Successfully navigated the most comon reason for a start-up to fail.

[mikekob]

Hi guys,

I haven't been on here a whole lot due to business starting to pick up and free time dwindling. I wanted to share something from my experience over the last year and a half with a "bad apple" partner and potentially some ways to avoid making the same mistake as mine.

Long story short, I partnered with a friend to build a product. We have the product built, launched, and in a fully functional capacity. We initially decided without any guidance, legal advice, or input from others to split equity 51/49, with me as the majority. May my partner ran out of money and got a full time job. The company has since taken a very slow progression technically, but again we have a functional product. Partner was dead set on staying at that equity and we had a mentor from a local incubator have a video conference to give some guidance. Partner didn't turn on his camera and refused the video portion. Red flag number 143. After some time away my partner comes back with "Mentor is right, you're driving the company not me. I'm good with 10-15% equity, and just want to see this company succeed. Do whatever you need to and I have your back as much as I can with my job." He essentially changed himself from Co-founder to technical adviser or just "guy who developed the product."

Well hell. That's a great way to end that conversation. After about 2 months of constant anxiety this has finally come to an amicable end. Time to get back to work now that I can sleep and think straight.

What did I take from this? Partners can be terrible to have to deal with. Making large decisions like equity, vesting, product support, product ownership, is all very volatile without proper guidance. Co-founder issues are the top reason along with running out of money to cause a business at this stage to fail. I came out on top and the business is moving forward wonderfully. Before getting partners or "teams" together make sure you have people in place to protect yourself and your product/ideas.

Mike

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Andrew Ward]

Hey Mike,

Interesting story for sure, a lot of my friends run their own businesses and one 'duo' who were the best of friends had a really nasty split in a similar context.

I've recently set up a second business with a partner (who is also a business owner, friend and customer of my main business for over 5 years) and the first thing we did was to put a shareholders agreement in place to cover for nasty situations like this. It was particularly important to have this given we are both 50/50 shareholders so there is a risk of deadlock. They are fairly simple documents (approx 2 pages) so you may want to explore putting one together still even though you now own a much larger share.

Sent from my Nexus 6 using Tapatalk

 

[mikekob]

That agreement is exactly what we failed to have materialize. I'd say spending the money on a proper attorney up front is a great way to prevent this BS from happening down the road.

I'm planning on having more businesses down the road and I'm 99% set on not having any partners. I'd also never have a 50/50 split, but then again I'm a fledgling business owner and this is my first actual company that's got legs.

 

[Andrew Ward]

That agreement is exactly what we failed to have materialize. I'd say spending the money on a proper attorney up front is a great way to prevent this BS from happening down the road.

I'm planning on having more businesses down the road and I'm 99% set on not having any partners. I'd also never have a 50/50 split, but then again I'm a fledgling business owner and this is my first actual company that's got legs.

My main business is 100% mine, though there have definitely been those lonely times where it would have been a real help to have another person as vested in it as me to bounce ideas off of.

50/50 does have some negatives, though the main ones are offset by having the shareholders agreement. For example if we can't both decide on something then our accountant (who is unbiased and mutually selected) will act as the deciding vote. The good thing about our current position is that we both earn a decent living from our own primary business, so neither of us have the need to draw a salary from our new venture. It is purely about investing mutual time and money into nurturing something with fast lane potential, after all both of us are keen to detach our time from the new business in the medium to long term.

Sent from my Nexus 6 using Tapatalk

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[BlakeIC]

and this, this is why I have always hated partnerships

especially when one person owns lets say 30% of the company but decides they no longer want to do anything to help the company

 

[The Grind]

It really is amazing how many horror story partnerships you hear.

 

[mikekob]

Exactly. And that's why I had about two months of incredibly slow progression and non-stop anxiety.

Having equity tied to specific milestones and/or hours spent on the business are all great ways to avoid some of these situations. I'm still entertaining the idea of starting other businesses later down the line, but will be incredibly frugal with equity if I give any out at all.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.