Partnering With an Older Partner
A Note From The Editor
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Let's say you meet a software developer who shows you his latest product. You become convinced that his product is the next "killer app," and will make a fortune for whomever brings it to market, so you propose to form a new business in which you and the developer will be 50/50 partners.
There's only one problem. The developer is 76 years old, a retired engineer who plays around with computer software as a hobby while taking care of an ailing spouse.
Partnerships between generations can be very interesting--elderly entrepreneurs with decades of experience under their belt can be terrific mentors--but they carry with them their own special set of challenges:
- Death, disability and retirement. While every partnership carries the risk that a partner will die, become disabled or simply quit, this risk is magnified when the partner is a senior citizen. If your partner disappears before the software product is finished, you will need to bring in someone else to finish the job. Since there is no revenue from the business as yet, you probably won't be able to pay cash and will have to give the new developer equity in the business. Having already given up 50 percent of the business, though, you will have to either 1) give up some of your own equity in the business to the new developer (thereby becoming a minority stakeholder in the business you founded), or 2) hope that your partner (or the attorney or relative who is administering your partner's estate) is willing to give up some of his equity at a price you can afford.
To protect against this risk, you should consider giving the developer only a small percentage interest upfront--say, 20 percent--with the opportunity to increase his equity share to 50 percent as certain "milestones" in the product's development are met. For example, his equity could go to 30 percent when the developer completes a Windows-compatible version of the product, then to 40 percent upon completion of testing, then to 50 percent when the product is released. This is called an "earnout."
Learn More Find out how these entrepreneurs have dealt with the generation gap in their businesses.
You should also insert a "buy-sell" provision in your partnership agreement requiring you to buy your developer's share in the business in the event of the latter's death, disability or withdrawal from the business. The buyout price should be the fair market value of the developer's share, as determined by a respected third party (such as your accountant) and should be payable in installments over a five- to 10-year period.
- Different energy levels. In our example, your developer partner is taking care of an ailing spouse. He probably will not want to travel to attend sales presentations, or provide training or consulting services at a customer's plant or office location, and he certainly will not want to put in 90-hour work weeks. You will need to explain carefully and exactly what you expect him to do, and make sure he is comfortable with the commitment of time and energy. Get used to the idea that you probably will have to shoulder most of the physical labor involved in the business. Just make sure you are compensated for it!
- The "surrogate child" complex. Once, I learned that my Dad had paid a lawyer good money to do something that I could easily have done for him free of charge. When I pointed this out to him, he told me, "It's nothing personal, son; it's just that once you've changed someone's diapers, you never can look at them as an adult." No matter how hard you try to keep your relationship on a business footing, your partner may well see you as a surrogate son or daughter and will find it difficult to treat you as an equal. You will need to learn patience, listen hard and respectfully to your partner's opinions, and be prepared to justify actions and decisions that a younger partner wouldn't even question.
If you still sense that your partner is holding your youth against you, head over to your local SCORE (Service Corps of Retired Executives) chapter, find a local business leader or professional of your partner's generation--someone whose age and reputation your partner is bound to respect--and persuade him or her to support your management approach as an informal advisor to your business. It is always easier for an older person to accept your management style and decisions when someone his own age is concurring with you.
- New resources. Looking for a "Generation Y" partner instead of one from the "Greatest Generation"? Contact youngStartup Ventures, a New York City-based network of under-30 entrepreneurs. Or try looking in Angel Investor News, a free monthly e-mail newsletter with advice and resources for entrepreneurs looking for wealthy individuals, aka "angels," to invest in their companies.
Cliff Ennico is host of the PBS television series MoneyHunt and a leading expert on managing growing companies. His advice for small businesses regularly appears on the "Protecting Your Business" channel on the Small Business Television Network at www.sbtv.com. E-mail him at firstname.lastname@example.org.