

Ask News.YC: How do you handle dispute resolution between 2 founders? - nostrademons

My startup has 2 founders: I'm the Woz, and my cofounder is the Jobs.  We have been working under the assumption that it'll be 50/50, at least since the 3 founders that didn't do anything left.  It's seemed to work well in terms of both of us feeling like we're pulling our fair share and aren't being cheated.<p>However, we just spoke to a lawyer about incorporation and corporate structures, and he said "That'll make for an interesting agreement for dispute resolution."  I'm curious how other companies in this situation have handled it.  I know Apple brought in Ron Wayne as the 3rd founder to act as a tiebreaker - how did the Reddits do it?  Any other examples?
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epi0Bauqu
I personally wouldn't do anything but 50/50. Even if it is 49.9/50.1 you are
saying that the person with the higher % is inherently better, and this can
leak into the dynamics of the startup in so many ways. Lawyers like to point
out things like this, but they aren't the entrepreneurs.

I can tell you from experience that if you have the right co-founder, 50/50 is
no problem. If there is a disagreement, however minor, you talk it out until
one person convinces the other. This pretty much never happened in my case, by
the way.

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SwellJoe
Agreed. Listen to epi and pg on this one. Your lawyer is nuts.

It just shouldn't be an issue. If you or your partner are afraid it might be,
you've got the wrong co-founder. You will eventually bring in others and the
potential tie will be broken--but for the next six months to two years (before
the first VC round happens), your course should already be plotted. No
important decisions should come up that require more than a "for the minutes"
vote, because you already have discussed things and share the same goals.

You've already discussed whether you'd be willing to sell early for some
reasonable some, right? That's the big one.

Sure, you might have the "do we go for the hundred million user consumer
market and burn money like it's going out of style, or the half million user
enterprise market and try to make a little money" conundrum that seems so
inevitable in web apps...but, as others have noted, if you end up on different
sides of this one, you simply can't work productively together...and you
probably can't afford to do both.

Everything else is execution...and it's stuff you should have already hashed
out and agreed (roughly) on.

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myoung8
I know another startup that was faced with a similar issue (they have since
been acquired, proving that this does, indeed, work)--they decided to split it
49.9/50.1 with the person who thought of the idea first getting the majority.

Naturally if you have thousands of shares, just take one from the person who's
going to get less equity and give it to yourself (assuming all shares have
equal voting rights).

Another alternative is to split the equity 50/50, but have the voting rights
divided differently. This is a pain in the ass because you have to insert a
bunch of (extra) legal mumbo jumbo in the operating agreement for tax
purposes.

A potential problem is if you both sort of thought of the idea together (i.e.
it was an iterative process). Well, then, if you are adamant about a 50/50
split, you can always resort to third (neutral) party arbitration if a dispute
should arise, but this is a pain.

I would do it 49.9/50.1---one of you must have started this entire process.

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aaroneous
While a 50/50 ownership+voting split may seem "fair", your lawyer is right
that it can easily create a situation where it is difficult to make
resolutions and get things done. And in the world of a startup, the inability
to quickly make decisions can be the equivalent of cutting off your own air
supply. While it may mean one less point of equity today, it could be the
difference between your startup ultimately going anywhere for both of you.

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webwright
I've had 2 and three person partnerships... One person tends to grab the
thought-leadership and the others tend to follow (tho hopefully not so much
that they don't speak up with great ideas).

I would advise having a buy-sell agreement that allows a graceful exit if one
person wants out, but otherwise I'd agree that partner selection is 50% of the
battle (and letting go of your own ego is the other 50%).

For buy sell agreements, the best I've seen, simply stated, is this:

At any time, partner A can make an offer to buy Partner B's stake for Value X
(whatever they want to offer). The rub is that Partner B can decide to reverse
the offer (buying Partner A's stake for Value X) and Partner A is obliged to
sell.

Hopefully you'll never need such an agreement, but it sucks to feel trapped in
a business (or trapped with a partner who has turned into a lunatic or is no
longer pulling his weight).

So far, every partnership I've had has been an even one, and I've never had to
exercise an buy-sell clause like that (knock on wood!).

~~~
nostrademons
"One person tends to grab the thought-leadership and the others tend to
follow"

For us, it's actually been very even. Our visions for the final product seem
very much in-sync, enough that I'll do a UI mockup on paper and he'll do a UI
mockup on paper and they'll be essentially identical, modulo things like panel
placement.

It helps that I jumped on board because I could see myself as a user of the
product, so I'm essentially in the demographic that he spent several months
studying while coming up with the idea. Plus, we've read many of the same
websites and articles (at least as far as the sector is concerned; we read
different stuff for general startup knowledge), so we're coming from similar
backgrounds.

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pg
I don't think they got Wayne as a tiebreaker. According to Woz's interview in
_Founders at Work_ , they got him because he knew about business. Woz also
said in that interview that he had zero serious disagreements with Jobs. There
was one point where Jobs tried to get him to decrease the number of expansion
slots in the Apple II, and Woz simply refused, and that was the end of it.

~~~
nostrademons
Interesting. I could've sworn that in Woz's speech in Startup School 2005, he
mentioned that Wayne had been brought on as a tiebreaker (in addition to
having business expertise). And that's the story given in Apple Confidential:
<http://extras.denverpost.com/books/chap0411h.htm>

I've also read several interviews with Woz that say he and Jobs had zero
serious disagreements, but that doesn't mean that they _expected_ zero
disagreements, or that they didn't want to be prepared just in case. They
might've brought Wayne on as a tiebreaker and then found they didn't need him
(rather fortunate, as they bought him out right when they were getting
popular).

~~~
pg
Ok, looks like he was.

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mdolon
Kill the other partner.

Just kidding, I'd follow the advice of others, either involve a third person
or have on person carry slightly more weight in the company (in terms of
equity).

Just an aside, but you know who I go to when I need advice on a dispute or
question though? My mom! I swear that lady knows everything about life!

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Leon
Use a random number generator! <http://random.irb.hr/> \- a quantum RNG is
online, if you get stuck on an issue then a random choice may be as good as
any other if both of you are dead-set and won't budge.

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staunch
What would happen if the 50.1%'er overruled the 49.9%'er on something that was
very important? It might very well be the end of the company entirely.

When I incorporated my lawyer thought 50/50 was the obvious choice.

