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The Ticking Time Bomb In Your Business and Joint Ventures

Posted by on 27th Feb 2013 | 0 comments

Do you enter into business relationships with other people wherein you split the decision making 50/50? Whether you realize it or not, this seemingly fair approach is a ticking time bomb that can go off at any time.

The Problem

What could possibly be wrong with splitting the decision making 50/50? Shouldn’t each person have an equal say in how things go with the project? In a word – no!

The problem with the 50/50 split is the potential for gridlock in the relationship. The split works fine so long as you both agree on every issue that pops up. Ah, but what about issues where you disagree? You essentially end up with a tie, which means one party has to back down. If neither party backs down, the business effort grinds to a halt and lawyers are usually brought in.

Real World Situations

It often helps to clarify legal topics by looking at real world scenarios where the issue occurs. There are two obvious situations with online businesses.

Business Entity

Ticking Time Bomb in Your Blog BusinessThe first is with the creation of a business entity. Let’s assume you and I decide to launch a social media site for physicians. We agree to form a limited liability company and split ownership 50/50. The business launches and is a big success. I decide we should launch a sister dating site for physicians to leverage our current site. You think this is madness and believe we should stick with maximizing the value of the current site. Both of us dig in our heals and everything comes to a stop.

In a best case scenario, one of us will back down. Even if this occurs, the party backing down is going to be unhappy and bitter. The relationship may be poisoned, which could lead to the venture falling apart. In a worst case scenario, one of us could take the matter to court where a 65 year old judge who can’t set up his own email is going to make a major decision regarding our online business. Neither of us will most likely be happy with the result much less the attorney’s fees we pay.

Joint Venture

The web is unique in that so many businesses team up with each other to maximize the value of their assets. The affiliate agreement is just this – a match of people with traffic and a company with something to sell. In the classic affiliate relationship, the partner company has all the decision making power. For example, Amazon.com dictates the terms of its affiliate agreement and affiliates really don’t have much say which avoids the 50/50 decision making problem.

While bloggers participate in affiliate programs, you are also apt to enter into direct joint venture agreements with others online. You might be a master at generating email lists while another person is a master at converting traffic to customers. The two of you decide to launch a coaching service to educate others on how to do the work and split the decision making equally.

Once again, we run into problems if there is a disagreement over an issue. How will the stalemate be broken? Will one party become bitter, which can poison the relationship? Will the matter end up in court? The answer will depend on the specific situation, but the result will leave one or both parties very unhappy.

Solutions

Is there a solution for this problem? The obvious solution is to give one party the decision making authority. This solves the problem up front, but who is really going to want to enter a business relationship where they have no say in how things are handled?

A better solution is to get creative. With online ventures, an agreement can often be created where each party has the decision making power only in certain scenarios. These scenarios usually correspond to the person’s expertise.

Let’s return to our example above involving the joint venture with the person who is a master at generating email lists and the individual who is a master of converting traffic. The agreement between them might give the email master all decision making authority for anything relating to the email element of the project. This would include the strategies, messages, graphics and software to be used. In contrast, the conversion expert would be given decision making power over the website design, landing page content and any other issues related to converting the traffic.

There is really no “right” answer to these situations. The key is to think creatively and maximize the talents of the parties involved. Any agreement should also be reduced to writing to create a clear outline of responsibilities and decision making power. Memories tend to fade after a few months, so having an agreement to work off of is simply a smart move.

In Closing

The 50/50 decision making split seems like a fair solution when two parties team up to pursue an online business. Now you know this is not the case. Equally splitting the decision making authority is the equivalent of starting the clock on a bomb hidden in the mechanism of your business project. Sooner or later, it is going to go off.


Richard Chapo, Esq., is a San Diego internet lawyer providing legal services to bloggers through his blog at SoCalInternetLawyer.com. With 20 plus years of experience, he is both readily familiar with the issues bloggers face online as well as being as old as dirt.

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