Ep 7: Rod and Pernell divide and conquer

Learn about setting up a successful partnership and protecting yourself.

Rod and Pernell divide and conquer

Featuring: Small Business Owner Rod Johnson and NYU Law Professor Naveen Thomas

On Episode 7 of This Is Small Business, Andrea gets some legal lessons from Naveen Thomas, director of the Business Transactions Clinic at New York University's School of Law. And she talks to Rod Johnson from BLK & Bold Coffee about how he and his friend and business partner Pernell Cezar make the most of each other’s strengths as they conquer the coffee market. When it comes to working with friends, what’s the ultimate recipe for success? How do you divide responsibilities, and how do you protect yourselves – and your friendship – from the inevitable bumps in the road? Lots of fresh ground lessons for Andrea’s growing small business playbook – so don’t miss out!

Rod and Pernell testing their Blk & Bold coffee.

Episode Transcript

[00:00:02] Naveen: "Trust among co-founders is essential to a small business. You can't succeed without it, all the legal protections in the world aren't going to help you overcome a fundamental lack of trust within your partnership. So it's great if you have that, but trust alone is not enough." Eventually your situation is going to change one way or another, someone might want to leave the business or change its direction. And it's in these situations that legal and contractual devices can help your business stay on course, and maybe even prevent a problem from arising in the first place.”

[00:00:36] HOST: Hi I'm Andrea Marquez -- and This is Small Business – a podcast by Amazon. This show is all about learning how to start, build, and scale a small business. And -- just so you know -- I'm new to this. But I'm taking everything I learn in my conversations with business owners and experts -- distilling it into actionable lessons -- and filing it away in my small business playbook. [00:01:00] By the end of this episode, I will recap everything we learn today into tangible, actionable takeaways for you to use in your small business journey.

Today I'm going to dive into starting a business with friends. The general advice is -- don't do it. Yet many, many people do go into business with friends, or family, and make a real go of it. So I really want to know -- what is the recipe for success when it comes to working with friends? How do you divide responsibilities? And how do you protect yourselves? A bit later in the show -- we're going to hear about this topic from a legal point of view.

But first - we’re talking to Rod Johnson from Blk & Bold coffee, the first nationally distributed Black-owned coffee company in the US. Not only do they make great coffee, they have a strong social mission. Blk and Bold donates a portion of their proceeds to youth focused non-profits. [00:02:00] Which is great... Like their coffee! I'm serious about my coffee so, you can trust me when I tell you this is the good stuff. Rod and his co-founder Pernell Cezar started out small -- but now their coffee is in major retailers across the country -- and through it all -- they've remained friends. So I can't wait for you to hear what that journey has been like for them.

[00:02:31] Andrea: Rod, thank you so much for being on This is Small Business today. I'm very excited to have you on the show.

[00:02:37] Rod Johnson: Thank you so much for having me. I am equally thrilled to be here, looking forward to a great chat.

[00:02:42] Andrea: So let's dive right in. Tell me about Blk and Bold and how it got started.

[00:02:47] Rod Johnson: Sure. So Black and Bold is the brainchild of my friend of, of 20 plus years. I pause in saying that, because that, that is a reminder that we've had to put up with each other's shenanigans for, for the majority of our lives. [00:03:00] But, you know, it was that, that friendship that led us to want to branch out away from our corporate careers at the same time and look to build our dreams around something that we cared about a lot. That being coffee and community. So we got the bold idea to start roasting beans in Pernell's garage, and ultimately grew it into the business that we know today as Blk and Bold. So essentially we are a coffee roastery, located in Des Moines, Iowa, that, essentially bridges the gap between community impact and specialty beverages. We give a portion of our proceeds to organizations that support youth in need across America.

[00:03:41] Andrea: I always get excited when I can see the direct impact that anything I buy or any product I consume, that is has in helping others in any way or, or the, the environment. That's one of the reasons I really love Blk and Bold. So taking us through that journey [00:04:00] … How did you guys decide to even start working together?

[00:04:03] Rod Johnson: So I mentioned we had the foundation of our friendship. With that we have shared values and, similarities as to what motivates us and obstacles that we were able to overcome that, you know, just through lifelong conversations we knew that, if ever we wanted to team up and become a dynamic duo in business that we would have a little bit of an advantage given the overlap in that Venn diagram. And so it was, an organic relationship that, met a fork in the road, if you will, as it pertains to: do we continue to, um, climb this corporate ladder and run the rat race? Or do we try to change our trajectory and take a hold of our legacy, and connect it to something that is more resonant to how we see the world? So it was just that, that gumbo, if you will, that we leaned on to build our business and start it in the first place.

[00:04:58] Andrea: Do you think you guys would've done something like this. [00:05:00] If it weren't with each other as co-partner?

[00:05:03] Rod Johnson: Absolutely. We are naturally wired to, you know, be self-starters to be go-getters and risk takers. So whether it was together or on our own solo paths, I think entrepreneurship was in the cards for us.

[00:05:17] Andrea: What was it about this? Is it the product? Was it the partnership itself that made this come to fruition and get off the ground?

[00:05:26] Rod Johnson: It's a combination of all of them. So let's start with the product. You know, this was something that we really cared about. We had spent a lot of time in coffee shops, given our respective corporate careers and having to do a lot of travel. You know, what's the best landing spot? It's your nearest coffee shop or your nearest Starbucks. And, when you're in that culture at least myself, I'm, I'm observant. And I see how there's a sense of community within those establishments. And we knew that we wanted to provide that to people regardless of, of where they lived. You shouldn't have to live next to a coffee shop to indulge in a top tier product or, or having that, [00:06:00] that sense of community. So it was just the affinity for, the product in and of itself that I would attribute some of our success in getting the business off the ground.

[00:06:12] HOST: Side note, in another part of our conversation, Rod shared that he and Pernell group in Gary, Indiana, and there weren’t a lot of high-end coffee shops there when they were coming up – so the affinity he described for the product and community was really responsive to a need he experienced and saw an opportunity to meet.

[00:06:33] Rod Johnson: There was a, a real definitive mission that we were trying to accomplish. This idea of conscious consumerism. You referenced that one of the reasons why you've gravitated towards our brand is that we stand for much more than just selling a product. And as of the fall of 2020, we earned our B Corp certification. Which is the gold standard in businesses that are looking to prioritize purpose [00:07:00] as much as profit. So, you know, having that at the core of our entrepreneurial endeavors, I think really, compelled and motivated us to see this thing through because the end recipient, is a demographic that we really resonate with.

[00:07:15] HOST: I'm constantly inspired by the purpose and mission of small business owners. It's almost always about more than just the business for them. But what makes these guys different is that they're building the mission on, in, and around a lifelong friendship. I feel like -- the stakes are higher for them if something were to go wrong.

[00:07:33] Andrea: Did you have any uncomfortable conversations in terms of like contracts and what happens if one of you wants to leave? Like, what happens if one of you makes a mistake? And, even though it's coming from friendship and from mutual love and respect, you need to protect yourself and the business. So, how did you talk about that?

[00:08:00] Rod Johnson: Yeah. So we just had some very honest conversations and because we had that 20 year foundation, it made it a little easier for us to discuss some of those challenging topics. Like you mentioned, "Hey, what happens if one of us dies?" Which is pretty morbid, you know, when you think about it, but it's, it's an inevitable, right? It's something that is bound to happen. Or, you know, "what happens if you don't wanna do this anymore after five years and you want to exit, right? What are we building this toward?" So we were just having those conversations and we figured that it would be best to do it early on while we were still friends, right? It's like, let's talk about this while we still like each other because if there's a point of contention down the line, it may be difficult to navigate those conversations at that time. And so, you know, very early on, we had an operating agreement that, was our north star, if you will.

We, divvied up our ownership percentage based on the, the responsibilities, and the investment that, that we made at that time. And so we tried to have [00:09:00] as much structure in place very early on. So that then allowed us to focus on growing the business. That was our approach. And I recognize that not a lot of founders are in that fortunate position. And, um, to that point, I'm, I'm grateful. You know, my business partner just so happens to be one of my best friends.

[00:09:20] Andrea: If I'm thinking about this from a small business owner perspective and I'm barely in the stage of starting a business with my best friend… we haven't even gotten into these conversations yet. What would be your advice for the first questions you have to pose to each other, uh, in starting those negotiations?

[00:09:42] Rod Johnson: What is the end goal? Um, that was a question that continues to evolve as our business ascends. You know, are we looking to be acquired? Is this something that we wanna hold on until, you know, we're, we're old and gray and when we can pass on our children? Do we want to bring on investors [00:10:00] and, uh, have other people at our, at our cap table? Those were, you know, some of those early questions. And then that will, influence what type, how you formulate the business. Is it an LLC? Is it a corporation? You know, do you not need a business partner? Should you just be a sole proprietor? And so we just let the conversation naturally progress, but, uh, a good starting point is, you know, what, what is the end goal? And that's really how you should start anything, at least in my opinion, is build something with an end in mind. Um, so that your, your steps are always in alignment to that objective.

[00:10:35] Andrea: And then one thing you mentioned was dividing responsibilities based on your investments at that time. What was that like?

[00:10:44] Rod Johnson: Yeah. So, we are based in Des Moines, Iowa, which is where Pernell's wife is originally from. So Pernell, uh, completed his undergrad at University of Northern Iowa, where he met his wife. They moved around for work, had their first child. And moved to Des Moines, Iowa. [00:11:00] All the while I was on the west coast, living in Sacramento doing my best job of avoiding the snow. And synonymously, we were building the business. So I was more responsible for curating the digital experience. Standing up our philanthropic efforts, and really all things marketing. While Pernell took on the heavy lifting of operations and, finances as well as any, legal matters, that would eventually come about.

And that's essentially how we broke up the ownership and assessed, a value to that percentage based on what we needed to get up and running. We needed to buy a sample roaster. We needed to retrofit his garage so that we could actually do the roasting. We needed some raw materials, et cetera. And so, you know, we did our best job of being as scientific as possible, and, and trying to, you know, make sure that things were fair and, and equitable. [00:12:00] And to that point, I think that we're both satisfied with where we landed.

[00:12:05] Andrea: When you mention Pernell, you have this little smile and you can tell that you really respect and love him.

[00:12:12] Rod Johnson: Yeah, that's my, that's my real friend, you know, I mean, we met each other when we were 13 years old and we've been through a lot together. I mean, I I've watched him grow up though. We're the same age. Like I, I had the privilege of watching him evolve into an executive. Right. You know, this is the same little kid that, you know, I used to bully on the basketball court and, and now, you know, he's the, the CEO of a profitable business that started in his garage. So I'm super impressed by him and, um, tip my hat to him as much as I possibly can because he deserves it and I'm happy to sing his praises.

[00:12:50] Andrea: I hope he listens to this podcast when it's out so he can--

[00:12:54] Rod Johnson: I'm gonna make him listen! (laughs)

[00:12:57] Andrea: So going back to, uh, more legal things, [00:13:00] when did you guys know it was time to bring in a legal advisor or a lawyer to, to actually come and, and dig deep into this contractual partnership?

[00:13:14] Rod Johnson: Yeah, very early on. Pernell gave me the initial call asking me if I drank coffee, August of 2017, it's like, "Hey man, do you drink coffee?" And at the time, not a coffee guy. I pinpoint that moment as to when Blk and Bold started. By December of that year, we had an LLC, as well as an operating agreement. So we moved pretty fast.

[00:13:40] Andrea: Wait, so you're a coffee person now, right? Hopefully?

[00:13:45] Rod Johnson: I would say by definition, yeah, I drink much more coffee than I drink tea. At the time I drank tea like two or three times a day, whether it was chai or, or green or, uh, some type of black tea. That was, that was my jam. That was my thing. And that's because I really wasn't exposed to the higher grade of coffee. I'd only I associated coffee [00:14:00] with this terrible drink that, that caffeinated you, that gave you an energy boost. Right? That I saw my grandparents drink some pretty low-quality coffee for years. And I didn't even know that there was another world out there. And, um, Parnell had actually sent me some beans. He's like, "you should try these. I'll tell you how to. And, you know, then tell me afterwards." I drank it, I was like, "oh, I actually enjoyed this. This is pretty good." And that started me going down that rabbit hole of the coffee industry. And so it was just a, a random conversation. Like, "do you drink coffee, dude?" And, and that just snowballed into building a business.

[00:14:42] Andrea: Curious to know, what happens if you disagree?

[00:14:45] Rod Johnson: Which happens often. Uh, we're very passionate individuals and there are sometimes where we bump heads and, um, you know, [00:15:00] we defer to the greater good, we know that the, the disagreement or the dispute is not rooted in anything malicious that is coming from a good place is all for the greater good and, um, cooler heads prevail almost always, right? We'll, we'll both lay out our arguments and, um, we are believers in testing and learning. Not, not for the sake of being vindictive. Like I, I told you so, I know your thing wasn't gonna work. But it's just more so to figure out, okay, what is the best plan of action? Or how, how can we come to a solution that benefits everyone that takes into consideration all of the nuance of this decision? So, you know, it's just a matter of, you know, "keeping the main thing, the main thing." That's a saying that we throw back and forth to each other often. It's like, okay, let's make sure that we don't go on too many tangents.

[00:15:48] HOST: Is it just me -- or do you feel like Rod would make a good marriage counselor? He just has this wise and kind of dispassionate way of looking at disagreements that keeps an eye on the big picture.

[00:16:00] Andrea: And I feel like I know the answer to this already, but has there ever been a situation where a disagreement has led you guys to go back to your contract and be like, this is what we agreed on toward the beginning. So, "no."

[00:16:17] Rod Johnson: Fortunately, we "haven't. I'm okay with deferring, especially if it's an experiment and I can take a backseat to let your test go first. And then if it works then great, that was the right decision. But if it's not working, let's pull the plug and then let's, let's pivot into another idea.

[00:16:30] Andrea: How did you come to the decision that he was gonna be CEO and you were gonna be CMO?

[00:16:35] Rod Johnson: Great question. It is largely attributed to our professional careers. So, um, dating back to my undergraduate days, uh, I have been a nonprofit fundraiser, so I started off interrupting people's dinners, asking them for 20 bucks to donate back to their Alma Mater all the way to reaching different Heights within that, that industry. While Pernell worked on a for-profit side of things. So it just made a lot of sense [00:17:00] based on what we were good at. The, the skills that we brought to the table for, us to, to have those roles. But I'll be very honest with you as a small business, we do everything, right. So it's, those are just so that other people can have some level of delineation between he and I, I mean, it's impossible to be so narrowly focused when you're trying to build a small business.

[00:17:34] Andrea: And what would be your advice for future co-owners?

[00:17:37] Rod Johnson: Be transparent. I think a lot of you know, breakups, a lot of divorces, a lot of professional disputes are rooted in a lack of transparency. You know, if you trust this person, you know, with your livelihood, it behooves you to be open and honest with them and expect the same in return. Parnell and I, again, you know, have very direct conversations [00:18:00] because there's no one else at the executive level within our company. It's just, he and I. We have to do that for the sake of the business. We will be doing a disservice to the 20 plus families that rely on us for their livelihood if he and I are not upfront and honest with each other. So I just recommend for anyone that's going into a partnership with a friend or not to be as honest and as forthright as humanly possible.

[00:18:30] Andrea: And do you think people should bring in legal advice, the sooner, the better?

[00:18:34] Rod Johnson: Absolutely! Normalize that. You you normalize that in, in your interaction so that it's not awkward down the line. Right. You know, that they say that you should, you should pray when things are going well. Right. And not just when, when the sky is falling. And that's kind of the case, you know, for running a business. Like you know, in case of emergency break glass, let's just know what that lever is. So that when it's time to actually break the glass, we're, we're not frantic and running around like chickens with our heads cut off. So normalize that as early as possible. [00:19:00] And I think that you'll be better off.

[00:19:03] Andrea: Rod. Thank you so much for your time and for being on This is Small Business.

[00:19:08] Rod Johnson: Thank you. I appreciate you!

[00:19:12] MIDPOINT: HOST: You're listening to This is Small Business -- brought to you by Amazon. I'm you host, Andrea Marquez. I loved the lessons Rod shared about being transparent, working to your partner's strengths, having difficult conversations first, and making sure to always have the end goal in mind. On this show, I want to continue taking you guys through my journey of figuring out what it takes to start a small business today by asking small business owners themselves and focusing on the pivotal moments, decisions, and challenges they are going through.

Did you know that more than half of the products sold on Amazon come from small-and-medium sized businesses? Blk & Bold Coffee is one of the many small businesses selling on Amazon that have tapped into some of the tools and resources offered to help them succeed and grow. You can learn more about them in our show notes [00:20:00] on our website ThisisSmallBusinesspodcast.com.

[00:20:06] This Black Business Month, Amazon is committed to celebrating, amplifying and supporting a diverse set of businesses through This is Small Business and so I want to give a special shout out to some of our Black-owned business partners and experts who have graciously shared their wisdom on This is Small Business, including Rod Johnson, Eva Jane Bunkley, Chelsea Whittington, and Cora and Stefan Miller. And remember one of the best ways to thank them is to support and shop their businesses! I also want to remind you of Amazon’s tools and resources which include the Black Business Accelerator, which can be a great option for Black entrepreneurs to level up their own small business playbook and take their [00:21:00] business to the next level.

Coming up, sharpen your pencils because we're gonna get technical. I called in the legal department. Naveen Thomas is Director of the Business Transactions Clinic at New York University's School of Law. He helps people understand how to set up their businesses and partnerships in a way that will serve them when the going gets tough. Because everything I'm learning so far about business tells me -- things do NOT always go according to plan.

Before we get started with Naveen, I want to take this time to ask you… how can we do better? Our team has enjoyed producing these episodes for you and we want to make sure you’re loving them as much as we do. So share your thoughts with us at thisissmallbusiness@amazon.com.

[00:21:50] Andrea: Naveen. Thank you so much for being with us today. I'm excited to hear your thoughts on a couple of things.

[00:21:55] Naveen: Thank you, Andrea. It's a pleasure to be here.

[00:21:58] HOST: The information provided in this podcast is not legal advice [00:22:00] and should not be construed as such. Instead, the information provided is for general informational purposes only. Moreover, the information in this podcast does not create any attorney-client relationship between you and the podcast contributors or their respective employers. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. You should contact your attorney to obtain advice with respect to any particular legal matter. The hiring of an attorney is an important decision that should not be based solely on anything we speak about today.

[00:22:39] Andrea: So I'm going to jump right in. How should small businesses co-founders set up their partnership?

[00:22:43] Naveen: There are a lot of different possibilities. One of the first questions that people try to answer when they're starting a business is, what kind of entity should we form? Should it be a corporation? Should it be an LLC, a partnership or something else? If it is a corporation, what kind of corporation should it be in which state should we incorporate? [00:23:00] Those are all really important questions that need to be answered. They involve complex legal issues, relating to corporate law, securities, law, and tax. Actually, one of the biggest considerations there is, is each person's personal financial situation.

So it's really important to get appropriate tax advice. That's one of the first pieces of advice I'll give to anybody who's starting a business is to speak to an accountant. It's not something that everybody thinks to do independently, but the sooner you do it the better. But even before you start an entity, you need to think about preliminary issues and that relates to your business plan itself. Is it viable from a business perspective and from a legal perspective? Especially if you're trying to do something novel, especially if you're trying to do something in the technology sector, that's been not been tested, but even if you're doing a more traditional business, a lot of different legal issues could arise with your business plan. So try to work with an attorney from the planning stages to identify potential legal issues.

[00:24:00] You know, this may sound like a shameless plug for my profession, but it's not. You shouldn't wait until you encounter some complex legal tasks that you can't handle on your own. You want to make sure that before you start implementing your plan, that it's legally viable. For instance, if it turns out that your business plan requires you to obtain expensive licenses in all 50 states, and you can't afford that process, you might need to change your plan. Similarly, if you're doing a more traditional business, you might find that it requires certain licenses from local and state governments. Those aren't laws that you want to violate. And, uh, it helps to identify those requirements as early as possible. These are things that a lot of people would miss if they're not working with an attorney from the outset.

[00:24:48] HOST: Ok that was A LOT of important stuff. So small recap: ask yourself what kind of entity you want to form which will help you determine what kind partnership you will have, [00:25:00] consider each person’s financial situation and get some accounting advice, at the same time, get legal advice to make sure your plans are viable. Got it? But, what happens if you don’t have the budget for all this necessary advice?

[00:25:17] Naveen: I know attorneys can be quite expensive. But if you are a small business, um, especially if you're operating in a low-income community, or if you were a social enterprise with some kind of, uh, public interest mission integrated into your business model, then you might qualify for pro bono legal services from a variety of sources including a law school clinic, like the one that I run. And some things to keep in mind when working with lawyers, don't just work with the first person you find. A lot of times, people work with lawyers who are recommended by their advisors or investors. You need to work with someone who's representing the company, not anybody else. Otherwise, you might get advice that isn't really in the company's best interest, but that's really furthering somebody else's. [00:26:00] Also, make sure that you find a lawyer that has experienced representing startups and small businesses, because the issues that arise with these types of ventures are very different from those that arise in large multinational corporations.

[00:26:16] Andrea: So, don’t just get any lawyer, get a lawyer with the specific area of expertise that you need. I mean, these are all amazing pieces of advice and tools that small businesses have to keep in mind. And I'm kind of curious, even if there is trust and you found the right partner, from the beginning, how do you make sure that all parties are protected and that you're doing the best thing for the small business and its future?

[00:26:43] Naveen: So first, I don't want to downplay the importance of trust. Trust among co-founders is essential to a small business. You can't succeed without it, all the legal protections in the world aren't going to help you overcome a fundamental lack of trust within your partnership. So it's great if you have that, but trust alone is not enough. [00:27:00] Eventually your situation is going to change one way or another, as you just alluded, Andrea. Someone might want to leave the business or change its direction. And it's in these situations that legal and contractual devices can help your business stay on course, and maybe even prevent a problem from arising in the first place.

One thing that I often see in representing startup companies is that all of the communications, at least at first are coming from one person. Who's kind of the, the point person for communicating with the lawyer. And this is understandable. Not everybody has a time to set up a conference call at the same time with a lawyer. But the problem is that there is a risk that the point person, the person who's communicating with the attorney is the only person who is really communicating the company's needs and that the other founders interests will not be adequately represented. So ideally you should really make sure that all founders [00:28:00] are communicating with the company's lawyer so that everyone's interests are covered.

[00:28:05] Andrea: So how do you lay a good foundation so that if there is a huge major disagreement between co-founders that everyone's protected and there's an easy way to come to that decision?

[00:28:16] Naveen: Agree on certain terms in advance that will address common situations that may arise. Like, a founder, leaving the company early, for example. A common tool for dealing with that situation is transfer restrictions on stock. So that before somebody transfers their stock to an outsider, they have to offer it to the insiders, the other founders. That's known as a right of first refusal. This is a way to prevent random people from becoming co-owners of your company, without everybody's consent. So that's one thing. Another common tool is a vesting schedule, right? Where, uh, typically that might last for four years. And basically what that means is that, if somebody leaves after [00:29:00] halfway through the vesting schedule, then they lose half their equity, right? So this, this gives them an incentive to stay with the company longer, right? So it might prevent specific types of problems, but no contract is going to be able to anticipate every contingency, every situation that might arise, that would, that would be impossible where at the very least very time consuming and expensive. A better approach is to come up with governance mechanisms that deal with situations when they arise. So that it's not just an unorganized disagreement, but that there's a formal process to follow in the event of any decisions.

[00:29:40] Andrea: Naveen, is there anything else that you think small business co-founders should keep in mind when starting up?

[00:29:46] Naveen: Yeah, absolutely. A big issue that founders deal with very early on in the process is how to split the equity in the company. Right? A lot of people assume that everyone should just get an equal share [00:30:00] so that if there are three founders, it's a third, a third, a third, there's an inherent sense of fairness in this. Then a lot of people default to that. But that's not always the most sensible approach. And if it's not the most sensible and fair approach, then eventually founders could get upset with it and decide to leave. If a founder feels like they haven't been adequately compensated, then that may discourage them from staying with the company long-term. So when you're deciding how much equity each founder should get, consider all of their contributions and the values of those contributions.

[00:30:36] HOST: This got me thinking... what would my contributions to a company be? I do have a pretty good sense of humor, -- and I'm great with words. And then I think about Rod who said he and Pernell each had different but valuable skillsets. So I asked Naveen, what ARE some of the different kinds of contributions founders and co-owners might bring [00:31:00] to a company?

[00:31:02] Naveen: So what could those contributions be? Those could be their services to the company, right? As an employee, what duties are they performing? What products or services are they providing? Are they contributing cash? Are they contributing any kind of physical property, like computer equipment or real property? Like a, uh, a physical space in which you're working. Are they contributing intellectual property, like technology that they've developed? All of these things should be considered and valued when determining how much equity somebody's going to get in. One other thing to consider is how much time are they going to commit to the company going forward? A lot of times you have founders who have very different contributions. For example, you might have one founder whose main contribution is startup capital. But that founder might not remain very involved on a day-to-day basis.

[00:32:00] And then you might have another person who doesn't have any money starting out, but who is going to commit a lot of time to the business. So to really be fair to each founder and ensure that they are each going to think that they got a fair deal, which is what really matters here. You need to accurately assess each person's contributions to the company. So that's one really big issue that I think, needs to be taken seriously. And it can be very complex. But not every disagreement can be prevented and sometimes what you need to focus on is mitigating the adverse effects of a disagreement. For example, one thing that commonly happens in startup companies is that a founder is no longer happy working there and wants to leave. And you can't force someone to continue working with you. What you can hope to do is limit the damage that they can do to your business when they leave. And one of the ways to do this is to have every founder at the outset, [00:33:00] sign a contract with the company, saying that all of the work that they do, all, everything that they invent, all the intellectual property that they create in the scope of their work for the business, belongs to the business.

[00:33:15] That way, even if somebody is to leave the company in the future, they can't bring their work with them and use it for another purpose. You could of course ask them to sign more restrictive what we call covenants. Uh, in addition to just this general IP assignment that I'm talking about, for instance, you could ask them to sign non-competition and non-solicitation provisions, but those can be a bit more controversial and they're not enforceable in every state.

[00:33:44] HOST: As Naveen has been explaining -- every situation is different. But hopefully you got a bit of an idea of some of the possible things small business owners and entrepreneurs may want to consider when they form partnerships, or when they incorporate their new business.

[00:34:00] Andrea: Naveen, thank you so much for all of your valuable information and time.

[00:34:05] Naveen: You're very welcome, Andrea.

[00:34:06] HOST: And that's it for this episode of This is Small Business. I hope you feel a bit more informed around the idea of going into business -- and maybe even going into business with friends. There was a lot of useful and super important stuff packed into this episode. Some of the key takeaways for protecting yourselves when co-owning a business that I’m adding to my small business playbook after speaking with Rod and Naveen are:

  • If you’re co-owning a business, have the uncomfortable conversations first. This is important. Don’t wait for something to happen in order for you to have those conversations down the line. It should be top of mind when going into a joint venture, so that you can then focus on growing the business. One of the first questions you can ask yourselves is: what is the end goal? Where would you like the business to be in 5, 10, or 20 years? And then work with the end in mind. [00:35:00]
  • And when having those conversations, it really is up to each partnership to decide how to divide ownership or shares, but one thing that Rod mentioned was considering each level of responsibility and investment. Like in the case of Blk and Bold, Pernell took on heavy lifting in terms of operations and finances considering they started out in his garage.
  • When you have disagreements, it helps to keep the “main thing the main thing.” Keep in mind the bigger picture and don’t go off into too many tangents.
  • Also, it’s a good idea to bring in accounting and legal advice as early on as possible to make sure your plans are viable. But don’t just get any lawyer or accountant, get a lawyer and accountant with the specific area of expertise that you need.
  • You can’t account for every problem [00:36:00] that arises in the future when you’re starting out, but a good way to address that is to come up with governance mechanisms that prepare you to deal with those situations when they arise. So that there's a formal process to follow.
  • And finally, transparency breeds trust. Be transparent as possible with your partner and always keep the end goal in mind.

WRITE THESE DOWN! There’s a saying I’ve heard many times from my family in Spanish: cuentas claras, amistades largas, which translates to: clear agreements make for longer friendships. And I’ll add, and stronger businesses.

On the next episode I will be talking to a small business owner who started his small business alongside his brother, from the back of the truck of his wife and now has his product in huge establishments like hotels, bars, cruise ships, and more. Meanwhile, if you like what you heard, don’t forget [00:37:00] to subscribe to our podcast so you can stay up to date with new episodes, let us know what you think by leaving a review on Apple Podcasts or email us at (thisissmallbusiness@amazon.com) with episode ideas, and tell your friends about us too!

Until next time – This is Small Business, I'm your host Andrea Marquez -- Hasta luego -- and thanks for listening!

CREDITS: This is Small Business is brought to you by Amazon, with technical and story production by JAR Audio. [00:37:30]

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