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50/50 Partnership, but not 50/50 effort (no LLC, no profits yet)

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lovetravelbass

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Hi Fastlaners,

So I've been making a product for the last few months (since September actually) intended to initially launch on Kickstarter. Long story short, it's gone on way longer than planned, and over the last few months, the effort was straying from 50/50; now it's at the point where I'd put it at 80/20 (80 for me).

Initially we agreed to do 50/50 profits from Kickstarter (if any), and then 50/50 equity of the company (this needs to get more thought out). There's no LLC yet though, no functioning prototype (yet), and no profits, but a very disproportionate mix of hours with a reasonably clear action plan until launch (much of which will fall on me).

What are your ideas for compensation in this early stage to still make the partnership work? Keep in mind that the partner, for the first 6 months, was doing 50/50. But in the last 3 months, it has been more like 80 (me)/20 (him). In addition to this, my partner has a full time job/family. I do not; I am only doing part time and would take full responsibility for delivering the products should the campaign be successful (which could take an indeterminate amount of time).

My agreement with him is to track hours, plain and simple, but I'm short on ideas of how this would turn into compensation for my additional effort, as I know I'm going to come up with way more hours.

Thoughts? Ideas? My partner has become a very close friend, but this is kind of f*cking up our friendship and partnership (We just full on yelled at each other until we were out of breath on Skype). He is very adamant about the 50/50 since the initial (not the prototype as it is now) idea was his. Obviously this pisses me off as we all know on here how "ideas"- in the conceptual form- are a dime a dozen.
 
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jason91

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Hi Fastlaners,

So I've been making a product for the last few months (since September actually) intended to initially launch on Kickstarter. Long story short, it's gone on way longer than planned, and over the last few months, the effort was straying from 50/50; now it's at the point where I'd put it at 80/20 (80 for me).

Initially we agreed to do 50/50 profits from Kickstarter (if any), and then 50/50 equity of the company (this needs to get more thought out). There's no LLC yet though, no functioning prototype (yet), and no profits, but a very disproportionate mix of hours.

What are your ideas for compensation in this early stage to still make the partnership work? Keep in mind that the partner, for the first 6 months, was doing 50/50. But in the last 3 months, it has been more like 80/20. In addition to this, my partner has a full time job/family. I do not; I am only doing part time and would take full responsibility for delivering the products should the campaign be successful (which could take an indeterminate amount of time).

My agreement with him is to track hours, plain and simple, but I'm short on ideas of how this would turn into compensation for my additional effort, as I know I'm going to come up with way more hours.

Thoughts? Ideas? My partner has become a very close friend, but this is kind of f*cking up our friendship and partnership (We just full on yelled at each other until we were out of breath on Skype)
Drop the other bozo to an equity you think hes worth. When you guys form something together make sure you clearly lay out how much equity based on performance or etc.. some sort of legally enforceable agreement. If its 50/50 equity it makes no sense - you're essentially building 80% of the business while he banks off your work? In business friends are great, but not if the friends are taking value more than they give.
 

jason91

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Also - I don't think you should track equity based on hours worked, but form some other basis of how valuable each individual is to the business. If hes an investor who has lots of experience in sales / marketing - 2 hours of his time may be worth way more than 20 hours of a burger flipper at burger king.
 

lovetravelbass

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Jan 3, 2015
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I suppose that's also part of the conflict; my partner indicated that his time is worth more than my time based on his "creative contributions". It's this grey area that also pisses me off, because it's not quantifiable. How many "hours" is a creative contribution - like an idea that we should "move X over here" - worth?
 

biophase

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I suppose that's also part of the conflict; my partner indicated that his time is worth more than my time based on his "creative contributions". It's this grey area that also pisses me off, because it's not quantifiable. How many "hours" is a creative contribution - like an idea that we should "move X over here" - worth?

I would just offer to split up. You each take what you have and go your separate ways, agree to compete against each other. My bet, is that the person who does the least amount of work from this point on will lose. If your partner has confidence that his contribution is worth more, then he should have no problem moving forward alone.
 

Gymjunkie

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Value is being created not by time only. He might be giving you more value in an hour (creating great marketing, bringing sponsorships etc) than you do in two. Depends on what he does and how much impact that has on bottom line, not just hours.

The whole point of MF book was to stop counting time, this applies here too. If you want to calculate hours only and judge by that, then hire staff. Otherwise, partnerships are all about grey areas. That's why they are tough and that's why they can be like marriages..

If he is not contributing valuable stuff and just does low-end jobs for $10hr, don't give him 50/50 split for sure.
 

ClaytonAlbright

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It sounds like he wants you to do most of the work and give him an even cut because it was his idea.

If anyone gives me 50% of the profits agreed up front and does all the work PM me. I've got lots of ideas that I can give.
 

ZCP

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Either iron it out now or don't form a partnership. If you cannot work this out now, how do you plan to handle the other 150 times this type of issue occurs before launch?

Is there any written or verbal agreement to this point? If so, put together a dissolution agreement. If not, form a company with you as 100% shareholder and do your own thing. Wish them well and offer to do a strategic partnership for the better of the two companies with no commingling of sales / funds / etc. Help and advice only.
 

lovetravelbass

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First off, thank you everyone for responding. Each response has genuinely helped me.

I hadn't thought about competing companies, and I'm going to consider that route.

I especially appreciate the tip about how it's not just hours for equity.

Either iron it out now or don't form a partnership. If you cannot work this out now, how do you plan to handle the other 150 times this type of issue occurs before launch?

Is there any written or verbal agreement to this point? If so, put together a dissolution agreement. If not, form a company with you as 100% shareholder and do your own thing. Wish them well and offer to do a strategic partnership for the better of the two companies with no commingling of sales / funds / etc. Help and advice only.

There is no written agreement thus far. This is the 4th time where I've brought up the imbalance of hours, but this was one was quite severe. Based on responses it seems that either

1) State that I am going my separate way, perhaps two separate companies (we are currently in two separate countries now too).

2) Written agreement on lead up to campaign. Another written agreement on post-funding (or post campaign) equity.

Monetarily the contributions have been exactly equal (he owes me a few hundred actually, which I'd be willing to forfeit just to move this forward).
 

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There is no written agreement thus far.

I'd cut and run.

I was going to partner with a good friend on a business idea. He had the idea and was willing to put up some capital.

This was 2 years ago. I decided, after talking it over with some people here, that it would be a bad idea to continue. Despite the fact that he was putting in his fair share and was committed to the idea, I knew that his focus would not be on it long term. So I told him that we should go our separate ways on the idea.

He still brings it up every now and then and still wants to start a business with me. I keep on telling him to focus on what he really wants to do, which is law school.

He's a good guy, good friend, a smart dude, and is willing to work. But it's not the right thing for us because he's got his own goals separate from the business. Business, however, is MY LIFE. That's the difference.

Cut and run.
 

biophase

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1) State that I am going my separate way, perhaps two separate companies (we are currently in two separate countries now too).

I think you can see who really has the skills in the business this way. Because if you leave and he has great ideas but can't execute, he will find out just how valuable your time was. Same for you, if his ideas were awesome, you will know right away when you go on your own as you execute, but can't move the business forward. But if either one of you were slacking, the other person will go on fine without the other.
 

early riser

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I'm with biophase on this...

You do work, he gets payed either way?
Sure sounds like a lot like a job disguised as a business if you continue down that path.

Ideas without actions are just ideas.
He could have 100% of the profits right now...doesn't make a difference
100% of nothing is still nothing.
Which is what is sounds like he will have if you leave (over renegotiation) if he is only doing 20% of the work.
Personally I would leave, but I don't know the exact situation
 

Aidan

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I was going to partner with a good friend on a business idea. He had the idea and was willing to put up some capital.

This was 2 years ago. I decided, after talking it over with some people here, that it would be a bad idea to continue.

I'll second this. My buddy and I started off working together, but then decided that it's better we get their on our own first, and perhaps start a project together in the future when we've both 'earned our stripes' so to speak.
 

lovetravelbass

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Jan 3, 2015
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Thanks everyone. I'm going to look up how to go our separate ways amicably should he not budge significantly on the %. I would have a really hard time just letting the 10 months go to waste. As it is, without me, I do not believe he will be able to do his own "company" on his own (even if I give him our logo, branding, current prototype, etc....there's still so much to do). I do believe I can. I really wish it didn't come down to him feeling "screwed"; I wish he could see the writing on the wall in regards to the work balance...

Very tough decision for me, but this thread helped a lot.
 

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