Fastlaners, couple of questions.

I'm currently involved in my friends startup company. I'm the UX designer, I made iPhone and iPad app design, web design, I designed and wrote operating instructions for the product etc. Now we're close to closing a great deal with major industry player and to be honest, we're in the win win situation, because if the Big Player doesn't buy our product, we already have a number of small business sending us email about our product (which they've found organically, thru website I made, we never promoted anything or paid for any advertisements yet).

Few days ago I talked to my friend about his idea on compensating my efforts, and he said that as soon as he forms a separate llc for the product, I'll be hired. The thing is, I already have a job...and we didn't talk about specifics such as salary...

So his idea is to hire me officially in this new company...my initial thought was that I'll get a check for X amount of money for all my work so far. But then again, I'm 100% noobie at these things, I have 0 experience in these kinds of arrangements and I would like to hear what you guys have to say about situations like this, some advices, common practices etc...

Negotiations 101 says that you should start at the ceiling, so go ahead and ask for an equity stake, but I would be pretty surprised if you get one.

Your friend managed to get you to do a lot of work without even discussing compensation. You were likely key to his success at the beginning of this project, and in a strong negotiating position. Now, with offers on the table and being ready to launch, all of the things you offer seem replaceable (hope I am wrong about that). He can hire another employee to do his technical tasks while he continues to focus on his vision and brokering deals.

I with I had a more optimistic view of your current position, and I genuinely hope others come and point out something I am missing. If you can list any ways in which you are key to the organization, that will help your position. If your skills are all readily available for purchase in the market place, I don't know what negotiation advice to give you.

The good thing is that this can be a learning experience for your next business deal. Negotiate before you complete work. Negotiation is something that doesn't come naturally to me. I have to work really hard at it, and have a lot of room for improvement, so I am not trying to knock you. Tough situation to be in.

Hey Ryko!

It is really important that you make your questions apparent to him. Tell him that you want your stake in the company, tell him you want a salary, tell him you want compensation for the work you have done.

Explain to him the work you put into the company. Tell him that the company wouldn't be where it is now if you hadn't made the app, the site, and the instructions.

If he refuses, which if he is your friend he should understand, threaten to take the work you made and go elsewhere.

My hope is that he will understand as your friend and partner where you are at and he will comply with your proposition. That way you aren't required to pull the "take my shit and run" stance.

AmyQ said:

Your friend managed to get you to do a lot of work without even discussing compensation. You were likely key to his success at the beginning of this project, and in a strong negotiating position. Now, with offers on the table and being ready to launch, all of the things you offer seem replaceable (hope I am wrong about that). He can hire another employee to do his technical tasks while he continues to focus on his vision and brokering deals.

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To be precise, I was a part of the team, each person was allocated for his specialty, mine was design, we have a iphone programmer, and few other guys for other tasks. So I'm definitely not the most important part of the team.

As for being replaceable, honestly I think everyone on this team is replaceable, just by living in a globalized world with thousands of experts being at everyone's disposal at all time...but this project is basically us friends doing it together, it's been in the making (without my input in design etc) for 4 years now.

I don't know how to even start thinking about percentages...how can I estimate my share of the company, what metrics can I even use?

Ryko said:

As for being replaceable, honestly I think everyone on this team is replaceable, just by living in a globalized world with thousands of experts being at everyone's disposal at all time...but this project is basically us friends doing it together, it's been in the making (without my input in design etc) for 4 years now.

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In my experience, yes and no. Our CTO is replaceable in the sense that we could find someone else with his skills. However, the disruption that replacing him would cause is significant. Also, the financial health of the company determines how replaceable a team member is. If your skill set it worth 120k a year in the marketplace and they need a 120k skills to get this to the finish line, but they can only afford to pay someone 60k a year, you aren't all that replaceable for this company. In this scenario, you would also be offering value beyond your compensation, which would support you having an equity position.

What is the cash flow situation like at this company? Do they need your skills to continue to launch and scale? What is more important to you, guaranteed compensation or an equity stake?

This post will contain some bad news for you but I'm just giving you the straight vodka no filler

I hate to break it to you, but you became an employee for your friend, not a stakeholder.

I should know, I have friends I employee when I need their skills and they receive employee compensation, but they don't get a stake in my company. They are fine with it because they haven't grown beyond an employee mentality.

It sounds like you got excited and motivated to help your friend, maybe to add to your portfolio or something similar, and so help you did. He may hire you, but you will always be his employee. Mainly because you did contribute to the success but (from what you're saying) you didn't share in any of the risk. So talk specifics on compensation but don't expect an equity stake.

You should get a check for your work because you were essential to it initially but if I were him and you demanded a percentage of the company I'd politely tell you no then laugh later about it. You don't deserve any share of the company you simply deserve just compensation for work completed and future work.

I've had guys come on, get excited, and work for a few months then expect to be part owner of my company. They are always compensated for their work. But they weren't there at the beginning during the dark days of trying to get a company off the ground and haven't put in enough blood, sweat, tears, long hours, sleepless nights, or value overall to demand anything from me.

liquidglass said:

It sounds like you got excited and motivated to help your friend, maybe to add to your portfolio or something similar, and so help you did. He may hire you, but you will always be his employee. Mainly because you did contribute to the success but (from what you're saying) you didn't share in any of the risk. So talk specifics on compensation but don't expect an equity stake.

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Great post. But let me ask you this - who else but him (the boss) shared any risk in this? He invested a lot of his own money in the past 3 years on this project. He hired a guy to program the app, he hired me to design it, another guy did some hardware related stuff...but none of us invested anything but our time into this.

So by that logic it seems to me that nobody deserves to be a stakeholder in his company except for him. Because he's the only one who actually risked money, his own money, to fund this thing to its current level (99% completed).

I can't say I'm happy about being straight employee, I did jump in on his project when he called me up and I worked hard to make it before deadline so he could have presentable product for the potential investors.

For what its worth, last year he had the product working but the apps were designed on the fly by the programmer guy, and it looked pretty damn awful.

But it still worked. So why didn't he go with that stone-age design? He knows the value of good design and he called me up to sort it out. And now the whole thing looks professional and presentable. So I tend to think I'm a bit more than some dime/dozen employee...

I'll have to bring up this subject soon...hope this won't be sour grapes for me, had enough of those in my lifetime...

Ryko said:

Great post. But let me ask you this - who else but him (the boss) shared any risk in this? He invested a lot of his own money in the past 3 years on this project. He hired a guy to program the app, he hired me to design it, another guy did some hardware related stuff...but none of us invested anything but our time into this.

So by that logic it seems to me that nobody deserves to be a stakeholder in his company except for him. Because he's the only one who actually risked money, his own money, to fund this thing to its current level (99% completed).

I can't say I'm happy about being straight employee, I did jump in on his project when he called me up and I worked hard to make it before deadline so he could have presentable product for the potential investors.

For what its worth, last year he had the product working but the apps were designed on the fly by the programmer guy, and it looked pretty damn awful.

But it still worked. So why didn't he go with that stone-age design? He knows the value of good design and he called me up to sort it out. And now the whole thing looks professional and presentable. So I tend to think I'm a bit more than some dime/dozen employee...

I'll have to bring up this subject soon...hope this won't be sour grapes for me, had enough of those in my lifetime...

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I understand you're frustrated by my perspective I figured you would be. But I'm just offering my opinion, nothing more. I appreciate you taking it in stride.

I didn't say anyone else deserved a stake unless they were there from the beginning helping him take it from an idea to fruition. Time is an investment but as you said you're all replaceable, which makes you (as an employee, not a person mind you) less valuable and therefore ineligible to receive stake unless he thinks otherwise.

Money isn't the only valuable investment when it comes to passing out share in a company stake. So are someone finding and recruiting these people, an uninhibited drive to accomplish this goal, and making this their job instead of their side job like it sounds you did.

He does know the value of a good design, hence your forthcoming monetary compensation, but replaceable ability does not warrant an equity stake, ever.

You're an employee, unless your skills are unable to be replaced, you are always an employee regardless of title or salary.

If you have had sour grapes in the past then the source lies not in your various employers but yourself. Keep doing the same thing and you'll get the same results.

I've seen a dozen people want stake in my company and it's various branches from small contributions. I've had people offer me $50,000 to get a branch off the ground (multi-million dollar a year mind you)....but they wanted a 24% share in the company's future profits because they knew the numbers and saw after all the hard work I put in the prize at the end of the road. To them I said, keep your money.

Most people as it sounds you may be, (nothing personal) contribute to an idea or a company in a minor and replaceable way, hoping it will get off the ground, but if it doesn't, no skin off their back. Then when it starts to see glimmers of sunshine and the rocket prepares to take off, all of a sudden they want their part of the pie. It reminds me of factory workers who strike for more pay because the company has been profitable for two years. They say "we just want to share in the company's success" I'm sure they F*cking do, but they don't want to take pay cuts when the profits are down or work for free to get the company back to profitability. In essence they do what they have the skills to do and are hired for, without concern if the company will succeed, because it's not their problem. Then when it does succeed, they have their hands out.

To give you an equivalent idea of your position. When Henry Ford wanted a V8 engine made out of one single piece of steel he told his engineers to do it, no matter the cost or the time it took. They said it couldn't be done, he said do it anyway. Six months later they had succeeded. Do you think they took part ownership of the company because they accomplished the impossible? No. They were well compensated and he made many millionaires within his company, so it is possible to become wealthy in this way. But they were always working for HIS dream and not their own.

Ryko said:

So by that logic it seems to me that nobody deserves to be a stakeholder in his company except for him. Because he's the only one who actually risked money, his own money, to fund this thing to its current level (99% completed).

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Let me ask you this because I'd rather not assume. Are you saying that everyone involved deserves a stake in the company? From what I gather there are about 4 players here. So the man who started this, had the idea, acted on it, got the right people on the bus to complete it, only deserves what 25% of his own company? If that's in line with your thinking, and I'm not saying it is, that's ridiculous. Even 50%, or 75% is pretty low for the person who made it happen from the ground up.

You deserve to get paid for your work, but not an equity stake in future profits.

liquidglass said:

They say "we just want to share in the company's success" I'm sure they F*cking do, but they don't want to take pay cuts when the profits are down or work for free to get the company back to profitability.

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Am I wrong for valuing my time invested in this project? I personally invested X amount of hours of my own spare time to work on this project for 6 months for free. Back then, no connections were made and no interest in the product was shown. I didn't ask for money, I never brought up money, because I believed in the product and I had no doubt in my mind that the whole thing will succeed.

liquidglass said:

Let me ask you this because I'd rather not assume. Are you saying that everyone involved deserves a stake in the company? From what I gather there are about 4 players here. So the man who started this, had the idea, acted on it, got the right people on the bus to complete it, only deserves what 25% of his own company? If that's in line with your thinking, and I'm not saying it is, that's ridiculous. Even 50%, or 75% is pretty low for the person who made it happen from the ground up.

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Who said anything about equal share? I never said anything remotely like that, I never said anything about having a double-digit percentage share or nothing ludicrous like that. Why do I get this sentiment that fastlane is about 2 things; don't do anything yourself, outsource all and don't pay anyone more than bare minimum for all the work they do for you, keep em all on short leash. Am I missing something?

You keep mentioning how he brought and built it all from the ground up - no he didn't, the team did, he didn't start this all by himself and have the rest of us join in and tweak the product to perfection.

He came up with an idea, and that's something a lot of people do, lots of ideas floating around in space...He gathered a team to execute that idea. The team did it, apparently. If the team screwed up, he would have nothing. He would lose time and money and he would be out there trying to find another bunch of guys to execute his pipe dream. Who knows, maybe a competitor would arise in the meantime and saturate the market.

If that's not enough for some stake in the company, then I don't know what is.

Ryko said:

Am I wrong for valuing my time invested in this project?

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No, not at all. Your friend values your time also, which is why he is talking about cutting you a check. If you provided work above what he can compensate with cash, then it would be reasonable to ask for compensation in other ways, such as equity. It would be most reasonable to determine your compensation based on what your friend would have to pay on the open market to replace you.

Ryko said:

Why do I get this sentiment that fastlane is about 2 things; don't do anything yourself, outsource all and don't pay anyone more than bare minimum for all the work they do for you, keep em all on short leash. Am I missing something?

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Do you pay more than the market demands for things? When you go out and by a shirt and the price tag says $50, do you offer to pay more? You are right that most businesses pay what the market place demands for goods and services, just like you do. As far as business owners not doing anything yourself, I think you really are missing something. We don't do technical tasks in our business, we hire people to do them. A lot of employees incorrectly think that their bosses aren't doing anything. If you ever find a case where a blundering idiot is making money hand over fist while doing nothing as a business owner, set up shop as competition the same day.

Ryko said:

He came up with an idea, and that's something a lot of people do, lots of ideas floating around in space...He gathered a team to execute that idea. The team did it, apparently. If the team screwed up, he would have nothing. He would lose time and money and he would be out there trying to find another bunch of guys to execute his pipe dream. Who knows, maybe a competitor would arise in the meantime and saturate the market.

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Again, minimizing what it takes to launch a business. He had more than an idea.

Ryko said:

If that's not enough for some stake in the company, then I don't know what is.

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Okay, let me give you an example from our business.

Early on, we had the good fortune to attract a highly skilled person. He had worked at some top consulting firms, large corporations and had gone through a liquidity event at a business which he had co-founded. The market place dictated that his skills were worth 200k+ a year. We could only afford to pay him 40k the first two years. He didn't need short term cash, so he took equity instead. He deserves that equity because he took a significant risk - over 500k in the four years he was with us. If our company had failed, he wouldn't have gotten anything. This was his full time job. Even still, his equity position was based on what his time was worth in the market place vs. what we could afford to pay him. The difference was made up from equity based on a business valuation (which I admit was based on a lot of optimism at that time). It was all about the numbers. If we had paid him 200k a year, he wouldn't have gotten any equity because he would have received market rate compensation in the form of a salary.

If he had elected to defer his compensation, we would have paid him for that loan in interest, not equity.

Call Stewie Griffin because you're going to need a time machine.

You should never, ever work on a project without discussing compensation beforehand.

What gets tricky is that an existing equity holder is not going to want to give up equity before the work gets done because they want to see some performance and results first. What gets tricky for the person doing the work is they could end up doing it and having the equity holder not give up their fair share in the end. The solution to that for me has always been a performance contract, where the terms of equity acquisition are set in stone with an expiry date in the near future.

Goodluck.

AmyQ hit the nail on the head on every point, but I feel like typing a response so mine will mirror hers for the most part.

Ryko said:

Am I wrong for valuing my time invested in this project? I personally invested X amount of hours of my own spare time to work on this project for 6 months for free. Back then, no connections were made and no interest in the product was shown. I didn't ask for money, I never brought up money, because I believed in the product and I had no doubt in my mind that the whole thing will succeed.

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I've said it before you deserve compensation and you're going to get it. But you seem to be hung up on the idea of getting equity.

Ryko said:

Who said anything about equal share? I never said anything remotely like that, I never said anything about having a double-digit percentage share or nothing ludicrous like that. Why do I get this sentiment that fastlane is about 2 things; don't do anything yourself, outsource all and don't pay anyone more than bare minimum for all the work they do for you, keep em all on short leash. Am I missing something?

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Please note where I said I was asking so I wouldn't assume. However, I was putting assumptions in my reply to elaborate on the lunacy of it.

You get that sentiment because you're not fast-laning your life. You described employees and people with vision hire employees to build their dream for them. You're trying to assume a fastlane mindset and role in a situation where you are not part of the fast lane. So it will naturally lead to frustration.

Ryko said:

You keep mentioning how he brought and built it all from the ground up - no he didn't, the team did, he didn't start this all by himself and have the rest of us join in and tweak the product to perfection.

He came up with an idea, and that's something a lot of people do, lots of ideas floating around in space...He gathered a team to execute that idea. The team did it, apparently. If the team screwed up, he would have nothing. He would lose time and money and he would be out there trying to find another bunch of guys to execute his pipe dream. Who knows, maybe a competitor would arise in the meantime and saturate the market.

If that's not enough for some stake in the company, then I don't know what is.

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Well based on what you've written he did build it from the ground up, finding the right people for the "bus" as Jim Collins puts it is exactly what he did. But much like MJ mentions in his book, you were a passenger not the driver. You don't own the vehicle but you do have a seat on it. Which can be very lucrative, but it is not fastlane. Until you're the driver, you're always the passenger.

You're right tons of people have ideas that go no where, I have a whole notebook of ideas that I don't act on because they would interfere with my current business.

Have you ever had an idea, done nothing about it, and then months or years later seen it being advertised? Then you are like most people. These people would even go so far as to want to claim rights to the money being produced from the said idea because they had the idea but didn't act on it. Your friend acted on it, he deserves everything that comes with it.

He did put a team together. So without him, the project would have never happened, it would have never been created. That's what makes him the Driver with passengers. But, become a disgruntled passenger and see if you get to stay in the car.

Ryko said:

.... bunch of guys to execute his pipe dream. Who knows, maybe a competitor would arise in the meantime and saturate the market.

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This line right here is your issue in my opinion. You call it a "pipe dream" which is what slow-laners do when they believe something was too big to accomplish, which is why they sit still and do nothing, because hey it's a "pipe dream" someone else will do it because I can't. You can counter this all you want, but the way things are phrased says a lot about how someone is truly feeling.

Furthermore you use conjecture to elaborate on your idea of a "pipe dream" that's exactly why you've never acted on your ideas, because someone else would just come along. It also outlines your frustration at being an employee when you assumed you were more.
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You can either be frustrated take your check and quit, stay with this guy and make some money, or start your own fastlane journey and get frustrated when other people ask for a piece of your pie.

I don't expect to convince you of anything in a forum. However, I would suggest some reading on your part, to better understand where points of view like mine, amyQ's, and your friends come from.

Good To Great: Jim Collins might be a great place to start.

liquidglass said:

He did put a team together. So without him, the project would have never happened, it would have never been created. That's what makes him the Driver with passengers. But, become a disgruntled passenger and see if you get to stay in the car.

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This is basically another way of describing the master - servant dynamics. But I guess that's how the world works and ability to f people over in as many ways possible is the most coveted one.

So, for example, if the peasants that work for the Almighty Boss took their work to someone else without telling anyone, would that be a fair game? I think it would, it would be a case of bus driver driving alone and the passengers selling their ticket to the highest bidder. Free market and cash rules, correct?

To all reading this thread... the time for this discussion is at the inception of the project, not in the midst of it. Before you ever put a shovel in the ground, you all need to have the same expectations on what digging the trench line will pay. As of now, the OP is in a situation where he is invested in the concept but his compensation can be minimalized. The leverage all sits with the other party in this discussion.

Lesson to be learned, is that this is too late to get what you want. Do it from the very beginning, and memorialize it in writing.

And... yet another example of why to tread cautiously when doing business with friends or family. This could be headed over a cliff...

First I would suggest reading Vigilantes post, while it's a point that should be obvious many people can and do over look it, I appreciate him pointing that out.

Ryko said:

This is basically another way of describing the master - servant dynamics. But I guess that's how the world works and ability to f people over in as many ways possible is the most coveted one.

So, for example, if the peasants that work for the Almighty Boss took their work to someone else without telling anyone, would that be a fair game? I think it would, it would be a case of bus driver driving alone and the passengers selling their ticket to the highest bidder. Free market and cash rules, correct?

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Firstly, take a breath and relax. I realize you're upset perhaps even angry. It's not my intention to hurt your feelings or to insult you, I'm just giving you my point of view based on the information at hand. To allow you to gain perspective on your friends position before you blow up at him and lose more than just your temper. To do so, you need to detach your emotions from it and read it objectively putting yourself into another persons shoes.

Normally I wouldn't reply to a post of someone venting, but I want to try one more time to give you some perspective.

- No it is not the Master/Servant dynamic, otherwise you'd simply be happy to be alive and not out in the cold, don't use such a harsh comparison without considering what you're saying. In reality it's the Employer/Employee dynamic where you are fairly compensated for your work.

- I realize that you're angry and considering taking your work elsewhere, which you are entirely free to do, however you would not be free to take the app, software/coding, ideas, or even details of such work. Unless you'd also like to bring a lawsuit with you. You are free to outsource your designing abilities elsewhere. It's hardly a threat to the overall picture.

-While I realize your analogy is one of anger and not logic I'll bite. This is not a public bus, it's private. You can't sell your ticket because you were invited on.

What does work in the free market is your skills, attitude, and action. You apparently have skills, which is a wonderful thing that not everyone has. I don't know you outside of this thread so you may be a very pleasant person, but if your temperance here is any indication of your true self I wouldn't count that as marketable. And you have taken action so that's great! But in the past you have taken slow-lane action (eg: holding down a job) so it is marketable but not to the degree I think you're hoping.

My advice, is to read some Andy Andrews "The Travelers Gift" it may open your eyes to perspective from other people, that is if you're truly open to advice and not just being upset.

Lastly, I'd love to give more advice and even answer serious questions from you, but if you are going to continue to rant rather than seek real advice outside of simple validation of your internal beliefs I don't believe I'll be replying to any such posts. Good luck in your endeavors and self discovery.