How can I initiate a talk of money with my friend about his business idea?

Question

This is kind of a follow up to How to decline additional help when friend won't take no for an answer

My friend has a business idea that he wants me to build an app for. I'm still deciding my level of involvement. I am ok doing a little work for free for the experience but my friend isn't technical and some of the stuff he wants done he doesn't realize how time consuming and complex it would be.

He has mentioned he could pay me for some of the work. If this could pay like a regular job, that would change things. But I'm not sure if he has the money or is just dreaming (as in, it would be a good idea, but not actually pursuing it). I'm not expert on start ups, but don't you normally need investors to put in money?

How can I ask my friend how I would know he could pay me? (note, I carefully chose the word could and not would) He doesn't drive a new fancy car or anything, but maybe he does have money set aside for this. How can I find out?

Answer 1

I just Googled for average cost of developing an app and this page said:

Apps built by the largest app companies, the "big boys", likely cost anywhere between $500,000 to $1,000,000. Apps built by agencies like Savvy Apps cost anywhere between $150,000 to $450,000. Apps built by smaller shops, possibly with only 2-3 people, likely cost anywhere between $50,000 to $100,000.

That was dated 4 Feb 2015, so prices have probably risen.

I have known a bunch of people who were sure that they had a sure-fire idea that would make them a million.

Not a one would have been willing to invest the lowest sum mentioned, $50k, even if they had it.

Because I enjoy developing software, and would be doing it as a hobby anyway, I have twice agreed to do all of the development, while “idea guy” did all of the marketing. Note that I only dealt with people in an industry with a client base in that industry, who could reasonably be expected to bring in sales.

Since neither of us knew at that point how or if it would work out we agreed on a 50-50 split. If you will need a marketing guy later, do not short change them – give them an equal share. Probably best to find one now, to see if the idea is even feasible.

I won’t get into the inevitable delays, overruns, ideas for “minor, but must-have” features that took months to implement. Suffice it to say that no friend of mine could have afforded to pay my charge out rate for the time I put in, so a percentage seemed the only possibility. YMMV.

Be aware that some people have extremely vague postcard pitch ideas (“like Facebook, but better”) and think that that is all that is required of them and you will make them a millionaire in return for a few $100. Don't bother trying to persuade them; just make your excuses and wish them good luck.

See also https://freelancing.stackexchange.com/

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[Update] To actually address the question: I have had more opportunities than those, but decided not to pursue them. The most important thing for me was the personal aspect - whether I thought that I could do business with the stranger with the idea.

What your friend should beware of is that during the development phase, he has the upper hand and can call most of the shots. for me, that translates to me taking the technical decisions, but explaining them to my partner. Similarly, when he makes the inevitable requests for new features, he has to explain the business case to me.

After the software is ready, the balance of power shifts, then the final marketing decisions are all in the other guy's hands. I have taken care to choose partners who will consult me and listen to my input, but ultimately, I have to trust that they are the expert. Which is why it is so important to choose the right partner.

I am not sure if that is cynical, or rational, but it's my view and YMMV.

To finally answer, once we knew that we would have such a relationship, there was no problem being straightforward. I explained that I would be investing what would be the equivalent of 6 figures of my time, evenings and weekends for months, in one case years. And, as sure as people are that their ideas are sure-fire winners, there was no guarantee of success. It might make us rich, or it might tank, so how about an even split? In both cases where I went forward, my partners agreed. In at least one case where the other person held the view that "it's only a little bit of software", I wished him the best and told him that I hoped that he would would find someone who would do the work at the split that he envisaged and we parted company.

Answer 2

I would be frank with him; have a one-on-one and let him know that you can do some smaller work for him to help him out, or do larger tasks that will take a lot of time and effort to complete, but will cost. Then have a discussion about the his/the company's finances and negotiate pay that you both feel is fair.

Things you need to consider is that a non-funded start-up generally has very little money aside from his personal investments, so it is important that you both figure out if he can afford your services, and if you have the time to work for him, assuming you already have a job. This will affect both the quality and time in which you can deliver a working product, and he needs to be aware of that.

A friend of mine was in a similiar situation, but ultimately decided (after having a long discussion about the other friend's vision, finances, strategy, market research etc) that he could not provide a product within a reasonable time-frame for the amount of money that he would have been paid (very little compared to his full-time job). He did not want to work nights and weekends for a meager sum, and he also did not feel that the risk of joining a start-up was worth it given the fact that the owner was mostly winging it, strategy and planning-wise.

Answer 3

TL/DR: Don't ask. You'll find out naturally by having a business discussion.

Having been in this situation many times, .com, real estate, apps, etc. this isn't that difficult of a situation to deal with. The most important part is to decide what you can do as a friend and what you can do as a business partner.

As a friend, you can talk all you want. Talk about his idea, how to implement, challenges he will face, whatever. Talk and advice are cheap.

However, any sort of actual work or material contribution should be addressed as purely business.

How can I ask my friend how I would know he could pay me?

As a business transaction, just be direct. You don't have to ask about monetary pay specifically. Instead, you can open the negotiation by asking what kind of terms he's willing to consider. This is to get him thinking that you don't come free.

Now, he might offer something other than money, equity for example, or some kind of in-kind trade. At this point, it's up to you to decide if that's satisfactory and make a counter offer.

If you really just want cash, make that clear in the beginning. If he agrees to cash, then you mutually agree to a reasonable deliverable with an upfront payment. That's when you know if he actually has the cash or not.

If he doesn't follow through first by not paying, let it go and continue your friendship. Eventually, it'll be a funny story.

Answer 4

I think you (and your friend) have a much more fundamental problem, and that is the "ideas vs execution debate"

Ideas are a dime a dozen. People who implement them are priceless. - Mary Kay Ash

(Not everyone holds this view, but it is one that resonates with my experience.)

People like your friend tend to think that coming up with the great idea is the "hard part", and all they need to do is have someone "whip up a simple app real quick", and the rest will take care of itself.

That is seldom the case.

Apps need maintenance. They need to have bugs fixed and features added for new versions to keep users interested. They (frequently) need 24x7 back-end servers to manage data and users and security and logins and content and a million other things.

If the new business is successful, they need to scale up quickly and smoothly without going down.

Personally I'd make sure that you and your friend are on the same page on this fundamental issue. Is his plan realistic? Are you "on board" with the feasibility of the plan? If so, should you be a (vested) partner in the plan, and not just a hired coder?

If you are willing to throw together a 1.0 version of his app for a fixed cost, does he have a business plan for maintaining and improving the app down the road? Or is he going to be bugging you again?

I like aspects of Catija's answer in this already-linked question:

I found that one of the most effective ways to ask if they're paying is to say something along the lines of

What do you have in your budget for this part of the project?

Phrasing it this way is a bit more open than "What can you pay me for this work?" You aren't part of the equation here - it's them and their budget. You're asking about their business structure. If they're honestly trying to make a go of it, they'll have a budget and they'll be able to answer what they have budgeted for (if anything).

In other words, does he really have a plan? Or just a wild-ass dream?

Answer 5

Don't ask whether he could pay you, or even a third party to do the job.

Just inform him that he'd have to.

Something like:

Huh, that's an interesting idea mate. It could be cool. I've gotta tell you, though, that's a lot of work. It's the sort of thing you'd have to pay to get done — off the top of my head I'm thinking maybe three months full-time to put together a first version. I don't know whether that fits into your business model or not?

And away you go.

Keep it simple!

If the response is:

Nah, I'm sure it's easier than that. Couldn't I find someone to do it for free??

Then your final statement on the subject is:

Lol no mate.

…adding in an amused, wry smile if you fancy it.

You're the domain expert. This is your advice. Just give it!

Answer 6

Decide what you want for it, tell him that.

So, he has an idea he thinks is worth the effort, time and money, great! But you're not him. Your priorities aren't the same. You might have some doubts about.

It all really doesn't matter and it's very simple: Decide for yourself how much time you think this'll cost, what your hard limits are and what the minimum is you're willing to do it for. This could be fixed payment for fixed hour, a percentage of income, a combination, or something completely different (maybe he can do something you want?).

After you've done that, you are ready to get into the conversation, the chances you get caught of guard are now smaller. I suggest you start with explaining that, while you are a friend and want to support him, you have to also think about yourself/your own time/money. That way you seperate feelings from facts, which is always a good thing to do.

You don't need to ask wether he can pay it. You just have to explain that there is a minimum that is required (or a maximum of work you can do for free) in order for you to not get into trouble yourself and then you can bring of one or several options you're willing to do it for. Then it's up to him wether or not the other person thinks it's worth it.

Answer 7

As with all start ups, it may succeed or fail and your friend doesn't know himself how it will turn out and hence doesn't know how much, when, and if he will be able to pay you.

My advice is to help him build a technical side of his business plan. It is not hard and won't take much of your time. Ask him to describe what he wants to build in detail then use your technical knowledge to explain the production process, estimate time and money needed to build it. Write it all down and make a copy for your friend. Format doesn't matter. Err on the pessimistic side. Then give him a week or so to think it over. If he comes back to you (most give up at this stage), then your can naturally dwell into financial details.