Thinking about starting a shop...

[alek95]

More partners is better than few partners.

What benefit do partners bring that can't be brought in by hiring employees instead?

 

[Ox]

Drive from having a stake in the game. (possibly)


------------------

Think Snow Eh!
Ox

 

[Comatose]

What benefit do partners bring that can't be brought in by hiring employees instead?

Initially you don't have to pay them.

 

[jccaclimber]

A lot of startups are set with options/paper as a large portion of ground level compensation. Effectively this is a partner, but it’s written in a way that 1-These employees don’t add up to a majority, allowing whoever is running the show to make their own decisions. 2-It’s options or RSUs, not direct equity, at an early stage. I suspect this makes it easier to wrap things up if people quit early or the whole thing goes bust. Is there a practical way to implement this at a small place, or is there too much overhead?

 

[hanermo]

Partners don´t need salaries, weekends off, healthcare, ss, etc.
They also know the stuff they are working on, be it sales or production, and are extremely motivated.
They are typically highly skilled, or at least should be (or be voted out).

The only drawback of 8 partners vs 1, or 2, is that You have 1/8 of the net benefits to yourself.
But with the partners, You, and they, can all draw 200k salaries before splitting the benefits.

2 good guys produce 3-5-6x the economic benefits of one, more when they are partners.

(Theoretical) example:
I´m engaged in dealing in partners for a new venture, 6-10 guys.
I expect to hive it off in 3 years for about 30-60M€.
Buy-in is 20k, minimum.

I don´t care that every new partner takes off 6M€ of the pot.
I care that they make the pot be 60 M€, instead of the 3M i can do on my own, while drowning under endless fluff on my own.

If I hired these very experienced guys at 200k / yr, with 2M€ potential loss/liability, I might perhaps do as well and keep all the loot.
Perhaps.
And I could not hire them, anyway.
But if they are partners, they produce double the results, no liability, and bring in 100s of contacts and 200k in cash for stuff.
And reduce my workload 90% or more.

E:
One successful machine shop might bring in 500k of benefits on 4-6M$.
(( If it was split between 10 shares at 50 k each it would not be a lot.))
BUT ...
with 10 qualified partners the same machine shop would probably bring in 2-3M on 12M turnover)).
Because the *partners* do weekends and nights and stuff to bring in highly lucrative extra/rush work and highly lucrative sales.

My experience is that 1-2 partners tend to disaster, and several partners (or) with money tend to great success, if there is a highly skilled sales manager or ceo type.
I´m that sales type, and it has been critical multiple times, past 30 years.

My opinion is that "partners" bring in a hell of sweat equity plus some (tiny at least) money or otherwise real money plus work.
A partner programmer or machinist bringing in 6000$ is equally valuable as the guy bringing in 200k$ and a bunch of contacts from the yacht club or aerodrome.
The machinist makes it happen -- the money guy gets it in.
Both are equally important.

BOTH are equally important, because the final results depend on what was produced.
The excellent machinist makes the stuff well, and efficiently - this produces the profit margin.
The sales guy sells it well - this produces the turnover.


Lesson learned:
If someone wants to be a partner, but has no money at all, I will pass.
I don´t care how good You are at rope knurling, 7-axis lathe, sales, whatever, if you are unable to scrape in 1000$ good faith cash then You are not apt to be a partner in anything.
You could go and drive for amazon, whatever, to make the 1000$.

Initially you don't have to pay them.

 

[Larry Dickman]

I'm trying to decide if this is bait or a genuine concern.

#1, four guys starting a shop together. Very soon down the road, 4 lawyers are going to make out like bandits.

#2, are you aware that a new shop cannot even request a first stage quality audit without at least one years worth of data? So you're going to need something non aerospace/defense to make for a couple years.

#3, getting your foot in the door by filling out forms. Thats a good one

 

[hanermo]

A lot of startups are set with options/paper as a large portion of ground level compensation. Effectively this is a partner, but it’s written in a way that 1-These employees don’t add up to a majority, allowing whoever is running the show to make their own decisions. 2-It’s options or RSUs, not direct equity, at an early stage. I suspect this makes it easier to wrap things up if people quit early or the whole thing goes bust. Is there a practical way to implement this at a small place, or is there too much overhead?

Endless ways, easy.
If the shop goes bust, no-one gets anything. Besides the truth, it may be a good first sentence. Experience.

E.
Employees x will get shares y in the shop in 24 months, if the shop is profitable and functioning at that time.
Such shares to be 1-2% of the total workforce / the total share float.
Such shares to get all proportional profits from the company dividends.
Such shares to be free to sell 2 years after vesting.

Before 2 years, the company may or may not buy these shares, if offered by the employer, but is not required to do so.
The shares might rise or reduce in value.
The company has vested these shares onto the employer, and has no interest or liability in their value.

 

[hanermo]

I'm trying to decide if this is bait or a genuine concern.

#1, four guys starting a shop together. Very soon down the road, 4 lawyers are going to make out like bandits.

#2, are you aware that a new shop cannot even request a first stage quality audit without at least one years worth of data? So you're going to need something non aerospace/defense to make for a couple years.

#3, getting your foot in the door by filling out forms. Thats a good one

I don´t get the lawyers.

Aerospace defence tends to need plenty of paperwork, but most important qualified QC/QA data, aka measurements from calibrated instruments, traced back to the quality std firms.
Officially qualified measurements are ridiculously expensive.

A 0-100 mm measurement system, 0.01 mm cert (0.002mm test) might cost about 20.000 $, internal and external, with about 10.000 $ for the quality audits and checks.
On either lathe cylindrical objects, or milled objects.
Double it for both.

It´s not so hard.
I knew a guy who got both ISO and nuke certs in less than 2 months.
Of course, I could not do that, and it still cost a metric s*load of money.

New guys don´t understand that it costs about 60k€ in basic shop stuff to manage items.
Receiving, packing, cutting, racking, saws, shelfs, etc. Stacker. Tumbler.
You don´t actually *need* any of that stuff but generally you can only make (good) profits if You have it.
Speed mostly, but partly cost / unit. where your time wasted makes the part too expensive.
So the stuff costs 2500$/mo, like a 60k HAAS.

If it costs You 20$ to make a part, (say 25$ out) with 10$ being in post-processing and handling, and efficient processes do it for 2$, the part will go to someone else once the volume gets big enough.
Someone will sell the part for 18$, and make more money at it than you.

Flextronics is probably the best at it, in the world.
They do 65 machining operations on an iphone case, selling for 8$ to apple, costing about 4$, qty 100 million.
Machining on youtube, data on financial disclosures and 10Qs and 10K iirc.

If I had 400M advance money, like Flextronics, I could not do 65 machining ops for less than 3$.
And I think I am pretty smart.
A 60k machine costs about 2500$ / month, 87$/d, 3.4 $/h.
A 2 min op. costs 0.05$ plus transfer == 0.10$, plus tooling.

x 65 ops == 7.5 $, working 100% efficiency at 24 x 7.

It´s absolutely mad.
Given an iphone contract to equal flextronics, with a 1B$ prepayment and a year to prep, I would say no way.
Would not even try - with free land, factory, power, workers.