Entrepreneurs Ego clash with power game


4

We are a 7-month old startup, founded by three entrepreneurs with different backgrounds. We do not have any clients yet, but the product is ready and we are already in talks with four clients. One of the clients is looking for a trial. We are planning to build the document, copyright, etc., which means we need company registration. We are planning for a private Ltd company.

Here is the problem: One of the three founders had the idea for a long time but was not able to execute until we met and started together. We (the other two founders) believed in the idea so much that we quit our jobs and started executing.

The guy who came up with the idea is still working at his day job! He is the technology guy and has done a lot of work towards building the product.

The idea guy now says that he wants to do things his way (even though he is still working at his day job) and says that he should have the ability to override any decisions that are made. He agrees with forming a private Ltd company but says that he wants to be the CEO and do things his way.

Now one of the guys thinks that it is not going in the right direction and wants to quit. I feel the entire effort we've made is going to be wasted if we spilt now that we're about to see some fruit, all because of ego problems. Until now we haven't had any problems. Only when we were started discussing power matters did this problem arise and screw things up.

Instead of solving client problems, now we're making our own problems!

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asked Mar 7 '11 at 03:13
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Karan
54 points
  • Exactly why I created Foundrs.com: to convince people to settle those discussions first, because later it will be really, really painful [/rant] Now, can you explain more clearly the situation? Idea guy thinks he should be CEO, that may make sense. What did the two of you contribute exactly? – Alain Raynaud 8 years ago
  • Hey Thanks alain raymonds for responding, Situaltion is : – Karan 8 years ago
  • Idea guy is product develpoer & we 2 handle the sales, business plan/execution, functional, operational & getting free resources more. He had the plan from long time but we executed by quitting our jobs, but he is still working and quits only after 1 client. Now we need to register the company so we decided on PVT ltd & now he is saying "I should have the power to override anyones decision at any time" since he has emotional attachment to the idea he wants drive it foreever which we are not agreeing & telling him take some extra previledge but not like this!Hence my other friend wants to quit – Karan 8 years ago

3 Answers


1

You all may be arguing from emotion, and engaging in a dispassionate analysis of everyone's position may be useful.

You need to outline who has the leverage in this situation, and how much a disruption at this point will set everybody back. Even try to assign a dollar amount to this.

If he is the product guy, and can replace you two very easily, then you are going to be negotiating from a weak position.

If you two have all the contacts and ability to sell the product, and he cannot find replacements, then he might as well not have a product - and you will be negotiating from a position of power.

I think the point of "we quit our jobs, he did not" is irrelevant. For all we know, he has a family and serious obligations, and you and the other founder are single with no obligations and decent savings. Yes, this can be a measure of "dedication" to the start-up, but it is very context sensitive.

Honestly, in most cases I would say you WANT the product guy to be the CEO - but this does not necessarily mean he gets to "overrule" the other founders. You can setup the rules however you want.

Do you know why he wants to have veto/overrule power? Have you guys had disagreements? Is there a mismatch in your visions for the company?

Perhaps he can be the CEO, but you can all be on the Board - which means you can replace him as CEO. If he is not OK with that, then he just wants to be Dictator for Life.

answered Mar 9 '11 at 00:57
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Bryan Batchelder
111 points
  • Thanks for your suggestions, The product guy is the one who gave the idea and we have the upper hand, however i can't say that he cant find the replacement. The point of we quit he didn't is relent as he is not married or has big family commitment just not ready for that big risk. He wants to overrule becoz sometime we think very differently, we had to compromise on some decision, however our visions are same and thats the beauty. But he is emotional to the idea and doesn't want to deviate from his way of doing things! so if we do something not in line then he should be able to overpower. – Karan 8 years ago

1

Well unfortunately you have got to this point before working out the detail ... not uncommon but painful. You need to have a meeting, ideally in a relaxed setting like a dinner or something and go through each persons perspective.

Start with something like, "while you had the idea both of us have invested heaps and taken a huge risk so we want to know its worth us continuing ..." reword to be more appropriate.

The things you need to cover off are something like the following:
My advice is get an in principal agreement in place before starting, it doesn't have to be huge maybe 1 to 2 pages. It should cover the basics

  1. Share split, buy in time (say 2 years to get all of your shares OR key milestones)
  2. Who owns what - preexisting IP and customer base is owned by the company and is part of the contribution in return for shares in the company.
  3. What happens if someone leaves (do the shares revert to the pool, stay with that person or do they need to be bought out by the other partners). I would suggest anything in the first 6-9 months is a pure revert to the pool, after that first option to buy out from the other parties ... this should be evenly bought if possible.
  4. Sweat equity multiplier. If there is a period of no money what is the value of shares or what is the repayment on the time invested (agree on a figure 1 month = $8K or something) and it is paid out once things pick up. OR in your case if 2 are full time and 1 is part time then this should be reflected to cover your risk and early contribution.
  5. How do decisions get made? Vote, seek advice but one persons rule, who has decider?

These are the key things I get peoples agreement and signature to before starting then soon afterwards I follow up with a lawyer written form.

When answering the first and key one 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. That said you want the developers to have a good stake in the product so they are suitably focused in the end result.
  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.

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.

answered Mar 21 '11 at 12:31
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Robin Vessey
8,394 points

0

This is a classic case of not putting together a founders agreement ahead of time (as Alain has artfully done with his site). Putting that aside, you need to sort this out before moving forward. Some ideas to consider:

  • Find a neural third party that everyone respects and likes. Have them moderate the discussion as to how to move the company forward.
  • All three of you need to have an offsite meeting to hammer out the companies direction. The best way to do that is for you to put together a quick one page outline of what issues need to be resolved.
  • Have a dialog about the companies direction and the issues that need to be sorted out. Do this in a constructive way that does not lay blame on anyone.

If these things fail to resolve your companies issues, them I'm afraid you might have wasted 7 months of your life. But I'm optimistic that you can resolve this since it does appear that together, the three of you built something that a single person could not build alone. Remember, ideas are useless without execution and even if you part ways, it's unlikely that your would be CEO could make something happen without others. So, I would craft the argument like

"Look how far we have come and how far we can go if we work together" or something like that. The guy with the big ego may not believe that but all you need to do is state the facts of the last 7 months -- that's about all you can do without having a written agreement.

answered Mar 7 '11 at 08:45
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Jarie Bolander
11,421 points
  • Thanks a lot Jarie, I have drafted the mail like you said & sent it our guyz,and found a neutral party to come in for our meet so that we can sort this issues. One thing scares me is going back to same old job ... What are other things should i keep in mind and something i should do before we get to meet. I am trying to keep the ego aside – Karan 8 years ago
  • @Karan: Have the facts straight and have a plan on how to move forward. It's a lot better to have a plan that people can look at and change then to have no idea on how to move forward. When you think of this plan, make sure that it's in the best interests of all concerned (or at least as close as you can get). That way, you keep it focused on the business and not the egos. Good luck. – Jarie Bolander 8 years ago
  • I am planning now and trying to keep it focused on the business considering everyone's interest, hope to see some positive out come. Thanks a lot Jarie and wish i had understanding co founder like you! – Karan 8 years ago
  • For the mail that sent to idea guy i got the below email, since the comment do not take many letters, i am posting it in multiple comments - He says "1. I like setting expectations upfront and i believe in that coz there are no surprises at a later stage. In this case i had already clearly mentioned toboth of you that i would want to do certain things in my own style because i have thought about this from a long time . Do you guys agree on this ???" He had told but didnt mention what certain things & by then it looked like comapny vision.But he never mentioned about overriding the decision – Karan 8 years ago
  • "2. Going forward without deciding this does not make sense ..............Do you think it makes sense to have issues later??? No ways! ,Let's get things clear now not later ,You would end up wasting more time in case things don't go well at a later stage. " Even i am saying the same to decide now 3. Entrepreneurship is about doing what you want to do ,So if your telling me to do things that i don't want to do it doesn't make sense right? At the same time it does not make sense for you too because u might want to do things what u like. – Karan 8 years ago
  • Again guys im not trying to say i will be your boss but i want to ensure that for this idea i would want to do things in my own way(Which i had already told u guys). You bring another idea to the table and u tell u wanna do it ur way and im cool with that coz u own that right to do it ur way. I hope you understand this. I'm fine with Vinay (neutral guyz who know 3 of us better) coming but i think we are matured enough to take decisions on our own :) . Lets be clear on what we want and let us get that documented legally too""" – Karan 8 years ago
  • This is what he had to say & we want equal rights & decision powers on our respective areas. The money also is equally shared among us, so what previleges he should get as he has mentioned the certain things should be his way intinally. But our efforts are as equal as his or more & we are risk takers buy quitting our jobs and doing this. Where as we are not sure when he is going to quit and do this full time. Also he saying that his name on our company might cause trouble in his present job so he wants his brother's name on it. I trust him but he is good but he is not trusting us. What to do? – Karan 8 years ago
  • You need to meet face to face and hash out all of the issues. You need to get commitments as to his of involvement. If he is the CEO, that's a full time job that can't be part time. If by the end of your meeting you can't come to agreeable terms, don't waste your time anymore. From the looks of this email, he is not confident in his ability to lead the organization because he does not want to quit his job. That's a warning sign of trouble but hey, some people are just conservative. So, have a sit down, write down the deal and get to work if it makes sense to you! – Jarie Bolander 8 years ago
  • Thank you, we are meeting this friday. hope all goes well and we continue to build a solid company & product – Karan 8 years ago
  • Its a success we did sort out the issues on F 2 F meet and he was more matured in this meet and we are going full throttle from monday !!! However he will stick to day job and allow us to run the company untill he join us and do our stuff full time. Thanks a lot Jarie, your feedback and support played a vital role and appreciate your help :) – Karan 8 years ago
  • @Karan: I am so glad it worked out. Make sure you document your decision and periodically review where you are at. It's vital that your whole team understand what is expected and review it as needed. – Jarie Bolander 8 years ago

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