Dealing with partners can be joyful, empowering, and powerful or it can be frustrating and draining. Learn how to get all of your founders on the same page in this training taught by SBA's "Entrerpeneur of the Year" Clay Clark.Sign Up to Watch
[THEME MUSIC] edtech style teaching business model and how to start a business
CALEB TAYLOR: OK, good. Number nine, can we change what the founders are getting paid?
-This just happened. I was in a business deal just a month and a half ago.
-Yeah. It's in the agreement that we can change what we're getting paid and they came in and wanted to lower what I'm getting paid after I've kind of done my part to make it big.
-Couldn't be more upset.
-Because it was in there from the beginning.
-Mm-hmm. But this is a thing that's in there for a long time and I should have done step nine. I did not.
-So dumb tax, I just paid it. Cha-ching.
-So the key here, spell it out for me again. With all my co-founders, I'm starting a company. The key here is deciding if you can change what people are getting paid?
-Because it goes depending on circumstances?
-Yeah, because a lot of times, people do that. Well, things aren't going the way that we expected. Can I cut your pay?
CALEB: And you've got to build that in from the beginning.
-You want to. Otherwise, it's weird.
-So who's going to be the key decision maker? You've built Thrive so that that's not in question there.
-Yeah. I call it a benevolent dictatorship, which basically means I'm a dictator and I plan on being benevolent.
-So I can make the decision, the final decision on any situation. So as a funny situation-- this is a fun example, but Dan is one of our partners.
-And I disagree with Dan almost all the time but it is our discord that-- it's kind of like there's one cord and then there's another cord and we have this discord but it becomes this rope.
CALEB: Yes, right there.
-Because it's rope and it's stronger.
-But it's more-- and I never agree with him at the beginning and it's so-- I'm almost to the point where I don't even want to talk to him. Sometimes, I'm like, here comes Dan, crap. So it's like, Clay, what do you want to get for lunch? And I'm just like, what do you want? Because I don't even want to say what I want because I know if I say it, he'll be like, why would you want that? I just know it's going to be that way.
-Plus, it's vegetarian sushi.
-But honestly, we put him in a position because he has an unmatched track record for being high integrity and for thinking differently. And he saves us all the time. It's unbelievable. It's a great relationship. But it's a situation where we have to know who makes the decisions. So I let him make decisions in this area--
-nine times out of 10. But sometimes, I have to hop in and say, you know what? I disagree. We're going to do this.
-So you've got the ultimate authority to make decisions wherever needed, but you've also, I mean, staffed the team with people who are great in certain areas. I mean, even, you've got Deedra Determan, also a mentor here, and she's very experienced in advertising. And you're fine with letting her run with that.
-But you've got the ultimate authority.
-Yeah, well, the other day, Deedra said something that I did not agree with and I've given her authority. And I listened and I listened and I listened. And I still didn't agree, still didn't agree. She ended up being proved out to be very right.
-And it's because she has experience in that area. But I ultimately can decide whether to delegate that or not. Does that make sense?
-And that's-- that's the thing. And I want to give an example here of one that maybe this is a little free bonus marriage tip for you. If you're married right now-- let's say you're a dude and you-- you've decided that you will decide on all decisions.
CALEB: It's all on your plate. You've got this.
-And she-- and then, she's also decided, I'm going to decide on every decision.
-I could see some discord.
-It's going to be a problem.
-So you need to decide right now in that marriage-- now, I subscribe to a certain-- the Judeo-Christian worldview where I'm the head of the household so I decide.
-Some people might say, you're sexist. You're terrible. That's fine! Then decide who decides.
-But we cannot have-- we cannot have two chiefs.
-We cannot have two masters. We need one.
-Otherwise, there'll be a conflict and there'll be bureaucracy.
-That makes sense.
CLAY CLARK: OK.
-And I think it fits nicely into this next point, number 11, how will decisions be made? Remember, these are all questions you have to ask before you're starting your company with your co-founders or else, you will run into massive problems in the future. So number 11, how do decisions-- how are decisions made?
-You have three options. One is majority vote.
-Hey, there's three of us. Let's vote. Aye, nay, aye-- OK, there's two ayes, one nay. Ayes win. Boom, that's it, majority.
CALEB: Got it.
-OK, whoever has the most votes and an uneven number, whoever has the most. Five people vote. Three people say yes. Two people say no. Majority wins.
-Second area here is the unanimous vote.
-That's where it has everyone-- everyone agrees.
CALEB: Does that-- I feel like that would kind of stop productivity at times.
-Actually, there's organizations that want to do that on purpose.
-is an example of a company.
-They have set up certain things in their bylaws so that they can't-- they can't be tampered with--
-which will keep their structure exactly the way it's always been.
-That makes sense.
-It's what they do. The United States government's kind of that way--
-where it's designed to have descent--
-It's designed for the Democrats to go, we're in favor. Republicans like, we're not in favor.
CALEB: Yeah, the checks and balances.
-And they argue, checks and balances, OK.
-And the final one is the benevolent dictatorship.
-Which is you.
-Well, this is good if you have a king that you trust.
-So when you sign up for a benevolent dictatorship, you better say, like, I agree with this person.
-Or I don't. And if you don't, you better not be a part of that.
-Hypothetically, if you live in North Korea right now-- and I know, in North Korea, 100% of the people vote in favor of their dictator every year.
-And I know, in Cuba, 100% of the people-- if you're in Cuba right now, I know 100% of you voted in favor of your awesome dictator there.
-I think I'm seeing what you're saying.
-But I'm saying these are situations. So I prefer to have a benevolent dictatorship, as long as I'm the dictator.
-So let's talk about this a little bit more though. If I'm setting up a company, how do I know what types of companies will work best for these three different styles?
-I honestly would recommend, though, if you were starting your own business, I recommend you have a benevolent dictatorship.
-Because I think it's very important, but then I want you to say this though. I want you to say this yourself when you get in that situation. You want to say, I believe I am the dumbest person in the room. And therefore, I am listening to everybody. And that's hard.
-You do that well though. You've surrounded yourself with people that you respect and you listen to. But you even listen to, I mean, people that maybe don't warrant it from their resume, but you really do listen to their ideas.
-Bill Chaufty, he's one of our Thrive mentors, who's going to teaching us a lot about accounting and sales. This guy grew a company. He managed close to one fifth of a company that ultimately sold for $2 billion. And Bill, every single time I meet with Bill, he points out to me how stupid I am. And not like he's trying to hurt my feelings, but he points out a critical-- just, like how do you miss that?
-You've got to surround yourself with those people.
-And he would point out those gaps and that's how I would get better. And we have such a great team of advisors. We're not perfect, but they really do help me keep on vision.
-I love it. Well, let's keep on moving then. Number 12, when can one of the founders be fired? What qualifies as a situation--
-What does one of the founders have to do to be fired?
-I would say this, is a founder commits a misdeed of the sexual or heinous, where they're doing something that's such a crime against humanity--
-I would go ahead and let him go. I would define that on the-- so example, this felon, I think-- I don't know if I shared with you on this episode, but we had a former employee who committed a felony. And it was bad, the kind of thing where I don't want to see the person again.
I hope he goes to jail forever. And I'd like to put that in the agreement, that I hope I don't have to keep paying that guy checks if he violates those laws.
INTERVIEWER: That makes sense.
-I mean, that's just something. You just don't do those things.
-OK. Well, is there anything else that then we need to set as a grounds for firing somebody else besides something that extreme?
-Just think of the worst possible scenario, and then write all those down. Steals money. Sexually gets involved in some relationship with maybe--
INTERVIEWER: Anything immoral in that region.
-I mean, you think this is not going to happen. I know of two situations this year where two partners, they partnered. One guy's partnering, it's he and a husband and wife. Husband and wife, they partner and start a company. And this guy's wife cheats with this dude-- so the two partners.
-They cheated and it ruined both marriages, ruined the company. You see it all the time.
I know another company where the owner-- two founders. And one of the founders, every time a customer would deposit cash, he would take all of the cash out of the company every week, and would never admit to it.
-Yeah, every week. And so he actually took all of the cash out of the account and bought a house with it.
-So you've got to set up some protection.
-And there's nothing in their bylaws to say he can't.
-So the other guy's like, morally, bro, you took all of the cash out of the company and now I'm having to make payroll with my own savings because you did this. And he's like, you never said, bro.
-And people start to say, it's just business.
-OK. So number 13. How much cash does each founder have to contribute? Remember, these are issues that Clay has outlined as essential for you to define before you start this company.
-OK, here's where it gets fun.
-For Thrive right now, every time that we need to raise $100,000, if I want to, at any point, I can levy that. I can say, hey, we need to raise $100,000. So if you own 1%, I need 1,000 from you. And if you don't put it in, then that basically dilutes your shares. And I don't have to ask for your permission, because I'm not going to stop funding it because I'm sold out.
This is what I believe in. I'll spend every last dime doing it, because this is what I'm into. I believe in this. I know that growing up without financial resources, how my life would have been different if I would've known these things. Well, and some companies-- everybody looks around like, well, I don't have any money. You don't have any money.
So example, one business I worked with years ago, there's two owners. They're both making tons of money. One goes out and buys a skyrise in downtown Dallas-- beautiful place. New car. New girlfriend. New, new, new, new.
Spends a ton of money. And then they need to grow the company. So the other partner says, hey, bro, we need to expand our facility. The other guy's like, hey, I'm out of cash, you know. I've got a great girlfriend though, and a great car and a great condo and great season passes and great-- he's like, well, hey, we now have a problem because we need cash. So I'm going to go ahead and put my own cash in place of your cash, and I'm diluting your ownership because of your failure to save.
-OK, so that was point number 13. And now, point 14's similar. 13 was how much cash does each founder have to contribute? And you kind of touched on 14, I think, which is, what happens when the business needs more cash?
-Well, there's a distinction, because there's an amount of money you put in initially. And then there's the amount of money you're going to need later. And I'm just telling you with Thrive, as an example. I knew that I could put in up to a million dollars into the company without anybody's help. I could just put it in, I'll do whatever I need to do. Now, I knew at some point, I knew that to grow this and to make it awesome, and to provide the awesome backgrounds, the sets, the talent, the team, the editors--
-These beautiful lights, just hanging, suspending above us.
-We're probably going to need about $3 million was my thought process here. So, in order to do this, I had to come back to the people on the team and say, hey guys, we're going to need to get some more money. We need to contribute some more money. But it was laid out in advance. So every time that we need another $1.00, if you own 1%, I'm going to need you to come back with a penny. And a couple guys were like, I don't know if I can do that. And know I wasn't asking for $1.00. I'm asking for like a thousand dollars. I'm like, OK, well, let's go ahead and buy you out. We already agreed to it, so let's just move on.
CALEB: You set it up from the beginning that way.
-Fine, nope, no hard feelings.
-Good, well, let's go to number 15 then. What happens when we take on more investors?
-As you grow a company, you're probably going to have, if you build it right, it's going-- you're going to want to take over-- let's make up an example. Let's say you built a company in the city of New York. And it's very successful. And I'm going to call Crumbs. Have you ever seen Crumbs? There's a Crumbs cupcake place, where it's kind of famous. Well, if it does well there, wouldn't you want to make it successful in the '50 different cities?
What if you don't have the money to open up 50 locations simultaneously? You have enough money to open up one more, but not 50 at the same time. Now, because we only live once, it would make more sense to open up 50 at the same time if you know works, as opposed to waiting for 50 years to save up enough cash to do it. So you need to take on an investor.
-OK so what happens?
-So you need to define it. That's why we need an attorney. We need to talk to the attorney about all the options, and define it. Now, for Thrive, I can dilute anyone's ownership without asking them. I can just say, hey, thank you but now I'm going to buy up part of your shares and resell them to somebody else at a greater amount.
-Hey, I mean, if that's the way you're going to setup your business, that's fine. What we're saying is you've got to sit down with the co-founders and decide all of this ahead of time.
-And I'll say this, and I mean this in all sincerely. And I actually intend to do that. There will be on our team who won't save anything. Thrive will make a lot of money, and some people won't save a dime. And they're going to be like, I didn't know I'd have to put more money back in. And I'm like, I told you. And then, there's agreement that states it, and all that. But, I'll have to buy somebody out. You don't emotional. It's just what happens.
-All right, so 16. If the business is going to be sold, how is that decided?
-It just needs to be discussed. I mean, if I want to sell Thrive, and I don't, because this is my passion project, but if I did. When I sold firstname.lastname@example.org, I thought I was going to die. And I was like, this is my baby. I worked so hard to start this thing, and I remember staying up all night with my wife growing this business. And just to going to Office Depot and you trying to buy all the equipment we needed last minute. I remember pulling all-nighters trying to get ready for all the weddings and entertaining all these events. We've missed events, and birthday parties, and family activities to work at the company. And when you sell it, it's kind of emotional.
And you want to know that when you do sell a company, how's that going to be decided? So under my system, I can decide whenever I want to. If I want to sell it, no one gets a voice in that. Now, if you did the majority vote, you're like, Greg do you approve? No, I don't. Now, all of a sudden, two people don't want to sell it and one person does. And the company can't be sold.
CALEB: Right, so however you set up that company, we'll decide. But you've got to define how it all works. Good, so now we've got 17. What's the big goal and vision of the business? You can't lose this right?
-Well, here's the thing. As a human on the planet Earth, regardless of your faith, most of us believe that our human body, it's only going to be here for one lifetime. And because we believe that, I believe that we need to be a Steward, a good Steward, of the time that we have on the planet. And so the best example I can give you is imagine right now you had an hour glass that's upside down. And every day you see a little bit of life. Have you ever seen an hour glass where just a little bit of sand comes out every day? If that was your life, if you saw it that way-- if you truly thought about your life that way-- wouldn't you have a sense of urgency to invest every day wisely? I know it sounds crazy, but that's what I do. That's just my philosophy. So how this relates to this why is-- what's the goal and vision of the business? What are we doing? Are we going to get together, and pull all-nighters, and work our butts off to make some awesome stuff for something that we don't care about? Or are we doing something that we care about? And the truly great companies-- people care about it. And if you don't care, what are we doing?
-You've made sure that not only is that vision perfectly articulated in your mind and on paper. But you've translated that to all of us here. I mean, that's why we're willing to do whatever it takes to get this product out. Because we've really tapped in and believe in this same vision you have. We want to help you grow your business. We understand that this is your life. And I love that you've been able to translate that to us.
-And I think, as a team though, I have to sell myself on it first.
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