Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 3 down vote favorite
1

A little background: A few months ago, I approached a good friend of mine with a nice offer:To make apps for a specific platform along with marketing and distributing them. He knew very little about this industry, but I was hopeful that he would learn quickly. He seemed so excited, so I thought he would learn it as if he needed it to survive. As months passed, he showed strong reluctance to learn, and piggybacked off my work. I admit I'm a bit demanding and picky with my work, as his main role was to design, and mine to take care of development. However, everything he sent me was bad quality, and I had to redo it myself. The first version of the app was very successful, and the future sales looks very promising. We are working on the second version now, which is many times better than the current version. The sales outlook is very bright, and now I am faced with a problem.

I dont want to screw my friend over at all. I promised him a 50% stake in all profits, and I'd hate to change my word on that. I really expected him to be a harder worker than he is. I wasnt expecting this. While I dont want to screw him out of 50%, as he does rely on this money, I also dont feel it is fair that he earns this much for the little work he did. Right now, this app is only available for the iPhone, but we hope to expand to many other platforms in the very near future. With that said, I dont mind sharing his promised cut for this platform, but as we expand to other platforms, I dont think he will make a good addition to what will then become a 1 man team.

I understand this question is very specific, but in general, it relates to dealing with partners that are also friends-very good friends. How should I approach this without damaging our friendship? What can any of you advise, based on your experiences?

share|improve this question

5 Answers

up vote 4 down vote accepted

Great to hear the sales are going well. The problem you have is a tricky one because it is currently subjective and rather hand-wavy.

I would suggest you say "that was version 1" and for it we are 50/50 ... In version 2 we may need to bring on others for development or marketing or what ever as this thing grows ... so how do we want to structure it with other people coming in?

Then you say everyone should have a 1-2 year "buy-in" period where they have to perform at their role in order to receive the shares ... its only but everyone pulling together that you will get anywhere.

So then from there you can have a discussion about how you redistribute the company in order to allow greater investment and allow you to offer key incentives to sales etc.

We typically have a few standard metrics we use to run through how much a share is worth:

  1. Idea: 3% - 5% - ideas these days are cheap, everyone is having them its execution that counts.
  2. Technical: 15%-35% - all developers (including myself) think its worth more but if you don't have the rest in place then its just a cool thing that sits on the shelf being worthless to everyone. This is what both your shares will be diluted down to to start with.
  3. Marketing / Sales: 15% - 30% - This is pretty important, if nobody knows about you, your nowhere ... but put KPIs against it - X new customers / sales in a timeframe.
  4. Business: 20% - 30% - The leadership and vision, this is typically one or two people and they will make or break the company on its own, set the direction.
  5. Finance: the remainder, depending how much they put up, others adjust accordingly.

So once you have gone through the process of doing these share split planning you can then show both your shares and his shares have been "reduced" and you will both have to earn your other shares over the next few versions of the product.

share|improve this answer
I really like Rob's metrics that he uses for understanding the value of a share. Obviously different companies and different markets will have a ration between these different items. The most important part is the acknowledgement that the idea in and of itself is worth at most 5%. The value is in the execution. – Joseph Barisonzi Mar 21 '11 at 18:29
up vote 2 down vote

@bitmoe If you are heading towards success, harmony (between partners) is more important than percentage of equity in the company.

50% of something is infinitely more than 100% of nothing.

Also, take into account that he may feel exactly the way you feel. Perception over contribution tends to be very subjective.

share|improve this answer
excellent point. Keeping everyone happy can mean the difference between the company surviving and it failing, regardless of the work each partner is putting in. +1 for you, mate! – John Sep 11 '11 at 5:22
up vote 1 down vote

is the 50% promise of profits already set in stone via a binding contract?

If not, I'd get it all documented now. Keep in mind that a 50/50 split at first may be reasonable, but typically founders of companies have employment or other agreements that allow the other person to buy out their interests if things don't work out, and grounds for termination followed by buyout. Be sure to have that type of scenario in the documents you sign.

share|improve this answer
up vote 1 down vote

@bitmoe, Did you split the monetary investment 50% as well? If the answer is yes, I will think that you need to use coaching with your partner.

If the answer is no, I will suggest that you extend him an employment offer with certain stake at the company. Exchange his 50% of Profit/revenue for x% (x < 10%) plus salary. His 10% plus salary has to be related his performance.

share|improve this answer
up vote 1 down vote

I have been there before with a different situation. I started a business with my army friend. But in time i noticed that we can be friends but we can not be coworkers. We had lots of dissidence. At the end we don't see each other and we don't talk. It is very difficult that while you are having business with your friend and continuing a friendship. I think nature of business and money are effective points in here.

1-) You shouldn't share business with %50 percentage. One of you must have higher share of business. For example you can have %60 of business. 2-) If you are different expertise you will understand each other easily. If both of you are programmers you can face lots of conflicts. 3-) If you find a friend for you business you should accept that you can lose him / her one day. If you do a good business you earn money. If you face many dissidences you will lose something from your friendship.

That is my experience that it did not end well.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.