Ask News.YC: How do you handle dispute resolution between 2 founders? | Hacker News Reader

Ask News.YC: How do you handle dispute resolution between 2 founders?

14 pointsnostrademons15 comments

My startup has 2 founders: I'm the Woz, and my cofounder is the Jobs. We have been working under the assumption that it'll be 50/50, at least since the 3 founders that didn't do anything left. It's seemed to work well in terms of both of us feeling like we're pulling our fair share and aren't being cheated.

However, we just spoke to a lawyer about incorporation and corporate structures, and he said "That'll make for an interesting agreement for dispute resolution." I'm curious how other companies in this situation have handled it. I know Apple brought in Ron Wayne as the 3rd founder to act as a tiebreaker - how did the Reddits do it? Any other examples?

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I personally wouldn't do anything but 50/50. Even if it is 49.9/50.1 you are saying that the person with the higher % is inherently better, and this can leak into the dynamics of the startup in so many ways. Lawyers like to point out things like this, but they aren't the entrepreneurs.

I can tell you from experience that if you have the right co-founder, 50/50 is no problem. If there is a disagreement, however minor, you talk it out until one person convinces the other. This pretty much never happened in my case, by the way.

Agreed. Listen to epi and pg on this one. Your lawyer is nuts.

It just shouldn't be an issue. If you or your partner are afraid it might be, you've got the wrong co-founder. You will eventually bring in others and the potential tie will be broken--but for the next six months to two years (before the first VC round happens), your course should already be plotted. No important decisions should come up that require more than a "for the minutes" vote, because you already have discussed things and share the same goals.

You've already discussed whether you'd be willing to sell early for some reasonable some, right? That's the big one.

Sure, you might have the "do we go for the hundred million user consumer market and burn money like it's going out of style, or the half million user enterprise market and try to make a little money" conundrum that seems so inevitable in web apps...but, as others have noted, if you end up on different sides of this one, you simply can't work productively together...and you probably can't afford to do both.

Everything else is execution...and it's stuff you should have already hashed out and agreed (roughly) on.

I agree. We encourage two founders to split stock evenly. If you have to depend on a shareholder vote to decide things, you're already dead.

Ditto here, and am in full agreement, excellent advice.

I know another startup that was faced with a similar issue (they have since been acquired, proving that this does, indeed, work)--they decided to split it 49.9/50.1 with the person who thought of the idea first getting the majority.

Naturally if you have thousands of shares, just take one from the person who's going to get less equity and give it to yourself (assuming all shares have equal voting rights).

Another alternative is to split the equity 50/50, but have the voting rights divided differently. This is a pain in the ass because you have to insert a bunch of (extra) legal mumbo jumbo in the operating agreement for tax purposes.

A potential problem is if you both sort of thought of the idea together (i.e. it was an iterative process). Well, then, if you are adamant about a 50/50 split, you can always resort to third (neutral) party arbitration if a dispute should arise, but this is a pain.

I would do it 49.9/50.1---one of you must have started this entire process.

While a 50/50 ownership+voting split may seem "fair", your lawyer is right that it can easily create a situation where it is difficult to make resolutions and get things done. And in the world of a startup, the inability to quickly make decisions can be the equivalent of cutting off your own air supply. While it may mean one less point of equity today, it could be the difference between your startup ultimately going anywhere for both of you.

I've had 2 and three person partnerships... One person tends to grab the thought-leadership and the others tend to follow (tho hopefully not so much that they don't speak up with great ideas).

I would advise having a buy-sell agreement that allows a graceful exit if one person wants out, but otherwise I'd agree that partner selection is 50% of the battle (and letting go of your own ego is the other 50%).

For buy sell agreements, the best I've seen, simply stated, is this:

At any time, partner A can make an offer to buy Partner B's stake for Value X (whatever they want to offer). The rub is that Partner B can decide to reverse the offer (buying Partner A's stake for Value X) and Partner A is obliged to sell.

Hopefully you'll never need such an agreement, but it sucks to feel trapped in a business (or trapped with a partner who has turned into a lunatic or is no longer pulling his weight).

So far, every partnership I've had has been an even one, and I've never had to exercise an buy-sell clause like that (knock on wood!).

"One person tends to grab the thought-leadership and the others tend to follow"

For us, it's actually been very even. Our visions for the final product seem very much in-sync, enough that I'll do a UI mockup on paper and he'll do a UI mockup on paper and they'll be essentially identical, modulo things like panel placement.

It helps that I jumped on board because I could see myself as a user of the product, so I'm essentially in the demographic that he spent several months studying while coming up with the idea. Plus, we've read many of the same websites and articles (at least as far as the sector is concerned; we read different stuff for general startup knowledge), so we're coming from similar backgrounds.

Ah, the timeless "I cut, you choose" -- I'd heard it could be applied to this but I hadn't heard how it worked. Clever, thanks.

I don't think they got Wayne as a tiebreaker. According to Woz's interview in Founders at Work, they got him because he knew about business. Woz also said in that interview that he had zero serious disagreements with Jobs. There was one point where Jobs tried to get him to decrease the number of expansion slots in the Apple II, and Woz simply refused, and that was the end of it.

Interesting. I could've sworn that in Woz's speech in Startup School 2005, he mentioned that Wayne had been brought on as a tiebreaker (in addition to having business expertise). And that's the story given in Apple Confidential: http://extras.denverpost.com/books/chap0411h.htm

I've also read several interviews with Woz that say he and Jobs had zero serious disagreements, but that doesn't mean that they expected zero disagreements, or that they didn't want to be prepared just in case. They might've brought Wayne on as a tiebreaker and then found they didn't need him (rather fortunate, as they bought him out right when they were getting popular).

Ok, looks like he was.

Kill the other partner.

Just kidding, I'd follow the advice of others, either involve a third person or have on person carry slightly more weight in the company (in terms of equity).

Just an aside, but you know who I go to when I need advice on a dispute or question though? My mom! I swear that lady knows everything about life!

Use a random number generator! http://random.irb.hr/ - a quantum RNG is online, if you get stuck on an issue then a random choice may be as good as any other if both of you are dead-set and won't budge.

What would happen if the 50.1%'er overruled the 49.9%'er on something that was very important? It might very well be the end of the company entirely.

When I incorporated my lawyer thought 50/50 was the obvious choice.

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