Ask YC: What do I do with an unproductive co-founder, 12+ months in?
Things have gotten rough for our little company over the last few months.
We pushed to meet a market deadline, and stressed out both myself and my cofounder; What's more painful is that we strained our budgets- Putting him on Full time development for a few months, and taking out loans to finance the other development we needed.
Unfortuantely, since June or so, he hasn't been holding up his side of the company. He's written less than 100 lines of code in 4 months.
Although we've been friends for nearly 10 years, I had to call him last night, and tell him I wanted to buy him out.
The way I see it, there are really only two options-
* I buy him out, and try to develop on my own, possibly taking on a new co-founder..
* I abandon the project, pay off the loans, and lick my wounds, sacrificing the company, and my own financial health for the friendship.
It's stressful for both of us, but I'm trying as hard as I can to continue on, not let out beta users know there is a problem, and to preserve what I can.. I'm running out of options.
Forcing him to let me buy out his shares, using my departure as a unspoken threat, seems the only option I have, but It's a blunt cudgel, and it would leave me in a weakened position, with 95% of a finished project.
Is there any advice on what I should do? I've tried everything I could to motivate him to keep up his side-- I tried paying for his time, both on a monthly basis or hourly, but that doesn't help.. I tried engaging him with the users and the project, to try re-engage him with the excitement.. I don't know what to do.
We're past the 12 month vesting period we set up, so it seems that the best I can do is force him to sell out to me, but I'd appreciate any other options.
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[ 2.9 ms ] story [ 128 ms ] threadFirst, there were health problems, then family problems, then burnout problems, then, then, then..
I keep helping him fix them, but I worry that we're not making progress. It seems like every problem I fix, there's 2 more waiting to show up behind it.
I expect that in our product. It's a fact of life. But I don't know how to deal with it in a founder, and worse, a friend.
I wish there were a way to keep going, and have each of us put in a real effort, but experience tells me that I can't trust that it'll happen..
Meanwhile, there are real bills to pay, and new competitors on the radar.
When it comes to dealing with his share of the company, I can't claim to know how best to deal with these matters, but if he's made a significant contribution to the project overall, perhaps he could retain a reduced share in exchange for leaving the project early. (Someone tell me if this is a bad idea.)
As far as how to move forward, what will it take to complete the last 5%, and how tight is your current situation?
From my experience when you spill your guts and explain to someone how the world looks from your perspective, people are normally sympathetic to your point of view provided you are being reasonable. I assume because he has been your friend for so long he's fairly reasonable too.
Did he refuse to be bought out? Does he understand your position?
The full-time work didn't work out, since nothing was being produced, so we went back to part-time.. The idea was to tie input directly to output.. If he worked hours, we'd send him a check.. But this didn't result in more hours, just in our paying less ;(
Perhaps I just suck at it, but that doesn't seem to be helping ;(
Not that this is helpful now -- but these things should have been decided when you guys started. Partnership agreements are important for this reason. I wouldnt have an arrangement with a stranger I dont care about without a partnership agreement, so having set arrangements with friends is that much more important. Assuming that you dont have a partnership agreement, with productivity/milestones built in, or with buyout terms already negotiated, then its going to be tricky.
This is also another reason that ownership vests with time as things move forward.
Clearly, part of the issue here is that you want to remain friends. So if you offer to little, and then make it successful later on, he's going to be pissed off. Alternatively, if he wants too much, and you cant pay it, then you both get pissed off and it falls into the shitter.
Probably the only reasonable way to go about this is to sit down and just discuss whether he A- still wants to do this, and B- if he wants out, what makes sense for both of you.
You might think about offering him some sort of buyout that involves later payments to keep things cheap now. For Example, you could offer him $5k now for his voting rights and ownership, with the understanding that if/once the company starts making money, he would get some portion of net profits, or even revenue.
Alternatively, try the reverse. Let him keep his equity, but put into a place where you will gain new equity as you reach new milestones, and that all your expenses/investments will get paid back before any dividends to owners. In that way, eventually he will be watered-down to virtually no ownership, but if you get a buyout offer in 12 months he still gets a peice of the pie.
Depending on your state laws, though, you probably cant 'force' him out. So if you cant work it out amicably, there isnt much of a way to do it.
If I tell him that either a) I withdraw, and leave him the unfinished code and debt, or b) he withdraws, I'm confident that he will exit first.
I also understand what it feels like to be demotivated and to lose interest in a project, particular when it is not released.
What you have to see it as is a marriage. In the beginning, things are new and exciting, but with time, it gets boring. Some people like the boring life, but others don't. Your co-founder cannot take the grind. You need to spice things up a little bit.
Is there anything at all you can release? If there is, I'd suggest letting him release it and move him away from development into sales for a while. Just developing is boring boring work, but when people start copywriting and selling, they get motivated again.
To force his hand, tell him you will abandon the project. Use this as a bargaining chip to get him back into the project, and think of some tricks to get him interested again.
The best way I can think of is this - release the app! Yes, it sucks, it's buggy, but when any developer worth his salt sees a released app with his name on it and it's full of bugs, he'll start working on it pronto.
Your friend has already shown you that he is worried about himself first. Don't sacrifice doing your due diligence just because you're dealing with a friend and not some random co-worker.
He is sitting there letting your project dwindle and letting YOU get deeper in debt. Maybe he WAS actually a friend at one point, but I don't think he is now.
From your post/comments, it appears that you are the de-facto CEO of this company, so act like one and get this guy out of your ranks as cleanly and cheaply as possible.
I would probably explore buying him out cheaply, or allowing him to maintain a very small fraction of ownership (1 or 2 %) in return for a clean break (ie, he just goes away and saves you both the legal costs and headaches).
In this process you are highly likely to lose either your "friendship" or your business. Best to decide which one is more valuable and/or replaceable and go from there.
Not how I look at this kind of thing at all. My friendship is not conditional on never making mistakes that cause me problems or never wronging me. There's limits of course, but I consider disowning a friend to be pretty severe. This kind of thing might make me end our partnership and not work with this friend again, but not end a friendship.
Given OPs description of the situation, I would put both of those terms in quotes, if not both at very least the business parts.
If he is losing money, lending money and his only option "getting out" is spending even more, I'd say he has a "business", not a business.
YC started out not including vesting terms in the initial company paperwork--on the assumption that when the angel or series A funding round hit would be soon enough to make those kinds of decisions. But after a couple of instances where founders had a falling out, and ended up having to hash out those details during the "divorce", they began recommending vesting schedules from day one. I have to agree with them. I've never had any issues, personally, but it happens. Money is involved, hard work is involved, and peoples dreams and visions are involved. It'll get personal if there has to be a split, and vesting at least makes it more clear who is entitled to what, in terms of stock ownership, after the split.
In the future allow everybody's shares (including your own) cliff vest over 4 years. That way you don't need to buy people out.
A neutral third party might have a better shot at assessing the situation -- what's needed is a clear grasp of whether it's time to cut one's losses and move on or if there's a path to rectify the stalemate.
Read up on his personality type. MBTI has helped me figure out why I can't get motivated on projects, and although it may not give you answers, it may open up some clues about why he's not interested. My thoughts? He's a dreamer (IP?)... loves to come up with ideas, but gets bored quickly with details and implementation. He also doesn't seem to have a lot experience programming - the barrier to him sitting down and writing code is much too high for someone who is proficient. It sounds like he needs a couple of years of work experience in a company or a real job before he's ready to tackle the entrepreneur world.
If you're going to let him go, don't corner him is my only advice I can give. Tell him that he's a smart person, but he's not yet ready for entrepreneurial life. I think he needs to hear that. Offer him a good writeup for his resume if he is going to look for a job. I wouldn't spend money to buy him out... to me it would build up financial resentment that wouldn't be good for the relationship. It sounds like you already have some frustration.
If he's a valuable friend, he'll understand and grow from this experience, and you guys can try again later when he's gone through a bit more of life. If he is unwilling to cooperate or touchy about money, don't hesitate to probe - ask him about his financial situation, his thoughts on his career, his current confidence level, etc... that will probably reveal a lot about him that you may not have known.
A lot of his type get attracted to entrepreneurship because of the freedom of life that it 'offers', but once they actually start something, it quickly becomes too fast and much too stressful. There's a vicious loop of thought that some people go through - the chance to strike it rich constantly fights with the too fast-pace/work intensive life that is a startup. It's not burnout - it leaves most of us paralyzed. That may be what he's going through.
Angel investor Dave Berkus talks about the "freedom dream", also, here (at the beginning of a 9:32 video):
http://www.youtube.com/watch?v=M3-ozlr_fYM
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I think there are the right reasons [that people become entrepreneurs] and the wrong reasons, and one of the things that I like to do is ferret out what those reasons are. So I have memories of, and stories of, entrepreneurs that I've asked that question to that suprised themselves when they had to answer it honestly, because usually people want to become an entrepreneur because of two things: they have a great idea, and they don't like the life they're in.
So they envision this idea bringing them into a new life, where either they or somebody else finances their way into success. And then success means lifestyle changes. Success means freedom. And that's the usual dream. And, in fact, you [angel investor Frank Peters] and I both know from our years of entrepreneurial experience that, first of all, the lifestyle of an entrepreneur typically means longer days by far. The point is that you often mortgage your home, and if you don't you know that you're at risk from personal guarantees, and if you add all of the extra stress, along with the personal guarantees and the extra hours, entrepreneurism isn't necessarily the panacea that people think it is when they're looking at a good idea and thinking it's time to go do it. ...
I look for passion. The whole thing gets down to passion. If they have that kind of passion, and the idea is good, then we move on to all the other more substantial things.
You both come to the table with sealed envelopes, each containting a number that the respective founder would be willing to pay for the entire company. Highest number has to buy out the 50% stake of the other.
In this case, however-- it doesn't seem like there's much value there if you're taking loans to pay people. If the company is in debt, you should offer to buy the company for the cost of the debt and perhaps (depending on how much he contributed before this lackluster year) give him a token % of equity (less than 3% if you're on a funding/liquidity path, less than 10% if it's more of a lifestyle/sustainable biz).
There are two sides, but from the way you describe it, he doesn't deserve much of anything.
Obviously looking backwards isn't going to solve the problem.
Can both of you take a week off from work and get a change of scenery? That might give a fresh perspective.
If he leaves with a 50% stakes it sounds like you are going to be in a world of hurt. :(
I would have a hard time launching solo, and would probably need to bring in additional help.
It sounds like you are effectively a manager. Most of the comments here have leaned towards what he did wrong. It's uncomfortable, but you should evaluate what you've done wrong as well. It hurts now, but your projects are more likely to succeed in the future.
My friend and I had 50% each. I appreciate him a lot but he was unable to contribute. I was doing 85% of the work and he was doing about 15%. I sat down with him, I told him I was worried. I proposed a new agreement. 75% me and 25% him. It was a good deal for him. It was also a good deal for me, I kept his friendship and I owned something more inline with my investment.
Talk to your partner about a 3 month probation with some basic goals. It's vital to point out that this is not his probation - this is the project's probation.
Both partners use this time to observe progress. At the end of the period, do a review. Depending on your conclusions, you may continue to work together, change the balance, or begin an exit strategy.
This approach offers a "light at the end of the tunnel". If you ultimately decide to fold the project, you can be confident that the decision was made carefully, and not through a sudden meltdown.
And if the project succeeds, you can continue this form of quarterly progress reviews...
If this is the case you should have no complaints about the money. And if you've been rushing at the project for more than a year and were in desperate crunch mode three months ago, the slow-down in code growth is natural. Products routinely oscillate between new feature development and bug-fixing. It isn't uncommon for the code base to hold constant or shrink as it is tightened up following launch. You should evaluate whether your founder is doing/has done his job by the reliability of the system you have built under the constraints of money/time/effort. If he moved heaven and earth for you 12 weeks ago, you have no right to complain about a little lethargy now that the ball is in your court.
Your post does not include any suggestions that the tech side of things has been up-and-down or unreliable, or that your partner has failed to do his job on this front. Merely a complaint about the pace of new feature development. If this is the problem perhaps your co-founder is simply burned out and needs a vacation. The best way to motivate him may be to start hitting home runs yourself.
If the company is going into debt and you can't hold up your earlier division of labor/finance, that is a problem for the business. If it were me I'd work to make any new financial obligations shared going forward. This should help motivate your friend to cut his losses if he does not believe in the viability of the business anymore.
First and foremost though, you are out of the development crunch and are presumably at the point where you are being expected to deliver results and problems will surface with scalability. You need to be really careful your attitude towards him is not being caused by your own frustrations at how your business is developing, and/or a desire to find a scapegoat for slow growth or underpar performance.