

Dispensing with a Co-founder - revolvingcur

I'm in an uncomfortable position.  I've been working with a partner in my spare time on gathering information for a business I want to start, and we had a meeting to discuss incorporation (as in, fill in the blanks on the filing and put postage on it).<p>My about-to-be co-founder expressed hesitation.  He's an undergrad student who left university for several years to work in IT, then returned and basically had to start over, so he's got a couple of years left, while I'm graduating in about seven months.<p>Effectively, he said that he didn't want to incorporate because the expense (90 bucks, if) wouldn't be justified if the venture failed, plus we'd be out the $35 required to formally dissolve.<p>Instead, we just bought a couple of domains from GoDaddy, and a year of hosting.<p>As you can imagine, this left me unsettled and severely doubting his commitment. The idea is going to be very capital-intensive, and simply can't tolerate founders who are going to waver on it.  Although he brings some pretty good knowledge and connections, I wouldn't call him indispensable.  My biggest concern going forward would be not having enough time to find a better co-founder, since the window of opportunity for this business is somewhat narrow.<p>We've got excellent personal rapport, but I don't think I can choose short-term goodwill over the chance to build something great.  Sanity check?  Advice?
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Alex3917
For what it's worth, most serial entrepreneurs I've talked with tend to advise
waiting a while before incorporating. If you're still in the kitchen table
phase, which you say you are, then your co-founder may be right. Until you
graduate and begin working full-time on the project and have a demo that are
you pitching to investors, incorporating is really just a distraction. At best
it doesn't really help anything and at worst you screw it up and it takes
thousands of dollars to fix.

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cstejerean
I wouldn't recommend incorporating until you need to. Unless you have money or
legal documents that require a separate legal entity there is no reason to
incorporate while you just have an idea. Incorporating is a bit more time
consuming than filling in the check and mailing. Depending on the type of
incorporation and the state you might find incorporating to be a serious
distraction you can do without for now.

On the other hand if the reason your co-founder doesn't want to incorporate is
because it would be a waste of $135 dollars than you seriously need to talk to
him about his commitment to this.

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qaexl
My business partner and I incorporated, specifically with an LLC. There was
never a question about that. On the other hand, we weren't exactly a startup
and we were diving into making some money. Our plan had always been from the
beginning to spin off other ideas, and incorporate those as the time was
right.

When putting together the articles of organization and the operating
agreement, I remember a big emotional wall. It wasn't just the fees. It was as
if, by signing my name and registering the paperwork, I would come out as a
different person.

We got registered with the IRS, the state (all three agencies), and the city.
Looking back, it seems trivially easy. However, if you are not operating and
taking in customers, it is a lot of overhead in terms of ongoing paperwork.

We're currently working on a (real) startup idea right now, but we don't have
plans on spinning it off into its own entity until we at least get a prototype
or some revenue going.

In working with my biz partner, I have noticed something similar to the
dynamic with my girlfriend. All the issues that crop up early in any
relationship -- whether professional or romantic -- always repeats itself down
the road. It is possible, though exceedingly difficult, to change that
dynamic. They usually involve at least one person in the dynamic to become at
aware of an uncomfortable truth about himself. Your misgivings about your co-
founder (and friend) may point to that. It can end up as a source of a
disaster, and left unexamined, you end up with a totally different set of
people repeating the same dynamic. It can also be a source of strength;
likely, what you find annoying (the hesitation?) may very well also be what's
needed to succeed.

One last note, according to "The Google Story", the Google founders didn't
incorporate until their first angel wrote them a check made out to "Google,
Inc." At that point, to cash the check, they had to incorporate. And so ...

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brk
IMO, if he can't justify the 90 bucks, he does not believe in it, and will not
be the right partner.

Even in times when I was completely college-student broke, I could find ways
to come up with $100 for the right opportunity.

I'd also question his availability and opportunity to contribute if he will
still be finishing studies for a couple of years. The first couple of years
are arguably the hardest, and most formative part, of the whole operation.

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brlewis
> We've got excellent personal rapport

Then why are you posting here instead of having a serious sit-down talk with
him about it?

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ardit33
why not? The guy is young, and is asking about some advice in here (which is
probably the right place). When you are friends with or get along with
somebody, sometimes it is harder to tell them up front that what they are
doing is not working out.

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brlewis
He posted here asking about "Dispensing with a Co-Founder", not "Talking to a
Co-Founder about Risk."

Different people involved in a startup have different risk tolerance. The
general solution is for someone with more money and more risk tolerance to
risk more money and get equity. I would advise this guy to offer to pay the
whole $90 in exchange for a higher equity stake in the corporation.

Another option would be to delay incorporating until you're getting seed
funding, and get some incorporation advice from your funder. YC prefers
startups not to have incorporated when they apply, for example.

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foodawg
You are definitely right to question the other founder's commitment at this
point. Me and my cofounder had a pretty big argument over whether to
incorporate or not this summer. However, in our case the heart of the debate
was whether or not it was needed yet, not the cost.

If they are having trouble parting with $100 or so, I really think they should
consider what they are getting involved in. Startups are cheap these days, but
they still are not free.

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falsestprophet
Dispensing of a Co-founder? check out Murdr, Inc

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webwright
He MIGHT just be expressing concern over the cart-before-the-horse issue. I'd
echo the "build something first" sentiment.

That being said, one of the hardest challenges to overcome is a founder with
substantively less commitment than you. It's like dating/marrying a girl (or
guy, I suppose) who wants to spend EVERY evening together when you still want
to spend a lot of time with friends or alone... Either person who compromises
has a good chance of feeling resentful.

So gather an understanding. Set some initial expectations, like:

"we will each spend an average of 25 hours per work a week until we hit
milestone X"

"we well get together 4 evenings per week to work together"

"if we hit milestone Y, we will dump everything and work full time on it,
borrowing money if we have to."

"if we fail to hit milestone Z after 8 months, we'll close it down."

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ksjhalla
At the risk of sounding like a certain Quack Dr. on TV who just uses his first
name (Dr.Phil) .... Perhaps the $90 is a stop gap measure to avoid discussing
some concerns he may have about the working relationship terms & conditions
moving forward -- happens all the time.

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abarrera
I was on a similar position some time ago.

I do think your co-founder isn't ready for the startup ride. You can talk all
you want with him, but at the end it will come back and bite you. If he isn't
passionated about it now, he probably won't be in some months.

If you really need to start rolling, go ahead, talk with him and tell him
(gently) you're going on your own.

As many others have said, trust your gut feeling! Generally, the first
reaction is the most visceral and truthful one. So if he is reacting like this
to the incorporating issue, don't fool yourself, he's not the right partner
for _this_ venture.

Good luck

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herdrick
He doesn't have much perspective yet, but that's not too important. He isn't
as completely bought into the plan as you are, but you have a head start so
that's expected. If you can work well together, that's what counts.

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yrashk
90 and even 125 bucks are not that much, eh?

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mrtron
125 bucks is a lot of money for a coffee.

It is not a lot of money for incorporating a company and gaining all of the
benefits of doing so. It is also not a lot of money if you compare it to
spending 10,000 hours of time commitment.

It also is not a lot of money to start a company, compared to your hardware
costs, etc.

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yrashk
I was asking purely rhetorical question :) Surely 125 bucks is not a big
investment into startup. We invest a lot more each month :)

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utnick
Where can you get incorporated for 90$ ?

I always thought it was several hundred at least

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davidw
I paid $55 for an LLC in Oregon, and did the paperwork myself. I also shelled
out around $100 for various Nolo books. (My calculation was that I'd rather
spend the money to get a basic understanding of the process than to just pay
someone to do some simple paperwork).

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kansando
Dump and run.

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alaskamiller
Why finagle over a form? Why don't you make a product, court some customers,
and design the webpage before spending the 125?

But it also seems the timing isn't right. I think in the back of his mind he
might still want to do the school thing. I know I do.

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curi
He hasn't understood what a startup means. If he did, $135 would seem very
tiny compared to the huge amount of work he was planning to do.

He's not planning to do that work. Yet. Don't dump him immediately. People are
complicated, and sometimes they grow into things very quickly, or there was
only one little thing missing. And it's possible you misunderstood his reasons
for hesitation, or there was some other kind of miscommunication.

So, go talk to him again and explain your vision carefully and how much work
it will be, and why $135 is trivial. It's worth a try. And if you can't agree,
OK, then go find someone else, _with his blessing_ , since he will see that he
doesn't want to be part of your vision (at this time in his life).

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dfranke
Excellent answer. I deleted my response because this is a better one.

