hello all.

i have a friend that recently started his own co-location business. after two months, he is pushing around 2gbps of traffic in his 500 SQ FT space. He is the only one running the small operation that consists of a single digit number of clients and four racks. He recently approached me asking if i was interested in joining up with him and helping him grow the business. It sounds like a great opportunity for myself since i was already trying to start my own hosting business (starting by setting virtual accounts and growing from there). High level overview, its a great opportunity for something i wanted to do. It allows me to jump straight to what i wanted to at the end of the rainbow, running some business centered around colocation services (this is just the tip of the iceberg).

While his traffic growth is pretty spectacular, its only month two and anything can happen from here on out. He has invested about $10000 of his own cash to front the expense of the networking equipment. Customers are billed enough to make ends meat at the end of the month to cover the 500SQ space and pay off the transit providers.

Anyone would immediately say yes to such an offer, "be part of something you always wanted to do". Albeit, i would have wanted to start my own company from the ground up and do what he does, but given the opportunity knocking at my door step to join him, id be stupid to say no.

Being that he has already invested time and money into this, i would definitely put in the time to build the business, but i would hold back before i whip out my check book and start investing in this business (i am not sure if its even legally registered with the state).

With that said, i need some advice from the experienced members of this forum on what i should do?
- Should we makes the business a legally recognized business before we commit time into it?
- When is the right time to open our personal check book to invest money?
- How should the profits/shares/ownership be distributed (assuming more than myself should join the business)?
- WHAT DO I DO!?!?!? HELP ME PLEASE!!

I definitely want to join him and be part of the business. I want to try to avoid any pitfalls that are likely to occur when starting your own hosting business. If you can share any advice with me, id very much appreciate it.

Definitely incorporate. Then you will only be liable for as much money as you invest, and the share structure will make it easier to divide up the profits (as dividends).

Also, as you will probably want to re-invest most of your profits initially, you will be paying less tax which will save some bucks to help your business grow.

You should make sure it's a registered business, so you guys don't run into problems down the road. You also need to plan everything and analyse costs, revenue and profit. If you can't take the time to do some maths based on what he has and on how he plans to expand over time, then don't invest. The more that come on board, the more investments you'll get and the quicker you can expand, but the money that goes into your pocket will become smaller for each associate that joins.

What exactly is he looking for? Is he looking for a business partner? or is he looking for an employee?

Why is it it's in his best interest to bring you on as a business partner, than as an employee?

With the sort of questions you're asking, it seems evident that while you might have great technical ability, your business management abilities might be lacking.

Go out and buy a Nolo "Legal Forms for Starting and Running a Small Business" or "Legal Guide Starting a Small Business" as a starting point.

What are his forte's and what are yours? What would each of your day to day responsibilities be? How are you going to agree to spend money? How are you two going to resolve conflicts?

You need to have anticipated all those sorts of questions (and any many many more) and have laid out all the answer to all those sorts of things formally in operational agreements and such...

It doesn't sound like you're at the point you need to be cracking open a checkbook. Before you get to that point, you should have sat down and have the business assets and contributions each party has and will make clearly defined and understood.

Thanks for all the replies everyone.

- long term, i dont know what he wants to do with the company. my vision is to first try to build the co-location business and then expanded by offering fully managed services (eg: managed backups, managed networking, CDN, etc...just some ideas off the top of my head).

- he wants a business partner. he is rather young and inexperienced both technically and professionally. while i think he has done great things so far, there is still much to learn. Although, i will make it clear that i will want to be a business partner and not an employee.

- why do i want to be a business partner and not an employee? im at the stage of my life where i want to build a company and not work the man. i want to work for company where my passion is fueled by the drive to see the company succeed. Why work so hard to make someone else rich when i myself can use that same energy and apply it to something i believe in. i have the drive, motivation and experience (both technical and business (still needs some work in this area).

You all gave me good questions that should be brought up the next time we talk. we will all need to come to an agreement (both verbally and on paper) before anyone should contribute more time and money into this venture.

can a moderator move this thread to "Running a Web Hosting Business".

Thanks!

Yes, Incorporate as everyone else is saying. Do not skimp on a good accountant and good lawyer. It'll be worth it in the end. Make sure your partner agreement is rock solid listing your distribution of shares/etc as well as exit clauses on both sides so you can make sure that you're both holding up your own end of the agreement. Also do your due diligence with the books to make sure the financials line up with what you're expecting them to.

It sounds like you have the mind set enough to do well so if you can make things work on paper, do it.

sounds like a great opportunity. seems if you have already made up your mind.

hammer out the details as fast as possible and jump in before he or the opportunity changes.

if it were me i would open up the checkbook now and assume some of the risk before he finds someone else to.

as you said, growth is staggering at the moment and it will most likely continue this way.

Good Luck.

sounds like a great opportunity. seems if you have already made up your mind.

hammer out the details as fast as possible and jump in before he or the opportunity changes.

if it were me i would open up the checkbook now and assume some of the risk before he finds someone else to.

as you said, growth is staggering at the moment and it will most likely continue this way.

Good Luck.


I wish i can just throw money away. Do i pay the roof over my head or put the money towards a business i have no idea where it will be in a month/year time.....not just yet man. its too dumb to open up the pocket book right now.

I wish i can just throw money away. Do i pay the roof over my head or put the money towards a business i have no idea where it will be in a month/year time.....not just yet man. its too dumb to open up the pocket book right now.

But then again it's only the people that take the risks and put up the money in these early stages that get the meaningful equity stakes.

I'm a total newb, but I have to ask, how much does 2gbps of bandwidth cost??? I'm being quoted $1500/mo for 20mbps. Even with economies of scale and all that...

Jamie

yes, it'll be over $24,000

So how does PacificRack offer a server with 10Mb/s for $159/mo?

Jamie

I am actually not keen on partnership, although theoretically is a good thing. But then it's because I'm not perfect and I will definitely make mistake that would directly or indirectly hurt my partner. I made a lot of mistakes in the past. Still do now.

One thing that would help to form a good partnership will be the initial agreement. Although you may not feel the need right now, I highly recommend to consult to a lawyer that is an expert in this. Make sure that both of you are protected in case something happen. If your agreement is iron-clad solid, you will avoid many pitfalls in the future. I will simply start with 'what-if' questions (there are tons of them).

Since the love of money can destroy the best relationship, and that people will do the unthinkable just because of it, I believe it is a good thing to explicitly and clearly describe the financial portion on each party. I know that this sounds rigid, but if something happen in the future, you'd be glad you did this.

Nevertheless, I wish you all the best. :)

Instead of incorporating or forming a partnership to distribute liability. I strongly encourage you to explore business liability insurance. Of course you should naturally make the effort to spend some time with a lawyer and a CPA to determine the bets course of action for you as some states do not recognize LLC's and there is still the possibility of piercing the corporate veil of protection.

So how does PacificRack offer a server with 10Mb/s for $159/mo?

Jamie

Generally these 1U server offers with lots of bandwidth being offered are oversubcribed on the bandwidth... they don't expect you to use it. I'm just waiting for the other shoe to drop and someone offer 1U with 1Gbps of bandwith for $99.00. If it is on a shared 100 meg port you are competing for bandwidth utilization with the other 41 customers in your rack. Look at the terms and see if it works for you, things like this aren't necessarily a bad deal.

Adam

jamieb,

What bandwidth provider quoted you that? Different bandwidth providers have different prices.

AmericanIs.net

Please do me a favour, spare yourself the heartache down the road. Talk to a good lawyer and get a shareholder agreement with a buyout clause.

I just forked over a lot of money for my company to buy out a partner who hasn't lifted a finger in over 3 years to help it out.

AmericanIs.net

I feel like we are hijacking his thread...

But your just getting a quote for colo, I thought you wanted a 20mbps line to your location...

But we got a XO 100mbps (as a redundant path) optical link to the net, for $1400 bucks a month 5 year term. Just some food for thought.

But yea, $1500/month for JUST 20Mbps bandwidth (no space or power) seems rather steep. Unless it is super diverse and very high quality bandwidth.

Yeah, we are a bit. I started a new thead (http://www.webhostingtalk.com/showthread.php?t=691418).