
Ask HN: I need advice. Major problems with my business & co-founder - helpmehnkenobi
Hello HN,<p>First off, I'm a regular HN member with 4-figure karma (if it matters). I'm at a loss and need advice.<p>I am the technical co-founder of a 5 year old company with $2M in annual revenue and 5 F/T employees. Over the past 18 months, I've become increasingly at odds with my business partner. My partner already has a relative working for us, then last year brought in a "designer" who is a close, personal friend and gave this person free reign on redesigning all of our print and web properties. Problem is, this person is a traditional graphic designer with no web experience. My design skills aren't superb, but I know UI/UX basics, how to measure and test things, seo fundamentals, etc. My partner has basically given this friend an executive marketing position.<p>Our traffic has been flat for a year or more. Our sales are down slightly. Instead of hustling, working on SEO/SEM, learning analytics and a/b testing, good product and customer development–basically all the things a non-technical co-founder should do–my partner and collegue waste countless hours dicking around with pointless design aesthetics or useless networking events. Over the same period, my partner has had personal issues as well (left his wife).<p>Last year, after some conflicts between myself and this designer, I told my partner this person had to go. He agreed but never followed through. When I pressed this issue, he simply claimed this person is "too valuable". Since then, we argue constantly. Maybe I'm wrong, but as I see it, a year + is a long enough "experiment" ... this person is doing nothing to improve sales, there's a major conflict of interest, and should go. With my business partner, we might be past the point where the damage can be repaired. There is definitely no trust on my part.<p>We each own 50% of the company and are the only board members. In multiple meetings with an attorney, I discovered that our company has no deadlock provision for resolving major decisions. Even more interesting–I never signed the buy-sell agreement in our corporate papers (he did). So, technically, I could sell my stake to anyone at any time–but he can only sell his shares back to the company. Other than an outside company acquiring all or half of the company, the only other option would be for me to move to simply dissolve and split or sell the assets.<p>There is so much technical knowledge about the business in my head, that I'm fairly certain it couldn't function well without me (at least not without a solid transition period).<p>What to do? I have a family and the company has treated me well financially. But there are a lot of things I still want to do startup and entrepreneur-wise. Do I give an ultimatum? Can I shop my half of the company to others in the industry without alarming them?<p>Thanks HN. You're a constant source of insight and inspiration.
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tptacek
With 2MM/yr, why not consider taking outside investors? The market seems
pretty bubbly right now, and you have a proven track record and don't "need"
the money. Ironically, the thing I find most loathesome about venture capital
might actually be a win here: you get a board of directors which can fire the
CEO.

If that's too drastic, why not add another stakeholder? Two more options:

First: you can make a strategic hire, like VP/Sales, or a "rock star" VP/Eng.
This doesn't change the ownership structure but, with buyin from your partner,
does put pressure on the company to manage itself properly. If your partner
likes the new VP/Sales, he'll listen when the VP/Sales says marketing sucks
and the networking conferences aren't bringing in leads.

Or, you could go whole hog and bring a third partner in. The dynamics of
3-person teams are very different from two-person teams, because you can vote
bad ideas off the island. With a business putting 1.2MM or so away every year,
you probably have a pretty compelling pitch; all you need to do is find a gap
between you and your partner that deserves a board-level answer. It doesn't
need to be 33/33/33 for you to win; 45/45/10 still breaks the tie you're in
right now.

~~~
wisty
WordPerfect would have crashed and burned, if it weren't for a third partner
owning 1%.

It's a very long story, but one of the anecdotes is how a non-technical
founder (who owned ~49%, and was painted as a great maverick hustler, but not
so great in a larger operation) got booted by the technical founder, and a
third guy who was there as a tie-breaker (and also was the manager for a
while).

The books here: <http://www.wordplace.com/ap/index.shtml>

------
aspir
There's always the option of "retiring" and requesting to be bought out. If
you're desperate to leave ASAP, that's a viable option.

If you are having so many issues with your co-founder, the feeling is likely
mutual. It seems as though he may be a control freak, so give him what he
wants- total and absolute control.

Be honest. If you want to leave, bring it up with him privately; if he wants
you to stay, he'll try to convince you to do so, but if he wants you out,
he'll likely try to help you exit, either through LBO or through an outside
investor. But, try to take the high road if possible. A current employee,
client, or general peer may be your next business partner, so don't sneak off.

Don't go the legal loophole route if at all possible -- no one wins in the
long term through method of exit, except the lawyer.

~~~
ktsmith
While this is pretty good advice you also have to be prepared for your co-
founder to act irrationally. I went through something similar many years ago.
After a long discussion we decided to find a way for the company to buy back
my shares and we'd part friends. Imagine my surprise when I came into the
office the next day to find the locks had been changed and my co-founder was
busy calling lawyers trying to figure out how he could screw me out of my
shares.

It doesn't hurt to have any legal, financial or other documentation pertaining
to the company and your part in it that you may want, or need, set aside
before these discussions begin. If things do get ugly you might end up
spending a lot of time and money getting them later.

~~~
michaeldhopkins
What do you do when that happens? Can you get a court order to let you back in
the building?

~~~
ktsmith
Pretty much. I was able to get my personal belongings back the same day by
providing copies of the lease (which I had signed) and our business license
filings to the sheriffs office. An officer came down with me and convinced my
partner to let me in, with the officers escort, long enough to get my
belongings. Everything from that point on was handled by my attorney.

------
wisty
Don't think you're irreplaceable. You can be replaced, and if he needs help
you can do some consulting. Everyone justifies staying in a job by claiming
that they are being a martyr - just watch Clerks.

I can't count the number of times I've heard an employee (sometimes myself)
looking for a change of scene say "I'm doing this place a real favour, staying
on".

------
tptacek
Your company is 5 years old. Presumably, for something like 3 of those years,
you liked and respected your cofounder. What was good about him? When he's
firing on all cylinders, what's good about working with him?

~~~
helpmehnkenobi
We were close friends and had a previous business together. So, we'd been
through it all. He has good organizational skills and stays on top of all the
accounting/tax/HR crap. But that's all (yes, I know that's not much but I
didn't know better).

To be honest, we started at just the right time in a growing niche and money
was easy for a while. We have a lot of competitors now and technology has
changed a lot.

Hope that answers your questions.

~~~
tptacek
You don't sound particularly sales-y/manager-y†. For instance, you had to ask
your 50/50 cofounder to fire someone, and then nag him. Why didn't you simply
fire the designer? Is it possible that you're not giving him enough credit?
There are a _lot_ of very talented developers on HN who are never going to
"get it together" and get a company off the ground.

I see you saying that you're concerned the situation may be past the point of
repair. But the only real concrete problem I see is that you disagree about a
designer. That is not one of the all-time great reasons to dissolve a
partnership.

† _Not a criticism._

~~~
helpmehnkenobi
I'll be the first to admit, I am a bad manager. But sales I can do probably as
well as my partner.

In hindsight, I should have just fired the designer. But I was trying to be a
good partner and go to him with my issues first. He agreed and said he would
take care of it.

I think I've downplayed how much power he's given this person. Not just design
of marketing stuff, but actual product UI design. Plus a lot
marketing/budgeting decisions, etc. Basically this person has become or
directed the entire face of our company. For whatever reason, despite no sales
growth, my partner hangs on and defends this person's every decision.

If it matters, I'll add that this person is a woman. My partner has assured me
that they are not in a romantic relationship and have simply become extremely
close friends. I believe him–but many people on the outside get the impression
they are romantically involved.

~~~
tptacek
The conclusion I've come to is that you're overreacting. You've gotten a lot
of options on this thread. I'll add one more, listing it first. Pick one or
more and do them.

* Hire another product lead to manage the front-end of the project.

* Convince your partner it's time to seek outside funding to scale the business.

* Hire a VP/Marketing, VP/Engineering, or VP/Sales to add a stakeholder who will be objective and put pressure on your team not to make dumb decisions.

* Convince your partner to add a minority partner, splitting the equity cost equally between the two of you, so that you can have another person who is fully focused on the business (and, don't say this to your partner, to break ties).

* Hire a mediator to hear you and your partner out and agree beforehand that you're going to abide by their decisions.

* Wait it out. For ~3 years or so your partner managed the business, kept things organized, got people paid, did sales at least as well as you did, and generally made up for all the gaps you (like everyone else) had. When things calm down with his personal life, maybe everything will be fine again.

------
staunch
Find a _truly neutral_ third party you both respect. Have them sit down with
both of you and talk out all the issues. Their job is to provide you both with
some outside perspective.

~~~
plusbryan
There's actually a whole category of individuals that do this for a living:
business counselors/mentors. This is a lot safer than going with a friend you
both know, and they don't cost much.

------
gatsby
This is tough. From an outsider's perspective, it feels as though you've
already moved on mentally: "we might be past the point where the damage can be
repaired," "no trust on my part," and "there are a lot of things I still want
to do startup and entrepreneur-wise."

Arbitration, litigation, and ultimatums all have their place in business, but
sometimes the best case scenario is to just get out (dissolve, sell, etc.)
Often times, the partner is just as upset as you are, so start by seeing if
s/he'll privately buy your half, and if not, see if s/he's interested in
shopping the whole company to new owners.

I understand that walking away from or selling a company with 5 employees and
$2m in revenue isn't a decision that's a.) easy or b.) happens overnight, but
it seems as though you've thought it through and are ready to move on.

One way or another, thanks for sharing, and let us know how it turns out.

------
huhtenberg
Offer your partner to buy your half of the company and move on. The
alternative is just to move on and keep the half of the company to yourself,
which is something that he is not very likely to be comfortable with, so
that's your bargaining chip.

If you want to try and fix the situation, you will need a major shake, a shock
therapy, something to make him stop and realize that things must really
_change_. Simply making small changes (like getting rid of that designer
friend) is pointless. If he does it, it will be to silence you and to go back
to his comfort zone. You need a larger agenda, things will need to be
different after dust settles or you and him will be back to bickering in no
time.

------
techiferous
Make sure you communicate your concerns to him clearly. Communicate specific
things that you have a problem with (specific so that he has an opportunity to
rectify the situation). Also communicate the importance of the problems. He
may know that you are not satisfied with the designer and the company's
progress, but does he know that it's so important to you that you're willing
to throw in the towel?

If, on the other hand, you've already communicated specific problems and the
importance of the problems and he hasn't shown a good faith effort in helping
you resolve these concerns, then you may need to part ways or otherwise
restructure the company.

------
webwright
You aren't long on options. I don't think anyone wants to buy half of a
company against the will of the other founder. Nor can you force a dissolution
of the company. Assuming you don't have an agreement that spells out what
happens when one partner wants a split to happen, I think you're in a tough
spot.

In your shoes, I would tell your partner that you don't feel like you're being
treated like an equal partner... If you don't have veto power on any hire in
the company, that isn't right.

If you can't find consensus on strategic or tactical decisions, then I'd ask
for a negotiated split. You could sell the whole entity, buy his half, sell
him your half, or something more creative. If you can't come to an agreement,
you could suggest a mediator. But I don't think you can do anything without
his goodwill, so I'd work on getting that. The good news is that he's in the
same spot. Hopefully he'll be reasonable... And hopefully next time you make
sure to have rules in place for stuff like this. I've always liked
<http://en.wikipedia.org/wiki/Shotgun_clause>

~~~
gojomo
The point about 50/50 partners each deserving veto power on any hire is a
strong one. If there's any chance the relationship can be repaired, and a
mutual understanding about how to handle things going forward rebuilt, I would
think this mutual-veto-power would have to be assumed. It also may be an
abstract-enough standard of fairness that it can be discussed without
necessarily obsessing over the designer's particular situation.

------
dmfdmf
The question I have is did the business wreck his marriage or did his divorce
wreck his business? Typically a divorce is a big deal, emotionally and
financially. I'm not making excuses for the guy but there could be all kinds
of bizarre psycho-dynamics going on here based on the dependencies and
connections (even if only in _his_ mind) between his business and personal
life. Finally, being business partners is a lot like being married so the guy
probably feels like he's faced with two divorces, not one.

------
Stormbringer
Plenty of successful startups had money coming in from another source (see
also: Microsoft) or piggy-backed off another company for a while (again: see
Microsoft). It sounds like you could easily transition down to a 6-7 hour day
and then later to a 4 hour day there, and be working hard for 7-8 hours a day
on your other startup ideas.

Who knows? They say a change is as good as a holiday, and doing something
different may also re-invigorate you to provide more energy back into the
original business. I know I get better results when I have multiple jobs to
think about than just one.

Working two jobs sounds too hard? Some people work _three_.

But I agree with the other commenter who said it sounds like mentally you've
already 'checked out'. Go the whole hog for a while, and start treating it
exactly like just a paycheck. You want to do other stuff? No one is stopping
you, but you.

------
dkokelley
Being a 50% partner means you can fire the designer. If the partner with the
personal relationship isn't willing to, tell him you will do the honors.

I think a restructuring is in order. You can either leave (dealing with your
half of the company in whatever way is necessary), or restructure the company
so that you (as the person who seems to understand and run the business) have
all of the decision power. Of course your partner will need something in
return for this, be it cash, or the threat of leaving. Another option is to
mutually agree on a 3rd board member for dispute resolution. Make sure this
person can remain objective and make decisions that are best for the company.

Unfortunately I can't give you any advice on how to deal with your personal
friendship with this person. You probably know best the way to amicably
approach the situation with him.

------
usiegj00
Use a mediator. Your company attorney is a great start. As others have pointed
out the 50/50 split can paralyze decision making. Getting your concerns (and
your partners) in the open and accountable to a third party will start the
ball rolling--and your mediator will help validate or deny your internal
narrator's assertions.

As an aside--you'd find "Managing Corporate Lifecycles" by Dr. Ichak Adizes a
fascinating and relevant read. It talks through many of the concerns you
express and offers solutions I've seen work wonders in practice. For instance,
you express things like--"sales are down slightly" and "collegue waste[s]
countless hours." I gather that you and your partner haven't delegated
responsibility and authority in the area of sales. That is, who is
_responsible_ for your sales? You? Your partner? And then, that person must
get the authority to make decisions affecting sales.

In practice, you would both make weekly/monthly/quarterly updates for the
areas you are responsible (given the responsibility and authority over). If
Jan 1 you agreed to give your partner authority for sales, they would give you
a measurable commitment say 5% month over month increase this quarter. You
would track progress in the W/M/Q meetings, but would get no direct authority
over their technique (if wasting time works for them...).

This doesn't mean you'd get no _say_ in things regarding sales. It means you'd
only be an influencer, but have no decision-making authority.

Maybe you find after a quarter that you the numbers aren't getting met by your
partner. Then you discuss remedies--which might include hiring a salesperson
or you taking on the role.

Anyway--all of this is great if you are hitting organizational issues in your
growth, but have a strong backbone of a relationship that first brought you
together so strongly and has helped you build a successful business. If there
are other systemic issues you'll have to address them too.

Congratulations on growing your business to this stage. These are some of the
better problems you can have!

------
Confusion
You do realize you've given enough details to be fully identifiable by your
co-founder and probably some others?

Anyway, I think the major problem here is that you think you can't say the
exact same thing you typed here to your partner and then resolve the issue.
You may be right about that, but from the post we can't draw any conclusions.
If you feel this bad about the current state of affairs, you should be able to
sit down with him and explain (without making accusations, because you are
definitely also to blame for having letting it come this far) how you feel and
how you think the problems can be resolved. If that is not possible, then the
question is: why not?

------
dmarinoc
It happened to me once. And worst part is that it happened to me when I was
negotiating a seed round :/

So, I ended up stoping negotiations with the BAs and focusing on raising a
personal loan to buy him his shares.

Finally I was able to buy him out and signed with the BAs (who were extremely
supportive in the process because they saw me manage all of this
professionally... and I didn't use their money for my battle).

So, if you really don't hit it off with him, my advice is only one: "the
sooner the better".

------
epynonymous
under normal circumstances, the obvious thing to do (at least in my mind)
would be to consider all the wonderful alternatives. but since this is also
your baby, and you have probably poured in lots and lots of your soul into it,
i sense this is really your quandary, because it sounds to me that you don't
want to go.

so once you have that straight in your mind, just divide and conquer all the
available options, i can't give you specifics because i don't understand the
stakes, but obviously this marketing person/friend of co-founder must go or be
relegated to a lower authority or else the culture and quite probably the
business will flounder. perhaps finding a different role for this person would
be beneficial. things cannot stay as they are, that's for sure.

good luck on this and don't let this suck your morale down, it really seems
quite the downer, but you need to keep a positive view on things. ultimately,
if you don't get the terms that you want then there are always other options,
including starting another company.

------
pkaler
There are multiple issues here: ownership issues, management issues, employee
issues, personal issues.

Here's how you tackle the employee issue. Implement quarterly and yearly
reviews and goals. If an employee is not performing they get a 1) verbal
warning 2) written warning 3) termination. Make sure the employee understand
where they stand at all times.

Good luck with the other issues.

------
mapster
Have you tried 'either you go or I go'? In reality, he is likely very
dependent on you for business operations and knows his limitations.

------
phlux
I cant tell if the designer is a male or female, but one question; is it a
female and is there potential that your partner is sexually involved with the
designer? You never said "him"... only "person".

How much is the designer making?

Take some fraction of that salary and go out, without the knowledge of your
partner and get better work done. Then come back and say "look at this
collateral and web marketing design I had done - it cost 10% of [designers]
annual salary and the quality is [n] X better"

