Systemization, then commoditization. Make money in-between those two.
This blog is in reply to an interesting challenge I received after I posted a Business Startup Checklist on LinkedIn. Click here if you want to check the discussion out.
The challenge came from an attorney friend of mine that was concerned with one of the items on the checklist. The item she was challenging read:
- “Create a written partnership agreement (if a partnership) . You can find basic ones online. This should cover all of the if/then scenarios you can think of. Such as IF one of you wants out THEN this is how they get out and what money (if any) changes hands. Keep in mind this is easy now. When your business is 40 people and has revenues of $4 million things can get hairy. Make sure this agreement covers future growth. It should also cover divorce, death, disability and inability to perform from either party. Basically you get this document put together now so you have the ground rules to play nice and fair together.”
This initially stemmed from my personal experience in business. In my own most recent agreement my partner and I had to come up with a valuation formula to figure the value of the business in the case that a partner dies or wants out of the business. Surprisingly, the attorney we were working with had no real ideas on how to accomplish this. Were we truly the first people to think of this issue? Probably not. So we came up with a plan and the attorney did his best to make it all pretty (by pretty I mean difficult to read lawyer-speak that seems to be the accepted practice).
In responding to the challenge, I had to think about the real consequences of following the initial advice. Could they potentially be bad? The argument against using an online form was that the form would be incomplete, poorly written and generally not effective. The counter argument is that hiring an attorney does not guarantee otherwise. As with all professionals, some are great and some are less than. Buyer beware, even when spending hundreds (or thousands) of dollars.
Considering that an operating agreement truly is filled with IF and THEN scenarios, it should be easy to brainstorm what you want to have happen if and when something goes wrong or someone wants out. Not surprisingly, operating agreements have been around for a very long time and the problems they work to prevent are typically not new. Add to that the fact that the internet is filled with information. Is it too far of a stretch to think that someone on the world wide web has a partnership agreement that would work well as a foundation with only a few tweaks needed?
What’s the difference between an online template and any other template that an attorney may have access to? To say exclusively that all online templates are bad seems awfully broad.
But I understand her point. Typically you expect a professional to do a better job than whatever you may find on the internet. This is where I feel the challenge may have hit a nerve among some readers. The challenge many service professionals are running into (myself included) is the commoditization of their service. We all strive (or we should) to systematize our practices. Once a system is in place and automation can take over, our job is easier to the point that almost anyone can do it. Accountants have this with tax software, financial advisers with index funds, insurance sales people with online options and a plethora of others are seeing once lucrative industries become more challenging to thrive in without either an emotionally driven personal connection, a sales person not working in the client’s best interest or some innovation not typical of the industry.
That is to say, accountants will complain about do-it-yourself tax software (they claim that too many IRS rules exist to be fit into software), financial advisers will complain about index funds (they’ll claim they have funds that outperform the market – most don’t) and insurance sales people will complain of the lack of personal service from online insurance purchases (unless that in-person insurance salesperson is the one writing the check to you for a claim, you will probably experience a lack of personal service at some point).
It all comes down to what the client truly needs and what will serve them best. A lot of this is subjective interpretation. Hence the need for attorneys. Will spending hundreds or thousands of dollars with an attorney guarantee the new entrepreneur that the agreement they end up with will be bulletproof, should a problem arise? The answer is probably no.
The entire idea of this checklist is to get the items on the checklist done for the lowest investment from the entrepreneur in the least amount of time possible when starting a business. This is my 90% solution. Simply because 100% doesn’t exist and most startups seem to have about very little already covered. The remaining 9.9999% can be resolved after business is rolling and profitable.
This works here specifically because an operating agreement in the early stages of a business often doesn’t have much to protect.
Please note: Since this discussion, I have tweaked the checklist to include, “…though consulting with an attorney is suggested.” I can also see how the word “basic” can be taken a few different ways. As well as the statement that “This should cover…” may be interpreted to mean that any basic online agreement will be all that you need. That is likely not the case, tweaks will probably be needed.
As with all of my advice and information, I love feedback. It makes us all better at what we do. So I sincerely appreciate the responses this post has. If you have more feedback for me, send it over.
James Kademan is a Business Coach for Draw In Customers Business Coaching in Madison, Wisconsin as well as the author of The BOLD Business Book. When he isn’t posting business news on social media, he is busy guiding entrepreneurs to success in business and beyond. He blogs successfully to the world at www.drawincustomers.com. If you are considering hiring a business coach, take a moment to call James at (608)210-2221. If you want to see the checklist, click the link way up on top of the article.
