Why should my partner keep me (the sole developer) as a co-founder instead of hiring a contract developer who has no ownership or revenue sharing?


3

A little background. I built an app for a friend's small business, it was his idea. I went to him when it was finished and told him it's a good idea and I'd like to turn it into a product I could resell. He was on board (he later told me he jumped on board because he was worried I might move forward without him). Skip ahead a few months and at this point I have taken the app and evolved it into a multi-tenant site that is ready to sell as a subscription based service with multiple plans. During the evolution of this product my partner and I have talked on a number of occasions about price points and some feedback he's had. The conversations always had a bit of "we're going to make a lot of money with this" to them.

We met this last Monday to discuss feedback he had from some potential beta customers. Or so I thought. He blindsided me with a conversation about our partnership. He kept talking about how it was his idea and he should be receiving all or most of the revenue. He brought up an option to pay me for the extra hours it took to turn this into a re-sellable product and potentially pay me as a contract developer moving forward. I have NO interest in this. I was under the impression this was a partnership and as such, there are parts of the product I completely scratched and re-wrote because I wanted a solid product to work from moving forward. I don't have any interest in making a couple thousand dollars lump sum on something that potentially could bring in 5 digits a month.

We had a conversation yesterday (Wednesday) after giving me a couple of days to think about it. I came back to him and told him I have no interest in being paid for the hours and that if it's not a partnership then we have nothing and we're going our own ways. This means he has no product to sell and he will be getting nothing from this. I think he was pretty floored by that and wasn't expecting to walk away with nothing. It felt a little like blackmailing him, but 100% of the effort, time, and money in this so far has been mine. Without me he has nothing. It was my idea to turn this into a re-sellable product so I feel I have the right to that portion of it. He still seems to think he could just hire a contract developer to do everything.

So, what are the pros and cons for him to do this? Does he even have a leg to stand on in this? Do I? Am I replaceable?

Pros:

  1. The contract developer has no ownership, shares, or revenue sharing.

Cons:

  1. He has to pay this developer from day 1.
  2. The developer is probably not as committed.

TLDR: I'm venturing into my first startup, or at least hoping to. The product is almost ready for market, and my partner sprung on me that he thinks he should receive most or all of the revenue because it was his idea. He's also mentioned just paying me as a contract developer and not giving me partnership status. Does he have a leg to stand on?

Edit: I should also mention that without my "partner" I am probably dead in the water. Or at least slowed way down. He has the contacts in the industry and he has the subject matter expertise. I'm just a lowly programmer and sales would be slow as molasses if left to me.

Getting Started Co-Founder Equity Partnerships

asked Apr 3 '14 at 15:19
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Ryan Arneson
16 points
  • Before you started working on the secondary product, did you guys talk about equity structure? i.e. what % of the business each of you will own. Is this secondary product under the same brand as your friend's other business (the one you first created the app for)? – Patricia Wright 4 years ago
  • No we did not talk about equity division when we started, which is why we're in this situation now, sadly. My partner had mentioned in the past we'd figure it out later if this things makes money. I think he's now seeing it's potential. This secondary app would be it's own business. The app I created for him would essentially just be a free version of this multi-tenant application. I expanded on what I built for him. If we walk away. I just scale it back to a single tenant application and remove all additional functionality. Hope that makes sense. – Ryan Arneson 4 years ago
  • Based on the information you've provided, one thing is clear: your friend is not a person to have as a co-founder. So you should either start this product yourself (consult a lawyer first) or cut your loses and move on. I'm sure the next time around you will decide on equity allocation with a co-founder before starting to execute on an idea. – Nishank Khanna 4 years ago

2 Answers


2

The are two questions I see here.

1. Can your friend legally push you out of this startup and contract a developer?

This will depend largely on what contract, if any, you had in place before you began working on this app. You should never start working on something without getting things like equity structure ironed out beforehand.

2. Should anyone have a technical co-founder or just hire contractors?

Having a technical co-founder is a lot more than just having someone who will code. If it was the latter, Steve Wozniak wouldn't have co-founded Apple. You gain far more in working as a team of founders than you lose by diluting your equity (by having multiple founders).

TL;DR If your friend is debating if you should be a co-founder or he should hire another developer, he is not the person to start a business with. I'd suggest starting this service on your own (or with a better co-founder).

answered Apr 3 '14 at 15:55
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Chrissie Gray
1,107 points
  • Can I legitimately do that even though it was his idea? Seems shady. Or at least morally wrong. – Ryan Arneson 4 years ago
  • Ideas are worthless. It's the actual execution that counts. That said, do consult an attorney first. There are far too many variables that you will need to think through if you decide to go this route. I don't think anyone of us can recommend that for certain without knowing the full picture. – Patricia Wright 4 years ago

0

Do you, and he, want to work together? Do you, and he, want to find a way to work together?

If so - I recommend that you use the Slicing Pie framework, which will quickly show your friend who is actually deserving of the equity: http://www.slicingpie.com/

answered Apr 3 '14 at 18:13
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Nick Stevens
4,436 points
  • Thanks for the link! We do want to work together. After I presented my case to him he did say he wants to make sure we're both happy. He did say he wants to make sure, regardless of what he'd previously said, that I walk away with more than a couple hundred bucks a month. He still seems to have it in his head though that this is his idea, it's his baby, so he's deserving of a big majority of the revenue. – Ryan Arneson 4 years ago

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Getting Started Co-Founder Equity Partnerships