Last April a “friend” of mine has offered to train me in his work: making custom molds for false stone (glazed concrete) architectural products-mantles, wall caps, sills, etc. I was laid off last week and so this option has become a lot more enticing. However there are some things I can’t get worked out in my mind.
He has other ventures he would like to get into and would like to leave his current business. But he stated he would like to fall back into this if his other plans don’t work out.
He doesn’t want employees, he doesn’t have any, and I don’t want to be his employee. He only has one customer (a national company) that supplies the designs and buys his work.
How can I take his place and keep my income secure if he wants to take it back later?
A former employer suggested that I pay him a percentage of every job for a certain time period as a way to buy the business, plus an agreement not to solicit existing customers. Is it legally possible to keep him from marketing himself to any potential customer?
Any help/suggestions would be greatly appreciated.
Replies
Brave Sir Robin ran away,
Bravely, bravely ran away.
Jase,
These kind of business deals are done all the time...that doesn't mean they are not full of risk. It would seem to me you both need to sit down and discuss the what if's with a professional (attorney) and work out the different options. You could pay him a percentage for the business he is giving you ..ie. buy the business. You could also form a partnership in the future...where he has an option to buy back in. The point is there are numerous options to discuss...and someone needs to be aware of the details and help forge a solution...
Thanks BG
Hopefully I can talk with him more about the details tomorrow. I don't want to stay in my old line of work as there is not enough money in it to live in California and support a single income family. This could be a great opportunity-assuming I can minimize my risk.
The best thing I have on my side is that it is already a viable business. To be successful at it I need to learn the trade and make the ownership transition as smooth as possible.
What I don't have on my side is experience running my own business. I managed a lab/shop in my last job. I feel like I learned enough that I can manage my costs. But I have no experience marketing a product. I would really like to see what market there is for this type of product so that the customer base can be expanded if necessary.
I need to find out if he has a contract with his buyer, and if so, what the details are. Then I'll have a better idea what he is giving up.Jase--Is there a better way?
Jase,
Your correct to be focusing on the customer ....current and future...ya ain't got no mission without a margin..lol
It is also critically important that put together a plan...a plan that is comfortable for you... identifies what you know and are comfortable with....what your marginally knowledgable about...and what you don't know (high risk). Many make the mistake of trying to adopt someone else's plan....doesn't work.
Make this plan no more complex than building a piece of furniture....and no less in terms of details....while I'm sure you have heard this advice many times before, this is the mistake that most failed businesses make. All business issues can be resolved with concepts, stratagies, tactics...which lead to specific tasks and your skills with those tasks determines success or failure. All furniture can be built with the application of concepts, stratagies, tactics....which lead to specific tasks and your skills with those tasks determine success or failure. Where most make the mistake is not identifing the their skill level with the task....that's risk...and in business, as with furniture making, that risk needs to be mitigated....perhaps with other tasks.
Anyhow, not to drone on, good luck as you proceed.
"I don't want to stay in my old line of work as there is not enough money in it to live in California and support a single income family."
If this business is not meeting his needs what makes you think it will meet yours? However admirable, supporting a family in SoCal on a single income with employer subsidized benefits is a tough road. As you'll find out when you start making those COBRA insurance payments. Remember that the max. COBRA mark-up is 4%. Then you have to be willing to work 60+ hours a week to starve. I've concluded (for myself) that our disposable mindset consumerism society doesn't value craftsmanship enough to support the lone artisan let alone one with a family to support. I sincerely hope you're the exception so that I might enjoy your triumph even if only vicariously as it will give me hope as I toil seemingly endlessly on the corp treadmill longing for the day when I can build custom furniture for a living.
Your "friend" wants his cake and to eat it too. If he has to have a 100% safety net maybe a partnership would be the way to go, but I don't think I'd want to be partners with somebody with such an unrealistic and self-centered requirement. He needs to either sell you this business or hire you to run it with the full understanding that if successful you will end up competitors. Even if you agree (by contract) that he keeps his one and only customer and you keep the one's you develop in his absence if something runs amiss down the road you still have to have enough money to pay the lawyers. Unfair competion is tough to prove and nobody owns their clientele. Don't ask me how I know this, because it's not pretty.John O'Connell - JKO Handcrafted Woodworking
Life is tough. It's tougher if you're stupid - John Wayne
Maybe I wasn't clear on that. My old job doesn't pay enough to support a family in CA. His business, something totally different, as is, could almost support two families comfortably. However, he is driven by creating new products and getting them on the market. Once he has succeeded likes to move on.
I agree with you completely on your second point. If I have no way of protecting myself against this guy if he wants back in, or if he wants to compete, then I'm asking for trouble. Which is the reason I posted in the first place.
This leads me to think that I should buy his equipment from him too, which would make his reentry into competition harder. Maybe there's a way I can get him to sign a non-compete agreement.Jase--Is there a better way?
Last time I heard anything on the topic, non-compete agreements are unenforceable in California courts. Against public policy to prevent anyone from using his skills to earn a living.
non-competes are definitely a little tricky- depending on the where and the what, they can be difficult, even impossible, to enforce. on the other hand, it sounds like the would be seller wants a way to keep his foot in the door. that's where your negotiations start. what is willing to give up/pay/allow in order to secure for himself what he thinks he needs? if he expects you to step in, babysit his biz for however long, then walk away when/if it suits him with you getting nothing more than what you earned in the interim- unless that is ALOT of $$- he needs a pee in the cup test because he is definitely on something.
i suggest you get creative- a partnership? maybe, but you'll need terms that protect you every time he wanders off to do his own thing. if he's happy having only one client, maybe something that would allow you to walk with any new clients? (and the old one might follow you- a lot depends on that possibility)
remember- in business, everything is negotiable.
m
non-competes are definitely a little tricky- depending on the where and the what, they can be difficult, even impossible, to enforce.
that's partially true when it comes to employees, but commercial non-competes are very enforceable. Many companies, especially technology companies, have employees sign non-competes as a condition of employment, but in many states, California and Georgia are prime examples, these are fully unenforceable. The theory being that you cannot deny someone the right to work in an industry as a condition for employment in a specific company. So the effect is largely psychological.
However, non-competes between companies is pretty standard when doing M&A or carve-out transactions. Same goes with deals involving private companies and founders getting bought out. Open ended non-competes fall in a grey area, but it's entirely normal to have a time limited agreement.
my suggestion to the original poster would be to talk with a lawyer experienced in these transactions. Focus on earn-out clauses, non-competition, reps & warranties, buy-back rights, and co-sale rights. Everything is negotiable, within the constraints of the law, and given the right contractual groundwork between the buyer and seller there is no reason why a successful deal for both parties cannot be realized.
>> That's partially true when it comes to employees ...
You're right. I was definitely thinking in terms of employees. Good catch.
that's why i said depending on where and what- and should have added who. i would expect that many so-called "non-competes" for employees are heavily laden with language regarding the limitations of a former employee to take with them things like customer lists/connections and especially proprietary knowledge of any sort. so while someone in a technical field can go work for another company there may be many, at least potential, restrictions on what they can do as far as applying what they may have picked up from their previous employer. i don't know for sure, but that would seem to be a logical, more enforceable means of controlling former personnel?
i'm currently in the process of selling my company and the non-compete clause was something the lawyers on both sides wanted to argue over due to enforceability- but since one of the major reasons i'm interested in selling in the first place is to get the he!! out of this particular industry (mostly personal and professional bad memories and experiences) i told them both to shut the f*%&# up, i don't ever want anything to do with the business again- so whatever the buyer wants in the way of a non-compete is fine by me as long as his check doesn't bounce.
m
Edited 12/26/2003 3:10:09 PM ET by mitch
Well,
Tomorrow I am going to try to get a hold of the cast stone guys and see if they will subcontract directly to me if my "friend", "Bob", stops working for them. He told me that they probably won't, although they didn't tell him that directly.
If that's the case then I will say "Forget this, I won't be your partner and i won't depend on you for work." He doesn't have a good history with employees, so I'm not willing to deal with him in any way other than to buy the business from him.
If the Customer will subcontract to me then there is some hope. I can get some more training from "Bob", and develop my own customer base independent of him.Jase--Is there a better way?
best of luck.
I'm confused.
He has only one customer but the customer does't come with the purchase of the business.
Sounds to me like you are purchasing equipment to start your own business. If you buy the business the customer base should be part of the equasion. This guy sounds like a real nice one to deal with. Tom
Douglasville, GA
You speak of competition as if it's bad thing. Embrace it, welcome it as it will make you better at what you do and provide the only meaningful avenue for you to differentiate yourself. The guy that get's the work over the long haul without giving it away wins. The guy that gives it away goes broke. Forget about non-comp agreements because you'll need a lawyer to enforce it and that still won't put anything but a judgment in your pocket. Like I said before a guy that expects you to run, nuture and grow his business and then give it back to him isn't a friend. He's playing you for a fool or smokin' crack.
Maybe that was a bit too harsh, but I've neer seen these things work out well.
John O'Connell - JKO Handcrafted Woodworking
Life is tough. It's tougher if you're stupid - John Wayne
Edited 12/22/2003 4:48:42 PM ET by ELCOHOLIC
On competition:
My naive mind didn't realize what I had written until after I had posted. I had forgotten that competition is part of healthy business. He doesn't have any competition right now, which led me to think there wouldn't be for quite a while.
Thanks JohnJase--Is there a better way?
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