Partnering in startup - disclosure? Need advice

Hi guys, I'm in a special position so I need to start with some history.

I have a side business as a webdesigner and I help local businesses get their offline business launched in the online world. I'm registered at a company such as hostgator/godaddy (let's call them "dealer") as a reseller for hosting services and domain names. Of course I buy my services at a cheap price and then resell them at current market prices. I'm actually quite competitive with my prices compared to my competitors but of course no where near the prices of my "dealer".

At the moment, I'm now lucky enough to be considered a partner (via shares) in the startup of a new business. I would be in charge of IT infrastructure so I'm setting up a typical installation of webservices and systems this company would need.

The thing is, my partners are starting to close in on me to disclose how I do things, and I don't like that. They ask questions like "what if you are no longer in the company and something happens, who do we call then for help"?

Problem: the company hasn't been founded yet, so there are no shares nor papers signed yet. So I don't have any guarantee that I'll be part of the game once it all starts. I don't feel tempted to have full disclosure about my sources (which are of course cheaper) without the guarantee that I'll be in fact part of the company.

On the other hand I also understand their concerns. They do indeed need to have a solid understanding of how things will work and who to call in case of an emergency (e.g. Holidays, Not reachable, I leave, I die, I retire, etc...) so that the company is not in jeopardy. So imagine I do indeed have a written agreement / shares, then I would happily give up my sources (with their own support team etc...) but then they will also realize that I inflated the price in my quotations/proposals.

Any advice on how you would tackle this?

Well, looks like you've landed yourself in a soup.

A birth of a company is built on trust. Unless you become "one" with your business, you won't see much success.

Why were you inflating prices in the company you're a partner in? That would be sheer cheating.

Also, I am sure you're not a part of this company simply because of your ability to sign up for web hosting accounts. So this should be rendered in as a company expense and as head of IT, you need to work in the best interest of the firm of which you're a part of.

You've been dishonest with your partners, you've done business with them within the realms of your company which left you profitable and them paying more than they should have.

I believe you should come clean and tell them what you were doing. Offer to adjust the extra payments for extra months.

Because, sooner or later, they WILL find out. It's not uncommon to pop by the offers from your dealers. And since you're a business, there will be other IT guys wanting a piece of the pie who WILL tell your partners what's going on.

Just tell them to do their job and not worry about what you're doing. Sounds like they're worried about stuff that doesn't matter cause the business isn't making any money.

Should the company become profitable and highly lucrative, they can just hire any developer with a similar or better skill set to yours and have them reverse engineer everything.

Edit: Just tell them you put it through your discombobulator and it does some thingy ma bobber and next thing you know it's a whole whack of money generators popping off with all the bells and whistles.

BlogPro said:

Well, looks like you've landed yourself in a soup.

A birth of a company is built on trust. Unless you become "one" with your business, you won't see much success.

Why were you inflating prices in the company you're a partner in? That would be sheer cheating.

Also, I am sure you're not a part of this company simply because of your ability to sign up for web hosting accounts. So this should be rendered in as a company expense and as head of IT, you need to work in the best interest of the firm of which you're a part of.

You've been dishonest with your partners, you've done business with them within the realms of your company which left you profitable and them paying more than they should have.

I believe you should come clean and tell them what you were doing. Offer to adjust the extra payments for extra months.

Because, sooner or later, they WILL find out. It's not uncommon to pop by the offers from your dealers. And since you're a business, there will be other IT guys wanting a piece of the pie who WILL tell your partners what's going on.

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Thanks for your reply. The reason I inflated the price (read as: dealerprice+my_profit_margin=fair_marketprice) is because I was treating them as any regular business. There's nothing wrong with quoting a fair market price for these services, is there? The "inflated" price is only inflated when you compare it to the price I pay as a reseller for hosting/domains. I guess this needed to be clarified, because I don't feel I've been dishonest with my partners per se. I only gave them the price any other company would pay.

The problem is when I would disclose my source, they will THINK I was dishonest because of the price difference. I want to avoid that.

*edit: trust... not entirely true I guess. In business the only thing to trust is papers with signatures. Right now I don't have any of that. That's why I would want to protect my knowledge - if they don't get me on board, fine! I'll just be their webhost then. They'll still have a good price for the services.

MagnifiCat said:

Thanks for your reply. The reason I inflated the price (read as: dealerprice+my_profit_margin=fair_marketprice) is because I was treating them as any regular business. There's nothing wrong with quoting a fair market price for these services, is there? The "inflated" price is only inflated when you compare it to the price I pay as a reseller for hosting/domains. I guess this needed to be clarified, because I don't feel I've been dishonest with my partners per se. I only gave them the price any other company would pay.

The problem is when I would disclose my source, they will THINK I was dishonest because of the price difference. I want to avoid that.

*edit: trust... not entirely true I guess. In business the only thing to trust is papers with signatures. Right now I don't have any of that. That's why I would want to protect my knowledge - if they don't get me on board, fine! I'll just be their webhost then. They'll still have a good price for the services.

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If the hosting and everything else was purchased before bringing you in as a partner, then the inflated price is fair game. If however, you were treating this as your regular client after being brought on as a partner, then yes, that is dishonesty. You took profit margins for the purchase of products, even though you'll share profits in the income from it as well. That is plain simple dishonesty.

However, you don't make a profit within a company where you're a partner. There is NO such thing as fair market price. Hosting can be obtained for $1 and also for $300.

From what I see, you're screwing over your partners by deriving profit at two stages of the business - one is your individual profit in the host setup and the second being the business's income. Hence your anxiety.

I doubt they'll retain you as their webhost, once they remove you from your current position owing to your profiteering

BlogPro said:

If the hosting and everything else was purchased before bringing you in as a partner, then the inflated price is fair game. If however, you were treating this as your regular client after being brought on as a partner, then yes, that is dishonesty. You took profit margins for the purchase of products, even though you'll share profits in the income from it as well. That is plain simple dishonesty.

However, you don't make a profit within a company where you're a partner. There is NO such thing as fair market price. Hosting can be obtained for $1 and also for $300.

From what I see, you're screwing over your partners by deriving profit at two stages of the business - one is your individual profit in the host setup and the second being the business's income. Hence your anxiety.

I doubt they'll retain you as their webhost, once they remove you from your current position owing to your profiteering

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Well my income as a partner would be a full time income (I do indeed have other qualities than just this web part) and this would minimize any (to be honest: measily) profits I would make from the services. These services have been bought already though but haven't been paid for (hence my use of the word "quotations") because of their intentions to take me in. The yearly profits wouldn't even exceed $600 so it's drinking money really, I think you exaggerate this whole thing. I still appreciate your responses though. Thanks for your insights.

Sounds to me that there is a trust issue on both sides from what is above.

For me, no trust = no business relationship.

I'd bow out.

BassTrackerBoats said:

Sounds to me that there is a trust issue on both sides from what is above.

For me, no trust = no business relationship.

I'd bow out.

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That's exactly what my problem is. Trust for me is established via a written agreement. All the rest is bullshit. As long as that isn't there, I'm reluctant to give up any information that makes my business today! If you were a salesman, would you tell a possible businesspartner who your suppliers are without any written agreements? Still, knowing all that, would you turn down a nice opportunity like that? Wouldn't you look out for a way to make the best of it? That's what I'm doing right now.

I didn't read everything here, but GET A LAWYER - invest the few hundred if you think the project will be worth it and be as detailed as possible about your part and what you are supposed to receive.
I lost $500,000+ because I trusted someone who broke his word and scammed me full time after working together for more than 2 years!

MagnifiCat said:

That's exactly what my problem is. Trust for me is established via a written agreement. All the rest is bullshit. As long as that isn't there, I'm reluctant to give up any information that makes my business today! If you were a salesman, would you tell a possible businesspartner who your suppliers are without any written agreements? Still, knowing all that, would you turn down a nice opportunity like that? Wouldn't you look out for a way to make the best of it? That's what I'm doing right now.

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I would turn it down as a written agreement means nothing if there is no trust base.

I read your post and it reminded me of an opportunity I had in 2012 that would have been very lucrative but I did not feel comfortable with the partner on a trust level and walked away.

There will be other opportunities where you will feel more comfortable with the arrangement in the future... there always are and those would be the ones I would pursue.

BassTrackerBoats said:

but I did not feel comfortable with the partner on a trust level and walked away.

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Whoa that one really hit target... I kinda feel the same but I'm always willing to see the good intentions, especially if it will be backed with the needed paperwork. I'd hate to miss out on a good opportunity though because I'm fed up with my current job and I'd like to go for this and (as someone else pointed out) become one with the business. I guess I'll have to take some more time to think this through and come up with a strategy.

MonsterMag said:

I didn't read everything here, but GET A LAWYER - invest the few hundred if you think the project will be worth it and be as detailed as possible about your part and what you are supposed to receive.
I lost $500,000+ because I trusted someone who broke his word and scammed me full time after working together for more than 2 years!

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I have an appointment tomorrow as a matter of fact. Thanks for sharing your experience, appreciate it.