Making our IT guy a partner

What share do we offer?

[sparker]

Hi All

I've just found WebmasterWorld and wish I'd found it sooner - don't know how I missed it. Hope you can help with my question, as I am sure more and more people in business must be experiencing this sort of dilemma.

Myself and two partners own an ecommerce business and are reaching the stage where things are really moving forward. My problem is that in order to keep up with the pace of our business, and that of our competitors, we need to take an IT professional on board as our skills amount to basic website building.

We have been using the services of a contractor for over 6 months and he is an absolute genius but also very expensive. We couldn't afford to keep contracting him for all the work we would like to do and we would like to avoid taking on any debt. The only other way would be to offer him some sort of share in the business in return for his services, which we think would be an excellent way of bringing on board a dedicated IT pro.

So my question is, what formula could we apply to calculate; a) how much of a share we give to him and b) how much of a wage do we pay (and over what period)

There seems to be all sorts of ways we could do it, and we have sat down and discussed all sorts of connotations of the above but have got more and more bewildered. We would struggle to pay another full time wage at this stage, but on the other hand I don't think he could afford to work full time without a wage just for a share of the business. I think the key would be to strike some sort of balance between a wage and share.

The other issue is decision making. We don't plan to offer an equal share, and we would certainly like to keep on making the decisions with him in an advisory capacity. That said he does have a very placid nature, his strengths are in IT, not in business so the risk of conflict is quite low.

I know there are some serious business brains in here so would really appreciate any valuable advice you could give.

Thank you in advance!

[Slade]

Although I don't claim to have any experience on this, I read a similar post somehwere else just a few days ago.

Consider a performance clause for continued inclusion in the business. If he decides to go on holiday, or just run off and spend all his time with another client, you should be able to real him in, or cut him off.

As with all things, you're mileage may vary, ask your lawyer.

[sparker]

Thanks Slade, I have to admit a performance clause is not something I'd considered, but it's a great idea, makes a lot of sense and would be a good way of 'tightening' up the arrangement.

What about the share that we offer, does anyone know how we could determine share percentages and wages? We want him to accept and be happy with his share, but naturally as we are in business, we don't want to give him any more than we have to.

[Shane]

The first thing that springs to mind is that the deal you are looking at is not fair. He gives his services for an undetermined period of time and receives shares that are valid forever.

Do you really want him around for forever in some capacity?

The three partners I assume are committed to this idea and I assume working equal amounts of time and effort. Will he?

Consider offering profit sharing for a period of time. He remains motivated to make it work and you do not:

1. divest control
2. acquire a long-term unknown quantity as a partner

Another option, voting and non-voting shares.

A Chartered Accountant or Management Consultant should be able to pull an agreement off the shelve, or try the business section of the local library.

The above is not intended as advice but as ideas for you to research and explore.

..... Shane

[willtell]

This is a tricky issue, but I would be very careful about even hinting at shares of a company. Even a verbal promise can be acted on. Make sure your conversations with anyone relate only to a possible money reward at some future date but not a share of the company. I think it would be best to 'share' in the profits of the company maybe by a bonus after some milestone is met. Just my opinion.

[uk_dokey]

Hi,

We had a similar problem when we first started, our designer wanted to offer his service for free in return for a stake in the business. We decided at that point that we wouldn't go ahead with that arrangement and just paid him for his work. Looking back now I'm certain we made the right decision. IT people are great to have in your case but whats even better is to have a real go getter in the business world. If you wanted to take him on as partner you may begin to get frustrated with his lack of input

[sparker]

Yeah that last point is a very interesting one because all IT guys have got something going on the side and I think it would be difficult to make him commit 100%.

I am starting to look towards some sort of temporary arrangement to begin with to see how the arrangement would work out. Perhaps a short term profit share, linked into 6 month contract with a performance clause tied in (thanks slade).

Such a difficult one. As you rightly say its the business minds that push the business forward, but a good IT pro can advise and suggest improvements which can make or save a lot of money. I think all succesfull internet business will always have to have an IT brain amongst the team if they are to stay competitive.