Starting up a business

[ramon.saguna]

Hi,

A few years ago I had created a business plan with the intention of setting up a business. However with lacking support and courage I shelved the project. Now I am doing an MBA and I have presented my business plan to colleagues that are in love with the idea and we decided to join-up and actualise the business.

My problem is that I want to have some sort of privilege being the one that has invented this business. The business idea is very original and it is not something that was copied from other businesses so in itself it's a unique idea.

One option is to have 51% of the shares. But the problem there is that I have to have enough funds to be able to do that while my eventual business partners are so-to-speak richer than I am. Secondly I expect them to want to be in equal positions therefore all of us having an equal amount of shares.

The second option that I found is that I would have Class A shares with more voting rights. But I do not really understand this. Having more voting power in choosing the directors is not making much sense to me since initially the company will be very small and there will not be many directors to vote for!

Also I intend to develop software for the same company and I might want to propose that I convert the software developed into shares once I finish it. Is this doable?

Being the first time I do not have experience in these things and I would not know how to go about this. Where can I find help? What other options do I have? Who do I have to speak to for advise? Business consultants or lawyers?

Thank you!

 

[Moneyman]

Oh dear oh dear....MBA...."Actualise" I cant believe they are still teaching non words like this. "Starting" would be an improvement as that is what you mean and it would show you are not just out of college. (dont take it personally just one of my pet hates)

It is your idea thats great but it is not valuable. the means and implementation of the idea is where he value lies.

offer what shares you think necessary to get the others on board, there is no rule saying it has to be equal. It might be better to have a more genIt also depends on salary etc. If they are employees getting paid then less shares. if you are just taking dividends then you are contributing more.

 

[Stuart Alexander]

Hi Ramon,

Firstly, congratulations on having a good idea that others seem to think is a winner!

Unfortunately, that might be the easiest part. Many people have good ideas but cant get them into a sustainable business model because their initial planning was poor.

If you need funding, then concessions have to be made. You do give the impression that you want everyone to have a "fair" deal and this is admirable but in the cold light of day, you need to secure your future within this business in your best interest.

My advice is get advice from professionals. That might be a business consultant or a lawyer - whatever the fees, it will be money well spent. If you can get a professional proposal written up, then your potential partners will respond well to its details and may well agree to terms written in your best interest.

Good luck!

 

[LongRun]

Seriously? you're on course for completing your Masters and you have to come on the internet asking for advice?

Standards of University education has dropped in my time I tell you.

 

[PrestonLad]

Sorry this is so long. I don't have time to make it shorter!

At the end of the day, be clear what you want. Do you want to be in control of "your baby" - stopping others from messing it up and influencing the direction your business takes? Or do you want to build a profitable successful business? Obviously these are definitely not mutually exclusive, and either can be the right path depending on circumstances. But critically, you need to decide on your priority.

If it is control, then you need to negotiate but be prepared to find different business partners / funding sources, if you are unable to reach agreement with your mates.

If it's the latter, you may need to be pragmatic, and give away more than you want in order to achieve success in the long run.

If you insist on having 51%... or if you insist on taking a higher salary from the business, think carefully now that might make your business partners feel. Will there be any slight unspoken resentment that damages performance?

A business needs many resources in order to start and take off, and whilst the idea is vital, so are other factors, such as access to funding.

What if you all sat down to put a value on what each partner brings to the party, in terms of initial ideas, skills, credibility, time input etc? Then think about the capital you need to get things going, and see if you can agree on everyone's share of funding input that each should contribute, so that you all end up feeling that you've input equal value into the company.

Hypothetically, perhaps you are Partner A, and you offer the idea, backed by the many hours agonising over the business plan etc. Maybe Partner B is a wizard with finances... and he can commit to working for the company full time for X months/years. Partner C might be a charismatic saleswoman... Partner D is perhaps a marketing genius and has a dad who can open doors to loads of customers, loads of business grants, and give credibility that makes borrowing money as easy as pie. Perhaps that is even more valuable than your own input but don't tell him that.

Now let's say you need 100K Capital to start, you might decide that if A inputs 10K, B inputs 40K, C inputs 40K and D inputs 10K.... then you have an equality of value input.

Obviously the scenario above is purely illustrative, but if it's possible to find a formula where you all feel you've had equal input into the business. Then you should all take equal shares - [or if, say, Partner B can only afford afford 20 grand, then he or she would hopefully not feel aggrieved if they got slightly fewer shares.

Would this create a spirit of fairness and togetherness that will get everyone motivated for success? (leading to the old argument that it is better for you to have, say, 25% of a huge pie , rather than 51% of a fairy cake)

This is all just food for thought, not to be taken literally... Agreed you should consult a professional.

 

[PrestonLad]

Seriously? you're on course for completing your Masters and you have to come on the internet asking for advice?

Standards of University education has dropped in my time I tell you.

I see no smilies, or other indication that you don't mean the above - so, seriously, IMO it sounds like you've forgotten what it's like to be young and relatively inexperienced.

I dislike posts that slap down people for asking questions on here, (unless they really are ridiculous). I think the OP is facing a dilemma that would challenge many very experienced business people, and it's good that he asks for advice.

 

[aussiecameras]

I reckon you should just get on with it, accept what help you can get and work together with them to make it a huge success.
Whether you have 51% or 20% doesn't really matter in the end if it is a massive success!

 

[LongRun]

I see no smilies, or other indication that you don't mean the above - so, seriously, IMO it sounds like you've forgotten what it's like to be young and relatively inexperienced.

I dislike posts that slap down people for asking questions on here, (unless they really are ridiculous). I think the OP is facing a dilemma that would challenge many very experienced business people, and it's good that he asks for advice.

People that complete a Masters should already have the answers as they are the future of this country who should be progressing thought processes and bringing development to the forefront.

 

[altwebdesign]

maybe seek some lprofessional advice on that?
I recall hillary devey syaing she needed a minimum 26% of a company to have any legal standing.

I hope your idea works well, just get on with it and be sure to learn as much as you can about marketing and ACT upon it all!

Craig

 

[VSpy1]

People that complete a Masters should already have the answers as they are the future of this country who should be progressing thought processes and bringing development to the forefront.

There are many people - well known and not - that run multi-million pound businesses with no education whatsoever... I'm not saying education is pointless - far from it - but I have also met people with masters degrees that don't know how to butter toast!

 

[LongRun]

I have also met people with masters degrees that don't know how to butter toast!

Examinations are more a test of memory power rather than putting your knowledge into working situations hence people can become over qualified for what they can actually do.

 

[PrestonLad]

People that complete a Masters should already have the answers as they are the future of this country who should be progressing thought processes and bringing development to the forefront.

Do you think that people with degrees are far better in business than those who have come by another route? Because it seems that you think that no one with a degree should need to ask a business question on this forum. Only the thickies with no degree should be grovelling around for information.

Sorry to use blunt words, but you're using pretty blunt language too !! I think you misunderstand the education system. It is (and for generations, has been) there to provide the tools to make your way in your chosen profession. It does this by teaching a lot of theory, and uses some selected research and practical project work to start to give you some experience.

But it cannot hope to deliver you to the workplace as a fully functioning professional, competent and experienced across a whole range of subjects. Unless you think education should extend until we're 30.

Anyway, we're derailing the thread, so that's my last contribution.

 

[coffeetea1]

thanks for posting this question. most likely, i would come up with the same question after graduation from a "master degree".
and many thanks for the free insights given below.

 

[Elliottc26]

Again, people putting down those with a Degree...insecure?

A Degree also does not focus on generalising subjects. If someone has a Degree in Marketing, they would need to study another field (self study) to build on that, so, they can now understand other aspects.

It's like building a professional website - one designs it, one codes it, one produces the marketing for it, whilst another looks after the finances,etc.,.

No one who has made it successful in business has done so without the help of other professionals and qualified individuals with Degrees. Whether they be Accountants, Solicitors, Consultants and staff.

The way to think of it is this, a Degree means greater and deeper understanding of a subject. Sadly, not everyone can pu this into practice and apply it. Also, many people who runthings just don't get it and have zero trust in others.

I mean, how many people think that design means "make pretty?" rather than, "make functional?".

I came across a Marketing Manager who thought marketing meant make corporate posters and leaflets! They set up an open day which no one turned up to...their Degree was in Business Admin!!!

 

[VSpy1]

Examinations are more a test of memory power rather than putting your knowledge into working situations hence people can become over qualified for what they can actually do.

..which is why, personally, I would rather have someone with relevant experience running the show...not someone who just has the theory! I suppose both would be great....!

Its like the government sorting out the business end of things - none (or very little) of them actually have any front line business experience!

Agree with PrestonLad though - this is probably another topic of its own

 

[ramon.saguna]

I see no smilies, or other indication that you don't mean the above - so, seriously, IMO it sounds like you've forgotten what it's like to be young and relatively inexperienced.

I dislike posts that slap down people for asking questions on here, (unless they really are ridiculous). I think the OP is facing a dilemma that would challenge many very experienced business people, and it's good that he asks for advice.

Thanks for replying to that guy. His message was not very encouraging. Mde me feel like an idiot. After all actualising/starting up/materialising/creating all have the same fundamental meaning.

 

[London Bookkeepers]

I was in a similar situation in the past where I was about to go into business with 2 business partners but felt that I brought quite a bit more to the table. In the end in my situation the best way forward really was for us to split it three ways but I guess it doesn't have to be like that.
Depending on the relationship between the three of you it may be more harmonious to have equal shares and no issues from the start but I can certainly see your main dilemma......

 

[PrestonLad]

Thanks for replying to that guy. His message was not very encouraging. Mde me feel like an idiot. After all actualising/starting up/materialising/creating all have the same fundamental meaning.

Hi Ramon,

Always happy to encourage others. But my reply, about disliking posts that slap down those who ask questions, was aimed at the guy who thought that, because you nearly have an MBA, that you should not need to ask questions. I'm sure you'd agree with my position on that.

As for post #2, it was Moneyman who picked you up on the use of "Actualise"... I'm afraid I did smile when I read that, and I do sympathise with him! It really isn't a word anyone uses outside of business degrees (unless British English isn't your first language... French Spanish (and German?) use a similar word more frequently than we do in this context!) Maybe you agree less with my position on this

Anyway, I'd hoped post #5 was my best contribution to this thread!

Good luck with it all. Be brave whilst you're young. You have less to lose, more to gain, and it all gets harder as life's responsibilities start to catch up with you.

 

[Liybpg]

I would strongly advise to seek professional advice. It is much better to establish a good foundation and protect everybody's rights and set clear responsibilities from the beginning than try to muddle through the mess which can start from disputes later on.

 

[rbhealthandsafety]

Can I ask where your studying for your MBA? I am in the final month of an open university MBA and learned a lot.

If you want any friendly advice on the health and safety requirements for your business PM me.

Hi,

A few years ago I had created a business plan with the intention of setting up a business. However with lacking support and courage I shelved the project. Now I am doing an MBA and I have presented my business plan to colleagues that are in love with the idea and we decided to join-up and actualise the business.

My problem is that I want to have some sort of privilege being the one that has invented this business. The business idea is very original and it is not something that was copied from other businesses so in itself it's a unique idea.

One option is to have 51% of the shares. But the problem there is that I have to have enough funds to be able to do that while my eventual business partners are so-to-speak richer than I am. Secondly I expect them to want to be in equal positions therefore all of us having an equal amount of shares.

The second option that I found is that I would have Class A shares with more voting rights. But I do not really understand this. Having more voting power in choosing the directors is not making much sense to me since initially the company will be very small and there will not be many directors to vote for!

Also I intend to develop software for the same company and I might want to propose that I convert the software developed into shares once I finish it. Is this doable?

Being the first time I do not have experience in these things and I would not know how to go about this. Where can I find help? What other options do I have? Who do I have to speak to for advise? Business consultants or lawyers?

Thank you!

 

[DavidBerryACMA]

I agree with some of the earlier comments that referred to the question rather than having a debate about the virtues of an MBA etc. The value of a business is in its assets. It is one of the hardest things to overcome when you run a successful ecommerce site, as it is tough to value the the main asset ie the website. If you are developing software for the company, you can always licence the software to the company and receive royalities. Some things you may wish to make company assets - somethings you may wish to keep in your own name.

It is best to sort out issues now. It is vital that you work together - if you are already disagreeing about who gets what - imagine what it will be like in a few years time!

Running a business is all about people. You can have the most brilliant idea ever ... but only people make it come to market. In most businesses the sales people earn the most as they deliver success. Think about what value you put on them as they will decide whether your idea is fantastic or a flop.

I am always concerned when I read about amazing groundbreaking ideas. Novelty rather pays dividends - satisfying a specific need better than anyone else does. I would encourage you not to be too groundbreaking but aim to be the best in your specific market. Never get too far ahead of your customer as they simply won't buy.

So, think in terms of assets and not profits when you consider your shares - its a balance sheet decision not a profit and loss decision. If you have developed the idea then keep it outside the business and patent it, if you can.

And more than anything, start talking about success when you have made your first million not beforehand.

 

[GEMIN1]

Hi all my names mark.

i'm in the process of starting up a security buisiness and i would like help on finding out exactly what is needed in the way of licences, insurances and courses.

If any body could even help me in the right direction would be much appreciated.

:|:|:|:|:|:|:|

many thanks

 

[ramon.saguna]

First of all I would like to thank everyone for their reply whether I like it or not.

In response to many of the MBA critics I have some things to say. As everyone well knows, most degrees do give you insight into all the relevant areas of study pertinent to the selected degree. However in a degree, in this case in the MBA, pupils are not taught how to negotiate shares and voting rights in the initial phases of a start-up, they are not taught how a partner can cheat you, how a partner can get you out of your business, they are not taught how to negotiate but they are taught what negotiation is.

Education is like that and it always has been. Some are lucky or courageous enough to kick off things and be successful even before studying and that is good. Others not.