Equity or Earnings: How to Structure Profitable Partnerships

Hello and welcome to the show. Before we begin, today is going to be another one of those noisy days because the munchkins are home because of the holidays and they're causing a ruckus in the background. So hopefully not too much of the noise is going to spill over into today's recording. So for those of you who are tired of the content stretch, you will be happy to know that we are done with that, at least hopefully.

I think we're done with that and but we're not going back to listener questions or audience questions. We're going to talk about something else and that is equity and revenue share. That's when people are trying to partner up for mutual benefit. Again, let me repeat equity and then revenue share when people are trying to partner for mutual benefit. I'll define the terms later, but why am I talking about this? The reason why is because there are lots of folks who are trying to get into partnerships of, you know, mutual benefits as per I

have a proposal, I have this idea. I think you and me will be cool. Let's do some work together. You know, you get something out of it, I get something out of it, but they just can't find the words to put together the right proposal. Now I figured that it would be a good idea to tackle this again today because the episode where I spoke about cool guy, I can't remember the code name that I came up with for him. Was it cool guy 587 or 517 or something like that.

So there are a bunch of you that have listened to the cool guy episode and you reached out saying I haven't done this, but thanks for the heads up. I'll make sure I don't fall into this kind of error. And even though I tried to give some solutions, then I think it's not enough to flog the problem and then not give a plethora of solutions. So for those of you who are in a similar situation as cool guy 587 and or maybe you suspect that you, you might have fallen into this error in the past or you want to avoid falling into those sorts of things where you're trying to make a proposal and then you end up insulting someone the worst case scenario or putting forward the proposal that is not well thought out.

So that's the reason why I'm coming. I'm looking at equity and revenue share. I'm just trying to see all the avenues that people can partner for mutual benefits. So you actually can roll up to someone in their DM or in a networking session and they say, hey, what's up? How you did, seeing what you've been doing. These are my ideas. I think this is how we can hook up. I think this is how we can partner. And if I bring this, you bring this and this thing comes out,

you know, I take this, you take this. So that's the sort of thing that I'm trying to propose. So for those of you who are new to the podcast, what I'm talking about is a previous episode, I can't remember the name anyway, I can't remember what it was titled. But there was a previous episode where I spoke about how if you're trying to pitch a proposal or a partnership or whatever to Nigerian business owners. And I'm trying to qualify that because I wouldn't be surprised if the other parts of the world,

maybe in Nigeria, sorry, in America and in the UK where you actually can roll up on someone and say I have a strategic partnership. I want to discuss with you have a strategic alliance, whatever, you know, all those fancy terms that people might listen. But in Nigeria, I find that Nigerian business owners have a low tolerance for that kind of crap in quote. So in that podcast episode, I said he'd be better off just approaching a Nigerian business owner if you had some sort of proposal, partnership, strategic alliance, joint venture or whatever it is you want to call it.

What I said in the podcast episode was that if you just broached the conversation around money or revenue or around customers, then you would find a willing audience because Nigerian business owners, that is what they care about. They care about money and revenue, they care about customers. So if you come with all that highfalutin language of strategic alliance and joint venture and mutually beneficial proposal, all that kind of whatever, if they listen to you and they can hear a path to money, a path to revenue, or a path to customers, then they'll pay your attention.

So that's the scope that I was pushing forward in the previous episode. So yes, but there are other ways of handling these sorts of conversations. So if you open it with money and revenue or customers, that's cool. That's one we can can get it to work. Another roundabout way of handling the conversation is for you to just take the scope of approach the person and tell them, this is what I'm building or this is the vision and I need XYZ to get there.

And because of that, you know I'm going to need your expertise. And in return, this is what I'm offering. And your pitch is going to be #1 this equity as per you have a share in my business and then #2 is revenue share. So let me repeat, the scope is going to be. Hello, Mr. Business owner, This is an interesting project I'm working on. This is where I am right now. To get to steps, BCDI will need XYZ from you because of the expertise that you have or because of the connection that you have or because of the money that you have or whatever.

And in return for you giving me this money, this connection, this expertise, this whatever, I'm going to be offering you either equity or revenue share. For those of you who are in the tech space, you're already familiar with this sort of thing because this is the kind of dance, this is the kind of toasting, this is the kind of schmoozing that you guys do with investors. Essentially approach them saying this is my app, this is my idea,

this is where I want to grow. This is what I've done to take the next step. I need 1,000,000 naira or I need $10 million. And if you give me $10 million in exchange, I'm going to give you equity or I'm going to give you revenue share or your 10 million is going to be a loan and we're going to pay you back at so, so, so, so interest rate and blah, blah, blah. So those of you in the tax base, you're already used to this kind of thing.

So other people who are SME space, non tech, non tech space, Yeah, this, this is basically for you guys. So what's the difference? Equity, revenue share, What's the difference? I'm not going to go into the whole technical thing, but this is just the difference. Equity just means I'm the person is going to have ownership of your company. So let's say in the beginning you started the company, you're the wife, you know of the company and you and your husband and partnership.

And so let's say you call the company Bimbo and Bimbo and adequate associates or whatever it is that you called it. So and you and your husband, you guys only 100% Abby, you only have 5050. Yeah, let's say you guys own a 5050. You approach somebody with this kind of pitch. The whole idea is if the person says OK at the end of the day on your company papers, not necessarily in the name, but the company papers that reflect the ownership of the company.

It's not just going to be Bimbo that is you and adequate that is your husband. There's now going to be a data here as well. If you guys collected money from a data here is now going to be on your he's not going to be on your cap table. So that's the idea behind equity. The person now becomes co-owner of the business. That's what equity means. Revenue share just means thank you very much for the money. Thank you for the expertise,

thank you for the connection, thank you for the whatever this business is going to be pumping out, you know, 20 M every year in revenue, blah blah blah. Out of that 20 M, this is going to be how much that we're going to be giving you. So there are more important things to consider, there's more technical stuff to look at, and there are things to consider when you want to structure these kind of deals. But this is beyond the scope of the podcast.

And to be honest, I have not been a lawyer in close to 20 years. So I would not be giving you guys good advice if I decide to take a stab at it, to say this is how you do this, this is how you do that. So in my own opinion, you want to make a proposal on around these sorts of things, equity, revenue share and all these sorts of things. Talk to a lawyer. Don't try and freestyle it. Even if you don't have money to talk to a lawyer, but at least you have a cousin who just finished law school like maybe two years ago or something like that.

You'd be better off apart from your research, talking to their cousin. Let your cousin give you one or two things so that you won't go and hang. But yeah, ultimately it would be best to talk to a lawyer who is experiencing these sorts of things. So if you're looking for OK, well, anyway, let me just leave that strand now. However, some of you are looking to grow your business, looking to grow your thing and you're, you need the involvement of professional service providers to grow your thing because it happens a lot.

Somebody wants to grow their business and they need a a lawyer or they need an accountant or they need a business growth consultant. And then they reach out to people like me, business growth consultant, or they reach over to someone like my wife who is a government regulator to say, OK, you're knowledgeable and blah, blah, blah, blah, blah. We need to start this thing up. And people try and take this sort of pitch equity or revenue share.

But I noticed that a bunch of people just go straight to equity. So they start trying to talk to me to say this is what we're trying to build, blah, blah. Coming with your sales expertise, we can build this thing to A1 trillion era company. And we offer you, we offer you a 10% equity, then 10% of, of 30 trillion is equal to so, so and so, so you'll be, you'll be richly compensated for what it is that you've you've done to grow this business.

So people do things like that all the time when they're looking for professional service providers, when they're trying to grow their thing, trying to grow their business. And that's the reason why I'm making this episode because this is also one of those scenarios where they run, you run the risk of insulting somebody, you go and meet somebody who has 20 years of experience in the field. But because the person is your guy, the person is maybe you guys went to the same school or maybe the guy is dating your sister or something.

And then because of that, you go and tell the person, oh, you know what, this my business idea. If we grow this thing, we'll be able to capture Nigeria. And this is going to be a three trillion naira company and we're offering you 20% speak stakes in the business. So by the time we do the IPO and we are valued at 3 trillion naira, 20% of that. So that money is you know, and I'm not good at math. So run the calculation whatever how many millions or, or billions, OK, let's say millions.

So your own cup will be so, so, so million. And so yes, you're doing work now for free. But think about it where we IPO in 10 years or in 20 years, this is how much you will make you cut out with 300 M clean good money. So the people that make that kind of pitch. So in order for you not to insult somebody, one thing you guys ought to be mindful of folks like you who like to make that kind of pitches. That is the first thing that every single founder does.

You don't have money for lawyer. You approach a lawyer and then you tell the lawyer that oh, blah, blah, blah, blah, blah, equity. We're going to be valued at XYZ in 20 years and your own cut will be 10%. So just check it in. 10% will be valued at 1 billion. So 10% or 1 billion, that's going to be your own cut. So OK, well, let me just narrow it down to me. I personally, I'm not willing to consider equity at all unless I

can see traction and unless I can see sales grid on the part of the founder. Because this whole thing about traction is this, you love your business idea. You think the business idea is going to work. And yes, in theory, on paper, yes, it's a three trillion naira idea or whatever. But The thing is, if you guys are not making traction now, if you do not have the sales skills now, if you do not have the grid now to execute on that idea, me coming in and pitching my time and everything in the hope that I'm going to get equity in the future is not going to be realized because you guys have not established traction.

And you guys don't even have the grid to see the whole thing through. Which is the reason why for those of you who have approached me in the past with this whole talk of equity thing, I say no thank you. I'm not interested if I if I will, it'll be sometime in the future when I've been able to see that you guys can hit this milestone, this milestone, this milestone then OK, I know that OK, you guys are serious. By the way, at some point in the future, maybe 1520 years from now when I'm involved in private equity because that's my ultimate plan.

That's the reason why I'm gathering all these skills because I want to make private equity plays. This is the sort of thing I want to be involved on later on, looking for businesses where if I can inject my money and if I can inject my expertise, we'll be able to grow the business beyond a certain size. So in the future, yes, this is my ultimate game plan. But for now, I'm not touching any of that whole thing because I can't see the traction, I

can't see the great, I can't see the sales know how, and I can't see why you guys feel like this idea that you're trying to to build this thing that you're pursuing. I see no reason why The thing is going to materialize into a three trillion era company in the next 10 years or the next 20 years. So be mindful of that. Every single person in your own position is going around talking to lawyers, talking to sale consultants, talking to accountants, even tax people talking to tax people that come when you do our taxes for free for now.

But we're offering you equity in the business and we're going to be valued at AT20M in the next five years and your own share is going to be 30%. So or got tax accountant check it now. 30% of five M, that's how many M OK, no, that's not a good deal. 30% of five M, especially if you're waiting five years. And but you get my point. People try and make this sorts of and pitches all, all the while. So in my own opinion, if you want to make this kind of play,

equity or revenue share and you're approaching somebody in the professional services, there are people who are professional investors. You can go and talk to professional ventures at investors, venture capital, private equity. Yeah, you can talk to all those people and tell them equity, revenue share. It's their business, it's their thing. They have the tools and they have the metal framework to be able to look at your business and dissect it and say who is the customer?

What is the idea? What traction are you getting? How can we forecast this? How can we plan for this? How can we mitigate this? OK, this looks like it's a good bet. Let me drop money here. But for other people, for lawyers, accountants, what else? Brand design, Because people also make this pitch for brand designers as well. Now come and design our logo for us and do our branding and do our everything and then we'll offer you equity.

So for people like us who are not involved in the investment space, this is the easiest thing to do. If you need professional services to get your thing going and you don't want to insult anybody these days, we actually just negotiate a professional fee and then just pay up. Just be front with the brand person like our Bros. You know what this your designs as in a tight as in a tight die as in like it's the best that I've seen so far, but I won't let you like I'm broke right now that 400 Ki said I should pay you.

I really, really don't have the 400K. How much how much less less, you know, start pricing, pull whatever strings. You know, we go to the same church. You know we go to the same church, have milk of human kindness. Do it because of God. You know, whatever it is. The easiest thing to do is actually just negotiate and then just pay up. That's the easiest way. Negotiate, haggle, and then pay up. If you can't, well, that's the subject of another episode.

But the bottom line of what I'm trying to say in today's episode and in the previous episode where I was talking directly to cool guy 581RB587, is this. When you're trying to negotiate some sort of partnerships with someone, you need to make sure that there are mutual benefits for the thing not to be an insult. If you roll up on someone and you say, hey bro, sister, babe, I have this idea for a partnership, this is my proposal.

And then by the time you talk, talk, talk, and you close your mouth, there's only benefit for you. There's no benefit for the other person. Of course, the other person might feel insulted, not take you serious, and will pass on the offer. In fact, you can't even call that a real offer, especially in the legal sense of the word, because an offer involves you making a proposition anyway. Let me just ignore the legal aspect.

I'm just saying that you can't even call that an offer. So if you're trying to negotiate this partnership or something, make sure that there's a mutual benefit. I will benefit XYZ you, your own court is XYZ. You also need to make sure that the benefits are clear. So yes, that whole thing off. If you become a three trillion era company, you're going to have a 20% stake, you know. Yeah, that's kind of clear. Whether you can hit that is another story entirely.

But make sure that there's mutual benefit. You're benefiting something, the other person benefits something. Make sure that the benefits are clear. This is what you will get. This is what I will get. It's important to have very quarrel in the future because it does happen that sometimes things realize and then they work out and you collect your own, the other person collects their own. And then there's this whole argument of this one that you gave me is not what we agreed and then blah, blah, blah.

And you know, or what not. You need to make sure that the benefits are very clear. And trust me, I've been in these situations before, especially as a wedding photographer where somebody brings you a deal. It's OK, this how we're going to do it. This would be your cut. And I was in this situation where person brought the deal, gave it to me. We agreed on the person's cut. But because me, I have sales expertise and everything, I was able to grow the size of the pie.

So in other words, let's say the person brought the deal initially where the money was going to be like 400K. I can't remember the details, so I'm just restarting. So let's say the deal is going to be like 400 Ki did my thing. I was able to increase the size of the pie to I was able to add like another 150 on top and the thing now 'cause quarrel because me I thought like you brought this thing to me and this is what we agreed here's your own.

But the way the person was looking at it was person felt like I cheated them like they brought it at this level. I was able to grow it, but then I gave what we agreed initially. But I should have given a percentage of the larger amount that I grew the whole thing too. And so the thing caused quarrel. Well, not really a quarrel. The lady was vexed. She was sincerely and thoroughly vexed. But for me, yeah, I prefer to prioritize business relationship.

So I told her. Madam, no vex. So I'm sorry, I didn't see it that way. No problem. How much do you want to collect? And actually she wanted to collect all the extra on top. That's OK, no problem. I gave her the extra. Let the let there be peace. So I just let the whole thing go. So that's how I dealt with it. I know there are some of you who say no, that I handled it wrong. But The thing is just that look, I need deal flow because I don't have a job.

So this how I make money. All these things coming in here and there. So I need the deal flow to continue. So for me, I just want it to be that look, let this man just cut out make out good, according to her. Let the deals keep flowing in the future. Let me see how much I keep making on these things, but I know some of you disagree. Some of you would have said if I was able to grow it from add to the pie another 150K then you know myself, I deserved a certain cut of the Wharf.

Anyway, that's the story for another day. The bottom line, I'm just trying to say make sure that this mutual benefits. The person will take something, you, you will take something, and then it has to be clear how much is this person taking? Is it a fixed amount or is it percentages? We need to agree on all those things. Then we also need to agree on what needs to be done for the benefits to start vesting, for the benefits to start accruing.

Because if you guys agree that this thing is a partnership, this is whatever, I'm going to do this, you're going to do this. Then it's also not going to be fair. If you do your own part, the other person does 50% of their own part. They don't do the whole thing. And then at the end of the day, they're trying to claim right or pull rank or collect what needs to be connect collected. I guess what I'm just trying to say is everything should be clear.

It should be mutual benefits. Let's be clear what the benefits are. And with that, I'll bring it to a close. If I can think of any other angle to the whole cool Guy 581 or 587 and this whole thing about proposals and partnerships and strategic alliance and mutually beneficial partnership and blah, blah, blah, then I'll let you guys know. One, yes, by the way, I said it in the Cool Guy episode and I'm saying it again, they are particular contexts in which this works in Nigeria.

So by the time you guys get to the corporate space, by the time you guys enter corporate Niger, yes, people listen to that talk. So if MTN approaches Dangote, they say, hey, Dangote, I would like us to have a talk. Let's see if we can enter into some strategic alliances and blah, blah, blah, blah, blah. Yeah, I think somebody from Dangote will take the call because it's empty. And let's hear what it is that they have to say.

But at this level, there's a business part, business person who lives on the street. She owns a laundromat. You're walking to the laundromat. Good morning, Ma blah, blah, blah. You start talking strategic partnerships, blah, blah, blah, blah, blah. She'll say, look, this boy has been reading too many business books. And, you know, in her mind, she's thinking of how can I get this guy out of here so I can get some work done.

But if you walk into the laundromat and the Peaches, Madam, this is my idea XYZ, by the time we're done, this is how much money you make or this is how many customers are walking through your store. She will listen or you change the conversations. OK, Madam, this this is that. This is my idea. This is what I'm thinking. This is what I'm trying to build. If you drop this or if you do this, you have a share in the business or this is the cut you get out of the revenue, then these are ways that you can make all these proposals that will make sense to the average Nigerian business owner and you guys can end up doing business together and then you don't insult somebody and you don't come across as immature or I'll considered or having a proposal that is not well thought out.

So that's it for today. Remember to connect with me on WhatsApp. The phone number is 080, 64662140. The country code is +234. For those of you who are not Nigerian and then connect with me on LinkedIn as well, my name is Tavishima Ayede. I'm the host of the show. Can confirm the spelling of my name and my e-mail address from the link. We're currently listening to this episode. So thank you very much for your time and attention.

I'll catch you guys at the next episode.