Opening a branch with an employee as partner: settle these first

In short: going into partnership with a strong employee is a good way to keep talent and expand quickly. The key is that the employee has money in, responsibility and a clear goal, rather than receiving free shares.

Why it is worth considering

Many employees dream of being their own boss, and many owners want more outlets. Put the two together and the employee becomes a partner who treats the outlet as their own business. Some chains have grown to well over a hundred outlets by co-investing with their outlet managers, one outlet at a time.

The arithmetic is simple too: owning one outlet outright often earns less than owning a share of five.

Common ways to structure it

• Bonus shares only: the employee pays nothing. Simple, but shares that cost nothing tend to be valued like nothing.
• Employee invests cash: the strongest commitment, but many good people cannot afford it.
• Part of each bonus converts to shares: the stake builds gradually, and so does the sense of ownership.
• Owner lends, profits repay: the owner lends the employee the capital, and the first profit share goes to repaying it. The employee becomes an owner and the owner recovers the money first.

When a partner changes after the deal

1. They lose their goal: the new outlet struggles, the team is hard to manage, and making decisions is not their strength, so they start regretting the move.
2. Life gets too comfortable: income becomes more secure while targets and responsibility stay the same, and drive fades.

Write it down before you start

• Share split, how capital is contributed, how and when profits are paid
• Who decides what, and who is accountable for which numbers
• What happens if targets are missed, and how someone can exit
• What support the owner provides: training, systems, purchasing, marketing

The goal is right but the process is flawed: most failed partnerships were not properly agreed at the start.

Adapted from Dave Tan's book How High Should Your Customer Retention Rate Be? (2014, in Chinese), updated for today. About the book

Author: Dr. Dave Tan, DBA — Founder of Vital Design, Doctor of Business Administration (DBA). A business consultant to salons and SMEs since 2003, and author of a book on salon management.