Needing advice before discuss software ownership

[vfpjohn]

Software engineer 40+ years. Have successful business 22 years. 22 years ago a person I've been friends with for 40 years asked that I develop software for his new business. He operates his own business, operations. I operate my own business IT. I get 4% of all sales as commissions. Very simple hanshake agreement. Did that. It has been a painful but very rewarding venture. My friend has since passed but handed his business to sons. I, now 70 am trying to do the same. Business still good, good relationships, all good. Problem is I developed the softeare which has changed everyday for 22 years to the point no one can maintain it but me. It is written in languages no longer used. It is a desktop app. About 15 years ago, I had a weak moment and because in order for operations to get new contracts, they were being required to have ownership of the software. I agreed to give ownership to the operations company albeit only so they could say they owed the software. I signed something to that effect. Nothing changed except I could not say that I owed the software. For this discussion and because I do not want conflict assume I do not own the software. Operations has a big issue. Even though they own the software they would be out of business in weeks if I got hit by a bus. They know that. I am trying to remedy that by hiring help to continue the business of maintaining the software after me. I am considering spending several hundred thousands to hire expertise to do 2 things, speed up by training my hired help's expertise and help convert the desktop app to a full blown web app. The problem is that if I convert the app to a modern app it would be maintainable by persons other than myself. It accomplishes my goal but makes me vulnerable. The operations company could technically sell the company and take the software with them. I need to know that if I am willing to invest in my demise that I am somehow covered. I want to have a conversation with the operations company to resolve this. I believe the answer would be for me to get 51% ownership of the software. Asking for advice, how to proceed. Ask any questions you deem necessary. Thanks

 

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[MichaelKove]

Software engineer 40+ years. Have successful business 22 years. 22 years ago a person I've been friends with for 40 years asked that I develop software for his new business. He operates his own business, operations. I operate my own business IT. I get 4% of all sales as commissions. Very simple hanshake agreement. Did that. It has been a painful but very rewarding venture. My friend has since passed but handed his business to sons. I, now 70 am trying to do the same. Business still good, good relationships, all good. Problem is I developed the softeare which has changed everyday for 22 years to the point no one can maintain it but me. It is written in languages no longer used. It is a desktop app. About 15 years ago, I had a weak moment and because in order for operations to get new contracts, they were being required to have ownership of the software. I agreed to give ownership to the operations company albeit only so they could say they owed the software. I signed something to that effect. Nothing changed except I could not say that I owed the software. For this discussion and because I do not want conflict assume I do not own the software. Operations has a big issue. Even though they own the software they would be out of business in weeks if I got hit by a bus. They know that. I am trying to remedy that by hiring help to continue the business of maintaining the software after me. I am considering spending several hundred thousands to hire expertise to do 2 things, speed up by training my hired help's expertise and help convert the desktop app to a full blown web app. The problem is that if I convert the app to a modern app it would be maintainable by persons other than myself. It accomplishes my goal but makes me vulnerable. The operations company could technically sell the company and take the software with them. I need to know that if I am willing to invest in my demise that I am somehow covered. I want to have a conversation with the operations company to resolve this. I believe the answer would be for me to get 51% ownership of the software. Asking for advice, how to proceed. Ask any questions you deem necessary. Thanks

Is signing a long term maintenance contract not a possibility?

As a software developer myself, I know, software depreciates rapidly as technology changes. So "codebase" in itself becomes worthless overtime. It's either maintenance agreement (contract) OR hosting it as web app they rent from you on monthly or annual basis.

If you're re-writing software from ground up, in modern language, you're technically building a new tool.

I have several clients I've built software for 10+ years ago that no longer use the original code. However, they often call me for maintenance tasks, only because, I understand their business model and intricate details of operations.

Your only protection is contracting either for support or as Software as a Service (SaaS) - maybe exclusively to them.

My 2c.

 

[vfpjohn]

Is signing a long term maintenance contract not a possibility?

As a software developer myself, I know, software depreciates rapidly as technology changes. So "codebase" in itself becomes worthless overtime. It's either maintenance agreement (contract) OR hosting it as web app they rent from you on monthly or annual basis.

If you're re-writing software from ground up, in modern language, you're technically building a new tool.

I have several clients I've built software for 10+ years ago that no longer use the original code. However, they often call me for maintenance tasks, only because, I understand their business model and intricate details of operations.

Your only protection is contracting either for support or as Software as a Service (SaaS) - maybe exclusively to them.

My 2c.

Hi Michael and thank you for the advice. Well, perhaps there is something different here. I can tell you that having a contract, even long-term, is not something that makes me feel great. Today, I know that as longs as I can continue doing what I have done for 22 years, I will NOT ever be replaced because it would not be financially responsible to do so. In other words, I am a very good deal financially. At the risk of saying I can't be replaced, I am the only one that can offer that deal. I believe it is a fair assesment to say I am as close to being unreplacable as it is possible to get. That is not something I did intentionally. It just happened. Everybody will be happy if both our companies continue with the exact same agreement as we have now. Perhaps this is a better way to explain my delima. I can build a better mousetrap (the modernized app) and that gets rid of the elephant in the room (what if something happens to me), and I should say, something I should do, but at the same time, because I do not own the mousetrap, I just made myself replaceable. If the operations company sells their business, I could get replaced.

Thanks,
John

 

[Bounce Back]

I think trying to pass this on to your sons makes little sense in the current state and is just setting them up for failure unless they know how to code the same languages and what not you set up here.

If it was me I would look at one of these two options:
1. You migrate at no cost to them and get more equity (I doubt they are going to bite on 4% to 51% though let's be honest here)

2. They pay for the migration but you still have to put in significant labor to coach the devs who are migrating and you keep the equity but detach from your labor - you (your sons) are a passive owner.

(Maybe #3 too: You agree to see them through #2 with agreement to sell your equity share upon completion of the migration for a fixed sum),

I don't see how you do #2 and your sons maintain it. That seems setting up for issues in my opinion.

 

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[Jon L]

Lawyer. Get yourself a lawyer. Preferably one with expertise in software licensing. Don't let the lawyer make things overly complicated, but before you go spending a ton of money rewriting software, you need to make sure you're protected. Its one thing to do a handshake deal with a good friend, but its quite another to continue operating that way once he's passed away.

 

[Bounce Back]

Lawyer. Get yourself a lawyer. Preferably one with expertise in software licensing. Don't let the lawyer make things overly complicated, but before you go spending a ton of money rewriting software, you need to make sure you're protected. Its one thing to do a handshake deal with a good friend, but its quite another to continue operating that way once he's passed away.

100% agree - take any ideas here and please do this. This must be worth with the figures you threw around, wanting to pass it to your kids, and how many years its been worthwhile to you.

 

[MichaelKove]

Hi Michael and thank you for the advice. Well, perhaps there is something different here. I can tell you that having a contract, even long-term, is not something that makes me feel great. Today, I know that as longs as I can continue doing what I have done for 22 years, I will NOT ever be replaced because it would not be financially responsible to do so. In other words, I am a very good deal financially. At the risk of saying I can't be replaced, I am the only one that can offer that deal. I believe it is a fair assesment to say I am as close to being unreplacable as it is possible to get. That is not something I did intentionally. It just happened. Everybody will be happy if both our companies continue with the exact same agreement as we have now. Perhaps this is a better way to explain my delima. I can build a better mousetrap (the modernized app) and that gets rid of the elephant in the room (what if something happens to me), and I should say, something I should do, but at the same time, because I do not own the mousetrap, I just made myself replaceable. If the operations company sells their business, I could get replaced.

Thanks,
John

It makes sense what you're saying. You created yourself a permanent job at this company. I am going to throw out some uncomfortable things at you and you take them where you take them:

1. Businesses understand such risks and account for this - the "Bus factor" was top of the things investors asked our startup when we seeked funding.

Companies want key people to hold critical knowledge but they don't want to be out of business when those people depart (voluntarily or by the will of God).

In many cases they will invest heavily into building something that doesn't carry one person risk (you), especially, if they realise the soft is outdated.

In that case, you'll be completely out of the water with nothing to show for. This brings me to second part:

2. Having one big client violates CENTS framework MJ DeMarco talks about. (Might not be the case, but) your entire livelihood is dependent on just one company. This resembles a job. Hopefully you have other clients.

This is your big risk, because, like you said, you can become replaceable IF software gets modernized (as I mentioned, whether by you or someone else).

Furthermore, if they get new management or director or CEO, they start thinking:

"Wow, that's a lot of risk to our business by relying on John, let's seek alternatives"

- a very real move (happened to me, on a smaller scale).

If your ownership was NOT put in contract with original software development... and I am going off your original message:

About 15 years ago, I had a weak moment and because in order for operations to get new contracts, they were being required to have ownership of the software. I agreed to give ownership to the operations company albeit only so they could say they owed the software.

This painfully screams to me they took advantage of you and shafted you out.

I can only guess they "took over ownership" to minimize risk (some risk?) - and they will do this again if push comes to shove.

IMHO you're "one bigger dev agency pitch away" from rewriting the legacy code for them.

And considering how you described them and the risks involved - I wouldn't put it past them to do this. In fact, a lot of my clients were companies like this. They had old agency supporting legacy code that was high risk to them. I contracted them to re-write that code and give them autonomy and freedom from vendor lock.

I thought about your situation this morning and the answer you're looking for is an uneasy one:

As guys mentioned above, get a lawyer, offer to re-write (modernize) the app, figure out who is going to pay for it, but you get part ownership discussed with them. You still have leverage... - I'll get to that in a min.

Alternatively, (what I would do), I'd get a lawyer to draft a software purchase contract, re-write the app, sell it to them for comfortable six figure exit and throw in maintenance contract for 5+ years. IMHO this might be the best solution. Then I'd use the profits to seek more clients or coach your sons to run a software business.

One Client = Huge Risk = Job

You have leverage, because, you're vendor-lock for them. Starting a conversation with,

"Well, boys, I am retiring, and this legacy soft will die without me. I will rewrite it for you for $___,0000 and provide 5 year maintenance. "

(Do your own math).

They don't have the leverage against you because TODAY they rely on you. They'd have to quietly rewrite it on the side to push you out. However, I think, without your expertise and experience - it would be HARD for them to do.

Software development is a service based business. You built software - provided a service. In my experience, it's difficult to own software because it has expiration date. It doesn't appreciate (it actually depreciates as tech scales).

You can own proprietary rights to business know-hows, trade secrets, unique formula, etc. Basically "The Sauce" of the business. Software is just the means of delivery. Literally ANYONE with coding skills can write software now. Code is cheap, unfortunately.

Most software-based companies own users, data, intel, IP. Code itself is depreciating asset.

Like guys said, I'd get a lawyer first.

 

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[vfpjohn]

It makes sense what you're saying. You created yourself a permanent job at this company. I am going to throw out some uncomfortable things at you and you take them where you take them:

1. Businesses understand such risks and account for this - the "Bus factor" was top of the things investors asked our startup when we seeked funding.

Companies want key people to hold critical knowledge but they don't want to be out of business when those people depart (voluntarily or by the will of God).

In many cases they will invest heavily into building something that doesn't carry one person risk (you), especially, if they realise the soft is outdated.

In that case, you'll be completely out of the water with nothing to show for. This brings me to second part:

2. Having one big client violates CENTS framework MJ DeMarco talks about. (Might not be the case, but) your entire livelihood is dependent on just one company. This resembles a job. Hopefully you have other clients.

This is your big risk, because, like you said, you can become replaceable IF software gets modernized (as I mentioned, whether by you or someone else).

Furthermore, if they get new management or director or CEO, they start thinking:

"Wow, that's a lot of risk to our business by relying on John, let's seek alternatives"

- a very real move (happened to me, on a smaller scale).

If your ownership was NOT put in contract with original software development... and I am going off your original message:



This painfully screams to me they took advantage of you and shafted you out.

I can only guess they "took over ownership" to minimize risk (some risk?) - and they will do this again if push comes to shove.

IMHO you're "one bigger dev agency pitch away" from rewriting the legacy code for them.

And considering how you described them and the risks involved - I wouldn't put it past them to do this. In fact, a lot of my clients were companies like this. They had old agency supporting legacy code that was high risk to them. I contracted them to re-write that code and give them autonomy and freedom from vendor lock.

I thought about your situation this morning and the answer you're looking for is an uneasy one:

As guys mentioned above, get a lawyer, offer to re-write (modernize) the app, figure out who is going to pay for it, but you get part ownership discussed with them. You still have leverage... - I'll get to that in a min.

Alternatively, (what I would do), I'd get a lawyer to draft a software purchase contract, re-write the app, sell it to them for comfortable six figure exit and throw in maintenance contract for 5+ years. IMHO this might be the best solution. Then I'd use the profits to seek more clients or coach your sons to run a software business.

One Client = Huge Risk = Job

You have leverage, because, you're vendor-lock for them. Starting a conversation with,

"Well, boys, I am retiring, and this legacy soft will die without me. I will rewrite it for you for $___,0000 and provide 5 year maintenance. "

(Do your own math).

They don't have the leverage against you because TODAY they rely on you. They'd have to quietly rewrite it on the side to push you out. However, I think, without your expertise and experience - it would be HARD for them to do.

Software development is a service based business. You built software - provided a service. In my experience, it's difficult to own software because it has expiration date. It doesn't appreciate (it actually depreciates as tech scales).

You can own proprietary rights to business know-hows, trade secrets, unique formula, etc. Basically "The Sauce" of the business. Software is just the means of delivery. Literally ANYONE with coding skills can write software now. Code is cheap, unfortunately.

Most software-based companies own users, data, intel, IP. Code itself is depreciating asset.

Like guys said, I'd get a lawyer first.

Michael, You said, "Well, boys, I am retiring, and this legacy soft will die without me. I will rewrite it for you for $___,0000 and provide 5 year maintenance. ". Rather than rewriting the software for some amount of money, wouldn't both parties be better off if they just give me back the software? Please just assume for this conversation, if I own the software, I have no issues.

There is ONLY ONE reason they would not give me back ownership of the software. IMHO they have less to sell. Yes, they are good at their business and it is a profitable business and they have contracts and those contracts are difficult to get and keep, but there are many vendors in this line of business and most do a reasonably good job. It's ALL about the software. When a vendor goes to get a new contract, 80% of the Request for Proposal is about the software.

A couple of months back, they attempted to sell their company. After 2 years (unbeknownst to me), of negotiations, the deal fell thru. Selling their company would have been a good thing for me. Currently we only do business in 2 states. The new company is world wide. My commissions could go from 1/2 a million to many millions. I've always been the one wanting to expand. For many reasons they do not want that, mostly it would be more headache than they are willing to deal with. I met with the purchasing company. Most of their questions were about "if we throw new contracts at you, how fast can you install"? After the deal fell thru, I was told the new company simply wanted "too good of a deal". I suspect the truth is they did not want the "if John gets hit by a bus" issue. The reason I mentioned 51% ownership of the software rather than 100% is that it allows them to sell the company and they would get substantially more for their company than they would get if they had no ownership of the software. At the same time, I have the protection I need. I know there is a lot in this paragraph. As always, there is at least 10 years of new development sitting on my desk. That never stops. Just remember that I take care of ALL things IT for my commissions and I am extremely happy with that arrangement.

My real concern is, if they sell the company, and if the software is something that could be maintained by the new company internally or otherwise, I'm vulnerable. That is my ONLY concern. If they agree to give me 51% ownership of the software, I am totally in the dark as to what the sale of their company would look like. I can tell you I do not need proceeds from the selling of their company. I only need protection from a new owner preferring some other party to maintain the software. As I write that down I realize that may be impossible (even illogical) but perhaps someone here knows a way to accomplish that.