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I am developing apps on my sparetime. I am the sole developer, and two non-programmer friends of mine provide vision, content, algorithms and ideas. We always agree happily on all the features, todos and prioritizations. But naturally, coding it is the biggest part.

When selling, we agree on splitting profit equally, that is 33% each.

But version 1.0 naturally does not sell much. And I go on to try to make the app more viral. This includes tons of stuff where the others are of little help. Examples: Adding support for sharing, facebook connect, gameifying, letting users add content, home page, support, maintenance, server services to make it easier for to update content. The list is long. Suddenly I will be doing 100% of a lot of work but only "own" a third of the income.

My friends may either "fade out" of the project after 1.0, or they continue to contribute, but with less value and I would rather exchange them for more programmers or graphic designers. The effort they made to version 1.0 is worth a lot to the app and I realize I would have never done it without them. But I am doing all the work in the end. It is hard to negotiate about splitting 90, 5, 5 instead of 33% each, because the idea is still theirs.

How to solve this? What are the best practices to regard the ownership of the app? What kind of agreements could I make that make it beneficial and motivational for me to continue developing the app?

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Ideas are a dime a dozen, it's the well-made execution that makes them valuable. –  user281377 Apr 16 '12 at 11:37
    
@ammoQ - rubbish. While the development is important, the idea is the difficult part. If it doesn't sell, all the best engineering in the world will be a waste of time. –  jmo21 Apr 16 '12 at 13:03
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Everybody thinks their own ideas are great, executing on your ideas and making something real is the hard part, and the part which has real value. –  Bjarke Freund-Hansen Apr 16 '12 at 13:17
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There are lots of questions about equity share over on OnStartups, which would be a better place for this question. In particular, you might want to look at this question. –  Mark Booth Apr 16 '12 at 13:18
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@Ozz: If you look at the most valuable tech companies around, you see many examples of companies that did mostly the same like other companies before, but better. The iPhone wasn't the first smartphone, Windows wasn't the first operating system with a GUI, Google wasn't the first search engine and Facebook wasn't the first social networking site. On the other hand, it's not exactly difficult to find thousands of people with the idea for "the next facebook". Maybe some of this ideas could really become the next big thing, but it depends on execution. –  user281377 Apr 16 '12 at 13:42

4 Answers 4

In a sense your friends and you have a company.(let's call it A) In some other sense you are your own company.(call it B)

So I see two obvious things you can do: either buy the idea from company A with company B or have company A hire company B to do the work.

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This makes very much sense, but it is also kind of "boxing out" my partners from the project. –  JOG Apr 16 '12 at 11:20
    
Buying them out doesn't have to be money: you could buy them out for future profits. Same goes for hiring you, they could pay you an amount of their shares to get working. You together could hire someone else, for either money or shares or something else. –  Pieter B Apr 16 '12 at 11:27

This is a reason why it is hard to do business with your friends. It's always going to be the case that someone feels like they are pulling more weight than the others and should get more of the rewards. Difference is that it's much harder to have that negotiation with friends and keep your own interests at the forefront.

Best practice in these cases is to settle these things before you're waist-deep into delivery. Like the saying goes: you write contracts while you are friends, for the time when you are not. My best advice is to start with yourself. What do YOU think would be fair. Things to consider are:

  • How crucial is your participation in relation to the others? Could they easily replace you or even do without you? And vice-versa, could you do without them?
  • If your friends were to replace you, what would be a fair estimate on what it would cost to buy the effort you produce from elsewhere?
  • What is the effort you put in worth to you? Could you make more money doing something else? How much do you value any free-time you give up for this?

After that, treat this like any negotiation. Know what you want to achieve and what you are willing to surrender. And try to not think of the other people as your friends. In this context, they aren't. They are your partners. If they were your "friends" they would happily give you all their ideas for free and let you keep the money. They are not, however. They expect to be paid, just like you are expecting to be paid. Make sure that in the end, everyone is happy with the deal (that includes you!). The goal has to be that when you all agree, you should be able to shake hands, look each other in the eyes and then go have a beer with no love lost between you.

Also, and I can't stress this enough, put everything in writing. There should be absolutely no question about what you all agreed on in the future. Some extra minutes spent on this now can save you endless grief down the road.

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You need to quantify the work and time being invested in, and come up with your percentages based on that.

Maybe it is too late for that though.

Or maybe, if you are working on it 100% of your time, you should be paid a proper salary for your work from the company, while maintaining the percentage split of the profits.

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You need to renegotiate. At the early stage, everyone's share should be contingent on their input. You decided to take the "friendly" approach and split everything equally. Ask for a higher percentage or don't do the work. A failed project may be the easiest way out if your partners aren't going to make the effort or give you the credit you feel you deserve.

If you were to win the lottery, give up programming and invest no money in the company, should the other two do all the work, hire a programmer and let you keep a third if it if it is successful?

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