Partnerships · Exit Strategy

Two startups in one brand?

Ken Huling Animator at Blue Sky Studios

September 1st, 2016

I'm opening a family entertainment venue in December. I had planned on opening under my own brand but I've been presented with a partnership opportunity that I'd like to pursue instead.

The owners of "Company B" and I hit it off at a conference a few weeks ago as we share the same vision for rapid expansion and creating a national brand. They already have a strong web presence, SEO, marketing strategy, and booking agent. All of which I need. They want a presence in my market and I provide them with more brand recognition and somebody dedicated to opening and running shop.

We need to find fair partnering terms. It wouldn't be structured as a franchise where they control the product and I pay licensing fees or a percentage of revenue. They don't want to take control of my business and tell me how to run it but want it to be a mutually beneficial agreement.

Here's what I think is fair. All revenue for my location is paid directly to my business account. For the services Company B provides and we both benefit from they send me an invoice. This could be marketing, trade show expenses, web hosting, booking fees, etc.

Where it gets tricky is how to handle growth. By combining resources we want to open three more locations in the next year and over 50 locations within five years. How would you structure the funding and revenue share of those locations? If one party decides they want out what is the exit strategy?

Lastly, what questions need to be asked that I'm not asking here?

Ken Huling Animator at Blue Sky Studios

September 2nd, 2016

I believe in you, FD Discuss. Any thoughts out there?

Paul Garcia President at TABLE

September 3rd, 2016

It sounds like you're entering into a management agency arrangement, with a little kicker that they are offering some capital to expand. Presumably they're not going to give you that capital if you don't have financial success in the original location. It's unclear that what they have to offer is of a measurable value yet. Yes, they can do things for you that you may currently lack the staff/skills to do on your own, but that's just an agency relationship.

At this stage I would recommend setting aside all thoughts of expansion. Build your relationship solely based on the things you want to do together at the first location. Once you have both knocked the dents out of the initial relationship and figured out what your business is actually worth and how much their work contributes to your success, you can put a value on their investment in how it will grow your business, and you can both have a structure that's based on facts instead of guesses.

They might be eager to buy in now because they think it will be cheaper to get in early. But you might also find they're not the best partner, that you aren't needing them as much as you thought, or that another better partner exists out there you haven't discovered yet.

Is there some reason other than a talent deficit that you need more than them working as your agency right now?