'm from, that was for people that wanted to go online and list their own house. We would send them a whole bunch of yard signs and marketing material and they could not pay a broker fee, right?
So I wanted to have that website built. I went and I met with a bunch of different dev shops. Again, not knowing anything, this was before I even was involved with eCommerce and I was getting quotes to build that site for six figures plus, so at that point I didn't proceed because I didn't have that much money. I was 21 years old, but if I actually did want to build that, it would make sense back then for me to partner with a dev shop that could actually build a site that could take on that expense, that can incur it, and then my job would be on the marketing side of the business, right?
Then a bigger example that everybody would be familiar with is if you had an idea for the next Facebook, the next Instagram, you obviously, I shouldn't say you obviously. Let's just assume though, you don't know how to code, you don't know any of that. Then it makes sense to have a technical co-founder where they're a business partner and obviously you're giving up equity because you know you're going to have somebody that actually knows what they're doing, where the likelihood of the business succeeding and even working is based on that person's skill set. So that's another moonshot example.
And finally, one more when I think business partnerships would make sense is for networking or connections in an area where somebody already has your entire potential market and they want to basically have in on it whatever it is you're doing. So an example would be, let's say you had some app built for job seekers and LinkedIn heard about it and LinkedIn wanted to invest money into your business or they just wanted equity and they were going to have it plastered all over their website to the, I don't even know how many millions and millions and millions of people that see their website every single day. So perfect match, perfect audience is already there. Then yeah, I think it would be a good idea to have a business partnership, right?
But with the stuff that I talk about with the stuff that I do most of the time with the stuff this podcast is about, we are talking about lifestyle businesses and there's a big difference between lifestyle businesses and those moonshot ideas. And the difference is with lifestyle businesses, they are designed to be cash cows, basically. They're designed to make us profit so we can live whatever lifestyle we want. They're designed to be able to set it up so that could happen with the smallest amount of work possible and the smallest amount of input. And with lifestyle businesses, it's almost never a good idea to bring on a business partner.
So talk about some reasons why. First, skills, the skills you need for a normal lifestyle business, especially with e-commerce, if you're using the drop ship lifestyle system, they're not the hardest things in the world to learn, right? It's not like learning how to build the next Facebook. You can learn these things, especially if you follow Drop Ship Lifestyle, my coaching program, you can learn them within a few weeks. You could be up and running. Of course, you're going to continue to evolve and learn and get better over time, but it doesn't cost $100,000 to get started or anywhere near that.
Also, I mentioned this, but cashflow really is the typical goal with a lifestyle business and let's just say you build one and it's doing $20,000 a month net profit, so maybe a hundred thousand dollars in sales a month, maybe $20,000 of that is true net profit. Obviously if you have a business partner, you're splitting that 50/50 and you're making a lot less money. And again, normally if you were going for a moonshot idea where cashflow isn't the goal, then that's not a big deal because your goal isn't that short term cash, your goal is that huge exit. So different businesses require different types of partnerships and investors.
And I'll just give you one more that really is a big one and that is if you have a partner in a lifestyle business like drop shipping or e-commerce, traditional e-commerce, the way we do it, it can lead to resentment. It can lead to partners breaking up. You might've heard this before, but business partnerships really are a lot like marriages. It's that same type of commitment. And a lot of the times business partnerships don't work out. Now, they can not work out for a variety of reasons, but one of the big ones is typically because one of the owners doesn't feel like the other owner is maybe pulling their weight or doing their fair share. And that usually leads to people feeling like, well, I'm putting in X amount of time, not even money, and you're only putting in this, or the tasks that I perform are so much more valuable than the tasks you perform. And we're still splitting that money every month.
So usually it's things like that. And at the very least, it can lead to resentment at the most. It can lead to blow ups and it can lead to people having to leave businesses. So the easiest way to actually see this in action is if you go to any big website brokerages, we love empireflippers.com, great place to buy or sell websites. I'd recommend selling there, but they have a bunch of websites for sale. Some of them are eCommerce stores, but all types of businesses and as you go through them, if you were to contact people and talk to the buyers, you're going to hear the same story a lot where the reason for sale, the reason these amazing businesses are for sale is typically because of partners going their own ways, going into other ventures, things like that.
But typically those things could be avoided if one person has the actual business as their own and then they can make the decisions of how they want to run it, how much time they want to put into it, what they want to outsource and how much vacation they want to take, right? You can make those decisions when it's yours without having to worry about what anybody else thinks.
So, not going to get deep into the story because I've told it before, but I actually experienced this with, not my first eCommerce store, but my first group of eCommerce stores and I had a business partner for, I think it was a network of four of them. And what we did in 2011, was get to a point where we weren't against each other or anything, but we were at that point of listen, we're both putting in X amount of hours per week. We know that the potential for this business is so much bigger, but I don't want to put in more time because you're not putting in more time and I don't want to grow sales to 10 million a year. And then you are making, there was this weird feeling of this isn't something that's going to happen together.
So back then we were talking about buying each other out and basically we realized that neither of us were willing to spend how much these stores are actually worth. So for me, again, I'm not just saying this as theory, I'm saying this as somebody that's been through it. So we had sold that group of stores, we went our own way and no resentment or anything like that. But lesson learned, right? If I or he had full control over those stores in the beginning, either one of us would probably still be running them at extremely high sales and profits. So keep that in mind, again, it does really happen.
The other thing I'll say is if you do want to just do this yourself and learn, please do follow a system. If you're thinking of partnering with someone just because they know how to make a Shopify store, I'm telling you, you're much better off either outsourcing your store design, which my company Drop Ship Lifestyle can do for you or you're better off following a step by step system like in our drop ship blueprint program. Do it yourself and it'll take you a few weeks and save you in the long run potentially hundreds of thousands of dollars or millions of dollars of profit being split because you just wanted to have a partner to set up your store and your ad campaign. Don't do it. It's not worth it.
And the final thing I'll say is if you are ever in a scenario where you do need or want to partner with someone, this may be something like you are, maybe you started with a drop shipping store, now you're at a place where you have your own brands, your own physical product brands that are also being sold on your store. And maybe inventory costs are going up because you're selling more and more and more and you need cash. And maybe in that scenario you find a partner that is willing to invest into the business but also bring in a certain skill set. And for that they want equity in the business. Now that is a time where it could make sense assuming you couldn't get a traditional loan.
But if you do that, please, please, please, whoever you're planning on giving equity to do it on a vesting schedule so that if for example you were going to give up 20% they don't just get 20% the day they deposit that money into your bank account. Instead you have a contract and regardless have a contract that both people sign please, it should lay out exactly what both parties responsibilities are and it should lay out how much of that equity they get access to over time.
This might be on a quarterly basis, it might be yearly, but do it in a way so it's not just instantly part of your business is gone and you have to cross your fingers and hope for the best because more often than not, the best is not good when it comes to partnerships. Again, it's like marriages and you really need to think it through rather than just saying, okay, let's be partners to the first person that says I can build your store, help you set up ads.
So as always, guys, I hope you found this episode helpful. If you did, please do me a favor and like the video. If you're watching on YouTube, please go to Apple podcast and leave a review. Really helps us. And if you want to know how we build highly profitable semi automated stores, be sure to go to dropshipwebinar.com for my free training. So thanks guys. I appreciate you and I will talk to you in the next one. See ya.