Let's assume they're being completely honest: they'd love to contribute, and think it's a great idea, but genuinely cannot find the time amongst their other responsibilities.
That's bound to be disappointing, for both of you, because if it had worked out, it might have been great.
But ... it didn't.
So it's time to move on. Book a pizza, a drink, a workout --- whatever you do as friends when you need to talk, and fire your friend.
Speak decisively, and personally: "I've decided that I'm going to move ahead with <the project> with another developer. It's great that you were interested, and it'd be great to work together, but it's not working, and I'm going to take a different route".
You can explain that you're disappointed that it didn't work out, but that it's ok, and next time you (or they) have a project you could think about working together again. But be clear: this opportunity is over, and they've contributed nothing and are leaving with nothing.
It'll likely be a relief to you both to put it behind you.
Have this discussion after you've done the first 10 minute "what's going on" catchup thing. It shouldn't take more than 10 or 15 minutes max. And then try really hard to move on to other topics, and make it really clear that you don't hate them, you're still friends, and you can move past this minor thing without issues.
This is great advice. I have a past life as a recording musician, and encountered this exact problem with band members. Sometimes they love the music, and totally want to be in on the gig, but don't have time or motivation or whatever to practice or write songs.
The end result is exactly as you advise. You're still friends. You still might jam. But you're not doing this particular project together.
Dragging it out means nothing gets done. Waiting until you find someone else just means you remain complacent. Nip at the bud and move on productively.
Thank you for the thoughtful advice. Honestly, that is what my gut is telling me as well. Only thing is - I don't have another backup in terms of someone else I could ask to replace them. Do you think I should end this business relationship regardless, or wait until I have found an alternative?
Firstly, and maybe most importantly, because it's a source of badness in your friendship. The longer it goes on, the more chance you feel resentful of your friend for not following through, and the more chance they feel bad about saying they'd like to do it, and not being able to, and that starts to breed resentment on their part too.
If somehow something happens in the future, and your friend gets some spare time/motivation/whatever to contribute again, then they can always ask if you'd like to try again.
Aside from that though, if you've cleaned up this situation, then your slate is clear: you're not putting energy into this problem, and you're free, both time-wise and mentally, to seek out a new partner. That's the best thing for your project.
That's bound to be disappointing, for both of you, because if it had worked out, it might have been great.
But ... it didn't.
So it's time to move on. Book a pizza, a drink, a workout --- whatever you do as friends when you need to talk, and fire your friend.
Speak decisively, and personally: "I've decided that I'm going to move ahead with <the project> with another developer. It's great that you were interested, and it'd be great to work together, but it's not working, and I'm going to take a different route".
You can explain that you're disappointed that it didn't work out, but that it's ok, and next time you (or they) have a project you could think about working together again. But be clear: this opportunity is over, and they've contributed nothing and are leaving with nothing.
It'll likely be a relief to you both to put it behind you.
Have this discussion after you've done the first 10 minute "what's going on" catchup thing. It shouldn't take more than 10 or 15 minutes max. And then try really hard to move on to other topics, and make it really clear that you don't hate them, you're still friends, and you can move past this minor thing without issues.
Good luck!