3 ms·

Let's say pre revenue, founder is also looking for co-founders, to market the app along with building a brand wouldn't that be a good idea. Otherwise, for solo

by vednig 2y ago

Let's say pre revenue, founder is also looking for co-founders, to market the app along with building a brand wouldn't that be a good idea. Otherwise, for solo founder to manage everything would become big and complex. Right? Or is there another way?

jqpabc123 2y ago
You "found" an LLC which develops software in order to provide service to one (or more) marketing partners. Marketing partner may already have his own company but if not, he founds a totally separate LLC to market and support the service that you provide. This separate LLC is wholly his to own and operate as he sees fit. The customer base that marketing partner builds belongs to him --- this is his equity. The software that you build belongs to you and is your equity. You provide service to marketing partner at an agreed upon rate. This clear separation of ownership, responsibility and equity makes it about as simple as it gets. You don't really even need a legal document to formalize this simple relationship. Complexity starts when you try to combine these two separate functions into one shared entity --- which leads to internal conflicts regarding ownership and control.
- bruce511 2y ago
  I hear where you are coming from, but as a marketeer I wouldn't take this model. The problem is that marketing is "transferable". Say I build a company marketing and selling your product. I spend capital building "your" brand. You decide to terminate the arrangement. I have -nothing-. Worse, you decide to create your own marketing department. You rename the product slightly but basically leverage all the work I've done. >> The customer base that marketing partner builds belongs to him You cant 'own' a customer base. I might have the customer list, but do do you. Customers are free to (and will happily) switch to the original maker. If I try and sell my marketing company a buyer takes one look at it and realizes it has a single supplier, and owns no IP. There's literally nothing to sell. So yeah, if uou can find a marketeer willing to partner like this, good luck to you both. Incidentally the reverse is also true - having just one customer (the marketeer) puts the supplier at risk as well. If there's any falling out both companies will suffer.
  - jqpabc123 2y ago
    I spend capital building "your" brand. You decide to terminate the arrangement. I have -nothing-. No, you spend capital building *your own* brand. I "white label" the product/service being provided to you --- you name it, price it and market it as you see fit. The risks and benefits here are mutual. We are doing business because you don't want to develop software and I don't want to do marketing. We are legally independent but the reality is, we are co-dependent. We both have incentives to work together. Neither of us can just "walk away" without significant loss. BTW, I have been doing this successfully for over 25 years.
    - bruce511 2y ago
      Whole it's possible for this arrangement to work (we did it successfully from 1996 to 2016) I still don't recommend it. Firstly it takes enormous good-faith by both parties. It worked for us because our partner was very ethical (as are we) and both sides managed to work well together. There were however several inefficiencies. They decided to sell the business and found no buyers (because nobody sane buys a business with one supplier. ) we couldn't preemptively lock in a long term contract until we knew who the buyer would be. We met a couple of the prospects but it takes time to build a new relationship. In the end we acquired them at the agreed value. Since then we've uncovered all the places where being 2 companies created massive inefficiency, and incompatible goals. The sum has been worth more than the parts. All that said, yes the model worked for us. Yes we didn't have the capital to do "their side" of the work back in the 90s. So having it in-house would have been difficult. Since we had very different management styles (also apparent after the merger either company culture) we wouldn't have been good co-founders. BUT all that aside, the model also held us both back quite a bit, which we've Since come to realise. It also succeeded mostly because (like a marriage) we both were willing to make allowances and operated in good faith. And both sides were "good character". So I'm not saying it can't work. I'm saying it's risky, and not a model I'd recommend.
      - jqpabc123 2y ago
        I'm saying it's risky, and not a model I'd recommend. To me, the epitome of risky is just gifting a good chunk of equity to a marketing entity who has done nothing to earn it and whose character is unknown. My proposal avoids this risk. The legal independence allows a non-working relationship to be easily unwound early on if need be --- by either party. This sort of partnership is really built around mutual benefit while minimizing the possible effects of "faith" or "character". "Bad faith" can only lead to self harm and loss --- making it an irrational option.
- CrimsonCape 2y ago
  In fact the autobiography of one of WordPerfect's founders tracked like this in the 80s. The marketers/distributors of WordPerfect were external entities. A lot of the company's drama involved these legacy salesman who built up massive markets and were living large.
  - Jensson 2y ago
    Alternatively those drama people would own a part of the company, not sure that would be better.

by vednig 2y ago

jqpabc123 2y ago

You "found" an LLC which develops software in order to provide service to one (or more) marketing partners. Marketing partner may already have his own company but if not, he founds a totally separate LLC to market and support the service that you provide. This separate LLC is wholly his to own and operate as he sees fit. The customer base that marketing partner builds belongs to him --- this is his equity. The software that you build belongs to you and is your equity. You provide service to marketing partner at an agreed upon rate. This clear separation of ownership, responsibility and equity makes it about as simple as it gets. You don't really even need a legal document to formalize this simple relationship. Complexity starts when you try to combine these two separate functions into one shared entity --- which leads to internal conflicts regarding ownership and control.

bruce511 2y ago
I hear where you are coming from, but as a marketeer I wouldn't take this model. The problem is that marketing is "transferable". Say I build a company marketing and selling your product. I spend capital building "your" brand. You decide to terminate the arrangement. I have -nothing-. Worse, you decide to create your own marketing department. You rename the product slightly but basically leverage all the work I've done. >> The customer base that marketing partner builds belongs to him You cant 'own' a customer base. I might have the customer list, but do do you. Customers are free to (and will happily) switch to the original maker. If I try and sell my marketing company a buyer takes one look at it and realizes it has a single supplier, and owns no IP. There's literally nothing to sell. So yeah, if uou can find a marketeer willing to partner like this, good luck to you both. Incidentally the reverse is also true - having just one customer (the marketeer) puts the supplier at risk as well. If there's any falling out both companies will suffer.
- jqpabc123 2y ago
  I spend capital building "your" brand. You decide to terminate the arrangement. I have -nothing-. No, you spend capital building *your own* brand. I "white label" the product/service being provided to you --- you name it, price it and market it as you see fit. The risks and benefits here are mutual. We are doing business because you don't want to develop software and I don't want to do marketing. We are legally independent but the reality is, we are co-dependent. We both have incentives to work together. Neither of us can just "walk away" without significant loss. BTW, I have been doing this successfully for over 25 years.
  - bruce511 2y ago
    Whole it's possible for this arrangement to work (we did it successfully from 1996 to 2016) I still don't recommend it. Firstly it takes enormous good-faith by both parties. It worked for us because our partner was very ethical (as are we) and both sides managed to work well together. There were however several inefficiencies. They decided to sell the business and found no buyers (because nobody sane buys a business with one supplier. ) we couldn't preemptively lock in a long term contract until we knew who the buyer would be. We met a couple of the prospects but it takes time to build a new relationship. In the end we acquired them at the agreed value. Since then we've uncovered all the places where being 2 companies created massive inefficiency, and incompatible goals. The sum has been worth more than the parts. All that said, yes the model worked for us. Yes we didn't have the capital to do "their side" of the work back in the 90s. So having it in-house would have been difficult. Since we had very different management styles (also apparent after the merger either company culture) we wouldn't have been good co-founders. BUT all that aside, the model also held us both back quite a bit, which we've Since come to realise. It also succeeded mostly because (like a marriage) we both were willing to make allowances and operated in good faith. And both sides were "good character". So I'm not saying it can't work. I'm saying it's risky, and not a model I'd recommend.
    - jqpabc123 2y ago
      I'm saying it's risky, and not a model I'd recommend. To me, the epitome of risky is just gifting a good chunk of equity to a marketing entity who has done nothing to earn it and whose character is unknown. My proposal avoids this risk. The legal independence allows a non-working relationship to be easily unwound early on if need be --- by either party. This sort of partnership is really built around mutual benefit while minimizing the possible effects of "faith" or "character". "Bad faith" can only lead to self harm and loss --- making it an irrational option.
CrimsonCape 2y ago
In fact the autobiography of one of WordPerfect's founders tracked like this in the 80s. The marketers/distributors of WordPerfect were external entities. A lot of the company's drama involved these legacy salesman who built up massive markets and were living large.
- Jensson 2y ago
  Alternatively those drama people would own a part of the company, not sure that would be better.