To find good partners, you always need to test. If you can find one at the gate go, that’s great!
Most of the time, you will not successful in finding profitable new partners. You have to plough through 10 partnerships in order to find 1 or 2 you can work well with. Sometimes, a 1st business relationship might require you to take less of the cake… or it may just break even, but trust me, its a good idea to just break even at the start to get something going. Testing the performance of a potential partner and getting something going is worth it.
Once the ice is broken and there is some understanding in how each other works, more business can follow.
Most simple 2 party partnerships are a 30%-70% profit sharing, 50%-50% profit sharing, or a 70%-30% profit sharing.
1. Things that can go wrong in a 30%-70% profit sharing model
In this case, you’re taking 30% of the profits. Your JV partner takes 70%. Since the JV partner is taking a larger share, he is required to do more. What can go wrong here, is the partner may decide that since he is doing more, he wants to take 90% or 100% of the profits, especially if the money goes to his bank account 1st. He may wire you a small account then what was agreed, or worst still, not even wire.
-You may want to have the money pass through your account 1st so you can forward the money to his account.
2. Things that can go wrong in a 50%-50% profit sharing model
In a 50%-50% profit sharing model, problem that can happen is the JV partner wants to do less work and make 50%. If he does more, he still only gets 50%, so in order to “profit” psychologically, this JV partner will hope to do less work then you in order to earn same as you. What can result is work not finished, because he may leave some portions of his work undone, or less then best effort, which leaves you to help correct, perhaps even work on his part of the project. The basic idea is he wants to do minimal work and earn the same as you.
-Outline exactly who does what. Have clearly defined work scope so there is no misunderstanding.
-If your JV partner does design for the website, you need to qualify if that is worth 50% of profits or just a 1 time fee. If a website makes $10,000 a month. Its common sense you can’t split a profit of $5000 for a simple piece of graphic that is otherwise worth only $100. There’re many examples, some partner will host a website for you and ask for 50%, or do some videos and request 50%. General rule of thumb, when it comes to marketing a service or product, the person that brings the business, can request a larger share.
3. Things that can go wrong in a 70%-30% profit sharing model
What happens in a 70%-30% business model, this project is basically yours. You are required to do most of the work. Your partner will do less. Because it is clear you are taking a chunk of the profits, your partner expects you to take the bull by the horns and make the project profitable. There is no way you can count on a partner taking a smaller share then you to make the project a success. You have to make the magic happen. Your partner is only playing a support cast. Be 100% committed to the project and do not have a mindset that you’re taking a larger share and counting on your partner to bring in the profits. A mindset like this results in the project earning $0, where no one want to complete the project.
-Be 100% committed to the project, you may even inform the JV partner at the very start not to take 30% but 10%. Whatever it takes to keep you not feeling shortchanged when working on the project and thus doing less then your best.
To Your JV Success!