Co-founders misaligned

[floz]

Hello, what do you say about this?

I have 2 e-commerce companies:
100% X (small)
50% of Y (larger)

Both X and Y have similar activities. This leads to a potential conflict of interest and possible competition between both companies.

My co-founder and I want to resolve this and align our interests.

He proposed that I not expand company X further for this reason. I proposed that there be an acquisition of X by Y for a fair value with an earnout method to avoid competition for new niches. He thinks it's not viable because company Y could just expand into these new niches from scratch without having to buy my company X.

I don't know how to decide this. I don't want to ruin our great partnership relationship by making a bad decision, nor do I want to hurt myself financially. Unlike him, I live entirely from these two activities, while he has another 50% stake and receives his salary from another company Z.

 

[fendertl5]

@floz Is it possible to sell company X to another party? Is it also possible for your partner to buy your share of company Y? Or for you to buy their share?

 

[floz]

@fendertl5 Not a good timing to sell company X since it’s in rapid growth.

We have never had the “buy your share” talk before. In company Y, we are 50/50

 

[fendertl5]

@floz Rapid growth is a great time to sell a business. Stagnation or decline is a bad time.

 

[floz]

@fendertl5 I meant to say that its *about* to experience rapid growth. Full velocity has not been reached, new sales channels are almost here and sales will likely increase over the next quarter.

 

[the_laconic_dead]

@fendertl5 Well this make sense.. Now it gives me an idea about it

 

[tmcp]

@floz I see no way that you can give up X company (assuming it’s profitable) as not to compete with Y company for the sake of your partner. If you grow X to be the size of Y you are now making way more money. The best method is for company Y to buy out X and you get paid as mentioned.

I understand not wanting to cause conflict with the partner but in a very casual conversation I’d explain that you’re making $$ from company X and you can’t just give that up for free. How could anyone expect you to do that? Explain it this way; if you owned 100% of both companies you’d have no reason to not continue with X and Y and profit from both. Even if you did, every dollar given up by X goes to Y and that’s still 100% in your pocket. With his method, every dollar from X that goes to Y, 50 cents goes in his pocket and 50 cents goes in yours. If he can’t see that’s not fair then this partnership has a rocky road ahead.

Good luck!

 

[floz]

@tmcp

If he can’t see that’s not fair then this partnership has a rocky road ahead.

Thanks for the well rounded input.

Been thinking a lot about this today and I find 2 solutions:

1) Elaborate anti-competition agreement between 2 companies

2) Company Y acquires company X at a under market valuation (funded by cash and/or equity from co-founder of company Y)

His only concern about us acquiring my company X with our mutual company Y is that our mutual company Y could simply not acquire and compete directly with more capital.