A Puzzling Tale Of Ants, Popcorn And Shareholder Agreements

A Puzzling Episode

Last week we talked about a puzzle that had taken over part of our office and it’s still there! We’re making progress, albeit slowly, but more importantly the puzzle seems to have become a point of interest for our clients and business partners who visit.

Just last week during a couple of meetings, we were interrupted in the middle of marketing-speak by a client exclaiming, “Hey, I found a piece!” So let this be a fun lesson for you: whether you work at home or in an office, it’s not a bad idea to have something for your customers and visitors to play with. Try it!

SuperFred FTW!

Last week we put out a call to you, our readers and listeners, to ping a couple of folks on Twitter who we’d like to have on the show. As of this recording, Sarah Rodriguez and ComicBookGirl19 have both responded to the call of The Army Of Fred and we’re currently discussing having them on our podcast.

That leaves us with one holdout: Melissa Hunter. So if you have a moment, let her know we’re still waiting to hear from her!

The Ants Go Marching

Before we get into our topic for the day, I wanted to share something that happened to me over the weekend. It’s safe for work but maybe not if you’re eating lunch.

Friday night we sat down to watch a movie and Carol Lynn had bought me a bag of my favorite kettle popcorn. I ate half the bag then left it next to the couch, figuring we’d be back to watch a movie the next night and it would be waiting for me.

The next day Carol Lynn cleaned up a bit and sealed the bag with a clip and put it back onto the kitchen counter. That night we did indeed watch another movie and I was excited to remember that I had half a bag of popcorn so I grabbed the bag and a bowl, dimmed the lights and the movie started as I crunched and ate, crunched and ate.

At some point I felt like I had a bit of popcorn stuck between my teeth but I couldn’t seem to get it out with my tongue because it kept moving around… that’s when I noticed that my hand was covered in ants. And the popcorn in the bowl was covered in ants. And the bag was full of ants.

So let’s just say I spent the better part of that evening spitting and brushing my teeth and freaking out. We’re not sure what to make of this as a lesson, except maybe, “Don’t leave popcorn by the couch” or “Don’t eat in the dark.”

What I can say is that this shall never be spoken of again.

And Now, The Shareholder Agreement

Yes, we have an actual topic today and it revolves around the very, very beginning of the entrepreneurial journey, namely what happens before, leading up to and during the process of putting together a shareholder agreement (also known as an Operating Agreement.)

This is the agreement that will lay out all the logistics of how your business will be run, how the money works, what the roles and responsibilities are and essentially all the “what happens ifs…”

It All Started With An Idea

Since we’re content creators, and we create quite a lot of it, we need to have a really good process that keeps us on track and working efficiently. To help us do our jobs, we built some homegrown tools that made it easier to manage some of the repetitive parts of the process.

But then we realized, hey, if these tools are helping us, wouldn’t they also be able to help other people?

And thus our idea was born: let’s package and sell the tools we’ve built so they can help other people with their content creation and promotion process.

You will have your own idea, but if you want to make it a successful idea, it helps to formalize your plans, which is exactly what we did with our shareholder agreement.

Putting The Team Together

In our case, we decided that between Carol Lynn and I we could get some kind of product out into the world – but it wouldn’t be nearly as good or as successful as it could be if we found the right people to work on it with us.

So we chose to add a creative director, a director of marketing and sales and a CFO. And we chose to include them as shareholders so that everyone would be incentivized to make a lot of money and cash in.

Now, we could have hired them – but given that we just started the company and we’re making zero dollars, and neither of us has a million dollars hanging out in a bank account to pay salaries in the meantime, we opted to go with a partnership.

That made it even more important to have a governing document so that everyone knows what to expect and nobody ends up irritated or confused or angry somewhere down the line when what they thought was happening turned out to be something entirely different.

The point is that “a good idea” is not enough. If you want to bring your idea to life, you need to be sure you have the right team in place and the right agreement to make everyone happy.

Can You Do It On Your Own?

If you can, great! Go ahead and knock it out of the park.

But most people with a good idea need at least some support to make that idea happen. That’s where your team comes in – and more importantly, that’s where equity comes in.

When we first started, our initial thought was…. Our idea, our money. And we gave a little bit of that to the other people on our team. But the other people on our team had a different perspective. They figured they’d all be contributing to the success of the product just as we would, and wondered why they were only getting a tiny piece of the pie.

And they were right. They each brought a specialized skill that we couldn’t do without. So we split everything up evenly and that means everyone has a stake in seeing the business grow.

If you’re thinking of partnering up with someone, think long term and think value. Do you value your team? Then you need to show it. The last thing you want is to take the lion’s share of profits and disappear on a nice long vacation to the tropics while your team members slave away for a couple bucks, growing more and more resentful and maybe eventually ditching you.

Think Ahead

Our goal in having this conversation is not to make this sound complicated or hard. Our goal is to show you just how not complicated it is. If you’ve got the right team and an attorney to advise you, this is all a matter of some boilerplate legalese plus a bit of personalized advice depending on what you want and need.

What is more complicated, is ignoring this step up front and finding yourself mired in red tape or worse, being sued somewhere down the line because nothing was clear up front.

Play a little bit of the Devil’s Advocate. Ask why, ask what, ask what if. Think of the worst case and best case scenarios and think about what might happen in each. That’s what your lawyer is for – to advise you and guide you.

And that’s also why you can’t hop onto the Internet, grab a strictly boilerplate document and go. It may be cheaper and it may be tempting but you’ll miss out on the personalized advice that comes with having a real attorney to advise you.

In our case, we were planning to write language into the agreement that forbade us from selling the business or taking investment money for five years. But our attorney advised us not to bar it but rather to require a unanimous vote of the shareholders before we could do it. Without his advice, we might seriously have limited our options without knowing any better.

A Little Cash Up Front Can Save You A Lot Later

True, attorneys aren’t free, but they’re worth the short term investment for long term peace of mind. Besides, if you’ve got partners then each of you will contribute to the cost so no one person has to shoulder the burden alone – that’s the point of a partnership. If you’re thinking of starting one, ask questions early and ask them a lot. Put the right team in place and then get the legal advice to help you make it official. You will save yourself a lot of stress later!

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