One thing that I have seen in my 20 plus years of being a lawyer that causes one of the biggest problems in small business is simply just not having things down in writing. The potential disaster that this causes is not usually so much to do with one person trying to cheat another person, what is more common is a situation where for example if I’m in business with you, we do a collaboration and then each party simply, misunderstands what the other one thinks the deal is.
I acted recently for two authors and one was the illustrator and they were doing children’s stories. Now the author thought that they would be working 40 to 50 hours a week on this project and that it would be the only thing that they’re doing. The illustrator thought that the deal was, it would be more like a hobby and she’s gonna do it in between other things and she thought she’d be working five to ten hours a week. So the author did a significant amount of work, not only in authoring but also in you know, promoting, getting contracts, getting distribution whereas the the artist she was a little bit away with the fairies.
So what I recommend to people, is right at the beginning to sit down in bullet point form state down your obligations, the other person’s obligations and what each of you are gonna get out of it. My author said, “Well I was going to write and she was going to illustrate.” What does that look like in practice? When you’re sitting down and planning, what’s it going to look like? How many hours a day are you going to put in? In this specific example would the artist have to come up with a specific number of drawings, or is it only going to be hour based?
You can translate that into your own business for example if you’re collaborating with somebody and they’re going to do the social media side for you. What are the KPIs, do they need to get a certain number of people to sign up to your course, or is it the number of posts they do? How are you going to calculate if they are doing their part and how are you going to calculate exactly what you expect of them and of yourself? It’s for both of you and then work out what’s gonna happen with money?
Money is a big source of strife, so work out what’s gonna happen with the money? Is the money going to go into a common pool and you pay the debts first and then you pay yourselves? Is each person going to get an equal share? What happens if one pulls their weight and the other one doesn’t? So there’s two things to put into your bullet point list when you’re talking to the person you’re working with. What each of you’re going to be doing, what’s going to happen about money and what happens if things don’t go well and it ends up costing more than you actually bring in, so you’re running in a loss, what happens then? Are you just gonna fold, are you both going to be responsible for the debts, how is that going to work?
What will happen if things go wrong? Now this is really important, think of it as a prenuptial agreement when you get married. You know these big stars if they get married to somebody who doesn’t have much money they sometimes do a prenuptial agreement and that works out exactly who’s going to get what if things fail, same thing with a business. It’s thinking about an exit plan or an exit strategy before things even start. Now sometimes I’ve got clients who say to me, “well that’s no good, I don’t wanna think about that at the beginning.” But it really is important to do that.
Who’s going to own the intellectual property? So going back to my author and her artist friend, was she going to only own the copyright in her stories while her artist owns the copyright in the drawings for example? Who’s going to own what? Do you both get equal access to it? Who’s going to deal with the situation if, for example there’s a complaint and somebody wants a refund? Are you both going to be entitled to keep trading in the same field for example? What if there’s a split up between the two of you, can the business still be viable? If you each want to go your own separate ways and you want to trade on your own, is that fine, is that permitted?
However you want it to work out, if you think about it in the beginning it’s much less likely to end in tears. This is the most amazing thing that I’ve seen over my career. Most people that have these kinds of disputes, have them because it’s unclear and people have differing expectations. Now that’s a little bit different from when you’re in your business and you need to have terms and conditions and I will talk about terms and conditions in another module, in this course. So when you’re collaborating with people it’s really important to put it down in writing and do you need to go to a lawyer when doing this?
Well, if you can afford it that is a good idea because then you can get all legalities covered off. But to be honest, sometimes just working out those bullet points as to obligations, what’s going to happen with money, good and bad, whether there’s a profit or a loss and what will happen if things go wrong, is enough to start with before you get going. Remember to also deal with ownership of whatever assets are left, so intellectual property, but also physical assets so if you bought a printer or a disc or whatever make sure you deal with that as well. Good luck with your collaborations.