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Bringing on a cofounder, years later?

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TimTheCoder

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Ok hopefully you fastlaners can share your thoughts on this :)
I've been working with a marketer for a few months, he's been helping me improve my product and given great feedback, which I've implemented. One of the major breakthroughs has been a change in the pricing model, which has seen a massive improvement in conversions. It has gone from around £150 MRR to £560 MRR in the span of a couple of months. (I know this is still small, but it's a huge improvement which is what I'm trying to illustrate).

I'll point out however that before the marketer came along I already knew I had to change the pricing and the idea of the exact pricing model was mine, which I had got from reading various blogs on pricing. Why didn't I implement it sooner? I guess I was afraid to make such a drastic change, resorting to small tweaks in copy etc instead (facepalm).

The marketer is a freelancer and he has clients and can be quite busy, however he has said to focus on the results he can bring rather than hours put in. Some other points:
  • Why does he want to be involved? He wants to transition to more passive income rather than freelancing all the time and he thinks the business is capable of generating good passive income (I also want passive income, I'm more after a lifestyle business than anything else).
  • He doesn't want to be working on it for 10 years or something (me neither), he said we could potentially sell it after 2 years and split the earnings.
  • He is not interested in raising lots of money from investors (neither am I).
  • He wants a large equity stake.
  • He has said he isn't interested in taking any profits from the business until it reaches at least £3000/month profit - it should first go towards me and the business.
  • He said we could do a thing where I give away equity to him as we hit certain milestones.
I think our goals are aligned plus we have complementary skill sets (I'm technical and he brings marketing and design). I guess my main concern is how much time he can really devote to it and the complexity and potential risk involved, and is it necessary? I think the business trajectory is looking really good, so that gives me confidence. I've already made more money this October than I have the whole of September!

Some background:
  • The business is quiz software for teachers. It has a unique spin on it which differentiates from the competition.
  • I started it as a coursework project at school in 2017 (I'm 22), worked on it on the side until August 2019 where I dropped out of uni to work on it full time and also incorporated the company then.
  • It has grown from word of mouth, I haven't done any marketing and at one point it had 20K users before I started deleting accounts which weren't active. Yes, 20K users but less than £200 MRR, it was freemium and hardly anyone upgraded. There's still a free element in the new pricing model, but users are forced into upgrading if they want to use it a lot.
What is the consensus around bringing on a cofounder - especially if it's years later? I've heard a lot of negative things about having cofounders and I get the feeling people are going to say do it on your own. I do think I can do it on my own BUT I do need to be more proactive about doing activities that move the needle forward and not just busy work all the time. I'll admit while working with the marketer I felt I was making more progress and working harder and smarter. Sometimes I slack off, so this does bring an element of accountability.

Really interested to hear people's thoughts on this!
 

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Jon L

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I think your primary problem isn't 'marketing,' its why people aren't converting to paid users. I don't think you've spent enough time with your users: asking them questions, figuring out what other problems they have etc.

20k signups is significant. <1000 pounds/month isn't. There is a pretty major disconnect there. What is it?
 

TimTheCoder

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I think your primary problem isn't 'marketing,' its why people aren't converting to paid users. I don't think you've spent enough time with your users: asking them questions, figuring out what other problems they have etc.

20k signups is significant. <1000 pounds/month isn't. There is a pretty major disconnect there. What is it?
Agreed, although this was more the old pricing model. It was basically a free version and a Pro version and the Pro version was mostly just nice to have features. So as you can imagine, most people just stuck with the free version. I cringe at how long I kept that pricing model though, I should have changed it as soon as I saw it wasn't working.

The new one (which I implemented around mid-August) is more based on how much you use it and it's working much better. While on the old model I would get around 10-20 upgrades per month, with this model I got 66 upgrades in September and had 50 in October already. So I think that problem might be solved! I did talk with a few power users before implementing it to make sure they understood it and thought it was reasonable, as well as got a few ideas from them which helped shape the exact pricing.
 

Raja

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Agreed, although this was more the old pricing model. It was basically a free version and a Pro version and the Pro version was mostly just nice to have features. So as you can imagine, most people just stuck with the free version. I cringe at how long I kept that pricing model though, I should have changed it as soon as I saw it wasn't working.

The new one (which I implemented around mid-August) is more based on how much you use it and it's working much better. While on the old model I would get around 10-20 upgrades per month, with this model I got 66 upgrades in September and had 50 in October already. So I think that problem might be solved! I did talk with a few power users before implementing it to make sure they understood it and thought it was reasonable, as well as got a few ideas from them which helped shape the exact pricing.
I suggest you A/B test with more than 3 pricing models.
then rank and compare which works the best, then do that.
 

Tony100

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Oct 11, 2020
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Ok hopefully you fastlaners can share your thoughts on this :)
I've been working with a marketer for a few months, he's been helping me improve my product and given great feedback, which I've implemented. One of the major breakthroughs has been a change in the pricing model, which has seen a massive improvement in conversions. It has gone from around £150 MRR to £560 MRR in the span of a couple of months. (I know this is still small, but it's a huge improvement which is what I'm trying to illustrate).

I'll point out however that before the marketer came along I already knew I had to change the pricing and the idea of the exact pricing model was mine, which I had got from reading various blogs on pricing. Why didn't I implement it sooner? I guess I was afraid to make such a drastic change, resorting to small tweaks in copy etc instead (facepalm).

The marketer is a freelancer and he has clients and can be quite busy, however he has said to focus on the results he can bring rather than hours put in. Some other points:
  • Why does he want to be involved? He wants to transition to more passive income rather than freelancing all the time and he thinks the business is capable of generating good passive income (I also want passive income, I'm more after a lifestyle business than anything else).
  • He doesn't want to be working on it for 10 years or something (me neither), he said we could potentially sell it after 2 years and split the earnings.
  • He is not interested in raising lots of money from investors (neither am I).
  • He wants a large equity stake.
  • He has said he isn't interested in taking any profits from the business until it reaches at least £3000/month profit - it should first go towards me and the business.
  • He said we could do a thing where I give away equity to him as we hit certain milestones.
I think our goals are aligned plus we have complementary skill sets (I'm technical and he brings marketing and design). I guess my main concern is how much time he can really devote to it and the complexity and potential risk involved, and is it necessary? I think the business trajectory is looking really good, so that gives me confidence. I've already made more money this October than I have the whole of September!

Some background:
  • The business is quiz software for teachers. It has a unique spin on it which differentiates from the competition.
  • I started it as a coursework project at school in 2017 (I'm 22), worked on it on the side until August 2019 where I dropped out of uni to work on it full time and also incorporated the company then.
  • It has grown from word of mouth, I haven't done any marketing and at one point it had 20K users before I started deleting accounts which weren't active. Yes, 20K users but less than £200 MRR, it was freemium and hardly anyone upgraded. There's still a free element in the new pricing model, but users are forced into upgrading if they want to use it a lot.
What is the consensus around bringing on a cofounder - especially if it's years later? I've heard a lot of negative things about having cofounders and I get the feeling people are going to say do it on your own. I do think I can do it on my own BUT I do need to be more proactive about doing activities that move the needle forward and not just busy work all the time. I'll admit while working with the marketer I felt I was making more progress and working harder and smarter. Sometimes I slack off, so this does bring an element of accountability.

Really interested to hear people's thoughts on this!
Why would you give him equity?

He says he doesn't want to put in time but wants to provide results instead. That sounds like a marketing agency, not a cofounder. Why not hire an employee, an agency or freelancers as you have been doing? However good this guy is at marketing, he is replaceable. There will be people out there who can provide the same results without taking equity.

Why would you give away equity of a business you have dropped out of uni to grow when he is really contributing very little. If he were investing £50K that was essential to your growth then it would be a different story.

It would be a lot cheaper in the long run to outsource or hire than to give away control of the business. If you expect to make £3000 profit per month in the future then how much is the business worth today? It's not £0
 

ReeZ

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Oct 9, 2016
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Do you trust this guy?
Is he replaceable?
Does he provide more than "basic" marketing knowledge, that you can utilize in the business?
Does he complement you, your strengths in terms of personality - not gained skills?
Can you find someone who does the same work for you - without the equity stake?
Do you want to "work" with this guy?

Having a smaller stake in a bigger cake is better than having the whole of a small cake.

That does not mean you should or want to give away equity to anyone. - You shouldn't. In the case you do give equity you should have a clear idea of how to structure everything so that you remain in control.

The guy sounds reasonable, but there is still much left unsaid.

In any kind of partnership, you should have a way out (as should them). If it does not work out how are you getting out of the business or how do you get him out of the business? If that is 3 years down the line, how are you getting out then?
What is the actual work each of you is going to be doing?

As for the actual deal - tons of ways to skin the cat.

He gets in after 5k/month with a certain amount of equity and the milestones continue till there's a cap on the amount of equity he gets.
Perhaps he puts in a lump-sum initially also?

In the case you do make a deal - don't become too greedy. You should opt for a win-win where you guys build on top of each other, not where you gain the maximum amount out of him. If he brings value, you might want him for other projects later on as well.
 

TimTheCoder

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Why would you give him equity?

He says he doesn't want to put in time but wants to provide results instead. That sounds like a marketing agency, not a cofounder. Why not hire an employee, an agency or freelancers as you have been doing? However good this guy is at marketing, he is replaceable. There will be people out there who can provide the same results without taking equity.

Why would you give away equity of a business you have dropped out of uni to grow when he is really contributing very little. If he were investing £50K that was essential to your growth then it would be a different story.

It would be a lot cheaper in the long run to outsource or hire than to give away control of the business. If you expect to make £3000 profit per month in the future then how much is the business worth today? It's not £0
Yeah this is what I've been thinking - just pay freelancers or consultants when I need help with something. I guess as this is my first business part of me likes the idea of having someone with experience help making the decisions etc. But I also don't really want to give away equity with something I've been working so long on and it could be unnecessary if I can pull it off on my own.
 

Tony100

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Oct 11, 2020
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UK
Yeah this is what I've been thinking - just pay freelancers or consultants when I need help with something. I guess as this is my first business part of me likes the idea of having someone with experience help making the decisions etc. But I also don't really want to give away equity with something I've been working so long on and it could be unnecessary if I can pull it off on my own.
It's my first business too (21 yo), I started it a couple of years ago and I understand what you mean about having someone to ask for advice. It's easy to find someone for that though!

Have you thought about finding a mentor? Local councils often have small business support schemes such as mentoring or regional/county business support. There's also the Prince's Trust. That's all free.

Is there a networking group in your area? I joined the local chamber of commerce last year and have met a few experienced business people who are happy to meet for a coffee if I need advice on something. It's much easier to find advice when you're younger because everyone wants to help you.

Failing that this forum or ukbusinessforums website are perfect for free advice on just about anything business related.
 
Last edited:

TimTheCoder

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Do you trust this guy?
Is he replaceable?
Does he provide more than "basic" marketing knowledge, that you can utilize in the business?
Does he complement you, your strengths in terms of personality - not gained skills?
Can you find someone who does the same work for you - without the equity stake?
Do you want to "work" with this guy?

Having a smaller stake in a bigger cake is better than having the whole of a small cake.

That does not mean you should or want to give away equity to anyone. - You shouldn't. In the case you do give equity you should have a clear idea of how to structure everything so that you remain in control.

The guy sounds reasonable, but there is still much left unsaid.

In any kind of partnership, you should have a way out (as should them). If it does not work out how are you getting out of the business or how do you get him out of the business? If that is 3 years down the line, how are you getting out then?
What is the actual work each of you is going to be doing?

As for the actual deal - tons of ways to skin the cat.

He gets in after 5k/month with a certain amount of equity and the milestones continue till there's a cap on the amount of equity he gets.
Perhaps he puts in a lump-sum initially also?

In the case you do make a deal - don't become too greedy. You should opt for a win-win where you guys build on top of each other, not where you gain the maximum amount out of him. If he brings value, you might want him for other projects later on as well.
Some good points to consider, thanks! I do trust him, we've been working quite well in the last few months and made some great improvements to the product. His main contributions have been improving the product's intuitiveness as it had quite a bad interface before. But again, this is something I could pay someone to do.

I am leaning towards not doing this partnership because I think there are better solutions, such as getting specific help for specific problems. I'm honestly not too sure what his day-to-day work would involve and how much he'd be doing. During the time we've been working together, it has mainly been him giving suggestions for improving things and me implementing them.
 

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TimTheCoder

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It's my first business too (21 yo), I started it a couple of years ago and I understand what you mean about having someone to ask for advice. It's easy to find someone for that though!

Have you thought about finding a mentor? Local councils often have small business support schemes such as mentoring or regional/county business support. There's also the Prince's Trust. That's all free.

Is there a networking group in your area? I joined the local chamber of commerce last year and have met a few experienced business people who are happy to meet for a coffee if I need advice on something. It's much easier to find advice when you're younger because everyone wants to help you.

Failing that this forum or ukbusinessforums website are perfect for free advice on just about anything business related.
Very true, I should do more networking. I'm living with my parents now though and we live in a village, so not very ideal. Once the covid situation dies down I should be making enough to support myself and can move out to a city or something where there'll be more opportunities for that sort of thing.

But yeah there's forums as well which are super helpful for getting advice like I'm doing now ;)

Though I guess I was referring more to the day to day (smaller) decisions. Having a second opinion on various things is always helpful. But I guess my users are my second opinion. I need to be agile and adapt to what they say. One thing I think I need to do more of is A/B testing and running experiments.

Thanks!
 

Tom H.

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Two founders means two people who have to find motivation to work. When you hire someone, you know the work will get done. And you cut out so many hassles involving vision, decisions, and managing a kind of weird relationship.
 

amp0193

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Along your entrepreneurial journey “characters” will come across your path promising riches.

If it sounds like a shortcut, it isn’t, because there are no shortcuts.

But in the day to day struggle, boy wouldn’t it be nice if someone took the responsibility off our shoulders... so these offers are always very tempting.

Equity is fine, but it needs to be total alignment with your vision, needs to best over time tied to specific performance targets, and after 3 years... it needs to be a small amount.

But it’s gotta be someone willing to work. I’d be nervous about anyone thinking more about the end result (passive income, sell in 2 years) than in the passion for the idea.
 

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