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Zero Down Partnerships an Entrepreneurs Key to Starting a Business

Guest post by: Sarah Gerdes

Article Overview: Learn how two entrepreneurs used smart partnerships to jump start their businesses with zero down. This article details how a Facilities partnership can be used to share risk and revenue as opposed to signing a five-year lease, and another used an Engineering partnership to develop and bring products to market, eliminating the need for outside capital.

Zero Down Partnerships an Entrepreneurs Key to Starting a Business

Essential, not Elective Partnerships

Get a Roof Over Your Head! Create a “Facilities” Partnership
It takes a creative person to identify partnerships that having nothing to do with sexy marketing activities, costly joint development efforts or global market penetration plans. Perhaps a better word would be smart. In this day and age, the smartest partnerships seem to be created by those faced with the biggest challenges: i.e., no money. Partnerships for those with no money are some of the most lucrative and strategic partnerships around. And believe me, they are real and are being created every day.

Take facilities partnerships. This is probably the least sexy type of partnership possible, and yet it is one of the smartest. It just happens that only those with little or no cash think to use it!

For instance, Espresso Connection, a gourmet coffee provider founded five years ago had no money for high-rent space in malls. Yet it knew its target market spent hours in shopping for far more costly items. Wisely, the founder and CEO Christian Karr approached several mall owners and managers to determine if they would ‘partner’ designed around a percentage of profits. The space in question was extra or non-rentable space. No risk for the building manager since no money was being made on the space anyway, and high returns if Espresso Connection was successful.

I’d no idea Karr’s coffee stands make a quarter of a million dollars per year on average! A nice cut of this goes to the risk-taking partner. Karr got up and running with the facility space in under thirty days without a time-based contract, payment guarantees deposits or promising first born children to the landlord. Karr then leveraged this model for the first ten locations and has continued to use it for dozens more. His multi-million dollars business “could never have gotten off the ground or grown as quickly without facilities partnerships.” And he readily admits he wouldn’t have even approached the facilities partnership if he’d had the money to spend in the first place.

Trade Labor for Product Development: Utilize Engineering Partnerships
Second in sex appeal to facilities partnership is an engineering partnership. This is not a joint development but hard-core engineering. Sunstream Corporation, a manufacturer of recreational boat lift equipment tapped a third year engineering student to aid in next generation designs. The student came equipped with real-life experience, and was more than willing to take a share of the revenues from the designs if they came to life. Sunstream retained the rights to the designs and delayed hiring full time engineers.

According to founder and CEO Ken Hey, the arrangement worked out perfectly. “We were both incentivized to make it work, neither had any out of pocket expenses and the risk was very low.” What started out five years ago as a modest engineering partnership has blossomed into a multi-year effort. Hey continues to outsource aspects of the engineering, its own company growing to accommodate Hey’s business, one of the fastest growing firms in the northwest.

Contrast this with the majority of engineering partnerships that are more akin to a vendor project. These do a disservice to both firms. Neither are incentivized for a long term goal, both face high risk if the outcome is not acceptable (loss of product for one and loss of fee for another) while pressure to control costs is at the forefront of everyone’s minds. Self-motivated partnerships don’t require a formal contract, even if one is used. These partnerships, particularly engineering partnerships, often exceed expectations for both parties practically guaranteeing a stellar product.

Consider the requirements of your organization, and how you can employ other smart partnerships. Other types include land partnerships, state and government partnerships particularly with municipalities and operations partnerships. Remember, it is possible to be creative and smart at the same time. Especially if you can employ wise partnerships while you have money in the bank.

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