Protecting Yourself in a Business Partnership

Protecting Yourself in a Business Partnership

 
 
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My guest today is Corey Northcutt, the founder of the Northcutt agency. The company is highly successful and Corey has built an impressive SEO and Cloud service. However, it wasn’t always that way. Before Northcutt, Corey was a co-founder of Ubiquiti, a web hosting company. That company grew wildly, but it became a nightmare once the four business partners involved began seeing dollar signs.

Corey tells me about his time in a highly political and stressful business. His story is a cautionary tale about how to structure your company in the beginning to maintain a fair balance of power. Corey left his company in a massive blow-up that left him aimless and shell-shocked. He tells me how he found his direction and how he’s done things differently this time around with Northcutt.

You will learn about:

  • The beginnings of Ubiquiti.
  • How Corey pivoted into other services.
  • Why Corey chose his first business partner.
  • When Ubiquiti merged with one of its clients and two more partners joined the team.
  • The benefits of catering to a niche market.
  • The initial partnership structure Corey and his partners used.
  • The issues Corey and his partners had.
  • Lessons Corey learned from dealing with potential buyers.
  • The cracks that appeared within the partners’ relationship.
  • The toxic environment that developed during the sales process.
  • How Corey left the company.
  • Life after the buy-out.
  • The lessons Corey took from his time at Ubiquiti.
  • Why does Corey choose not to work from an office?
  • Corey’s advice to the audience.

Office politics is a little more serious than we give it credit for. On today’s show, we talk through a ‘hostile work environment’ that’s hard to make a joke out of. Corey Northcutt experienced first-hand what it’s like to have your baby ripped away from you—and there was nothing he could do about it.

Founder, Smounder

As Corey found out, it didn’t matter one little bit that he was the originator for Ubiquity, his web hosting company. Yes, he owned the domain name and he had done a lot of the back-end work to get their servers up and running, but in the end, that wasn’t enough to get him anything better than a buyout.

Unless you have the right operating agreements or other paperwork in place that cements roles, expectations, salaries, etc., you lose a lot of your authority (and in this case importance) to a company when you bring on partners. And most of us need partners! Someone has to fund the expansion or figure out how to distribute on a wider scale.

One of Four

And here’s the other fun factor. Once you bring on your partners, you become a voice among many. While there are a lot of ways this can work for you, there are also a lot of ways it works against you. The biggest detractor to multiple partners (especially without a tie-breaker) is decision making. Your voice, which used to be 100% of the decision making process is now only 25%, for example. So unless at least two of your other partners agree with you, you’ll never have final say on something.

This bleeds into the exit process as well. If everyone is after something a little different, it’s hard to align operational goals, let alone exit ones. Someone wants the most about of cash possible, someone wants to stay on as a developer, someone wants to sit on the board with stock options and earnouts. That’s great! But how do you structure a deal where all those various needs are met?

And it’s these different needs, wants, desires that lead to horrendous office politics, such as the ones Corey describes.

That Watercooler Is Poisoned

Once everyone in the office is pitted one against the other, things start to get ugly. Not only are you contending with your partners on the day-to-day operations of your company, now you are also fighting them over terms and conditions for selling your company—or even just what will be in your exit package.

Corey learned the hard way just how backstabbing partners can be when there’s money on the line. After refusing to join in on schemes to destroy or ‘take down’ his other business partners, Corey found himself the target of such a plan. He’d noticed he was being left out of meetings and discussions, but hadn’t thought too much of it until he received a letter from a lawyer in the state they had just moved the company to—a state where he did not live.

The terms listed in the letter were quite clear, and quite offensive. Stripped of his hard-earned salary and with no access to company files, Corey was forced to consult a lawyer and pursue legal action to ensure he would receive what he was due from his company. On top of that, his partners had somehow gotten into Corey’s GoDaddy account and taken the domain name—which he still owned—further detailing that old adage, ‘where there’s a will, there’s a way’!

Despite all this, Corey had still hoped to fix things and get to business as usual. His lawyer, however, saw things for what they were and said they’d immediately settle. How could Corey work in that environment again? The water was poisoned.

Once that happens, nothing constructive will get done. The dynamics on both sides of the equation are too complicated for that and there’s no trust.

From the Ashes…

However, while some of these circumstances could be avoided by having the right documentation in place (legally binding agreements can help you not only get the value you deserve for your position but also make it punishable if one of your partners acts against you in a way that breaches contracts), Corey says don’t stress too much; it all has a way of working out.

After his initial stress and panic period, and the natural (and on-going) grieving process of exiting your business, Corey became an entrepreneur again. Accidentally, again. Several of his old competitors contacted him for his SEO expertise and business became so good that he started a marketing agency. His new company is more successful and profitable than his old one, and courtesy of some of the operational mistakes he made the first go round, is in far better day-to-day operating shape.

Corey stresses the importance of good bookkeeping, honest and up-to-date records and not working in an office. The key things that caused him the most stress in his first enterprise were integral parts to how he structured his next one. Learning from your mistakes is what makes an entrepreneur so effective and enduring.

Not all of us are built to be phoenixes, however, and it is generally better to try to avoid situations where you could have your business ripped from you with no warning. As such, take a look at your agreements and bookkeeping today—are you doing enough? Are you prepared?

Takeaways:

A key takeaway from this episode is, take the time to structure your operating agreement with your partners. Decide how business decisions will be handled and establish a hierarchy early on so egos don’t get out of control. Discuss these things when people are on good terms, and prevent dramatic toxicity.

Links and Resources

Northcutt Agency

Corey Northcutt on Twitter

About Corey:

Corey Northcutt is CEO of Northcutt, a Cloud and SEO agency. Corey began his time in entrepreneurship with Ubiquiti, doing web hosting. After growing the business to a massive corporate giant, he sold his shares. He took his lessons from Ubiquiti and began SEO consulting. Northcutt believes that SEO & content marketing should be driven by science, math, and ROI and specializes in cloud services (SaaS, PaaS, IaaS) and e-commerce.

 

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