I have a friend I've known for 4 years or so, and he has a dream project that I'd like to help him turn into a business. He says he's been working on the idea for 5 years, but at this stage it is practically just a vague concept and he's the first to admit he'll need all the help he can get to turn his dream into a real platform and successful business.
We had lunch last week and he pitched the basic idea again, and I then spent hours working on fleshing out the concept, drawing on my years of experience not in the core domain (psychotherapy) which is his specialty, but in all adjacent areas such as sales, marketing, even solution architecture. I got inspired and ended up building a PPT with a draft business plan, value proposition, solution overview, monetization options, competitive analysis, even mock-up screens, high level effort estimates and data model! I also feel like I had some crazy ideas that could take his original concept way bigger than he ever imagined, making the revenue potential so much higher if we could pull it off.
I set up a call to run through it with him, but before we jumped in he asked what kind of business arrangement I had in mind. I confessed I had been so focused on the idea that I hadn't given it much thought, but said I imagined us as partners\founders, since we each brought something different to the table and neither could make it happen without the other.
He says he wants me to be part of it but doesn't want to give up ownership of the idea or "business" at this early stage. He says he's looking at an advisory board model, as he heard from another friend with some VC experience that having multiple founders with split equity could put off potential investors. He was also worried about me going through my presentation in case I did have some brilliant ideas that he was then limited from adopting unless I was a formal partner in the business, and he didn't want me to feel cheated if he did use the ideas. We agreed to sleep on it and think about how we wanted to proceed.
Although the original basic concept was his I feel 1) he's been sitting on it for 5 years and I doubt it will develop without my help and 2) I think together we can make it so much bigger that he could imagine on his own. It would be such a shame not to share with him the work I've done, but I would consider us both founders of the business if we did move forward while he seems reluctant to agree to this up front.
Any advice on how to proceed?
From the information provided, there are somethings I shall comment on before I share suggestions:
1. You both seem like decent guys, who have a sense of respect and ethics, and obviously the friendship is sturdy. Doesn’t mean I will bite my tongue, so forgive me if I read a bit curt, although I state I wouldn’t actually vocalise it as formal as I type it.
2. 5 years working on an idea, the result of which at this moment in time is a vague concept, isn’t working on anything.
3. I won’t go on about it’s not the idea but the execution. Not because it isn’t true, but rather it is creating such disdain for ideas generally that I just do not share.
Brilliant ideas, love them, they inspire, evoke, and all that good stuff. However I can’t comment on the brilliance or lack of when it comes to your friend’s idea. And I do have a sizeable palatable amount of disdain for an idea person. Sheesh, I have had some great ideas when using the toilet. More when it’s a number two.
4. You probably know this now, but you should have asked him why is he sharing the idea with you, what does he want you to do with it, what is he looking for, what’s he offering, etc, etc. Don’t assume anything.
5. Give up ownership of the idea, vague concept, I’ll leave that to the legal brigade.
6. I agree with the use of apostrophes around ‘business’, there is no business in even the most loosest of interpretations.
7. He’s looking at an advisory board model. Heard from another friend with some VC experience that having multiple founders with split equity could put off potential investors. Need more information in regards to this line, however I will take some stabs in the dark, and of course am open to the possibility I am wrong.
a. Looking at an advisory board model. So, he wants to be a solopreneur? The majority of Investors will have a problem with that, a big one.
i. Your friend hogs the equity.
ii. Lack of appropriate incentivisation for other personnel.
iii. Lack of long-term alignment due to the lack of incentivisation
iv. Lack of appreciation for what others will bring to the table, linking back to point ii.
v. Potential founderitis down-the-line
vi. Deluded as to the journey ahead
vii. Lack of other personnel with sufficient clout and sense of equality to clarify and challenge. This should not be tied to the equity amount, but it is in some founder’s minds.
viii. The above will lead to the conclusion that your friend doesn’t have the right mind-set, because he is not showing what needs to be shown b. Heard from another friend. One data-point, not even from the horse’s mouth, if you are going to anchor at least make sure it hits the sea-bed. Go to the source, go to multiple sources.
c. Multiple founders with split equity.
i. If your friend thinks this is in regards to a somewhat naïve 50-50 split, then yes it can be frowned upon, because in a lot of cases, the split doesn’t correlate with the amount of work done, will be done, etc. It is not something that will break a deal on its own but will warrant far closer inspection. Also, in case of deadlock, there needs to be someone who calls the shot.
ii. If we are talking 2 – 4 founders, split appropriately, then no, that won’t be an issue.
8. He didn’t want you to go through the presentation, etc, etc. That’s cool, like I said seems decent, so on this note, I would say he needs to thank his other friend for the data point, and start getting knowledge from the horses’ mouths.
9. a. You feel 1) he’s been sitting on it for 5 years and you doubt it will develop without your help. I can’t comment on the validity of what is to come in regards to he needs your help, but the 5 years do show a certain disposition.
b. You think working together it can be so much bigger. Certainly appears that way from the information shared.
I went through a similar thing about 22 months ago. Guy came to me with an idea, I became a co-founder, worked on it like a dog for a few months, sorted out various things, got a tech team, was talking to key stakeholders, had meetings with investors, basically formed a business around the idea, although the focus had to change as the initial idea had us over a barrel.
Then he wanted to end the startup, he had his reasons, and although I did not agree with the conclusion, if the guy felt he was true to himself to do so, then it was my hard cheese.
However as he came to me with the initial idea, I couldn’t continue with the startup as it stood. To cut a long story short, I cut out his initial concept, and said if I choose to continue it, I shall bring him on-board as an advisor.
In case you are wondering how could the initial concept be taken out; big data, fraud prevention, very specific niche. The niche was his idea, and not fraud prevention, and like I said, the niche had us at a disadvantage.
Anyway, he agreed to it. I didn’t work on the startup again, milk was sour, and I wanted a clean break.
The guy is a good lad, came to me a few weeks ago wanting me to check out his pitch deck for his new startup, and if when the time comes if I would introduce him to some investors provided the startup fits the bill. I will do.
Anyway, lessons were learned, and I put things in place so if I ever decide to quit one of our startups , it will continue and hold all IP, etc, etc.
So, with that all out of the way, 2 cents:
1. I would try the more information angle first, remove that anchor.
2. Don’t look to convince, look to inform and illuminate, can be tricky when pointing out someone’s less than ideal traits to them. But 5 years is a long time, if it were me, I would call it like I see it. You have massaged an idea into a vague concept in 5 years, how long do you plan to get this vague concept into something more?
3. He needs his eyes opening in regards to the value of his idea, even a brilliant one. Maximum would be an advisor amount. Even then, it would be to make sure he doesn’t try to pull your/a Winkle, rather than actually bring anything to the table.
4. If you can create a business that is nowhere near his idea, then I would mention that to him, see what he says.
5. Me, I would try all 4 as tactics to get him on-board, few weeks tops. If nothing works, walk away. I can handle being wrong, guys done nothing in 5 years, he isn’t going to do anything. My own code prevents me from using his idea, so my options in terms of founding a startup are 3 and 4. Point 4 I know will eat away at me, so the only option left is 3. I can’t see 3 happening, so time to go.
I've got to say, I've come up against this problem probably more than ten times.
It seems that anyone with half an idea thinks of themselves as self made billionaires; it is simply impossible for him to succeed in his business and 'idea' without you.
And together, you can't succeed without: investors, employees, customers, teams, etc.
So tell him to do the math... 100% of 0 is 0.
I have an idea... I want World Peace, I could pitch it to everyone... but if I don't have business partners, and investors... my goal of World Peace is never ever going to be achievable. Even Jesus had 12 apostles, without them there would be no Bible... Jesus didn't even have a section in the book!! The Bible was invented by 12 guys who wrote about similar ideologies.
Anyway, he will never get Angels, VCs or anyone onboard without a 50/50 split team who are equally 100% dedicated to the success of the project.
It's no different that cooking a cake... you need someone to sell the cake... or a painter, paints and the gallery sells, or Nike makes shoes and TKMax sells the shoes.
And you should put an NDA on your Business Proposal and sign a 50 / 50 agreement before showing your work... I've got burnt a load of times giving the business proposal away... and guess what... neither of us succeed.
Greed is a Sin, Equity is Equality.
Yes. Don't waste more time. This person seems like one who has not grasped that none of us is as smart as all of us. His "... heard from a friend..." advice is wrong. He has just told you what he wants to tell you or heard what he wanted to hear. If you proceed as an advisor, you will find the relationship unfulfilling (I speak from experience) because your advice will not be valued. If after 5 years its a vague concept, it will never progress.
I like what Ace wrote, and he is owed a thank you for writing a detailed response to a question that would have been justified with the answer of "pass..move on to the next." A lot of talkers out there. In the last week I have had about a dozen people with concepts and or patents...no business though talking to most you would think they actually had a business. It is about execution. Find those who will invest in your execution. Your friend may have a great concept, but if it makes you feel better, every week I get pitched on the next best game changing technology. Usually within the month, I have had at least 2 other people approach me with nearly the exact same concept and or business. And they have a patent on it as well. They lack execution and strategy which is why most will never go anywhere. And those who don't want to invest equity or payment for those to support them moving forward are one..greedy entrepreneurs...and that will never serve them well..always derails them eventually, two they lacked the management and operational/financial acumen to have success. Your friend is going to hold tightly to 100% of nothing, and likely still have 100% of nothing in another 5 years if he does not work on his ethics and start compensating others to move his idea forward into something that has value.
You can have great ideas , Execution matters, Founders with ideas have to spend to make it reality.
Startup formula = Idea + Execution + Timing Market Entry .... Repeat
1. What is the main reason he does not want you to come as co-founder, co-investor, esp after you spent so much time with him to see how biz could be developed,
2. Are you ok to come in as advisory (with some monetary benefits)
3. Are you ok to consider, say 10/20% stake instead of 50/50
4. What are his chances of success if he goes ahead without you.
It has been seen that most startups having at least two co-founders have higher chances of success.
You definitely took on more initiative than your friend has in the past 5 years. From the details of your post, he wants you to sit on the sideline. My advice to you it to channel your energy in another venture where you'll be appreciated.
Great post. A classic example of all the dormant startup potential out there, but, the leap is not taken because the potential founder has no trust.
One of the option would be to write a business plan and register it before speaking to people about the idea
At this point, there is nothing for you to do. Your friend has to think it through and realize that a business needs more than an idea. If and when your friend comes back, be prepared to negotiate the equity terms before you share your business plan. If you are not able to negotiate equitably, then it is best that you stay as friends and not business partners.
On another note, since you have the initiative and know how to get a business started, maybe you can explore some ideas on your own.
Suggest a) do not share your work unless you are happy to give it to your friend without expectation of reward, return, compensation and b) you reflect if your your friend is a good potential partner for you since building a business is different than ideation and after many years s/he is not "in business" at some level, you need to wonder if s/he is the one you want to work with, and c) ask him more about his plans and roadmap in the context of any advisory role you may explore. Good luck!