Need advice for crucial decisions I need to make for my online business!

[TheProcess]

I started an online business a few weeks ago. We are trying to build a website, and eventually an app and social platform. I have many important decisions I need to make and I'd love to be able to talk to someone who has experience in this area and could help me out.

I live in Canada, for reference. I'm also a "business" person rather than a "tech" person.

My biggest concern right now is my team. I own 80 percent equity while my partner owns 20 percent. The biggest red flag is that we are both "business" people. The second red flag is that I believe all cofounders should be all in on an idea, and my cofounder is juggling 3 businesses at the same time, although he did say he would focus on this full time if it takes off.

I had the chance to speak with a business advisor (someone who has been in my shoes) yesterday and he likes our idea, but told me that there's a lot that I've been doing wrong. He also suggested I talk to a few other people like him, so that I don't just rely on his advice.

I'm also struggling with next steps, such as how much equity to give away, how to raise money (pitch vs private investors), whether to think of this as a project (what my cofounder thinks) or as a business.

If anyone who has been in my shoes and is willing to talk I'd really appreciate it.

 

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[AubreyJ]

a couple of questions and points:

First, I think it is perfectly understandable for your partner (especially considering he only owns 20%) to not want to go full time on this. It is perfectly normal to not do a business full time (or at least not in place of a normal 9-5 or a normal business) at first because you can't start a business if you can't pay your bills.

Second, I personally don't think you need to hire a tech-minded person. You can always outsource tech work - you can learn the basics on your own with a few hours a week watching YouTube videos and whatever you can't do yourself you can outsource to a freelancer.

Lastly, why are you needing to get funding for an online business? One of the great things about online businesses is that you can get started with not a whole lot of initial investment. Is this already a business and you are needing funding to get to the next level?

If you are starting an online business, and you are JUST getting started I think you are way ahead of yourself by already worrying about investors, pitches, whether or not it's a project or a business...etc. Just my $.02

 

[TheProcess]

a couple of questions and points:

First, I think it is perfectly understandable for your partner (especially considering he only owns 20%) to not want to go full time on this. It is perfectly normal to not do a business full time (or at least not in place of a normal 9-5 or a normal business) at first because you can't start a business if you can't pay your bills.

Second, I personally don't think you need to hire a tech-minded person. You can always outsource tech work - you can learn the basics on your own with a few hours a week watching YouTube videos and whatever you can't do yourself you can outsource to a freelancer.

Lastly, why are you needing to get funding for an online business? One of the great things about online businesses is that you can get started with not a whole lot of initial investment. Is this already a business and you are needing funding to get to the next level?

If you are starting an online business, and you are JUST getting started I think you are way ahead of yourself by already worrying about investors, pitches, whether or not it's a project or a business...etc. Just my $.02

I think the main thing right now is creating an MVP - minimal viable product, which will the a website.

We also need to focus on marketing (getting users and creating buzz), and creating an app if the website is successful. Funding can be useful for that.

I think a tech cofounder can be really helpful especially for creating the app and working on the website. Right now I have a friend doing the mvp for free, but in the long run having a tech cofounder will help a lot.

Finally, I think the most important thing to worry about right now is the team. Right now it's just me and my cofounder and I think we need to create roles. He's been acting we are are both co-ceos or something like that. I think I should be in charge of the overall business and making decisions and choosing the strategy, while he can focus more on something like marketing. What do you think?

 

[Andy Black]

I partnered with people in the past. It’s not for me. I want to focus on my vision, my team and my clients. I’d personally rather not worry about equity splits and stepping on each other’s toes.

I’m concerned you’re focused on building a website then an app and then a social platform. And that you’re wondering how to raise cash, split equity, and whether to label this a project or a business.

Maybe I’m old fashioned, but I’d focus on helping someone solve some problem they’ve got, and doing so profitably. I say this having worked in a startup that squandered over €20m “building stuff” and never making any revenue. And working in a grey hat business that were profitable from day one and never had a product (they sent visitors from Google Ads to pages that had ads on them).

I’m curious what would happen if you decided to not get any funding and decided to make sales instead.

Can you change your goal from “building a website, app, then social platform” to “helping people and getting paid to do so”?

How soon can you make sales and earn some revenue?

To me, it’s not a business if you don’t have clients/customers, and they’re not clients/customers until they’ve put money into your account.

In my humble opinion, until you’ve earned some revenue then you’ve got an idea, a “startup”, a hobby, or a charity.

 

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[AubreyJ]

I feel as though @Andy Black really hit the nail on the head here.

I think that you are getting a bit too caught up on the "steps" of business rather than creating a business.

Provide value, make sales and then go from there - advertising doesn't have to be expensive at least not when you're starting out. And creating a MVP is something you can do on your own through a few weeks of online tutorials.

If I was you, I'd stop worrying about roles, stop worrying about equity and stop worrying about investors and concentrate on making sales - everything else can be decided later on and as you go.

 

[guidaccio05]

If you want to develop the App don't find a Tech partner, build the MVP using one of these platforms: 5 Low/No-Code Tools For Freelance Mobile App Development in 2020 | Hacker Noon

 

[TheProcess]

I partnered with people in the past. It’s not for me. I want to focus on my vision, my team and my clients. I’d personally rather not worry about equity splits and stepping on each other’s toes.

I’m concerned you’re focused on building a website then an app and then a social platform. And that you’re wondering how to raise cash, split equity, and whether to label this a project or a business.

Maybe I’m old fashioned, but I’d focus on helping someone solve some problem they’ve got, and doing so profitably. I say this having worked in a startup that squandered over €20m “building stuff” and never making any revenue. And working in a grey hat business that were profitable from day one and never had a product (they sent visitors from Google Ads to pages that had ads on them).

I’m curious what would happen if you decided to not get any funding and decided to make sales instead.

Can you change your goal from “building a website, app, then social platform” to “helping people and getting paid to do so”?

How soon can you make sales and earn some revenue?

To me, it’s not a business if you don’t have clients/customers, and they’re not clients/customers until they’ve put money into your account.

In my humble opinion, until you’ve earned some revenue then you’ve got an idea, a “startup”, a hobby, or a charity.

You make some really good points. Thank you.

 

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[TheProcess]

I feel as though @Andy Black really hit the nail on the head here.

I think that you are getting a bit too caught up on the "steps" of business rather than creating a business.

Provide value, make sales and then go from there - advertising doesn't have to be expensive at least not when you're starting out. And creating a MVP is something you can do on your own through a few weeks of online tutorials.

If I was you, I'd stop worrying about roles, stop worrying about equity and stop worrying about investors and concentrate on making sales - everything else can be decided later on and as you go.

Alright thanks for the advice! I do have some questions about equity however. My cofounder and I decided it would be best to part ways. He suggested the following 3 options:

1) I buy him out. He thinks we're worth 24 thousand dollars right now. This doesn't make sense to me. Maybe I agree to this, but pay him out only if we end up making that amount in profit.

2) He leaves but keeps 5 percent equity.

3) We both go in separate directions, but both continue to work on the business (separate businesses).

What do you think?

 

[TheProcess]

I partnered with people in the past. It’s not for me. I want to focus on my vision, my team and my clients. I’d personally rather not worry about equity splits and stepping on each other’s toes.

I’m concerned you’re focused on building a website then an app and then a social platform. And that you’re wondering how to raise cash, split equity, and whether to label this a project or a business.

Maybe I’m old fashioned, but I’d focus on helping someone solve some problem they’ve got, and doing so profitably. I say this having worked in a startup that squandered over €20m “building stuff” and never making any revenue. And working in a grey hat business that were profitable from day one and never had a product (they sent visitors from Google Ads to pages that had ads on them).

I’m curious what would happen if you decided to not get any funding and decided to make sales instead.

Can you change your goal from “building a website, app, then social platform” to “helping people and getting paid to do so”?

How soon can you make sales and earn some revenue?

To me, it’s not a business if you don’t have clients/customers, and they’re not clients/customers until they’ve put money into your account.

In my humble opinion, until you’ve earned some revenue then you’ve got an idea, a “startup”, a hobby, or a charity.

Hey I've love to get your take on me parting ways with my cofounder right now. I replied to another commenter on this thread.

 

[Andy Black]

Hey I've love to get your take on me parting ways with my cofounder right now. I replied to another commenter on this thread.

Whenever I’ve parted ways we’ve just dissolved what we were working on. It’s usually been due to lack of progress anyway so it’s usually been fairly obvious that it was dead on arrival. Is starting again on something else an option?

How much revenue are you making? I’d wonder where he got that 24k figure from.

I’ve not much experience partnering so take my thoughts with a pinch of salt. Me personally, I think there’s so many opportunities out there that I’d just drop it and move on, and not partner up next time.

 

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[TheProcess]

Whenever I’ve parted ways we’ve just dissolved what we were working on. It’s usually been due to lack of progress anyway so it’s usually been fairly obvious that it was dead on arrival. Is starting again on something else an option?

How much revenue are you making? I’d wonder where he got that 24k figure from.

I’ve not much experience partnering so take my thoughts with a pinch of salt. Me personally, I think there’s so many opportunities out there that I’d just drop it and move on, and stay leaner next time.

He got that 24k figure because we might be getting funding for 8 thousand dollars, and he did some kind of math that led to 24k. I disagree with that valuation.

We are getting no revenue right now. We just started.

 

[AubreyJ]

He got that 24k figure because we might be getting funding for 8 thousand dollars, and he did some kind of math that led to 24k. I disagree with that valuation.

We are getting no revenue right now. We just started.

With no revenue, you can't value the business off of funding you "might" get - with no revenue your company is worth $0.

He is delusional if he thinks that you should buy him out lol.

agreed again with Andy here - just move on. You can start the same idea but with a different name and if you didn't trademark or copyright anything you could probably still use a lot of the same ideas you were working with before.

 

[FierceRacoon]

"The Founder's Dilemma" contains advice on equity splits. The key advice is postpone it and/or renegotiate when needed, as "bad emotions" due to perceived unfair splits destroy value for everyone.

Re: 24k, If there is no revenue, nobody invested any money, and it's been going on for a few weeks, there is no value and no reason to buy out anyone for cash. The argument is absolutely ludicrous.

Re: 5%, do not give away 5% for a couple months of part-time work. You will have trouble raising investment in the future. Every sane investor will look at it and say you are crazy, that equity doesn't grow on trees. Using 4-year vesting, if your partner has a 20% stake and quit after 2 months, it is 0.8% of the business. If he had 50% and using 4-year vesting, and quitting after 2 months (and assuming he did full-time amount of work over 2 months), it is 2% — but this seems way too high if he wasn't really serious about it in the first place. I'd say, give him 1% if you have strong feelings about it.

Pay-in-case-of-profit does make sense to me. E.g. if your cofounder spent 100 hours of hard work, and you pay him $240/hour ($24,000), but only in case the company hits $1M in revenue, that does seem fair to me.

In terms of trying to build a social platform, I've been in an ambitious business like that that burned a good amount of cash without making a single sale. Make sure you are not delusional about creating value. However, if there is real demand that you can validate, then you will need a technical cofounder; a social platform is not something you can create after 3-6 months of online courses.

 

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[Kid]

Make sure you are not delusional about creating value. However, if there is real demand that you can validate.

The "validate" part is crucial. You don't do that with $24k. You do that with $5 landing page and traffic from google ads or facebook ads.

Do that before you'll get crazy about spliting non existing profits.