An Agreement To Operate | #34

An Agreement To Operate

No. 34 — read time 4 minutes

Welcome to The Soloist, a weekly newsletter where I share timeless ideas and insights about life, business, and creativity.

Today at a glance

• An Agreement To Operate

• Article: Writing Online & Self-Employment

• Tweet: How Machiavelli Spent His Evenings

In 1976, Ronald Wayne, the third co-founder of Apple decided he wanted out.

12 days earlier, in Wayne's apartment in Mountain View California, Steve Jobs, who recruited Wayne to be an intermediary between him and Wozniak, announced to the group "We should form a company".

But not even two weeks later, Wayne sold his 10% stake in the nascent company back to Jobs and Wozniak for $800. He soon accepted an additional $1,500 for signing a release of the company from any future claims.

And just like that, the 3rd co-founder of Apple, who designed their first logo and drafted the initial legal paperwork, was gone. His name, and equity, forever removed from the Apple story.

There are infamous stories of co-founder disputes and breakups, from Mark Zuckerberg and the Winklevoss twins, to the Evan Spiegal of Snapchat and a third co-founder who would go onto sue (and win).

Getting the initial structure of the company sets a company up to focus on the actual important work of finding customers and revenue and turning a profit.

And yet, if you are building a small bootstrapped product there doesn't seem to be an easy manual for how to think about these questions. Most of the literature online focuses on VC-backed startups and their structures.

Today, I want to share how we structured some of the most important questions for business partners or co-founders in the Operating Agreement for dewey., the micro-SaaS product I've been working on as part of my small bets portfolio.

A few caveats — this is not legal advice or financial advice. I am not a lawyer nor am I a tax advisor and nothing in here should be treated as such. This is for educational purposes and I'm sharing how I handled a situation which may, or may not, be similar to one you are dealing with. As always, work with an attorney to find the right solution for you.

Second, this is not meant to be exhaustive of everything you'd find in an Operating Agreement, but it does cover the most important points that in my view must be negotiated at the outset.

With that warning, here's what we did:

Since most of the Operating Agreement Templates found online help you cover routine things like deciding between Member-Managed and Manager-Managed, as well as Ownership percentages and Accounting procedures, we left those items plain vanilla and spent zero time worrying about them.

Instead, we focused on the (potentially) hairy issues.

• How do we avoid someone not pulling their weight and/or wanting to leave?

• How do we split the profits?

• How do we decide if we should sell?

We framed the issues as a list of questions and then worked off a shared Google Doc where each person put a comment indicating their preferred response to each question and then we reviewed.

The full list of questions for you to copy can be found here.

For the most part, we were all in alignment and if there were any disagreements, it was clear that it was better to tackle them head-on at the outset when the stakes could not be lower, as opposed to leaving any room for ambiguity and risking deep disagreements down the line.

This exercise also allows you to test the waters with your potential partners. If you do find yourself with very disagreeable potential partners, you may want to evaluate whether that type of person is suitable to partner with you. If not, it doesn’t make them a bad person, just not someone compatible to your preferred method of working and resolving issues.

Fortunately, we worked together in the past, trusted each other, and take a "strong opinions, loosely held" approach to disagreements so that we were able to find common ground quickly. At the risk of beating a dead horse, this process should not take more than a day of hashing out the items and getting back to work.

The benefit of taking the “open questions” approach is that it strips away the formality of an Operating Agreement allowing for the commercial terms to be debated and negotiated. Once those are set in stone it's always much easier to convert to legalese.

Remember, there is more to an Operating Agreement than just this but in terms of 80/20 this will get you to a place of mutual trust and understanding when it comes to the economics of the entity.

For a breakdown on major mistakes to avoid, I found this video and thought it did a good job describing common pitfalls:

It’s easy to overthink this stuff and chase an endless optimization. Avoid that inclination. Get the big things right and move on to building and selling a product. Hopefully, today’s lesson and worksheets help in that effort.

Till next week,

-Tom

Article: Writing online doesn’t help me be self-employed. Writing online is the reason I am self-employed.

Sri Karnic is one of my favorite online writers. This article summed up why I think more people should consider writing online, and how self-employment relates to that goal.

Read Post

Tweet: How Machiavelli Spent His Evenings

P.S. Whenever you're ready, there are 3 ways I can help you:

1. If you save a lot of bookmarks on Twitter (like me), try dewey. —
   the easiest way to organize Twitter bookmarks (I'm one of the makers).

2. I’m doing FREE discovery calls for my business and audience growth coaching. 20 min. 1:1 with me — book a slot here.

3. I’m putting together a course on how to build relationships online. If you’re interested sign up here.

This week’s newsletter is brought to you by Beehiiv.

Beehiiv is the only email service provider with a built-in referral program. Explode the growth of your newsletter by using the most powerful persuasion tool out there, word of mouth.

Start growing your newsletter faster here.

If you enjoyed today's newsletter, consider sharing it with friends and family. If they don’t hate you, they might thank you.

If this email was forwarded to you, consider subscribing to receive them in future.