The Legal Challenges in Business
with Coco Soodek
Subscribe to iTunes: http://bit.ly/JoshF_Itunes
In this episode, Josh discusses the problems entrepreneurs have with finding a business partner that sticks. Josh explains the red flags to look for, in a partner, that’ll help identify the kind of person you’ll be working with.
He also gets on the phone with business lawyer Coco Soodek to hear the tips and tricks to finding the right person for the job and to hear about the legal implications all business partnerships face. Josh and Coco talk about the importance of laying everything out on the table and making sure the structure and contracts are in place to protect your family, your business, and yourself.
You’ll learn how to seek out partners and employees that will benefit your business and not hinder its production or growth. Through the combined experience of Josh and Coco you’ll gain a wealth of knowledge and learn how to avoid a choice in the wrong partner that could eventually lead to the destruction of your business.
Josh Felber: When you’re starting your business or you’ve been in business, one of the things you’re going to find out is you cannot do it alone. Whether it’s picking the right business partner, making sure you have the right employees, even clients. For me, I’ve had multiple business partners over the years. I have owned 15 different companies since I was 14 years old. 90 percent of the business partners I’ve had, have not worked out. I’m going to try to give you some points today, some red flags to look for, some things to make your business better, and what to look for in the right business partner or client. We’ve all had that horrible client who just takes up 90 percent of our time and 10 percent of the pay. We can take a look at it today as well.
When you’re picking a business partner, you got to make sure you have the right visions. So for me, one of the businesses that I started back in 1992 was an e-merchant financial service business. We processed credit cards for businesses. The business partner that I worked with was in his 50’s. We both had business experiences and both been in that specific industry. We’re now starting a business together. One of the cool things that we really had was that vision. We both had that vision of where we wanted the business to go, the type of clients that we wanted, and how we wanted that business to succeed. We want to make sure that the visions are on track.
The next thing you really want to take a look at is match. Making sure your beliefs and values match up. If you’re here and your partner is way over here, you’re never going to sync up and you’re always going to butting your heads together. There’s going to be something you’re going to argue about and that business is just not going to head in the right direction. Also, different abilities. I know there’s so many people. They try to find somebody that’s like them. You got to find somebody that’s totally different than you than in abilities. Yes, there’s wants, some overlap, but you have to look for different abilities. What I mean by that, for me, my skills are not in the financial side. Yes, I can read numbers and understand numbers in accounting, but that’s not where my skills lie. Mine is branding, marketing, sales, pushing the business forward towards that vision.
I need somebody to help with the management side of it. I need somebody to help with that management side of it. Somebody to help with that. The numbers, the financial side of it. I know you out there are the same way. Whether it’s picking a life partner, your business partner, find somebody that compliments where your weaknesses are. Also, when you start out in your business, this is one of the big topics. Nobody likes to do it. It’s just like setting up a prenuptial. As you got to set up a prenuptial for your business, you got to sit down and discuss the hard topics at hand.
We try to avoid those and you’re just “Oh, let’s move forward. We’ll get to them down the road.” I’ve had that happened with several of my businesses. You get moving forward and you’re all excited. It’s a new startup. You’re like “Yeah, we’ll do it. We’ll do it” or you’re working with your attorney a little bit, but you keep pushing it off. There’s more important things that come up than what the topics that you need to discuss with your partner. If you disagree on things and how decisions should be made in regards to money, and what you each should spend money on and everything. Both of those times that I’ve had not had the legal process in place first was a nightmare in the long run. We ended up just having to remove him, one of the other partner from the business. I ended up with the business, but then it was hard on me. I was filling all those duties and those responsibilities. Then try to run around and find another partner.
We really want to make sure right from the beginning, even if it takes you two, three, or four extra weeks. Sit down with an attorney. Get that legal process done. Work out those hard decisions and those questions that really make the business run more smooth in the long run. The next topic that we want to look at is you want to find somebody that you can have fun with. If you can’t have fun with that person, you’re not going to have fun in the business. Being able to joke around and just make the office or business, in general, a lighthearted environment. That’s what we really need to have with that person.
Communication, this is a huge part. With technology these days, it’s so easy to text on the phone or send an email, instead of sitting down with that business partner or that spouse or anything. Picking up that phone and talking to them instead of sending a text or email. Especially when concerns arise or just the little things come up, we want to sit down and communicate about them. If you don’t communicate them, that little problem, that little crack, is going to turn into a canyon. When it’s in that canyon mode, that’s when the business is going to start to have problems. Your clients are going to see it. Your employees are going to see it. It’s just going to cause major issues in the business overall.
I know you are saying “Hey Josh, this is awesome. Great content here, but how do I know? What red flags should I look for?” One of the best ways you can find out about who, if it’s the right partner, is go on a trip with them. That’s when all of that comes out. That partner is going to act a certain way, be a certain way within where they are outside. It’s like what stays in Ve- or when you go to Vegas, it stays in Vegas. Same thing. When you’re traveling with them, you’ll really find out who they are and what they’re really about if you want to move forward.
Couple of flags you want to make sure, one of the partners does not have all the power. When one partner has all the power, that’s when you feel like it’s going, the scale is not going to be equal. Dictatorship, you want to make sure that one person does not controlling the conversation pushing everything in that direction. That lack of communication is a major red flag. What I want to leave you today is you really have to make sure when you’re moving forward in your business, yes, you’re like “Oh, I can do it alone.” It’s great to try to do it alone, but at some point you’re going to need employees, add a business partner to manage and pick up your weaknesses. When we come back, we’re going to be with Coco Soodeek, a small business lawyer that’s going to help us understand when things go wrong.
Welcome back. Josh Felber on the Whatever It Takes Network. I’m excited to today. We have CoCo Soodeek, lawyer, liberal radio host, liberal capitalist. We’re excited to have her on the show today. Coco, tell me a little about your background and how you got to where you are today.
Coco Soodek: Josh, thanks for having me. It’s great to be here on the Whatever It Takes Network. I’m a business lawyer, but I’m a business lawyer with a heart. I started realizing about a decade ago that one of the problems that business owners have is that they fight. I do a thing called business marriage counseling, which is where I help business owners either work out their differences or I break them gently apart to save the business. I know all kinds of things that people ought to be doing when they pick their business partners.
Josh Felber: Excellent, Coco. I’ve owned about 15 different businesses over the years since I was 14 years old and about 90 percent of my business partnerships just didn’t work out. I could’ve used you for sure. That’s actually one of the things that we’ve been touching base on is how do you pick that right business partner, what were some of the red flags, and what are some of the synergies that you really want to look for. You have that experience. I’d love to hear your thoughts and your opinion.
Coco Soodek: Let me tell you my basic rule. Here’s my number one rule. Don’t do business with douchebags. That’s my number one rule. That means that if you meet somebody and you don’t want to go on a four month long backpacking trip around Europe, because you think they’ll steal your sandwich while you’re sleeping on the train. That’s not the guy to do business with. You want to pick somebody who actually roots for you, cares about you, and is emotionally in touched with their own feelings.
Now that’s a hard thing to find in somebody with skills, but the cost of going with somebody who really doesn’t care about you and doesn’t root for you, is enormous, as you’ve learned in the past. It’s a lot like picking your spouse. Even though it’s based in business, it is still a relationship between two human beings. You need somebody to care about how you’re feeling and whether you think you’re being heard, and whether you think you’re getting a fair deal. You need to care about whether your business partner feels he or she is being heard, and whether your business partner feels like he or she is getting a fair deal. That’s where it starts. It starts with emotional maturity and empathy.
Josh Felber: Definitely, no, you’re right. One of the things that highlights that I mentioned was you want to grab that person and go on a trip with them like you said. That’s where you’re really going to find out who each other are and who that other person is. If they’re going to play the game What Stays In Vegas when you go there, then you know they might not be the person you want to partner up with.
Coco Soodek: That’s right. One of the problems I bet you can relate to this and I can relate to this is you get so optimistic, you get so hopeful and excited, and you see a business partner as an opportunity that you want to grab, so you throw caution out the window. What you need to be is optimistically cautious. You want to think that there’s a great possibility that this stuff is going to work. You want to vet their character, so that down the road after you work for so many years, they’re not going to cheat on you.
Josh Felber: Right, no, for sure. You’re right. You get into that mode and you’re like “Ah, you’re all excited. Man, this is the right person. They’re going to help me push that business forward. We had that right vision. There’s just no bad that can come about.”
Coco Soodek: That’s right.
Josh Felber: What are your couple key points that you suggest for vetting that could help me and help our listeners there?
Coco Soodek: I would sit down and ask a person. First of all, you want to make sure they certainly have the skills. You want to make sure they have impeccable skills and you want to make sure that they have whatever the It is that you need them for: Money, time, contacts, assets, or inventions. You want to make sure they’ve got all that stuff. You clear all that stuff away and then you got to look at the character. Does this person have long standing friends? Does this person say nice things about people? Do you feel like this person is really emotionally healthy and not just trying to pick off enemies as they go.
The people they’re going to get back. That’s the kind of person that you absolutely want to avoid. You want to avoid somebody who is basically a chronic cheater. In the context of putting your business together, you ought to have some very deep honest conversations with this person and get a sense of their character. If you feel like they are dishonest or spiteful, or just not a grown up, you either want to say these things honestly to this person to see how they react, or you want to have the courage to go find somebody else who’s got the skills and the It that you’re looking for, because you can find them.
Josh Felber: That’s definitely a great point. It’s almost like you got to go out to the lounge and have a few cocktails, loosen up, and get them talking and see what comes out of their mouth for the most part.
Coco Soodek: That’s actually right. I really am a very firm believer, assuming the person drinks, of getting them into a situation where they can relax and really show you who they are. If you can’t see who they are when everything is great, when things start to go badly later and you have cash flow problems, or you have to fire a treasured employee, or you can’t make a decision about which product or service to offer next, it’s not going to get easier. It’s only going to get worse.
Josh Felber: One of the things that we touched base on and I’d love to hear your thoughts on it, is when we’re first setting up the business and getting it going. What are some of the legal questions that we need to ask and some of those hard decisions that we need to sit down and talk about? We’re going ahead and cut to break here in a minute and when we come back, I’d love to hear your thoughts on that.
Coco Soodek: I got them. I got an answer for you.
Josh Felber: Awesome Coco. I’m Josh Felber. Welcome back, I’m Josh Felber on the Whatever It Takes Network, here with Coco Soodeek. We’re talking about partnerships, taking your partner out, having a few cocktails, getting to know who they are. Now we’re going to talk with Coco a little bit about the legal aspect. Some of those hard questions and those hard decisions we need to make in the beginning to really sit down, vet out and, understand who we’re with. Coco, welcome back and thank you for taking the time today.
Coco Soodek: Josh, this is so much fun. Thank you for having me.
Josh Felber: Before we went to break, we were talking a little. We started to touch base on the legal side of things and those decisions and what are those questions new partners have to discuss and sit down to put together that legal prenuptial for their business. I wonder if you could enlighten us and share some of the highlights that you see.
Coco Soodek: I can. Let me say this. Whenever I think about a business partnership, or owners of a business, as having three rights in power. One is money. One is control. One is exit rights, the right ability to get out when you want to. In terms of the money, you got to think about what are each of you going to contribute. If somebody is contributing software, design, text, or just something that you need like the intellectual property or an asset, you want to make sure that that stuff gets assigned into the company, so that the company owns it or has some right to it. You want to make sure that the partner get back something, some type of ownership in the company in exchange.
That’s the first thing. What are you contributing? If somebody is contributing cash, when do they have to contribute the money? When do they have to pay the money and how much do they have to contribute? What do they get in exchange? This is a really big problem, because a lot of times you have partners who come in and one has money and one doesn’t, or one has money and one has time. You got to figure out what everybody has to contribute and what percentage of the company they’re going to take back. That’s tough. That’s the right to receive portions of the profits or the losses when you go forward. That’s the boring part.
Then there’s right to control. Who’s the boss? You got to decide somebody has got to be the boss. You can be 50-50 and it works 3 percent of the time. Somebody’s got to be the boss. You don’t have to have somebody be the boss in all aspects of the business and you can switch off in different parts of the business, but somebody needs to be in charge. Everybody needs to have the same understanding about who gets the final word. Somebody could be in charge and somebody else could have the right to say no to things, you got to work all that out. Order people’s titles going to be. The reason you want to work this out is because it matters on how everybody feels going forward. If everybody thought or one person thought it was going to be 50-50 but the other person thought that they were going to be the boss, nobody’s going to be happy going forward. That’s going to be a recipe for destruction and implosion.
The third is how do you get out. How do you get out? How do you make sure that you have a right to exit? If you have a right to exit, what do you get in exchange? Sometimes, somebody will come to me and they’ll be so devastated by the relationship. The other person, other business partner, won’t listen to them or won’t come to the table. The advice, sometimes, I give is you’re going to have to walk away and start again. You’re just going to have to walk away and start again, because you can’t fight this out for several years with somebody who will not fight. That’s not a great result. If they had worked out how they split apart in advanced, that makes it much easier. Those are the three things. How do you do divide money, control, and exit rights and obligations?
Josh Felber: One of the businesses that I own, I own some CrossFit gyms. I started it with a partner and it’s just funny that some of the things that you’re saying definitely resonate with me is we outline everything in the beginning. I put in the money and he had the time. We ended up being 50-50 on it and everything. There’s certain decisions that I made moving forward that had to do with the actual business operation. His was just more business decisions and control for the training aspect of things. It was just crazy. We were moving forward and awesome things were happening. All the sudden out of nowhere, I mean he’s a family guy, we found out that he was sleeping with the clients.
Coco Soodek: No, I’ve had that. No, I’ve had that. I got that with clients. I had that a couple times. That’s difficult. Let me ask you a question. When going into this partnership with him, were there warning signs?
Josh Felber: No. He’s a family man, had kids and stuff. It would’ve been the last thing I would’ve ever come across that way.
Coco Soodek: No warning signs about some type of dishonest streak or a love of secrecy or something?
Josh Felber: Not from what I was able attained in the beginning and all that. The bad thing for us is we didn’t have that exit strategy piece that you mentioned, and which is …
Coco Soodek: Did you sit down and have certain, did you know the guy really well?
Josh Felber: I’d known him over the years. He actually was a trainer at one of the gyms that I worked out at. We’ve known each other that he wasn’t like a close personal friend. More an acquaintance kind of thing.
Coco Soodek: I wonder if you could have sat down with him in advanced and really talked to him and learned about him. If you could have at least seen some signs. It doesn’t matter, because for all the talk that I give about how you have to sit down, some people, they just surprise you. They change, they go crazy, they get a head injury. Who knows? You have to understand that at some point you could get screwed and you have to be willing to walk away if the fight is too expensive.
Josh Felber: That was the whole thing is us not having an exit strategy. From a legal stand point, it financially cost money. The long story short is I ended up buying him out of the business. That was the only way for the business to continue its success and moving forward and everything.
Coco Soodek: That’s great. Good for you.
Josh Felber: Money, control, and exit are very three key points that I want you guys to take away today and really understand. Like Coco suggested, be able to sit down and have a hard conversation and learn more about exactly who that person is, what they’re like, and the details of their life overall.
Coco Soodek: I go into all of this in my book Birth to Buyout: Law for the Life Cycle of Your Business. You can get on Amazon.
Josh Felber: Awesome, Coco. I saw it. It’s a bestselling author, right?
Coco Soodek: Yes.
Josh Felber: That’s exciting. What led you to write your book?
Coco Soodek: I had a ton of knowledge from my fascinating career as a lawyer and I wanted to be able to give it to people who couldn’t afford my hourly rate.
Josh Felber: Awesome. That’s great advice. Have taken that book and be able to deliver the content to get it to the masses and everything.
Coco Soodek: It’s really my personal cheat sheet. A lot of times, I’ll grab it and use the text to refresh my memory. It’s an important tool for me. It’s an important tool for other people in business.
Josh Felber: Excellent. I’ll definitely have to grab that. The takeaway today, we want to start to wrap up with everything here is, what is one highlight that you would just recommend to our listeners?
Coco Soodek: I would recommend sitting down with the person you’re going to be partners with. Getting a sense of their character and figuring out who’s going to be the boss, what everybody is going to put into the company and take out, and what everybody’s expectations are. What are your goals for the business? I would write that stuff down in the plainest language possible and revisit it after a few months, so that you all stay on track. Keep talking to each other about how you feel about the relationship with each other.
Josh Felber: Awesome. That’s some great advice. Picking the right partner is very important. You don’t want to go and do it alone.
Like this? Please comment below and share it with your friends so that your loved ones can try some of these ideas to enhance their mindset and create massive change to have the freedom to live the life they want.
– See more at: http://joshfelber.tumblr.com/post/121676514634/the-legal-challenges-in-business#sthash.Gdo9ow84.dpuf