If you spend any time in the online entrepreneur communities you’ll hear all kinds of negative things about getting involved in a partnership. But is it really all that risky or bad? On this episode Scott wants to address some questions he’s been getting about the wisdom of getting involved in a partnership for an Amazon business. There are pros and cons and you need to be aware of all of them going in. So take some time to listen to this episode, even if you’re not considering a partnership. You never know what’s going to be on your radar sometime down the road.
The first question you want to ask yourself about a partnership possibility.
A partnership may sound very tempting for a variety of reasons. But you need to go into it with your eyes wide open. The very first question you need to honestly ask yourself is the very simple “why.” Why do you want to go into a partnership. Are the reasons you’re considering a partnership important enough? Will those reasons sustain you throughout the course of your partnership? There’s lots of difficult decisions down the road that you may not be aware of, IF you’re not aware of the possibility ahead of time. That’s what this episode is all about, so be sure you listen.
What are the advantages of entering into a business partnership?
There are many advantages to partnerships, and Scott covers three of the biggest ones on this episode. One of the most obvious is if your partner is bringing in the cash to get your product purchased, advertised, and online to make profits. Clearly, if you’re struggling to get started, that’s a huge plus. You can also share the load of work and planning. But there are some disadvantages too, so be sure you take the time to listen to what Scott’s got to share on this episode.
What are the disadvantages of a business partnership?
It’s clear that one of the biggest disadvantages of a partnership is that you have someone else’s opinion and concerns to consider in every situation. You can’t go out and make decisions on the business the way that you think is best without discussing it with your partner. It’s like a marriage. You need to be willing to operate together in a way that is beneficial for both of you. Beyond that, you’ll have to share the profits, so the income opportunity is cut in half and as a result you’ll have to wait longer to see the personal benefit of your Amazon business. Listen in to this episode to hear the whole list of things to consider about partnership possibilities.
The three different types of partnerships.
Partnerships are not all the same. There are at least three different ways you could be involved in a partnership. Some allow both partners to have a say in the business activities and directions, others do not. How do you know which type is best for your situation? What are the pitfalls of each that you should watch out for? On this episode of the Amazing Seller, Scott is going to walk you through all three types of partnerships and give you tangible examples of how each one would work. If you’re going to step into a partnership, Scott wants you to do it with your eyes wide open.
OUTLINE OF THIS EPISODE OF THE AMAZING SELLER
- [0:03] Scott’s welcome to this episode about partnerships.
- [1:00] How you can get into Scott’s Free Workshop!
- [2:10] The first question to ask yourself when considering a partnership – Why?
- [2:30] Advantages to partnerships: reasons why you’d want to get into one.
- [11:53] The disadvantages of a partnership.
- [21:02] The three types of partnerships.
- [24:30] Making the decision in light of what you know.
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TRANSCRIPT TAS 153
TAS 153 : 3 Things You NEED to Know about Partnerships (The Good and Bad)
[00:00:03] SV: Well, hey hey. What’s up everyone? Welcome back to another episode of The Amazing Seller Podcast. This is episode number 153 and today we’re going to be talking about 3 things you need to know about partnership, or thinking of forming a partnership, or if you aren’t now maybe in the future. We’re going to be talking about the good and bad, we’ll talk about the advantages, the disadvantages, the different types…
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…just some important things to consider when going down this path. So that’s what we’re going to be talking about. Now before we do jump into those 3 things in this topic, what I wanted to do was first off say, welcome back and thank you so much for hanging out with me again today. You guys all know, you long time listeners that is, that I generally love getting on here and just hanging out and hanging out with you guys. Like, we’re sitting around the coffee table just talking Amazon, FBA, private labeling, business stuff, mindset stuff, all that stuff that I get pumped up about. So I want to thank you for showing up again and listening to the podcast.
Now if you’re brand new and kind of just dabbling in this private label thingy, you can learn more about the whole process through a free workshop that I do. It’s live workshop that I do, that’s totally free and the link to that is theamazingseller.com/workshop. Here’s how it works, I get on that workshop and I lead you through the 5 phases for picking a product, picking a supplier, for launching your product, doing a promotion for your product and everything in between. We go through that, then we also do a live Q&A on that particular workshop. These are live, these are done by me. I’d love to have you come join me. Even if you had attended one in the past you can still come back and attend another one, hang out and you might learn something new and you might just want to stick around for the live Q&A. I have lot people that say, “Scott this is my 5th workshop with you and I just learn something every time!”. I like hanging out and I also like to answer some questions at the end. So, you’re more than welcome to come by again that is theamazingseller.com/workshop you can register for an upcoming one there.
[00:02:09] SV: Alright, so with that all being said, and letting you guys know that I really am excited that you’re here, let’s talk about partnerships, right? I’ve gotten a lot of questions from the listeners and just emails and comments and all of that, so I wanted to address it. So, the very first thing you need to ask yourself is; why do you need one? why do you need a partnership? So there’s a few different reasons, actually a bunch of different reasons you could be thinking about this. These are some of the advantages of having a partnership, number one money. When you’re starting in this business, especially a physical product business, it takes money to get started. I get a lot of people who say, “Scott how much does it cost to get started? How much, can I you expect to spend when I’m first starting?”. There’s really no cut and dry answer, it’s not just like you spend $5,000 and you’ll be up and running making $10,000 a month. No, I’m not here to say that, but what I am saying is that if you have some more money in the beginning to start with, it does help you speed up the process a little bit, because you can order more product and when you order more product, you’re able to do more promotions with it, you’re able to ramp up the paper click more. So it can really get the ball rolling, but in the same breath you might only have a limited amount of money, that you’re going to spend to start this business. I want to kind of back up here and take a timeout for a second, but this here this type of physical product business, it is a business. I keep saying business. Can you say, “Now, well I want this to be just a little extra cash business?”.
[00:03:59] SV: Yes, it can, but it’s still going to have business components to it. It’s like if you just want to sell some stuff and make a little bit of extra money, you can do that on eBay. You can buy some used stuff and put it up on eBay or you can do that on Amazon. You can do retail arbitrage, but still you’re going to need some business stuff to do that. You can kind of just do it as a little side hustle, you totally can. I’m not saying you can’t, but I think that whenever you’re going into this type of venture, you want to think of it and treat it as a business. So when you’re thinking about starting a business, it usually takes some money to start a business. Even a digital products business, you’re buying a website, you’re buying a domain name or your buying Aweber for your email capture. There’s money that it’s going to take to start a business. I know I’m kind of going a little off track here, but I really need to, because when you’re starting anything and you’re going after trying to make money with it, you’re are going to have to put money into it, it’s just how much can you put into it.
[00:05:08] SV: A lot of people say “if I can take my thousand dollars and my buddies thousand dollars, and we put it together, now we’ve got two thousand dollars”. But you are splitting the money as well right? You have to ask yourself, do I want to start slower and then just gradually build myself up and not have that 50/50 partner or do I want to be able to bring that money in faster, so I can start faster and then have to split the money. That’s totally your call, ok? But the advantages are, you’re able to most likely, have more money to start with. Or you can say, down the line I want to add more products and maybe I’ll have someone just invest into a product, and now you’re going to split it on just that product. That’s one of the advantages of having a partner, you guys can pull your money together.
[00:05:53] SV: The other advantage and this is a big advantage is you can split up the workload, you can divide it up. Now I would suggest don’t just go into a partnership with kind of like equal talents. I would say you want to go in with someone is more or less the money person, and the other person is the tactical and business side of things person… Well, that’s OK, you can have that. You might not want to do a 50/50 split, you might want to do something else, but you see what I’m saying. But, if you guys have equal talents you can make that work, because you can split them up still. But it’s nicer if you have someone that you know is a graphic designer so they can take care of all your graphics, and then you’re more on the business side of things, you can do accounting, product research. So you can divide that stuff up. I have someone right now actually Scott Thomas. Scott, if you’re listening you’re doing a great job by the way. He’s one of our students in private label classroom. Him and his brother went into business together, and his brother is really good at social media and that whole side of the business. Scott is more of the guy who is going to do the inner workings of Amazon space. So his brother is more like the outside guy and he is more or less the inside guy, so that works. But again, he’s still splitting the money now 50/50, but it’s worth it to him. They feel they can scale it bigger and faster. So breaking up the workload and dividing it up, that is an advantage.
[00:07:24] SV: Now, the other thing and this is another advantage of being able to then reach out and get more connections. So little story here and this doesn’t have anything to do with amazon, but again about partnerships. My father had a construction business. Now, if you’ve listened to my story in episode 125, I kind of go down the entire path I’ve taken since I was 19 years old, all the way up to now and I’m 43, from the time I’m recording this. And kind of working for my father for those years, from the beginning, watching him grow from just him and his partner for 20 years. Someone that he was working with at the time that said, “Hey, you want to make some extra money on the weekends?” “Yeah, let’s go over and start this little side gig.” They did that, grew it into a company and then from that two-person company brought on me and a few other people. That grew into a pretty large company, that was doing pretty good revenue. But, there a lot of problems within that partnership. My point was, and the reason I went down that rabbit hole, was because my father went and partnered with him, because he had connections with manufacturers in the window business.
[00:08:33] SV: So understand what I’m saying, there. My father was the guy that could build things, he was good at remodeling and he was good at all of that type of construction work. This guy was not that handy but had connections, but he still actually worked alongside my father doing the inside work. Then, my father was the outside work guy. But, you see what I’m saying? There was a connection there. That’s the only reason why my father went in a partnership with him, because of the connection that he had in the manufacturing of the windows. Then, they can get windows at a lot less money, they can put them in make more money. But, if my father was to just go into; at the time they didn’t have Lowes or Home Depot. But, if he went in a place like that, he’d have to pay retail in a sense, and then you wouldn’t have that markup. You get what I’m saying, right? If you have connections, if someone that you want to go in partnership with has a connection that can really bring a lot of value to the company, well then that can work right? So that’s another reason, another advantage of having a partner. The other advantages, you lessen your risk, right? You go ahead and you both go into this thing with half your money and half their money. So you’re not taking on all the risk. If something happens you don’t lose all of what you had invested into it. I mean yeah of course this is like your little baby, right? You’re going to try to take care of it, you want to make sure it grows, you want to nurture it and all that stuff, but you don’t have all of the risk lying on your shoulders. I think a lot of times people want to do a partnership because they don’t want to feel like if I go in here and I can’t do this or I can’t handle it, they basically don’t want to feel like it’s all their fault. I’m not saying it’s for everyone, but a lot of times, there’s a little guy on your shoulder, that might be saying, “Well if you go in with a partnership with someone, it won’t be all your fault if it doesn’t work.” You know this way here; you don’t have to feel like it’s all on your shoulders.
[00:08:33] SV: So the last thing of the advantages that I came up with on my little list here. The other thing is responsibility, right? So it’s not all your responsibility. So you don’t have to do all the work, right? You know if you wanted to delegate something to each other, and then you can delegate that again, that’s fine. But at the end of the day, you might say your job is Amazon paper click in our business, and you need to know that inside and out. Now if your partner wants to go out and hire someone to help with that and obviously confirm it with you, that’s fine, but that’s their job. You’re not going to worry about the paper click side of things, you’re going worry about the product research side of things. So then, you’re going to bring the products that you’re researching into the meeting on Friday and you’re going to say “these are my 5 products, I think we should launch.” So you need to understand that you can divide up that responsibility, you can divide up the risk, the workload, all that stuff.
[00:11:28] SV: Really quickly, the advantages. Money, of course, we can pool our money together. Workload, you can divide up the workload. Connections, again, if you have someone that has connections in China and you don’t, well that’s a pretty big deal, right? That can help you grow this business faster, lessen your risk and then also lessen your responsibility. So, those are your advantages.
[00:11:52] SV: Now let’s talk about the disadvantages. Well, I think it’s pretty obvious you have to share the money. So if you make a hundred bucks you have to give fifty to the other person and to fifty to yourself, right? So that’s the first thing. You have to understand that when you’re doing this, you have to think long term. You have to think to yourself, right now we might only be making you know $5,000 a month and that’s $2500 bucks a piece that we would be able to pull from the business, but what happens when it grows to $100,000. Well, then you get fifty and they get fifty. But if you just would have said why In the beginning, “Why do I need a partner?”. Like I said the very beginning of this ask yourself that question, “Why do I need a partner, “Why?”. Is it the money, is it the sharing of the responsibility, is it the connection? What is it and ask yourself, can you get by without that or is it going to be necessary for you to have that 100% necessary? Those are the questions you have to ask yourself before you go down this path, alright? So disadvantage sharing the money, okay. Now, the other disadvantages you have to agree on the growth, right? You have to agree to make these decisions. Maybe you’re going to grow the business and in the beginning you’re like, “you know what, let’s just get this thing up to like $25,000 a month profit. We each make $12,500 a piece, that would be awesome, we can leave our jobs, everything is great. Now you all of a sudden start growing this business, then maybe you start thinking to yourself, maybe we should maybe x out of here. Maybe we should just sell the business now for 20 X and your partners like “no I don’t want to do that. I want to go ahead and build this business to $100,000 a month now”. And you don’t really want to do that, so now you have a problem. Now you have to settle or you have to have arguments. You have to have extra stress added to your life, because you wanted to have this partnership. Again, going back to the reasoning; why do you want a partnership, why do you need it, okay? So again, you have to agree on the growth, you have to agree; Do we sell? Do we not sell? What products to sell?
[00:13:57] SV: Maybe you’ve got great products that you think you want to roll out and your partner doesn’t. He wants to go in another direction. I have to say, it’s kind of like a marriage, alright? You have to agree and you have to learn to compromise, marriage is all about compromise okay? Anybody listening that’s married understands that. I’ve been married for over 21 years now and we have a great relationship because we do compromise. There’s things that we give and take and give and take. That’s just like a business.
[00:14:29] SV: Now in my father’s business, and if my father is listening, hey Dad. So, I know he doesn’t mind me talking about this stuff, but it was like a bad marriage for a long time, a long time. I’ll give you an example. Again, I’m getting a little personal here, but I’m okay with that. I’m going to do this, because I want you to see, this is what I’ve seen. My father knew how to run a business, but when he had a partner that didn’t know how to run it, and just would say “You know what? Screw you, it’s 50% my business I can do whatever I want.”
[00:15:05] SV: Here’s an example of that. Let’s just say for example, you want to hire in a new employee, and that employee just happens to be your daughter. I was working there; this is a true story by the way. I was working there for over 5 years and I started right at the bottom of the pay scale and I worked myself up, right? As an example, let’s say after 5 years I was making 15 bucks an hour, okay? And we’re going back probably about 15 years now, but let’s just say that. $15 bucks pretty good, not bad and I was working my butt off and I was doing time and a half and working weekends and that stuff. So I was making a decent living, but I was working myself to death. That’s another story, episode 125 talks about that. But, now all of a sudden, my father’s partner wants to hire his daughter, because you know she needs a job. So got to bring her into the office space. There’s not a ton of space, there’s some, but not a ton with his wife already working there. My father’s partner’s wife was already working, so she was already on the payroll. Now we’ve got the daughter in there. Well I come to find out the daughter was making the exact same money that I was making and I was working there for 5 years. So now you got me upset, you got my father upset. So, what do you do about it? you don’t do anything, you just kind of grin and bear it, right? So because of that, you have all this animosity and stress. Again, partnerships can be great, but partnerships can be really, really bad. So I just want you to really think hard about this, if this is the path you want to go. I just want to bring light to it and let you hear some real life examples. That’s just one example, there was a bunch of other ones. But, we’re not going to get into them today. I’ve seen it and I can just see it in that. But, I see a lot of businesses. So, I just wanted to share that with you alright?
[00:16:56] SV: So the other thing is, with the disadvantages, is that your business has to be set up in one person’s name, in a sense, right? So, if you’re going to start a business one of you has to have your sellers account kind of connected to it. You don’t have this one central hub; it’s got to be connected to one of you, in a sense. So that can be a little tricky, I’m not saying you can’t have a work around. It can work, but when you usually have a business account it’s going to be also linked up to one of your personal accounts. Then the other disadvantages, investors won’t receive a write off for investing. Let’s just say for example, you have a partner. The reason I want to bring up this point, if it didn’t make sense it will. Let’s just say for example, you have a partner that is just a silent partner; but wants to put in money on a new product that’s coming out. Let’s say, that they funded that product for $12,000. Let’s say, I’m going to give you $12,000 for this brand new product. Now you, the business owner of the company, they’re not technically a partner that’s going to, you know, that’s going to be an active role in it, that’s making decisions, but they’re a cash partner right? Maybe they’re going to get 30% of whatever, right?
[00:18:14] SV: Your partner, and this might be you by the way. Let me let me flip that around for a second. Let’s say, that you have your business that’s running fine, and then all of the sudden, you see another business that you can start over here. If you can fund it and somebody else already has the know-how and you’re going to give them money to start it. Here’s the disadvantage of that for you as the investor. If I give you $12,000 dollars put into that company, I can’t write that money off, until that inventory has been sold, if that makes sense. So if I put $10,000 into that business, I can’t go into my account and say I just spent $10,000 on this business that I invested in. Because there hasn’t been a transaction, as far as money received. It’s kind of complicated, but my accountant and my CPA said; “No, investing in a business does not qualify as a write-off. But yes of course, If that product on the shelf sells and I get my 30% off, I can use that product cost as write off for me. The business owner now doesn’t, because see how you’re double dipping into that? So you have to understand you are going to invest in a company with money or if you are going to actually have an investor come on. There are just things that you need to understand there and that’s the disadvantages to me personally. If you’re not just going to go in and be like a 50/50 partner it’s kind of hard, because again that money that’s going in isn’t 100% of a write off. Just as it isn’t for you.
[00:20:00] SV: For example, I’ve got product that I’ve already purchased. It’s here, it’s in Amazon FBA. I can’t write that off until I sell those products, right? You can’t just buy inventory and then put it on the shelf and then qualify that is a write off. It doesn’t get treated as a write off until it’s been sold, alright? So then, maybe you didn’t know that, maybe you know now. That’s the case because, what they want to do it and that’s what they do. They kind of do like an audit, not a CPA or not a federal tax audit. More of a, you’re doing your inventory audit. To see how many are on the shelf, how many did you sell, how much you actually going to be deducting. All that stuff, so it can get a little crazy there. But, another disadvantage of being an investor is that you won’t receive the write off for investing in the business until product has been sold. Until you pull that 30% or 40%, pull out of that company if that makes sense. Just understand that it’s a little tricky if you’re doing that right.
[00:21:01] SV: Now let’s talk about the three different types of partnerships. Number one is a silent partner. You’re just purely a money investor, and you are going to charge your interest. So you’re basically, well you can do a shareholder thing too. Let’s say you loan someone $10,000 and you say you were going to make payments on that money back to me, or for every item that sells, up until I get my money back, I want an extra dollar. It’s kind of like shark tank, where Kevin O’Leary does his little dollar per unit so I get my money back and then I want 20% of everything after that. So that would be like a silent partner would just be a money investor. That is that is it.
[00:21:48] SV: Number two, you invest in other businesses, and yes this is less work. But again, you do run that problem of not being able to write that money off. Which is fine, but only being able to pull money or you know being able to write off money once the product has been sold. So you could have $30,000-$40,000 invested in a business and you’re not going to be able to see anything from that, until it starts to generate profit and then before you start seeing your money come back. And it can get a little tricky. Because, if you’re an investor and got $30,000 in a company you don’t want to wait 10 years to get you’re 30 grand back. You want that first part of profit that starts coming in, you want to get paid back. So for me personally, that’s how I would work it. If I was going to give you $10,000 I will give you $10,000. But then from there I would say “every bit of profit that comes in I want to pay towards the $10,000. And then after that for the next 10 months, I want a dollar per unit coming to me, everything that sells.” That’s what I could see that happening.
[00:22:55] SV: The third type is a 50/50 split. You both put money into the business, you do the same amount of work and you do with 50/50. You know that’s like the easiest way to do it, right? That is the total, 100% easiest way, to just do a 50/50 split. You both come in with the with the same amount of money, I put in five you put in five, we divvy up the work and we go at it. So you have the silent partner that’s just the money investor. You pay interest to them, almost like you borrowed the money. And you have some type of agreement, as far as how long it takes to pay back the money. So in a sense you are a bank, and you were just going to collect interest on that money. So that would be a silent partner. You invest in other businesses. Again, you can invest the money and then you can have that stipulation that says, “for every bit of profit I want 50% of that money that’s profit, to come back and pay back or pay down the investment. Then, once that’s done, for the next year I want $1 per units sold to come back to me as part of it.” And then after the 12 month I’m gone. I would rather do that, than have someone that has to be tied to the business, for the rest of the business, just for loaning me $10,000.
[00:24:03] SV: The third type is a 50/50 split. Again, I think that makes the most sense, if you have someone that you feel as you can collaborate with and you can split up the work equally, you get along with and all that stuff. So you both put in the same amount of money, you both through the same amount of work, you both have the same vision. Again, I think maybe you should sit down and talk about your vision together. Now, just a few important things that I want to bring up. If I haven’t already mentioned, I want to mention these again. And these are important to just consider and understand. Number one, know who you are partnering with. Know who it is. What type of person are they? Do you know them? Have they been in partnerships before? Why did they fail? All of these different questions need to be asked. This is a big decision, okay. Now, the other question you want to ask, like I said the very beginning. Ask yourself the question, why do I need a partner, why? What is the reasoning? Figure that out and see if you absolutely do need that partner. Then, the last thing I want to leave you with, is think long and hard about this decision, write it down. Write down the pros and the cons and then see what makes sense. You have to look at the person that you’re thinking about partnering with, as well. Whether you’re just treating them as the bank, and that’s fine. But, then you need to have something in writing, by an attorney, that says “they’re going to loan $10,000 to the business and we are going to pay 25% of all profit to that particular investor, until that note is satisfied. And then after that we are going to pay for one year. We’re going to pay a dollar per unit of anything that we sell, that was purchased with that $10,000” or something like that. Okay, and it would have to be written up.
[00:25:52] SV: So hopefully this has opened your eyes and given you some insights on my thoughts of partnerships and again I don’t want this to sound all bad, I just think it’s a big decision, especially in business. It’s like a marriage, I said you’re not going to just go ahead and get married to the first person that you date, right? You need to know that person really, really well. you need to know their strengths, you need to know what type of work ethic they have, all of that stuff, because it can make a huge, huge difference. It can make your life either really good or really, really bad.
[00:26:28] SV: Alright, so let me just give you a little recap, really quick. The advantages are of course money, we’re able to take your money and put it together and maybe get started a little bit faster, maybe scale a little bit faster. You get the divide up the workload, you get to tap into each other’s connections, you can lessen your risk, you can lessen your responsibility. Those are the advantages. The disadvantages; you have to share the money, you have to agree on the growth strategy moving forward. You have to agree, okay. And again, you have to treat this like a marriage. Like I said, you have to compromise when you have a partnership. You have to consider your account. Who’s going to put it in their name? Who’s account is it going to be in, to get the business account going. If you are thinking about investing in someone elses business, well you need to understand that that’s an investment and you’re probably won’t see that money back for a while. Also that you’re not to be able to use that as a tax write off. And lastly, let’s talk about the three different types. We have a silent partner, where you’re just a money investor. Two, you can invest in other businesses, so there’s either less or no work at all. Three, there’s the 50/50 split partnership you both put in the same amount of money and you both pull out the same amount of money, and make all the decisions equally. So, there you go, there is my take on what I wanted to share with you on partnerships and everything I think that you need to consider, and that you should be thinking about when you’re going to go down this road, alright?
[00:28:04] SV: So that is it guys, that’s going to wrap up this episode. I want again thank you so much for taking time out of your day and spending it with me. Whether it’s in the car, on a plane, on a run, walking your dog. Wherever it is, I want to say thank you so much. I also want to remind you, if you have not attended one of my live workshops and you wanted to or maybe you have and you want to come back in and join this again head over to theamazingseller.com/workshop. You can register for the upcoming one there, alright so again that’s going to wrap it up. Thank you guys so much and remember I’m here for you, I believe in you, I’m rooting for you. But, you have to do me a favor here guys, you have to, what? Take action! Have an awesome, amazing day, and I’ll see you in the next episode.
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