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Startup partner not holding up his end of the bargain

ounder of an tech startup. There are 3 of us. I'm responsible for the product and some tech-related work. The CTO is responsible for the tech side (with a bit of help from me). The third partner--I'll call him Jack here--is more or less in a CEO role.

Jack has been in a similar business before and has had a somewhat successful track record. He owns the biggest stake in the company. He and the CTO had known each other before. I did not know either one of them.

Jack was given the biggest share of the company because it was perceived that he could bring unique assets to the table, including experience in running a similar business, connections, some existing clients, operational experience, etc.

Long story short, a little over a year into the business, Jack is not holding up his end of the bargain. Specifically, we've had the following developments: (1). The few early clients he brought in did get the business started, however, they would not have been enough to sustain the business. The number of clients that we have brought in through other channels having nothing to do with Jack (by spending money on marketing and ads, etc.) outnumber those early clients by about 50:1 now. (2). On the operations side, he is not being effective and the CTO and I are constantly having to step in to contribute on the operations side. (3). He is not effective in raising external funding, and again, the CTO and I are having to work our own connections and spend time going after investors, which clearly should be the CEO's responsibility. (4). The product built by me and the CTO is now proving a minor hit in our niche and is clearly finding a product-market fit in the market. We've had an increasing number of new clients defecting from much bigger competitors to come to us. (5). There have been more frequent clashes on our visions for the company between Jack on one side and the CTO and me on the other side. (6). Jack is planning to go on vacation for a month (!) later this year. The CTO and I have not had even a weekend for more than a year.

We've put a lot of work in already and are genuinely gaining traction. What are your thoughts? If one founder becomes less and less useful at a relatively early stage, what's the best thing to do? One caveat is that the CTO and Jack have known each other for a long time. While the CTO has been quite unhappy as well, they do go way back. Also, bear in mind Jack owns the biggest stake in the company, so he is not some early employee that we can just fire.

Any general thoughts? I know what our contracts say, but I just want to see how this situation is dealt with by other startup founders in a similar situation.

Thanks

Startups | 👁 865 | Posted 2018-11-03 | Share on Facebook | Twitter | Google+

| Modified: 2018-11-03 | Author:

10 Comments

mikedmoyer 2 years ago

This is my favorite kind of startup problem! Thank you for having it...but I'm so sorry you have it...but, I can help! Think about this: Since you started, each of you have contributed various amounts of time, ideas, money, supplies, etc. Presumably, you could have done similar work for a company that had enough money to pay you for your time and reimburse your expenses. This is called "fair market compensation." But, you were not paid. You could go back in time and account for all this unpaid compensation. It's knowable and quantifiable. These amounts will continue to grow until you reach breakeven or Series A at which point you can calculate exactly how much each of you was NOT paid. These unpaid amounts are essentially "bets" on the future outcome of the company. Each person's share of the equity should be based on their share of the bets. This is logical, obvious and unambiguous. So, Jack is betting less than others? So be it, his share will reflect his lower commitment levels. In fact, using this model will allow you to easily add someone to fill in or even replace Jack. No problem. Your mistake was trying to predict in advance what everyone was going to do based on their promises. This is very, very common, but oh my dear dog, what a horrible way to split equity! This is also known as the Slicing Pie model and it was mentioned in one of the other answers. The model will provide a formula for determining exactly what each person deserves regardless of what they do or don't do. So, research the model, do a "retrofit" and live happily ever after!

amosschorr 2 years ago

You don't start the conversation by talking about rebalancing equity ownership, because Jack may have his own perspective that should be taken into account. You start by having an open and collaborative conversation. Then, if it becomes clear that didn't do anything and equity should be rebalanced, bring it up.

jumanjiz 2 years ago

This guy will hold the company down going forward. However you want to handle it, it has to be handled.

caruselofficial 2 years ago

First of all, speak to him to find the reason. Perhaps, he has temporary problems with family. Or maybe, his faith in project was damaged, but can be restored. Or he just not so professional, as you thought, and this cannot be fixed. Depending on the reason, decide what to do next. Sometimes even simple but honest talks can work wonders. Finally, check the agreements and shares. In case if hard decision is inevitable.

runvnc 2 years ago

Sounds like he's dead weight and you want him out. If you and the CTO can get on the same page with that then maybe a lawyer can help you.

AcrIsss 2 years ago

As people said, you guys need to talk. Maybe he doesnt even feel like he is not putting the effort.. Investors will see this in your company, if you ever try to raise, and its going to be a huge hurdle

AlDente 2 years ago

What is the CEO actually doing? Does he have another business that hes focussing on? Also, do you and the CTO together own more than 50% of the shares?

peakelyfe 2 years ago

You should speak to him together now. Tell him you dont feel hes pulling his weight and you want to rebalance the equity ownership. If he says no, you need to be ready to either move on or live with it.

juliusmusseau 2 years ago

Are you and the CTO taking salary? Together do you have 50.1% (or more) of the ownership? In the short term you should probably just give yourselves raises to the point where things start to feel more fair. In the long term, this sounds like a big headache that's only going to get bigger. It might be time to start some kind of couples counselling for co-founders.

ChocolateGlamazon27 2 years ago

The biggest takeaway here is you haven't referenced what his grand job description is. Contracts for employment and detailed job descriptions are two different things. Was he supposed to be responsible for bringing all the clients into the company or just the whales/enterprise ones? This could explain why he has slowed down making an effort to bring clients. He might be confused about his role which is manifesting into laziness. How often do you communicate the vision of the company to him?


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