I want 100% of my currently failing startup. How should I approach this?

Question

4 months ago I officially launched a company with my friend (big mistake I know - live and learn). We are 50/50 partners. He put in $3000 at the beginning because I spent well over a year out of work creating this company (I had the idea and I developed the app, the website, etc.) before we launched. We are now 4 months in and aren't seeing much success. He is visibly demoralized and made it clear at times that he is only here because he trusts me (my ideas), but he personally has no clue if the idea will work himself. Just a few weeks in he told me he doesn't know if he can do this for a year without making money (he is from a family where his parents are putting pressure on him). Mentally this is really eating away at me because I am committed but to know he might walk at any time is discouraging. I feel like if he doesn't personally believe in what we are doing (especially since he is the one that is trying to pitch the idea to potential clients), he is not really a partner. I would rather him believe in what we are building than to trust me and only be here because of his trust.

He is now telling me he thinks it will be better if he gets a job and we can use what he makes for stuff like advertising. It is clear his parents are dictating his actions by forcing him to get a job. He is telling me that most (even though I believe it should be all) of what he makes from the job will be going into our startup. I am confident that him getting a job is his first step of giving up. Even if he gets a job, I have always put 100 hours a week into this. I am not confident in his ability to keep up. I would say he is putting in 4-5 hours a day right now and taking weekends off because of commitments in his life.

Given that it is clear he doesn't have much confidence in this startup, I want to get full ownership before things get messy. I feel this is what is best for both of us. I don't think it is a good idea for him to put more money into this. How should I approach this? Should I offer him to take what is remaining from the initial $3000 (essentially buy him out with $1500 or so)? Should I offer more? We are not making any money right now so I'm not really sure what to value his 50% at. He has told me in the past he has regrets doing this so maybe he is clinging on because he is ashamed to tell his parents (who pressure him) that it didn't work out.

Edit: I can't comment for some reason so I have to respond here. I am not trying to be dramatic, sorry if it comes off that way. This is my first startup so I figured the more info the better? These are actual things I have been told. He told me even before we started his parents were putting pressure on him. He told me his parents are pressuring him to get a job, despite our previous agreement that he doesn't. He told me he would canvas for 8 hours a day, he is only doing 2. It may sound dramatic, but when we were young we tried to start another business and his parents kicked me out of their house (I moved in to work with him) and it ended because we were not making money. I am a bit antsy that they are capable of doing this again, forgive my fear of them being able to dictate his decisions (which are not what we agreed on in the first place). I don't understand what thinking I would get a free full time developer means? I am the developer. His only task is to canvas around and get registrations from business owners, and I am starting to worry about that because he told me he doesn't believe in what we are doing, which is why I am a bit confused he wants to (or feels obligated to) even contribute at all going forward. I'm not oblivious to the fact that most startups fail, of course there is a good chance my idea will not work out. Yes maybe I am selfish for wanting the company, but as his friend I am also genuinely worried about him. He has referenced the failure rate of startups many times in a way he is implying ours is next. I feel like there is a high chance if he had the chance to get out he would, but at the same time I am scared to bring it up in a serious matter because I don't know how to approach it without possibly offending him. I am not looking to "take" what is his. Of course he currently owns 50%. That is why I am here looking for advice on what he deserves. From a personal standpoint, even though I thought I could and it is my fault completely, I cannot continue to keep putting in 100 hours of work when he is not putting in 25. Of course he has the right to stop contributing to this project and pursue a job, but at the same time, so do I. Thank you so much for the responses so far, they have been helpful :)

Answer 1

I don't think it's valuable to attribute some sort of motive to your business partner or this quasi blame on that person's parents.

It seems to me that you thought you'd effectively get a free full time developer and you foolishly gave up 50% of your operation for that. Now you disagree with your 50% decision maker and want him out. Your partner thinks he can keep up his efforts and contribute even more to push the operation forward if he had other income, and you for whatever reason think that income/paid in capital stream would be bad? I don't know what you're working that you spent a full time year developing but gave up 50% of it for $3,000 but that's the bed you made.

It feels like you want him out more than he wants out. I think you need to start from a place of asking him what he would want to leave. There's the obvious business is business attitude that you could take that the company was worth $x when your capital showed up, it's worth $y now, your 50% is worth $z. But you can't really do that when it's a friend and you're still well in to the seed stage.

Personally, if I was your partner and you wanted me out, I wouldn't easily give up that 50%. I bought 50% of this app and I've put in 4 months of time and you think you can just boot me?

If you want out of this cleanly, you probably need to drop this business of "his parents are dictating his action" and "he's visibly demoralized" because he owns 50% of your company and doesn't have to sell it.

Answer 2

The biggest question of all is do you have any money to buy him out?

If it was me, I'd offer him $300 for full ownership. Essentially you have a struggling business and it is not uncommon for businesses in such a state to sell for pennies on the dollar.

In a sense, he is right, no one knows if your business will be successful. Despite your earnestness, you could be very wrong and this business may never be profitable. In fact without him helping you, the possibility goes down by some amount for a profitable venture.

So you should not pay the full 3k, or even half. Start with 10% and go up some from there.

I do wish you well and hopefully you can grow this business into something profitable.

Its okay for him to seek a more conventional career path, you need to allow him that. He has parents he can trust to give good advice, that is a gift. It is okay for him not to have the same passion for this venture that you do.

Answer 3

You should have a conversation with your friend and ask him how he thinks you should proceed, and then your approach should depend how much you value your friendship over this business attempt and money. It is as much interpersonal relationship issue as is is money/business issue.

• if you see him being disturbed by idea of losing any money he put up front, and you value that friendship above all else, you can propose to drop the business with "we tried it but it didn't work out, it's my fault so I'll give full $3000 back to you" (covering the difference with your own money). Note that even that might leave him unhappy if he expected to earn more due to his time invested in this business venture, but in majority of cases he'd probably be delighted to get of it with such a prize. But this only makes sense if you'd too be totally OK with that, otherwise friendship is lost anyway, and there is no point in losing more money this way.

• or you can offer him his $3000 as it is not working for him, and try to continue on your own. This has a disadvantage that you're almost guaranteed to lose a friend if you business actually works out and becomes profitable.

• if you can get him to willingly confirm that you both knew the risk and willingly invested that money and time with the knowledge it might not work and you could lose all money and effort, you can further together decide what to do:

  • continue trying to make business work, and when assets hit $0, continue to try to pump more time/energy into making it work, with full knowledge it might never work out and you can increase your losses

  • continue trying to make business work, until assets hit $0, and then drop the business idea and go your own separate ways

  • continue trying to make business work until some specific date, and at that time drop the business and split any remains of assets 50/50 (if any exist). If assets run out before that date, restart this conversation. It is IMHO most realistic outcome if you both decide it is worth trying some more to make it work. What is important here is fixed date, not "few more months/years" - that defines a clean closure by default at known time instead of prolonged agony for undefined amount of time and feeling being forced to do something against your will. But that means honoring that exact date, unless later he proposes extension and you accept (not other way around!)

  • drop the business idea immediately, liquidate any assets, pay debts and if anything is remaining split that remains 50/50. Probably the second most realistic scenario given that your friend seems to have regrets of joining in. This is actually same as above, but with fixed date defined as today

Only if he's of the opinion that you should not abandon this venture but push forward and try to make viable business of it anyway even if it means losing all the money and time etc., then you should try to better define (in some document) how this is supposed to work - ie. making sure you're on the same page. If is best if he proposes ideas and you reply, so ask him for details how he thinks you should proceed.

As for inequality of work you seem to have problem with: it might be that that from his point of view it is quite acceptable that you put 100 hours and he only 20 -- after all he is the one who also puts real money (and intends to continue to do so), while you do not. In fact, he might be of opinion that he is doing too much already, since he's the one putting all the money in, you should be the one doing all the work - and that this makes your 50/50 ownership equal.