Transcript
[00:00:00] Yegor: Who’s going to do the introduction, me or you?
[00:00:04] Olga: Let it be you.
[00:00:05] Yegor: Ok. It’s going to be me. Ok, so we decided to change the format. Hello everybody, actually. We’re already recording. We decided to change the format of this podcast. We’ve done thirty five episodes up to date which is a big number. And now we want to do it a little bit differently. We will have to two different formats from now on. The first one will be me interviewing interesting people from the management and software industry like I was doing before. And we don’t change that. But on the second part, the second half of our episodes will be about you interviewing me, by “you” I mean listeners, you can join the podcast, you can ask your questions. You can interview me about stuff and information and content I publish on my blog or I write in my book, whatever. And I will have the co-host who’s going to help me, who’s gonna interview me. Her name is Olga, with an “L”. She’s ukrainian or russian. Olga, are you there?
[00:01:22] Olga: Yes, I’m here. I’m here.
[00:01:25] Yegor: Are you a ukrainian or russian?
[00:01:26] Olga: I’m ukrainian.
[00:01:27] Yegor: Ukrainian… See it’s a big difference. So you can introduce yourself, just a few words and then we can start.
[00:01:35] Olga: Well hello everyone. My name is Olga and I’ll be a co-host on Yegor’s podcast. And today we will talk about the recent article of Yegor, it’s called “70/70”, maybe some of you have already read this and maybe have some questions on it and you’ll be able to ask them today in a chat or maybe just by your voice.
[00:02:08] Yegor: Yeah, that’s right. That’s the article I wrote I think like three or four weeks ago, it was called 70/70, which is about relationship you know in business deals actually between people, and we can discuss it now, because it actually raised some questions, when it was published, not questions, comments actually, and some of the readers agreed with that, some of them disagreed. So let’s start with the questions you have then. Olga?
[00:03:00] Olga: So well the first question will be… well I wanted to ask something about your personal experience, well have you been the partners with like a lot of your friends or folks or someone from your family?
[00:03:18] Yegor: Well actually it is coming from my experience. This blog post is… I can just briefly summarize what it’s saying. It’s about a conflict which inevitably happens in any business deal you have between you and somebody who works with you like a partner, an investor, a co-founder, whatever you call it. And the conflict is based on, as far as I understand it is based on, an incorrect configuration of your relationship from the start. When people are trying to get into the deal as soon as they can to jump into the business, into the project they’re going to together and they just call themselves partners and in most cases they just say “Since we’re partners, it means we’re 50/50 here”. Or there are three people, then they have one third of the project and they call themselves partners and they just start working. And it works well until the project is getting successful. When the project is not successful it works perfectly, because you know there is no there is nothing to actually divide, there are no dividends or no results. And that’s why people don’t argue that much. But if the project gets successful, then inevitably the conflict shows up. because the deal was not clear and it’s not possible to have equal partners in everything. It’s not possible to have a hundred percent quality in all the aspects of the business deal. And that’s what the article is about. So if you don’t discuss it upfront, if you don’t explicitly specify how exactly you’re going to work in the group, as a group of people, then you will definitely have a conflict and that’s why it’s called 70/70 that sometimes and very often.. it’s a joke actually, 70/70. That’s how we - me and a few of my friends - that’s how we call those business deals with people are not ready to draw a contract and specify exactly how they’re going to manage the business. They say “I want 70 percent” and then another party says “I want 70 percent too” and then they say “Whatever. Okay, you have 70 percent, I have 70 percent. Let’s do the business”. That means that they both understand that when there will be some results, they will again have to sit down together and resolve the conflict when it shows up and then it will be a really serious discussion of who’s getting what. But initially 70 is a number which is sort of a sign of respect or a sign of appreciation, like “You’re my partner, you want to do business with me, I give you 70 percent because I respect you, and of course I get 70 percent too, because you respect me, right? So then one of us most likely will have nothing. And another one will have everything. So answering your question about my personal experience is actually I did have many situations like that, when I had that problem in the past, and in most cases it was with friends. When you start doing business with somebody, your friend, you like the person, they like you and you just start doing business. You don’t want to offend your future partners, your current friends by asking them the questions I mentioned in the article, for example, saying “Who’s going to have the final say if you disagree?” So who will make the final decision, if in three months it’s going to be a conflict and you will disagree with me and we will not be able to come to the solution, to the compromise, we will not be able to negotiate. And then there will be a question “Okay, who decides, you or me? For example I want to spend $10000 which we have on the project for promotion. And you want to spend these $10000 for developing the product. So who has the final say about the $10000?” And I don’t want to ask that question upfront when we just start doing business, because that will be quite offensive, that may sound weird in the beginning and that may be a problem for starting the business, because you may get offended by my question and you will say “You know what, I don’t want to do business with you, because you’re obviously not a good partner for future” - and I’ve seen that too. I’ve seen situations where people get offended by me asking the questions and they’re saying “We feel that our partnership with you is not going to work, because you’re asking such a weird and offensive questions. Already. So we just don’t want to see them coming in the future. We just can’t predict how many more questions you’re going to have, so we better close it up right now and do business with somebody else, who is softer, less strict, less explicit with the questions and a better partnership material.” So I’ve seen that. Did I answer your question? I’ve seen that situation with my friends, not family. I didn’t see that with my family, like people really close to me, but with friends a lot.
[00:09:01] Olga: So let’s say that you have already started the business with your, for example, friend, and well how will your relationships go further and further while your business develops.
[00:09:23] Yegor: Well do you mean how my business relationship will be affected? I didn’t get the question, say it again.
[00:09:32] Olga: Well, you and your friend had some relations between you and him, and you start this business. So how does business affect your friendship?
[00:09:44] Yegor: Oh yeah, that’s a good question. It depends on how we start. But in most cases again speaking about my experience, in most cases you just start with no explicit contract in hands and then you lose a friend. That’s what happens. You lose a friend because all the questions I mentioned in the article, in the blog post, they are possible to resolve and find answers for, when there is no business yet. When we are just starting at that point we can actually find answers to them. Because at that point we have no bills, we have no money, we have no conflict yet, we’re just talking, we’ll just discuss it later, when there is something at stake, when there are some you know financial resources at stake, then we obviously have problems and I lost, you know, not many but some friends exactly because of that. Well I can give you a real example. We started a business, that was I think like seven years ago or so. It was quite an interesting business and there were four people there, and I invested my time, a friend of mine invested some money, another friend invested time and another friend invested money. And we were running for like a half a year, we going that, we were spending money for half a year. And it didn’t really work. You know, as many businesses, they didn’t work, it was some research project when it was necessary to invest and invest. And we were hoping that in some time it will get some result and it didn’t even resolve, and then we just lost interest. I lost my interest in that project. All the friends lost it, except one guy. The one guy stayed there. He was the major investor and he was in the project because he invested wel about two hundred thousand dollars or so. It was a big amount of money. But all of us, the three of us, we just you know started do something else. We just moved on and went somewhere else. But we had an agreement that we had some ownership of the project. But even though I started to do something else, I assumed that I still am an owner of that product, because I’m not the entire owner but something like 7 or 8 percent I had there, and other people too, and they didn’t do anything else anymore. I just stopped doing anything. I was not even answering emails. I was just exaggerating a little bit but not doing anything. And then other half a year pass and then the guy who was owning the project, he said “I want to sell it now, and I want to give it to somebody else and that somebody else will give me the money for the project, because blah blah blah I invested into it, any way, you guys have to sign some papers.” And I was asking like “I’m ready to sign. But what about my 8 percent? What about the stuff I invested there?” But he said “Look you were not doing anything for the last half a year, what eight percent you’re talking about, you lost interest in that project. So you lost everything because of that.” But I said “No way. I did my part initially and as far as I understood the agreement was that I have my equity in the project, even though I decide to stop working on it, even though I’m not actively doing anything there. But he had a different view on that. And we never discussed that before. When we are starting that project, we never discussed that problem. We never had a plan for it. And of course I lost a friend and I lost the project, because we were arguing and these arguments had no reasonable and possible way to exit, because I had my point, he had his point and then what to do next? There’s no exit, so somebody has to say “Okay, who cares. Take your part. I don’t care.” But when you say “I don’t care”, when you say “Who cares?” you lose relationship, you lose your contact with that person. That’s what happened to me. Is just one example. I still remember that project, it was interesting, and then it was sold and I didn’t get a dollar from it, even though I invested half a year of my time in it. And that’s an obvious loss. If I would ask the question upfront, if I would say before starting it, I would say “Look, what if I started working in it, I spent some money, some time, a few months and then I’d die, or I decide to get married and fly to Panama and live there and you know never ever think about your IT business anymore. So what’s going to happen with my investment, which I have done up to that date?” If I would ask that question, maybe that person would give me a good answer which I would like, or an answer which I would not like. I don’t know, but I would know for sure, what is the future. I would know what’s going to be the outcome, if I lose interest in the project. This is one of the questions which I think I listed in the… yeah that’s the first actually question which I put on my blog post, it says “What happens with my shares if I stop working?” And this is what happens a lot. I’ve seen that situations many times, people start together and then because the project is not as successful as they were thinking initially, one of them or many of them just quit, they quit but they still have some ownership there. They still think that what they’ve done before, you know, costs something and they want to get it back when the project gets more successful. And when the project gets more successful, they come back and say “Okay, where’s my share?” and the people were actually making the products successful, they’re saying “What share, you left, you betrayed us” and then they start fight. Did I answer your question?
[00:16:34] Olga: Oh yes. Thank you. But I also wanted to ask you, well when you are signing a contract with your friends or a friend, do you need any lawyer or advocate or something like that, or do you just write it on the sheet of paper and sign and then that’s it?
[00:16:57] Yegor: Well you know it’s a good question about lawyers. I don’t think that for the majority of startups we need any lawyers or like legal legal process for all that because first of all most startups, they fail. So if you want to spend money and time every time with a lawyer for every deal, you jump into, you will waste a lot of time, a lot of money. Second, how it works in civilized countries where the law system is pretty strong and you can actually prove something in the court. I would suggest to just take a piece of paper, write down your conditions and terms which you’re going to work on, discuss them, answer all the critical questions you have in mind and just put your signature there and maybe if you really want to protect yourself, maybe invite one more polite third person or somebody else, a friend of you, who will just see the contract and maybe see how you sign it and that will be I think enough. As long as this piece of paper is somewhere, maybe you can send it and you can even send it through some channel like Skype or Facebook messenger. I can give an example I was signing a contract this morning with a person who decided to work with me to help me with one of my businesses. And we were discussing for a few days the terms on which he’s going to work and what kind of money we are going to get, how much services and all the possible conditions. It was like one piece of paper. And we discussed that on the phone, we discussed that in the chat, and then I said “Look, I’m going to put everything we just discussed on a simple piece of paper, in just simple words, no legal language there, no complex, no lawyers, nothing, just explicitly saying what exactly we agreed on, like you’re getting this amount, I’m getting that, and if it doesn’t work I’m getting that. If I stopped working with you, you’re still getting this and that. All the details. It was just one piece of paper, and I sent that piece of paper in PDF format to this guy over Facebook messenger, and he said like “Where do I sign it?” And I said “You don’t need to sign it. Just saying the messenger that you agree with that, and we can work. And he said “I agree. I like it. Let’s do it, let’s start working.” If in some time, let’s say a month or two, a half a year, we will have a conflict and we’ll have a problem, a question, we’ll always be able to scroll up the chats history and find the piece of paper there, find that PDF document there, open it up and say “Look. That’s the document I sent you. You cannot change the history of messages, they stay there forever. So here’s the document which I signed. If you still want to argue with me and you still think that I owe you something, we can go to the court, if there will be some real money at stake”, you know, the business really grows and there will be like big-big amounts and he will say that I owe him a million dollars and I will say no, and we can go to the court and the court will open this document and the judge will say “Yes look this document explains everything and we can basically trust the Facebook messenger and we can trust that piece of electronic document, and that’s enough”. I think that’s pretty much it. And about the language, about the legal language, maybe some sometime you need to invite some lawyer. But in general I’m trying to be just as simple as possible with the language. So if you want to say something, then say it in really-really simple primitive words which will also be helpful in the future if there will be a conflict, if there will be a dispute, then you will be able to resolve it by asking somebody else to help you - a friend, some third party, some, you know, arbitrage who will just be able to read your simple text and understand what you meant. So the shorter the document, the more primitive it is the better of everybody. Makes sense?
[00:21:17] Olga: Yeah, well actually I would also take a screenshot of the messages and send it or like print it and go to the notary for them to sign it, like for the more preserved probably from some troubles in the future. So I think that would be a good idea.
[00:21:41] Yegor: Well maybe, that’s not a bad idea actually, you can go to the notary, you can go to somebody who actually approves that the document has been seen and that was exactly that document you’re talking about. Maybe, I’ve never done that, only what I was doing usually just making the PDF file and sending it through some channel which is not changeable, which is where you can not delete it, like Facebook Messenger is a place where you can not delete your message. So that’s a good place to send the document there and it stays forever. In Skype, I think it’s also not… no, in skype I think you can delete the message, right? I think so.
[00:22:41] Olga: Well I don’t know.
[00:22:42] Yegor: I don’t know. But anyway you need to find a place where you just make sure that… or if you’re sitting next to each other because in my example that person was far away from me, in a different country. So we can not actually sign the paper. If you are together with the person, just you know print the two copies and put two simple signatures. Again, if in the future there will be a dispute, then you will be able somehow prove that that is my signature or whatever. But I think that the problem will be solved by just the existence of the document. You will not have the really damaging and critical situations, if you know the terms and conditions upfront. If you know upfront what’s going to happen when I stop working and how much do I lose in this case, then everybody will know that and I they decide to stop working I will just come to everybody, to all of the members of the project, and I will just say: “Look guys, I know what we agreed about. I signed that paper. And that’s why I’m quitting on that terms and conditions. I know what I’m going to lose. I know what I’m going to keep with me.” So you will not do something which is completely unexpectable by other partners. And that’s what frustration is coming from, when people are doing something which others do not expect. And then the situation escalates and becomes unmanageable and then the whole business suffers and dies because of that. So I don’t think that’s important, how much legal protection you put on that document. What’s important is that you make the document as explicit as possible and covering as many potential questions as you can. And those questions actually mean who controls what, who controls the money, who controls the bank account. That’s also sometimes a really big question, like people start together, they say “Okay, we’re partners”, but it’s not possible you know to have two signatures on the bank account and then somebody will be able to send money from the bank account and somebody else will have to trust that person, and it’s difficult. You know I can give you another example. We were discussing a few weeks ago with a friend of mine who wanted to start a YouTube channel and he was like suggesting inviting me to the channel and saying “How about we started together?” There was actually a group of people there, a few people and they were saying “How about we started together?” They invite me, we generate this video content together and it works. And then we somehow make money out of it because we’ll get audience and all that. And we started to discuss, it was a good idea. So I was interested and then we started to discuss what’s going to happen, again, I started to ask the questions and one of the questions was “Who controls the YouTube account? Who has the password?” So who will upload the videos there and who will be able to do something with the channel, to close it up, to remove the videos from there, to put ads there. Who’s going to be in charge of that channel? Because the key value of the whole business is actually the video content. That we produce the content, we put it on the youtube channel. It grows. When it’s small - then nobody cares, when it’s becoming big and it will be like you know 100000 subscribers, then my question is “Who’s got the password? Can I have the password or somebody else will have the password or how it will work?” And the first answer was “How about we all have the password?” I saw this solution because if we all have the password then one of us will be able to change it tomorrow and then boom! - just one person has the password, and then what do we do? So that’s a good question. I’m not going to like discuss how we found the solution but that’s the question we were discussing, and you can put it on writing of course, you can write down the document and say like “Look the channel belongs to that person, and that channel belongs to us.” But then again, you know, when they take it away from you, it will take some time to go to the court and to prove that we actually agreed that this is our channel, it’s going to be some sort of war which we don’t want to have. We want to discuss it upfront, we want to find a solution which will prevent us from getting into a conflict like a really serious war. We want something else so it’s better to find a technical solution for situations like that, some sort of you know we’re going to put this password somewhere, we’re gonna encrypt it somehow, we’re going to put it here and there. So then whenever it’s lost by one person or used illegally or not how we agreed, then some software will help us to restore it. I don’t know. But there should be something. My point is that there’s the question should be asked, a point is that you should worry about that, before you start. Who’s going to have the password? Who’s going to have an access to the bank account? Who will have access to the e-mail and who will control the domain name? Who will buy the domain name and who will control the register for the domain name? Who will be able to change the location of our hosting of our server? See?
[00:28:29] Olga: So it seems like you have a lot of experience partnering with your friends. And of course you can lose them if your business has just burnt or if your business has developed. This way you start losing your friends and stop talking with them because of that. But if there was an opportunity to make business with your for example brother, when you have equal rights equal… I don’t know… Well when you are in this relationship, it’s not your father, he’s not your son. So what are you going to do? Would you start business with him?
[00:29:15] Yegor: Well would I go into the business with my family members, that’s the question?
[00:29:24] Olga: Yeah.
[00:29:26] Yegor: Well there are many books and authors and businesspeople, they recommend not to do that. Stay away from business with family members and never take money from friends, never take loans from friends and all that. I disagree with that. I don’t think it’s the right approach. By suggesting that, by saying that just don’t do business with family, they are just trying to fix the consequences instead of fixing the root cause of the problem. Instead of saying that before doing business with anyone just make sure you have a clear explicit definition of terms and rights and conditions, instead of that they’re saying just “You know, you’re going to screw it up anyway. So better stay away from friends, because anyway there will be problems and it’s better to not have problems with friends.” I disagree with that, I’m suggesting not to have problems with anyone Friends, family, unknown people - doesn’t matter. Just make sure that you start with the clear declaration of all possible problems. And there are solutions upfront. And then you can pretty much safely do business with anyone, with your friends, with your wife, with your brother, with your kids as long as you sit down with your wife for example and then say “Look, okay, we are husband and wife. But still it’s a business. So let’s define what’s going to happen if you lose interest in this business. Now we start a restaurant and we are husband and wife, we love each other but that’s a business, it’s not our marriage, it’s something else, it’s a separate entity which will start that, let’s decide what’s going to happen if you lose your interest in that restaurant in a few years and then you go somewhere else or do something else. Maybe you stay with me, maybe I don’t know what happens. But that question should be asked and if the answer will be explicitly written down on a piece of paper, then it doesn’t matter whether it’s your wife or a complete stranger who you just met a few hours ago because your relationship will not be ruined if we from the beginning know exactly what’s going to happen when something bad happens. So my answer is that don’t be afraid of doing business with your friends. Just be afraid to do business with anyone without clear answers to the most dangerous and critical question upfront.
[00:32:18] Olga: So the next question will be.. Years ago, you did have of course some mistakes as you said in your partnerships and now you got older and well of course you have some experience and do you have any problems now with your partners, with your business partners?
[00:32:50] Yegor: Well I do have problems now but most of my businesses which had this incorrect set up, let’s put it this way, which I started on the 70/70 terms, where nothing was discussed and we were just friends trying to do business together. All those businesses I finished years ago. So now when I start something I always, and I’m doing that for the last maybe seven or six years after that situation. That was one of the last situations which I mentioned before where we had this business for four people, and then three people left and then one guy stayed and then that guy took everything and we got nothing, probably that was the last one. And after that I always start with a simple list of terms where I specifically you know discuss the questions I mentioned. So right now I don’t have any businesses or any companies or any projects where I don’t have the terms with my partners, with people I work with. I know exactly what happens when things go south. I know how to resolve them, so now I feel safe. If that answers your question, I feel pretty safe. I can say that now I have less partners and less people want to do business with me. Unfortunately or fortunately - I don’t know. But years ago I remember that I was ready to start a new business every week because it was so easy. Because it was we just meet in a bar, just talk for an hour and say “Hey we’re just so good people, good friends, let’s do business.” Okay, we do business and then we find out that it doesn’t help. And then all the problems start. Now it’s way more difficult because when I want to do business with somebody, I start asking all those questions and most people just disappear. Most people just don’t feel comfortable working with me, which is I’m saying I don’t know if it’s fortunate or unfortunate, I don’t know because that’s what I experience, sometimes they even say that they don’t feel comfortable doing business with me, because I’m asking all the questions about negative outcomes. So they are saying like “Why do you think I’m going to lose interest in this? Why are you asking me who’s going to have access to the bank account? You think I’m going to steal money from you? Why do you care who’s going to have access to this YouTube channel? Don’t you trust me? You want to start business with me and you don’t trust me?” Is it the healthy situation, is it okay to do it like that? Maybe it’s not okay, that’s what they tell me, like “Even before we start, if you already don’t trust me, then maybe we’re not made to be partners” and they just quit. Only few people stay and respect my interest in making things clear from the beginning. And making things clear usually means being quite negative. Maybe this is the point I didn’t make even in the blog post. It always means that you have to be negative if you want to make things clear, because there’s no point of discussing how are we going to celebrate our success. We will celebrate, if it’s the success, we’ll celebrate. There’s nothing to discuss. But we want to know about negative things, about the problems which we will have. And people don’t enjoy talking about problems when we just start the business. They want to see what they want to see, the bright future and meeting me starring to discuss how the expenses will be approved and what happens if one of us spends more money than it was approved, what’s going to be the consequences? How are we going to somehow punish that person? How are we going to resolve that, if one of us will spend more than it’s allowed. Then they just look at me and say: “It seems that you don’t trust me as a partner. It seems that you are already expecting me to steal your money, so we better go our own ways and never do business.” That’s what I have right now.
[00:37:19] Olga: So talking about unhealthy partnerships, did you have some situations when your partner started lying to you and you didn’t know some pretty important details in your business? Like something happened and you just don’t know about it, just your friend does know and he does something by himself. So did you have such situations?
[00:38:01] Yegor: Situations where somebody lied to me about the reality, about the information and because of that I lost something? Did I get the question right.
[00:38:11] Olga: Yeah.
[00:38:13] Yegor: Well, I don’t actually have experience dealing with people who were intentionally lying to me. I didn’t have experience with really criminal situations, like illegal situations, where you start doing a business and then somebody steals something from you because of the bad intention, because he or she actually wanted to steal from me. I’m not talking about that. That’s outside of the scope of this discussion. I don’t remember that in my business experience. Usually what happens is that they take away something, they take away some property, they take away some money, they take away some information from you. But they’re not doing it because they’re bad people, they’re just doing it because that’s how they see the reality. That’s how they expect things to happen. That’s how they wanted it to happen. So for example, my last question is who pays when the project needs money? I have those occasions many times, when we start a project: “Okay, I have some resources, you have some resources, let’s join forces and create a new website for selling some services or something.” - “Okay, great. I can’t promote it. I have some promotional resources. You can develop it because you’re a programmer. Let’s do it.” And we start it and it runs for a month, it runs for two months and then boom! - we don’t have enough money. So the question is who invests the money? Who will give the additional budget the project? We need another $2000, who will give that money and I’m saying “Okay, now I have two thousand dollars.” I give that money and I expect the project to be not 50/50 anymore. It was 50/50 before, when we invested the equal amount of resources. But now I’m adding more money, I’m getting two thousand dollars on top of my resources which I gave before. So I expect now to be 60/40. So your share, your part of the project will be 40 now, but you will say “No no no no, wait a second, why it’s 40, we didn’t agree about that. I was expecting it will be 50/50 all the time. Now you are just helping the project because you’re a partner. You want it to die? No. So that’s why you helped the project. I just can’t help now, because I don’t have money, but you can, so you helped” That could be your answer. Not because you are evil, not because you actually want to take my money and do nothing, but because you just see the reality that way, you just expect it to be that way that the partner helps the project when the project needs help. But I see the reality differently, I see that my help costs something and I don’t want to give $2000 for nothing I want to take 10 percent from it. Maybe not 10%, maybe 8%, but that’s a point for discussion, “Okay, let’s negotiate.” But you will say “No, I don’t want to negotiate. That’s offensive. You’re trying to rob me. Because by taking advantage of the situation, you have the cash, I don’t have the cash. And that’s why you’re trying to take away my 10 percent. That’s wrong. You are the criminal”. You may say that, and I will say “No no no, you are a criminal.” And that’s how we see the conflict which is unresolvable. You will expect me to give money for nothing. I will expect to take something out of the project in exchange for my money. So that’s what I see all the time, not the illegal intention to steal something or steal money or information, but the reality just turns around the way that one of us will become a bad guy for another one and the other way around. So we both will be bad guys to each other. Instead what we do, I’ll keep repeating that, instead we need to put that situation on the paper before we start, we have to say if the project needs money this is the terms on which one of us will be able to invest. And when one of us will bring money to the project, that person will get that amount of shares or maybe nothing, maybe that person will get nothing, and then I will think twice, do I want to get into the business that way or not. We have actually a question on the chat which… well let me read it, okay? Olga?
[00:42:45] Olga: Yeah, okay. Okay.
[00:42:47] Yegor: Yeah, this question is from Philippe from… I think he’s in Spain now if I’m not wrong… “You have worked in the United States and outside of the United States, did you ever notice particular differences in terms of culture, in the stance of people regarding having this sort of fear upfront discussion? Do you think that after situations where there were disputes or taking away of property there were still a way to salvage some work and some success came out of it? Or you consider it’s always a negative no-win situation?” Well, in terms of culture… There are two separate questions, so the first question about the culture or the cultural difference. I do feel that there is a difference in cultures. I lived in America for over five years. I lived in Europe for over seven years and I lived in Ukraine, Russia for the rest of my life. I think that… I’m just trying to summarise now my experience and I feel that it’s not about culture. It’s about the level of education, or it’s about maybe the level of business experience, or maybe culture. I can say that on the territory where I came from, like Russia, Ukraine, we tend to trust the relationship and not trust the documents. So here it’s more difficult to explain people that we need to discuss everything upfront and we cannot be just partners, we need to put numbers onto our agreement. I had a real situation less than two months ago where not a friend, but the person who wanted to do business with me, said that “I will help you do this and that, but I want 10 percent of everything that comes out of it.” And I said like “Can we define that 10 percent? So what exactly is 10 percent? 10 percent of what, revenues? 10 percent of ownership? 10 percent of shares? What about the future investors? What will happen to your 10 percent? Will it be diluted, what will happen when the investor comes on board and what’s going to be the vesting structure for the 10 percent? Can I give you 10 percent right now, because what happens if you die tomorrow, god forbid. So what happens if I give you 10 percent on the paper and I say “Okay, now 10 percent belongs to this guy, to Alex”, the name of that person was Alex. So what if I give 10 percent to Alex and then tomorrow, the Alex’s mom calls me and says “Alex’s dead, where’s my 10 percent?” Because you know, I gave 10 percent away. So that 10 percent are really there. But there was no work done. Alex didn’t contribute to the business anyhow. But I already gave away 10 percent. That’s not logical, right, because 10 percent will be inherited by his mom and then by his two children and then by the children of their children. I lost 10 percent already the moment I signed the paper. The said like “Look, you want me to die? What kind of discussion is that? No, it’s not going to happen, I will be with you, don’t you trust me and blah blah blah. In the end, we didn’t sign the deal, he decided not to work with me because all the questions I asked him. So I was here, I was in Moscow, where I’m located right now. In America, my experience tells me that it’s less like that because I think it’s more like education, not about culture. I think in America, in the United States people are getting this information in the college, in school, they just know what contracts are, even when they’re kids. So they are being taught that discipline that principle. So maybe you can call it culture, maybe you can call it education but I think if people here in Moscow for example would be educated the way they are educated in the United States, they would not have that culture. But Alex who was Russian and never lived in America, he never had that experience, he didn’t have the knowledge, he didn’t know that this is how people can configure their relationships. He just knew, he had experience that if we are friends and he promised me 10 percent, that’s it. We’re friends - my part is ten percent, what it means? Doesn’t matter, just 10 percent. It just means that you know that my part is 10 percent. I blame the education, the lack of education, it is not the territory, not the language you speak, not the color of your skin. It’s more about the education of the person. And unfortunately the business education in some territories is not as good. And now the second question so is there a way to resolve the situation when there’s a conflict or there is no win and just that’s it. Well, there has to be a way to resolve it. But the cost of that resolution, the cost of that exit will be way higher than comparing to how much will it cost if we do it in the beginning. So I personally have seen situations where conflicts were resolved. But that was really expensive, because you have to compromise something, you have to spend more than you can and you know I had a situation a long time ago, I don’t know, maybe 15 years ago, a friend of mine, we were running the business together. Actually he was running the business, it was IT business, so he was running a business and I was a minor partner. So I had like about 10 percent or a little bit more but I had money at that time. So I had way more money than he had, and he was running the business together with a few other partners, and I joined them when everything was already running. So I was one of the people who joined lately, when everything was going already. And I got 10 percent, and they were working for like a few weeks and then he came to me and said “Listen you’re the partner and I’m running the business. Now I’m also the CEO of the business, and the business doesn’t produce enough profit now. And that’s why I can’t pay my expenses, my personal expense. So I don’t have money to feed my family, to buy food for my kids. So now you have to give me that money, otherwise if you don’t give me that money, I’m going to quit the business and just do something else and you will lose everything or you will lose your ten percent, the business will die.” So he was not blackmailing, not threatening me but close to that. Well he said “Look, give me…” I remember it was $2000. “Give me $2000 now so I can live for another month or two. And if you don’t give it to me, then the whole business is ruined. It’s dead. And you not just loan it to me, just give it to me. I’m not going to return it back. You just give me the money, give me the cash.” What happened afterwards? I can tell you. I gave him the money. I gave him the money, I never saw that money back again. So that was not an investment. That was not a loan, not a personal debt. Nothing. I just gave him a gift. Not because I wanted to help him, but because I was put in the situation where I realized that if I don’t do that, I may lose way more, because my 10 percent cost way more than $2000. So I gave away my two grand. And I never saw him again. Was it a damaging situation? Yes. The damage was $2000. Was it possible to resolve it somehow else? I don’t know. But that was my loss. So maybe it’s not a perfect example of solving conflicts but maybe it is. Actually I learned my lesson. So when you start doing business, you may ask that question too. So what happens if you, my partner, is running out of cash? Is it going to be my obligation to help you because I’m your partner or it’s going to be your own problem, and you never come back to me and never ask that question. I don’t know. But I’ve met that situation once and I remember it.
[00:52:08] Olga: I also have a question what you told that how do people treat these businesses? It depends on their education. So what about people of different professions? How do they refer to this partnership. For example if it’s a lawyer, or a developer, or a doctor, etc. So how can your relationships and your business differ?
[00:52:52] Yegor: Oh, I don’t know. Well actually my experience is not that big of dealing with people of different professions, I mostly work in IT and software business. So well I think of course lawyers are more, well, we may think that lawyers are more prepared for that kind of stuff, or maybe I don’t know, some lawyers, maybe they know more about that. Maybe doctors they know less, but I think it’s in general not the professional specific. It’s more like overall business education, the stuff which maybe they teach you on the MBA course or maybe they teach you in a high school, I don’t know where exactly they teach it, because in my case my life taught that. I’ve never read that in any books. Tell you the truth. I don’t know any books that would tell you that, because the books will tell you about the contracts you sign with your suppliers, the contracts you sign with your investors, like investment foundation, when the big guys are coming on board and okay, can buy many-many books on the market, they will explain how to sign the proper contract with a big investor, but I haven’t seen any books telling you how to sign the contract with your dad, with your father, when your father is giving you $5000 for a small business you want to start. I don’t know any books, all the books I’ve seen they’re saying “Okay, don’t take that money from your father. Take it somewhere else.” So I don’t know who is supposed to teach that. Maybe in some… I contradict myself because I previously said that the education is the problem, but now I’m saying that there’s no formal education for them. Maybe it’s not the education per se. Maybe Philippe is right, that’s a cultural thing. Maybe it’s inside the culture and the American culture is more focused on money, more focused on relationship based on money. And that’s why they know starting from the home, from the primary school, that you cannot just trust the words, you need to put those words in writing. You can’t just trust the good intentions, you need to trust some terms and conditions. Maybe it’s a cultural thing. Yeah. So maybe I was wrong before saying that’s about education, because like I’m saying, I haven’t seen any book, any formal literature explaining how you sign, how you make the contract with even those guys from Silicon Valley, investors who are writing about seed money, about 3 B.C money, about really agile investments. They are also talking about contracts which are happening between money people and non-money. They’re big investors or medium sized investors, small size investors - but still they’re investors. They have not a few thousand dollars. They have way more. And startup founders who’s got almost nothing. And then there is a contract. But I haven’t seen any writing or detailed explanation of how you put the contract together. When there are two people who have got no money and they’re just deciding, well what do you think about that?
[00:56:10] Olga: Well I agree with you. Talking about your business relationships. They depend on your and your partner’s characters and your experience, yeah. So it’s not about knowledge. It’s not about the education. Well it’s about your character and your experience.
[00:56:56] Yegor: Well yeah. When things go wrong then yes, it’s going to be about the character. Of course, when it’s time to resolve the problem, it’s going to be about the character. If you are polite, if you are quite gentle and soft and ready to make compromises and ready to the back up and ready to surrender sometimes and ready to give more than take - then yes, you will most probably get out of the conflict. You will lose definitely, you will lose more than your partner will do. Is it good or bad? I don’t know, but you will have better chances to survive in the company, with the company and with your partner. But does it mean more success for a company, does it mean more success for you personally? I don’t think so. I would instead suggest and vote for stronger character. Be stronger, be less ready to surrender, less ready to give a way more than you take back, but be more explicit in the beginning. So if your character is strong, of course you will be difficult to deal with. But if you put everything upfront about how to deal with you and tell your partner that “These are the terms which explain how to deal with me, how to share dividends with me, and how to split profit, and how to deal with my personality, and how to do the business with me.” Then everything will be easier. The result will be bigger. That’s what I think. And we have one more question here. Let’s say you’re past the point where you exchange questions with your potential partner, you’re happy with the replies. How do you create the contract? Do you follow examples, or do you keep the repository of skeleton contracts, do you consult an expert? What is the typical next step? That’s a good question. So indeed, when you are just finishing the discussion, when you like each other, when you think that this is a good time to start doing business, so what’s the next? Where do you get the contract, where you get the template for how to draw that piece of paper? Well what I’m doing, I’ll just give you my experience. I start with the empty document every time. Like this morning, literally, I was signing that agreement this morning. And I started with an empty document. And I’m doing it for I don’t know… for maybe 100 times in my life. I did it and I’m doing it every time from the empty page. I just open it up and I say “Okay, we just agreed that: you are doing this and I’m paying you that, and vice versa, etc, etc.” So it’s every time from an empty page, because I’m trying to keep those documents short. I don’t want them to be long and huge and mention all the possible points, for example the document today which I draw, which is maybe a mistake, I didn’t mention anything about confidential information. So the person who I hired this morning will have access to the confidential information, and he will be able to know for example who the clients are, who are the clients of the company, and what are their names and blah blah blah. So maybe he will be able to go out, when he quits working with the company, when the contract finishes for some reason then maybe he will be able to deal with those guys directly and there will be a damaged institution for me. So maybe, you just reminded me about that, maybe I’ll come back to him tomorrow and say “Hey, we just forgot to mention that. Let me put it in the document”. So it’s every time a plain empty document. Maybe I’m wrong, maybe I’m wrong, maybe it’s better to create some list of questions, the list of the most important questions for any partnership and then publish it somewhere and say “Here’s like 50 questions which you need to ask your partner and get an answer, and put that answer in writing. Maybe it’s a good subject for the next blog post. Just summarize everything, like all the important areas, all the important questions, because in my blog post I mentioned just nine of them. But there are way more like confidential information, non-competition agreement and many other things which make sense. Well maybe I’ll do that actually, maybe I’ll publish everything which I have in my mind. Everything which come from my experience. Thanks for the question. And I think it’s time to wrap it up because we’re speaking for an hour already. Olga?
[01:01:56] Olga: Yeah, I think it’s time to sum up, yeah.
[01:02:00] Yegor: Okay, so that was the discussion. That’s the new format. I think it was interesting, because all your questions helped me to explain my thoughts and give some examples of my personal experience, of my personal life, personal business life. So see you next time, on the next episode. Thanks everybody. Bye-bye.
[01:02:20] Olga: Yeah, thanks a lot. Bye-bye.
