Four guys left Buzzfeed to co-create a content business and grew it to nearly 8M followers on YouTube, a podcast, a book, and a limited series on The Food Network.
Now, four years later, one of the guys – known as the “Wife Guy” – abruptly departed the business after it was made public he had a workplace affair.
That’s the story of Try Guys to date. Now, they’re rebuilding the brand with the remaining three original creators and a team of 20. (Get all the 411 on the Try Guys and this incident. Or go straight to the apology and what’s next video.)
Are you prepared if a co-creator or business partner violates your trust, the brand, or the law?
“Many entrepreneurs are so excited about doing the business that they don’t think about making sure all their legal ducks are in a row before opening. They don’t realize what a substantial misstep they’ve made until things go sideways,” says Ruth Carter, an attorney who operates Geek Law Firm.An operating agreement can save the business if co-creators encounter a situation like the @TryGuys recently experienced, says @RBCarter. #ContentBusiness Click To Tweet
While we don’t know what protections the Try Guys have, we do know an operating agreement is essential for co-creators or partners going into a content business. So Ruth provided some helpful details.
The Tilt: What is an operating agreement, and why is it important?
Ruth Carter: An operating agreement is the master contract between the owners of a company that addresses how they’re going to operate their business. It should address issues like the delineation of company responsibilities and determination of how they’re going to deal with problems when they occur.
When should creators enter into an operating agreement?
RC: This should be a top priority when the company is starting, even before doing business with others. You want to do this at the beginning of the starting the business when everyone is happy, excited, and thinking about what’s in the best interest of the company.
If the business is already running, can you still enter into an operating agreement?
RC: Yes! Every company with more than one owner needs an operating agreement. This is especially true if you’re going into business with a friend, relative, or spouse. Business breakups can be as messy as a marital divorce. The operating agreement should act as a master plan and business nuptial agreement.Business breakups can be as messy as a marital divorce. An operating agreement should act as the master plan, says @RBCarter. #ContentEntrepreneur #CreatorEconomy Click To Tweet
What categories/terms should be included in the agreement?
RC: A company can tailor this agreement to their specific needs. I have over 30 questions I ask my clients when I’m hired to write their operating agreement. Here are some of them:
- What are each owner’s primary responsibilities within the company?
- How often will the owners have meetings to discuss the business?
- How much of the company’s money can each owner spend without having to consult the other owners?
- Are the owners allowed to engage in other outside independent business activities? If so, are there any limits on those activities?
- How much money, if any, have the initial owners given to the company for initial capital contributions? Under what circumstances will the owners be required to give additional capital contributions to the company?
- How will the owners make decisions? Will it be a vote based on the percentage each owner owns of the business?
- Do certain situations require a unanimous vote by all the owners?
- If there is a deadlocked vote, how will you resolve it?
- Under what circumstances can an owner be kicked out or removed from the business?
- If there is a dispute between the owners related to the operation of the business, including the operating agreement, how do you want it to be resolved?
- What happens if an owner dies, becomes disabled, or is declared legally incompetent?
Should the operating agreement include the repercussions if someone violates a term? What could those look like?
RC: The owners get to decide how detailed they want to be. When my friend complained that his business partner frequently canceled their weekly meeting, I said something like, “You know, you could have an operating agreement that says the penalty for canceling a meeting is you owe the non-canceling owner a growler of the craft beer of their choice.”
For more serious situations, I’ll start with the question, “Under what circumstances can the owners vote an owner ‘off the island?’” This is a non-threatening way to open a discussion about what the owners’ deal breakers are.Business partners should ask: Under what circumstances can we vote an owner off the island? Discuss the answer and put it in the operating agreement, says @RBCarter. #ContentEntrepreneur Click To Tweet
If they try to gloss over this question with a seemingly simple answer like, “If someone is convicted of a felony,” I’ll remind them that getting a conviction can take years. What about in the interim? What if someone is stealing from the company? What if an owner develops a drug habit?
It’s exceptionally difficult to parse out all the what-ifs, but it’s good to have these discussions up front. In regards to the Try Guys, they may have documented the company values and were able to point to them to show that what Ned did violated those values. Perhaps they had a discussion early when they started their business about removing an owner when their extracurricular, probably legal, behavior threatened the reputation of the company per a unanimous vote by the remaining owners.
How do you judge whether a violation occurred or what happens next?
RC: In regards to the Try Guys, they said they hired a company to do an HR investigation after they became aware of the situation and consulted lawyers.
The operating agreement should state what decisions can be made with a majority vote and which ones require a unanimous vote.
The terms of the operating agreement should spell out how they will be enforced, including how they’ll deal with the situation when the owners disagree about the interpretation or meaning of the operating agreement’s terms. The three main ways are mediation, arbitration, and litigation. Each option has its pros and cons.
Getting rid of an owner is different than firing an employee because the company or remaining owner(s) have to buy the departing owner’s interest in the company. It’s helpful if the operating agreement specifies how the company valuation will be performed – and I mean which equation will be used. If the operating agreement says a valuation must be performed, it could take months and be expensive to find and hire someone who provides such services.
Think and act on an operating agreement
If you have two or more owners and don’t have an operating agreement, it’s time to start the conversation, even if you haven’t earned any revenue or built a sizeable audience. The basics of an operating agreement also make good sense for ensuring you’re on the same page about operating the business, too.
You might prefer the creative side of your brand, but the business side is equally important if you want to make and keep revenue. Subscribe to The Tilt newsletter for help in doing just that.
About the author
Ann regularly combines words and strategy for B2B, B2C, and nonprofits, continuing to live up to her high school nickname, Editor Ann. Former college adjunct faculty, Ann also helps train professionals in content so they can do it themselves.