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Issues in a 50 / 50 Partnership?

A few months ago I began working with an old friend of mine on a new
business idea. We are now at the point of building our product, hiring
developers, etc. and naturally decided to split this business 50/50. I now
realize this was a bad idea. We disagree on many little issues like the
style of the logo, the color of this box, the name of this page, etc. for
example. All things that I think are immaterial to our type of business.
I have been eager to get the business going, and I feel like since the
research phase of the business idea finished last month, my partner is
doing nothing but slowing me down by tying up our designers and other
resources on non-important things.

I now know why 50/50 is a tough situation. I like the guy and he is my
friend, so I need some help on how to fix this going forward. I'm thinking
if we are having so many holdups this early because we are 50/50 and
disagree on so many little things, I can't even imagine the issues that
will come around later once this business takes off. I would love to own

>50% or have decision making abilities alone, but I think that would be

6 Replies

Nick Pontacoloni
0
0
Nick Pontacoloni Entrepreneur
Online Media Sales and Marketing

If these issues are unimportant to you, can you give him decision making authority over design and you focus and make decisions on customer acquisition strategies for example.

It sounds like rolls and responsibilities have not been clearly defined. Try not to ruin your friendship. Outline specific responsibilities and who owns what decision. If its a resource issue and you both need the same resources maybe set deadlines for specific tasks. Break them down and execute.  

Also, only my opinion, but 50/50 never works with two partners. Someone has to have control.

On Nov 22, 2012, at 12:40 PM, blalezarian <blalezar...@gmail.com> wrote:

Eric Rogness
0
0
Eric Rogness Entrepreneur
Technical Product Manager

The equity split is probably not the source of your business stalling. It sounds more like you need to divide responsibilities. So rather than asking for all the decision making power, suggest that he take full charge of a, b and c; and you take the reins for d, e and f. How much you won in a company affects very few decisions, except in your head. It matters when you're deciding whether to take on outside investment, or selling the company, stuff like that. Just because I have a 60/40 split with a CTO, doesn't mean I'm going to lay down the law and tell him what hosting platform we're going to use.

Ideally, beyond dividing roles, you *would* select someone as the bona fide CEO, but it sounds like that's not in the cards at the moment. When you're ready for financing, you can probably use that pressure to make the CEO decision before you go out to raise the round.
~Eric

EricRogness.com(647) 297-7126

Date: Thu, 22 Nov 2012 09:40:32 -0800
From: blalezarhttp://groups.google.com/group/founderdating?hl=en.

Derek Dukes
0
0
Derek Dukes Entrepreneur • Advisor
Business Development, Startups at Amazon Web Services

+1 For Eric's comments (as well as the others who cite lack of Roles &
Responsibilities).

Teams work well when work is divided and owners / drivers are chosen and
consistent over time. Sure you need agreement over the high-level approach,
problem your solving, CA strategies etc., but longer term you can only be
successful if you work in parallell to the common goal.

I suggest creating a roles and responsibilities breakdown, ideally falling
within each of your respective skill sets. This will likely require both of
you to give up some control over areas, but will also make the team
stronger in the end.

Also, it's important to figue out who is the CEO (at least now) because at
the end of the day one person needs to own (and take responsibility for)
making all of the decisions, keeping not only their opinions, but their
responsibility to the investors and ultimately making decions
that increase value in the enterprise over time.

Steve Blank referenced an exercise that he did at one company he was the
CEO of: Everyone put their business cards on the table and compared titles,
his was the only one that said 'CEO'. He told the team, look when it comes
to opinion, mine ultimately is the one that counts, but if you bring data
then you win, because data always trumps opinion.

How you keep running quickly without going down a data testing rabbit hole
is another question all together, but pick you data battles well and wield
your opinion battles carefully.

The hallmark of any successful partnership is not how you work well
together, but how you manage conflict and resolve contentious issues
without damaging your working relationships.

- d

-
Derek Dukes | [removed to protect privacy] | @ddukes

On Thu, Nov 22, 2012 at 9:55 AM, Eric Rogness <ericrogn...@hotmail.com>wrote:

Seth Kaplan
0
0
Seth Kaplan Entrepreneur • Advisor
Healthcare Technology Executive, Product Manager, Enterprise Architect, IT Strategist and Intrepreneur

What's a fair equity split for two co-founders where the presumed CEO had a 2-3 year head start and later found his second co-founder? Lets assume for sake of argument that the presumed CEO spent those years doing all the research and writing up the business plan.  But there's no product yet or any funding at the moment for the business. So the business is still a concept, although a well planned out one. CTO has the responsibility of architecting and orchestrating building of the product if/when the company gets funding, and the assumption is not to start coding until that happens.

Ignoring all the what-ifs surrounding actually getting funding without a product and such, assuming it were to happen and kick off full time work for both co-founders, what's a reasonable equity split in your minds? 50/50 CEO/CTO? 60/40? 75/25? Even as low as 85/15 CEO/CTO? Does the research leading up to this point count for anything for the CEO? Or because theres no product or funding, the CTO should be compensated dully?

Understand there's no right or wrong answer, I'm perfectly happy with gut feelings and reactions. If you're a CEO or a CTO, maybe mention that too since it helps understand the perspective being offered.  If you've been in this situation during early startup stages, even better.  Although for my question having been in this situation isn't a prerequisite to offering an opinion :)

And I'm operating under the assumption that none of us forward these emails outside of the group, so in this case, I would appreciate it greatly if you didn't forward mine.  

Regards,

-- Seth

On Nov 22, 2012, at 12:32 PM, derek dukes <dbdu...@gmail.com> wrote:

Bryan Lalezarian
0
0
Bryan Lalezarian Entrepreneur
CEO at MeUndies

Yes. We have decided to do that, but that's only for "major business
decisions". And i do think that is very important. However, It's not
efficient to turn to them on every little decision. My main concern now has
been the nitty gritty stuff that has been slowed down due to indecision.

Thanks for all the advice so far. This has been very helpful.

On Nov 24, 2012, at 12:59 PM, "routso...@comcast.net" <routso...@comcast.net>
wrote:

I know this doesn't answer the question, but have you considered forming an
advisory board to aid in breaking the stalemate(s)?

------------------------------
*From: *"Nick Pontacoloni" <n...@owneraide.com>
*To: *"blalezarian" <blalezar...@gmail.com>
*Cc: *[removed to protect privacy]
*Sent: *Thursday, November 22, 2012 12:50:00 PM
*Subject: *Re: [FD Members] Issues in a 50 / 50 Partnership

If these issues are unimportant to you, can you give him decision making
authority over design and you focus and make decisions on customer
acquisition strategies for example.

It sounds like rolls and responsibilities have not been clearly defined.
Try not to ruin your friendship. Outline specific responsibilities and who
owns what decision. If its a resource issue and you both need the same
resources maybe set deadlines for specific tasks. Break them down and
execute.

Also, only my opinion, but 50/50 never works with two partners. Someone has
to have control.

On Nov 22, 2012, at 12:40 PM, blalezarian <blalezar...@gmail.com> wrote:

A few months ago I began working with an old friend of mine on a new
business idea.  We are now at the point of building our product, hiring
developers, etc. and naturally decided to split this business 50/50.  I now
realize this was a bad idea.  We disagree on many little issues like the
style of the logo, the color of this box, the name of this page, etc. for
example.  All things that I think are immaterial to our type of business.
 I have been eager to get the business going, and I feel like since the
research phase of the business idea finished last month, my partner is
doing nothing but slowing me down by tying up our designers and other
resources on non-important things.

I now know why 50/50 is a tough situation.  I like the guy and he is my
friend, so I need some help on how to fix this going forward.  I'm thinking
if we are having so many holdups this early because we are 50/50 and
disagree on so many little things, I can't even imagine the issues that
will come around later once this business takes off.  I would love to own

>50% or have decision making abilities alone, but I think that would be

Derek Dukes
0
0
Derek Dukes Entrepreneur • Advisor
Business Development, Startups at Amazon Web Services

Hi Seth,

I've seen this work a few ways, successfully. In one venture, the CTO /
technical co-founder required a fully salary from the beginning, while the
product and design founders received no pay until funding, in that scenario
the equity split was 47.5 / 47.5 / 5 (CTO) which, in retrospect was low,
and it should have been something more like 10%, because while the story
and reasoning was solid, some investors worried that our CTO didn't have
enough of an incentive to stick around for an exit.

Here's a breakdown on how Instagram split their ownership and some
reasoning behind it:
http://www.quora.com/Instagram/Why-was-there-such-a-huge-difference-i...

Also, when it comes to equity, you are using it as a way to reduce the risk
/ beta of your business. If you're idea can't happen or isn't fundable
without a technical co-founder, then the 'right' amount of equity is the
number that gets your technical co-founder to join and it's less about
ownership and control because before he / she joins the beta of your
company is effectively infinite, which makes it un-fundable. Now once the
CTO joins, it's his responsibility to deliver the value you've assigned to
him through the equity and salary.

In terms of doing something 'fair', no matter what equity split you decide
on, you can still reward the effort of each founder by crediting their
vesting schedule (assuming all founders will be subject to a vesting
schedule) with the time they've already put in. In your scenario below
you'd be able to set your vesting date as early as 2-3 years ahead of the
second founder coming on board. Your lawyer should be able to advise you on
how far back you can 'vest'.

As an investor I'd be concerned if you were working on this idea (and set
your vesting schedule) more than a year out. It signals that you're not as
committed as you need to be or that you might have a hard time executing at
a pace that will be competitive. Investors want to see momentum and a track
record of execution. If you've taken 2-3 years (and vesting stock along the
way) you better have a credible story about why (deep technology?) or you
need to have a vesting schedule that is more credible like 6-9 months of
pre-vest. Also, if you get greedy, your new investors will reset the clock
on you and the other founders and it won't matter any way.

- d

--
Derek Dukes | [removed to protect privacy] | @ddukes

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