Know-How Exchange : Strategy

Starting a Limited Liablity Corporation, LLC is relatively easy to do and does afford some liabilty protection. The legal issues of starting the LLC are not much of an issue.

It seems to me the bigger issue would revolve around who you partner with and how decisions will be made. Often times consultants are used to calling their own shots and do not necessarily play well with others. I think figuring this piece is the bigger challenge.

In regards to the non-profit vs profit, etc. I guess that depends more about the mission of what you are doing. I would typically opt for profit to avoid all of the issues around maintaining non-profit status.

Mike

Why not form a company yourself, and outsource the proposals/work to the consultants? That will keep you focused on running the business, and them on working in the business.

Dear Juliet

Unimax Solutions used to be structured in such a way as this, so I will attempt to answer your questions from that perspective.

The original intention was to improve our individual purchasing and bargaining power with Maximizer UK and to more easily handle large or complex jobs. At its best, on one contract we had three people working in Glasgow at a sales office and another one or two at their HQ in Crawley – all at 3.00am so as not to disrupt the sales team. This was quite effective for about 3 years.

We also centralised administration and the customer / prospect CRM system and freely shared our prospects and customers to develop further business. We centralised billing and accounts payable so that individual partners did not need to raise invoices or chase debt. In theory we were to enhance our marketing by jointly funding more, but that part failed to win any commitment and once I was pissed off with the apparent Anti-Marketing” attitude, my commitment waned.

We terminated the agreement because it wasn’t working and because Maximizer UK started to demand that all BP staff should attend expensive courses. Apart from not wishing to pay to be told how to do sales an marketing of Maximizer, I reached the level of putting so little business through their books that these expensive courses could not be justified. It was envisaged that I would continue to do their marketing, but I think that once they were faced with paying the bill for my services, they became even less willing to use me that they were when I came for free!

At its worse, organisation was too bureaucratic and inclined to meetings which didn’t achieve much apart from waste time. I’d put my hand up and say that I was as guilty of going along with this as the others were at fostering it.

This is a pity as several recent large CRM contracts (Bigger than anything we had ever done) have gone to other software vendors. Because I could not honestly say that I was still accredited to Maximizer as a Business Partner, I had no option other than to refer to and work with alternative companies where my accreditation is not in dispute.

Your points answered:

1) Do such organisations exist?

Yes. Ours was, I think an off-template structure with a holding company with three directors and all of us as Partners in our own fee earning right. The limited company had at all times the responsibility for getting paid and for purchases from Maximizer. It also covered any liability from damages were we to cock-up client work resulting in legal action.

2) Do you know of any which are working well?

Most advertising agencies started life as partnerships and many still work under this umbrella structure but have employees as well as partners. Solicitors, Accountants and Architects operate as partnerships, often with a holding company to employ the non-fee earning people, but they are Chartered Organisations and the partners have to accept liability for being sued and for the debts of the company should it go bust. Consulting Engineers operate on a similar model and are not constrained by (Surely that should be “Benefit From-!) Chartered status.

3) Any horror stories or pitfalls?

Yes! When the relationship breaks down, there are often a lot of grey areas because the founding partners rarely have the financial resources to have a detailed contract drawn up. The result of this is often an expensive legal dispute over the ownership of customers which have been worked on by the partnership but introduced to them from someone who subsequently leaves. You could drive a rather large tank through my own contract, for example.

In addition to that, the directors made their own appointments of other directors to work at the umbrella level and the partners couldn’t do anything about it. This worked well until they appointed someone who turned out to have a criminal record and was still being pursued by the police! How embarrassing is that?

4) Any ground rules or legalities to have in place?

Agree to love honour and obey, but in front of a solicitor! Ensure that there is a management structure, as technically minded business partners who do not belong to the world of sales and marketing often need managing and mentoring to get the best out of them, without producing missed opportunities and nervous breakdowns.

5) Any book/website/person/organisation I could talk to more about this?

Don’t look at our old one. Until I forced the issue, the Unimax Solutions website didn’t come up in the first 10 pages of a Google search when you searched for “Unimax Solutions”!

Talk to people in your local chamber, consulting engineers and local marketing partnerships to get an idea of the scope for this arrangement.

6) Is it better to be for-profit, not-for-profit, community interest or a social enterprise?

Unless you are to work for a charity, it is best to operate as a for-profit organisation. In education, almost all the professionals are salaried, so they shouldn’t look at a fee earning partnership with any disdain for your service. “Profits” might be a dirty word to the members of your union, but the people who will do the hiring in local government are often themselves professionals who have ditched earning fees in exchange for £180,000 a year as a Director of Fascinating Educational Titles.

You should not underestimate the tax advantages of operating as self employed partners and the low-level of hassle when it comes to your accounts.

I’ll probably have some further observations to make later, but that’s all for now.

Best wishes


Steve Alker
Xspirt

Any arrangement to work together, even ad hoc, needs guiding rules and voting rights to be specified. The problems tend to be who 'owns' the client and whether other people also responsible for bringing in business and who therefore earns the sales commission/lead partner.

Problems really come where there is an imbalance in who is bringing in income, versus who is doing the work. Consequently, pooling resources and income to a central pot, then paying each other a salary with a bonus for certain key tasks may be more efficient.

Unless there is a continuous stream of income and probably a shared cost base, it can be difficult to keep the partnership together. In such situations, ad hoc freelance subcontracts to each other may be more efficient and test to see if you can actually work together.