Reflections on Our 80/20 Partnership: Progress So Far
For the past six months, I’ve been collaborating with a former coworker on a niche service-based business (think something like pressure washing, but more specialized).
During this time, we’ve managed to partially fund and bootstrap the venture enough to invest in professional equipment, acquire an enclosed trailer, revamp our website and marketing strategy, and are on the brink of landing a contract with a municipality that could enable me to transition to this full-time and leave my day job. It’s been a long journey, and while we’re just getting started, we’ve come a long way from our humble beginnings with makeshift equipment strapped to a Subaru.
When we first decided to take over the business from our Subaru-based predecessors, my business partner proposed an 80/20 equity split: they would manage the business, sales, and marketing, while I would oversee operations. Many people—friends and family included—seem perplexed as to why I didn’t negotiate for a larger share right off the bat. However, there was one important stipulation: if any additional partners join us, their equity would come from my partner’s share, effectively fixing my 20%. Even if that scenario never arises and they keep 80% indefinitely, here’s how this arrangement has been beneficial so far:
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I ensure our equipment and supplies are maintained, manage intricate bidding processes for municipalities and other industries, and perform the jobs.
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My partner accompanies me on nearly every job and often takes on more physical labor than I do. While I have specific technical knowledge that helps during our projects, they often prefer the hands-on work and ensure everything is running smoothly.
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All client inquiries, quotes, and bookings are managed by them and seamlessly added to my calendar without requiring any input from me.
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They’ve hired a marketing professional to enhance our website, manage our social media presence on Instagram and Facebook three times a week, and handle our SEO.html" target="_blank">SEO ad campaigns—all funded through profit sharing.
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They’ve even started a second, related business and offered that same 80/20 split.
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We’ve seen our monthly earnings jump from $500 to over $2,000. While it’s still modest, our total investment is under $10k (with no debt), and we’ve kept our operating costs low.
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Throughout this journey, we’ve expanded our industry knowledge, and the business is funding my enrollment in industry-specific courses at a local university, enabling us to offer more comprehensive services.
By “giving up” that extra 30% equity, I can focus on the enjoyable aspects of the business while still benefitting from the sales and marketing efforts needed to maintain a steady flow of clients. For my partner, that’s the “easy and fun” part. Of course, there are potential pitfalls, but I maintain direct access to our QuickBooks and adopt a “trust but verify” approach without being intrusive.
Is this 80/20 split a common arrangement in small businesses? Have any of you experienced horror stories where this setup didn’t work?
2 Comments
It sounds like you’ve set up a really interesting partnership that leverages each of your strengths effectively! The 80/20 split is relatively common in small businesses, especially when one partner takes on significantly more responsibility in terms of sales and business management. What you’ve described, where one person’s skills complement the other’s, is a great approach to ensure that both sides contribute to the growth of the business in a way that plays to their strengths.
A few things to consider moving forward:
Clear Communication: As you both grow the business, it’s crucial to maintain open lines of communication. Regular check-ins can help address any potential concerns before they become issues.
Written Agreements: While it sounds like you both have a good rapport now, make sure all agreements regarding equity, profit sharing, and responsibilities are documented. This can help avoid misunderstandings in the future.
Future Contingencies: If you’re concerned about potential new partners affecting your 20% stake, it might be worth discussing this further with your partner. Clear terms about adding partners and how equity will be handled can save a lot of headaches later.
Performance Metrics: Consider establishing metrics for performance and milestones. This can help you both ensure the business is on track and can guide discussions about future investments or changes in equity.
Keep It Fun: Since you mentioned enjoying the operational side of the business, make sure to keep that joy in your work. It’s easy to get bogged down in stress, especially as things grow.
As for horror stories, many partnerships do face challenges when it comes to split responsibilities and perceived value. Situations can arise when one partner feels they are contributing more than another or if one partner’s decisions negatively impact the business’s direction. It’s crucial to navigate these waters carefully. Overall, your proactive approach, along with the trust you’ve built, seems like a strong foundation for your partnership. Good luck, and keep the momentum going!
This is an intriguing reflection on your 80/20 partnership model! It’s great to see how you’ve capitalized on this arrangement to align your strengths effectively while still enjoying the operational aspects of your business.
Your decision to take a smaller equity stake while gaining invaluable experience and stability is a bold move that not many would consider. It certainly highlights a key aspect of entrepreneurship: sometimes, the journey is more valuable than the immediate reward.
In the realm of partnerships, I’ve seen similar structures where the division of roles allows each partner to focus on what they do best, fostering a more productive and enjoyable work environment. The success of such an arrangement often hinges on trust and clear communication, as you’ve rightly highlighted with your “trust but verify” approach. This transparent interaction helps in mitigating risks and ensures both partners feel secure in their roles.
As for the potential pitfalls, I’ve witnessed scenarios where imbalanced contributions led to resentment over time, particularly if one partner felt the other was not pulling their weight. Regular check-ins and reassessments of each partner’s goals and contributions can be crucial in maintaining balance, as is establishing clear metrics for success.
Additionally, your example points to a growing trend where partnerships are formed around shared vision rather than traditional equity splits, which can open doors to more innovation and adaptability in business models. I’d be interested to hear how you plan to navigate the prospect of additional partners in the future and what criteria you might set for them to ensure continued alignment with your business values.
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