Looking for Business Advice!


#1

Hi Guys,
I am looking to invest in an online retail business and right we are negotiating with them and have stuck at one point.

Heres the proposal that we are trying to Solve.

So there is a company called “Company A” that has offline stores with good number of loyal brand following but it doesn’t have online presence. Company A has its online platform ready under a domain name “A.com”. Now they were looking for the driver to drive “A.com” and partner for the website as they are busy with their offline stores and no online knowledge. So we(Company A+B) have agreed to put 50-50 to run this online business. Hence, decided to form a company where A and B will be partner to run Online Retail called “Company X”. Now the catch is Company A is saying that we will keep “A.com’s” ownership with Company A and will rent it to Company X for 3 or 5 years because Company A is “Brand” + they have put huge money to build the website. So they think we may sell our stakes and we might get paid 4x or 5x more after an year than what we put in the company today, since Company A is Huge Brand But vice versa we told them that what after 3 to 5 years you take away its ownership our entire effort that we put in the company building it will go in vain.

We are meeting on Thursday again to discuss!
So we are stuck here what should we do? How can we come to an mutual agreement.
Need your help guys.

Thanks
Darshan


#2

Hello @darshannchauhan,
By creating Company ‘X’ are you not diluting the brand equity of both firms , in which case you can always go for 50/50 partnership and reconstitute the board of directors accordingly. If the agreement does not work out you can each opt out as per the agreement exit clause.
OTOH In the event that from inception , company X is a re-branded re-packaged version of A , I don’t think it’s a fair deal for you in any case , Coz if they pull out at anytime you have to start from scratch to build your online retail brand again.
The online platform as u put it is meant to be an external driver , while the real business model is organic .
Also it’s foolhardy to expect 4x and 5x returns from the word GO, I don’t understand the merit of arriving at business decisions based on speculative details in your conversation with Company B.
In order to engender trust between both parties I suggest a succinct study into underlying dependencies in integration , marketing strategy and assessing sales pipeline, (the expenses to be borne by Company B), which would enable you to assess the potential risks involved.
In the enterprise consulting space that i was a part of , when in discussion with a customer like company B, we always look at business blueprinting as a separate T&M exercise to be borne by the vendor .
Once the client is made aware of the kind of efforts , the cost of integrating an online system , they calculate the potential ROI, and then decide either to go ahead for such an integration with company A product offering .
All the best .
U can share specific details by PM.


#3

Hey @Ron Thanks for the reply!

I will PM you with details.

Darsh