Iphone development start-up.

Question

Thanks everyone for all the great answers. I collected all the advise into a single post. Here is the original question, answer below:

Hello this is not a direct programming/development question, its more business of software. I've been talking with 2 entrepreneurs who want to create an iphone application. They are putting the money to bootstrap the project, which is not much(around $1,500, computer + iphone store subscription). I will be doing all of the programming, they said they would help with business/marketing. I am not afraid of business or marketing, I also like both of them, and have been involved much more than them in the technology area(this is what I currently do for living). The question is, they want to split the "project" in equal parts, each of them 33.3%, were obviously I get 33.3%. I won't get a salary or anything else, it's a full partnership. Does this sound like a fair deal ? What stake of the company you think business people should get ? I am a fair believer that everyone should get as much as they bring in, but I am thoughtfully that marketing/business is going to be 66% of our business, and 33% is development. For those of you who have experience in the Iphone Development world what do you think ?

ANSWER

You're fist entrepeneur project: This is just a compendium of answers below which I gather some ideas. When working with partners, the question of stakes always comes up, clearly there is not 1 magic formula to calculate this, but here is some advice.

The first thing to look at is what each partner will bring to the table. Take a look at the roles each person is going to take, and how experienced they are about it.

For example, if you are the programmer, you will bring invaluable/irreplaceable technical knowledge to the table, not to mention you will create the actual project. So if someone says they will do Marketting/Business or "Design", make sure this people are experienced enough in those areas, to the extent that they are irreplaceable, if all they are doing is filling paper work, you might as well replaced them with a bash script.

"If you're splitting equally, each partner's contribution should be critical and irreplaceable by the other partners."

Now comes the money part. Alwasy calculate how much each one is puttin in. Don't sell yourself too cheap, for example:

"YCombinator, is a very successful early stage VC. From their site: We make small investments (rarely more than $20,000) in return for small stakes in the companies we fund (usually 2-10%)."

Now, if that doesn't sound to good to your stakers, consider a different approach.

"Depending on how you value your own labor versus your need for capital, you can consider a "first money" split that is different from later money. When working on books, I've had this arrangement. The publisher is putting up the money to make the book, so my cut is lower until the book has sold a certain number of copies. So a similar arrangement might be equal parts until the funding is recovered, then a different split."

Now about the value of the ideas. If you are approached by someone who is bringing only the idea in, run in the opposite direction. I agree 100% with the person who said.

"Ideas are a dime a dozen. Building them is what actually creates success."

Consider that if you seat down with a couple of buddies for an hour or two, you'll probably have dozens of good ideas, now execution is a different story. Now am off with some good advice from Jan Panesar.

"Success doesn't come without hard work and if someone isn't contributing equally in their own way as much as you are, an imbalance will always happen. You don't get something for nothing and there is no get quick rich scheme. Partnerships are about adding value and leverage ultimately. Also, most friendships aren't setup for business, much like you couldn't be roommates with just anyone. Partnerships can be harder than marriage or any relationship. Marketing, Copy writing, building buzz about your app on blogs, and learning how the app store world works to get and stay noticed is something these guys should be experts in.. as much as you are in coding."

Answer 1

It's a great deal for you if you get to keep the computer and the project makes no money. And that's always a possibility with so many iPhone apps out there now.

It's a crummy idea if you think the app will make a lot of money.

If I did this, I'd treat the first project as a learning experience and make sure that any future projects were individually negotiated.

Answer 2

I think you should startup your own iPhone application/business and hire marketing idiots as needed.

Answer 3

This really depends on the scope of the project and how much development and maintenance you think will be required. For a simple app, you can definitely do all of the business-related things yourself. All you have to do is fill out some forms and submit the app to the App Store.

Personally I think allocating 66% of revenue to business/marketing seems excessive. (Don't forget, Apple takes 30%).

Answer 4

I just read an article this morning that demonstrated the need for administrative, marketing and sales to make a software project successful. If the other two are providing all other functions and you the development, the percentages may be ok. Is it projected that the development will be mostly done at the beginning or that there will be a continual process of improvement and versions? Also, what does is the projected price of the software? Some iPhone applications are so inexpensive that I wonder how much can be made with them. Hopefully these questions and observations may help.

Here is the link: http://www.joelonsoftware.com/articles/DevelopmentAbstraction.html

Answer 5

Consider this. YCombinator, is a very successful early stage VC. From their site:

We make small investments (rarely more than $20,000) in return for small stakes in the companies we fund (usually 2-10%).

Based on your estimate on how much capital they are putting out, seems like a far cry from what others in the industry do.

Answer 6

I agree with Devtron. Start your own business.

Answer 7

If you think 2/3 of what this project needs is great marketing, then it makes perfect sense, but that seems a very high marketing budget. Now if they are bringing industry expertise, focus groups, or other tangible research, that's a completely different thing. If they're developing the user experience side, then that's highly valuable. I've worked on projects where the actual coding was the least of the issues (and so got the least of the money). It all comes down to what you all expect each partner to bring to the table. If you're splitting equally, each partner's contribution should be critical and irreplaceable by the other partners.

Depending on how you value your own labor versus your need for capital, you can consider a "first money" split that is different from later money. When working on books, I've had this arrangement. The publisher is putting up the money to make the book, so my cut is lower until the book has sold a certain number of copies. So a similar arrangement might be equal parts until the funding is recovered, then a different split.

But any good agreement should start with a clear understanding of what tangible things each partner is bringing to the arrangement, both at the beginning and ongoing. Don't forget the tail: bug fixes, etc.

Answer 8

Ideas are a dime a dozen. Building them is what actually creates success.

In real partnerships, if one of the partners is working as an employee, his time gets paid for at a fair wage. This is because the other partners are earning money elsewhere in that time that you would be earning nothing. Is months of your time is equal to a 1800 investment?

Success doesn't come without hard work and if someone isn't contributing equally in their own way as much as you are, an imbalance will always happen. You don't get something for nothing and there is no get quick rich scheme. Partnerships are about adding value and leverage ultimately. Also, most friendships aren't setup for business, much like you couldn't be roommates with just anyone. Partnerships can be harder than marriage or any relationship.

Marketing, Copy writing, building buzz about your app on blogs, and learning how the app store world works to get and stay noticed is something these guys should be experts in.. as much as you are in coding.

I would be weary of such an arrangement based on what you've shared so far. You may end up feeling worn out and put in way more than them. $1500 isn't much for a computer and you could probably make do with a used mac mini and build it yourself.. If vegas took bets, I would place a sizeable wager on this.

Check out the forums of Business of Software..

http://discuss.joelonsoftware.com/?biz

Other great startup sites are (not limited to)

www.onstartups.com www.softwarebyrob.com

Answer 9

I feel the overwhelming number of responses here are quite idealistic and not based on experience.

I think you should go for it - put in the work - see how they work - see how the whole thing pans out. The great thing about 33.3% each is you are all equal which will mean a lot a you work as a team to build this.

However much it seems that development is the key to building a sucessful app - it is not the be all and end all. Customer Service, responding to users, marketing, networking will be the things that make or break your app - but they will all rely on you building a kick-ass app.

From my experience - just get in there and try it out - your exposure is not great - the experience you gain will be priceless about what you think is fair value - and how to assess their contributions.

Remember this is just the first phase of your successful app -and there will be times that you can all renegotiate. When version 2.0 needs building then you can all shout for how much of the money each shoudl get for the effort they put in - this should not be based on ownership - but effort.

I wish you all the luck - don't get hung up in percentages at this stage - just do it.

Final sobering thought - unless you spend a load on getting this all sorted legally and make it binding it won't mean much - but ignore that - remember when push comes to shove - it'll be you that has the source-code! ;-)

Answer 10

It seems to me that the iTunes App Store is designed to minimize the business side of application development to attract more developers.
How often do you see real marketing for an iPhone application (aside from those where the application itself is really just marketing for another product)?
Another poster mentioned Y Combinator, which funds software startups with small amounts of money, based on the premise that, while building a software product, your hard expenses are greatly reduced compared to other kinds of startups - there's not much of a business side balance sheet to maintain when your greatest expense is food. There won't be any negotiating with Apple over the contract, and contact with consumers will probably mostly be through reviews and feedback. I'm glossing over a lot, but it doesn't seem like there's likely to be much for Business and Marketing to do, or at the very least, not until you get the product launched - Most of your business plan is written by Apple before you even start. At the startup I'm working at (which admittedly doesn't make iPhone apps), the Business and Marketing guy is coding right now.
Part of that 66% might be much better invested in an artist that can make you a nice interface to market your application. Alternatively, it might be better to start a business that has more use for Business and Marketing people, and maybe make an iPhone app to help support that business.
Maybe the most tactful way to deal with the situation would be to sit down with them and try to lay out exactly what you're going to do, and how much time it will take for each task (or score how difficult it is). You might gain some insight into some of the things Business and Marketing will do that makes them valuable, making you more comfortable with that 66%. If Business is going to be negotiating partnerships with other companies that your app will interface with, and Marketing is going to get talking directly to people in the niche market that your app targets, 66% might be reasonable. Otherwise, it'll be a good lead-in for negotiating your 33%.

Answer 11

It sounds to me like you're dubious of the arrangement, that you're not comfortable with doing all the tech work and owning only a third of the project.

Be very wary of going into a startup situation like that. If you can't come up with a formula that everybody's comfortable with, don't do it. Startups require hard work and dedication, and it's really hard to feel dedicated when also feeling like you're being taken advantage of. As Paul Graham wrote, one of the most powerful forces in doing stuff is unwillingness to let ones comrades down, and if you think they're screwing you over you won't have this.

This isn't about whether they are screwing you over or not, it's whether you're going to think so, halfway through the project.

The most important thing in a project is making something people are going to want. Not all the marketing in the world is going to sell a bad iPhone app. That suggests to me that writing the app is worth way more than half the worth of the marketing. The money they're kicking in is trivial, if this is going to take more than a few weeks. So, I'd be feeling like they weren't pulling their weight, and I wouldn't go along with it. You may feel different, which is fine, but know how you feel about it ahead of time.

Another issue is how decisions are going to be made. I'd have a bad feeling that I would be micromanaged by two non-techies in this case, unless I knew the other two well and was confident that they respected my ability and that they knew how to work with software developers. I don't know about you, but being ordered to do something I'm sure won't work saps my motivation, so if I thought that was likely I wouldn't get into this deal.