Bob Browning's blog

Over the years we have worked on a number of joint ventures and this morning I got to thinking about our experience and maybe sharing with others who do the same sort of thing.

We are a technology company and normally we work with designers on a fixed-price basis. But sometimes when an entrepreneur has a good idea but not much money we are prepared to share the risk with them for long-term revenues.

1. Our first and still going strong (we are on our third rewrite) sells management reports and subscriptions B to B. We take a percentage of revenue and although we are very google-dependant so the money goes up and down, over the year they basically pay our rent.
2. We then set up a site to sell foreign currency on-line to the US market. It limped along for a couple of years and then got hit by a major fraud. Goodby to that one. The arrangement was that we had a higher take until the site met a threshold cumulative income and then it dropped. The threshold was never reached.
3. We started a toy store with an entrepreneur. It took a couple of years to take off (this bas back in the late 90’s) but when it did the guy figured he could get it re-wriitten by a small freelancer for not much money and not have give us our cut.
4. This slightly put us off, but more recently a designer we work with a lot decided to go into business for himself selling architectural hardware on-line. We did the site, he went the adwords route and instantly the site started making money. We get a nice income and we are working continuously on it. In this case we take a percentage of the net profit. This was higher in the early stages, and then dropped to a lower percentage when we reached a threshold.
5. Finally. A site I stated myself in 1996 or thereabouts and which we reformed as a separate company. (www.bobsguide.com). This is very successful and we make a regular income from it.

Lessons:

1. Because we have an ongoing interest in such a web site, we are moritvated to continuously improve it. Because we do this in time that would otherwise not be billed the opportunity cost is low and we can just get on with it.
2. We sacrifice instant cash flow for long-term income. We tend to go for this sort of project when orders are thin, so the opportunity cost is much less than you might think. Of course if we did nothing else our cash flow would kill us.
3. We need to satisfy oursleves that the project is going to be successful. I think we have a pretty good nose for this having worked on the internet for 10 years. Believe me I have had some pretty hairy propositions.
4. These work if the enterprise is genuinely a partnership. None of the successful projects has been run as a traditional client/supplier relationship. We talk, we agree, we do some work.
5. Most important of all is the trust between the partners.

For the right case this can be a good way for someone with a good idea but not much money to get a project off the ground cheaply. The entrepreneur is mortaging a certain amount of the value of the business of course, but this effect can be minimised if the partner takes a higher percentage of the take in the early stages and then it drops to more of a maintenance level once a cumulative threshold has been reached.