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Complicated revenue share

I have a fairly successful Windows application that has been on the market for around 10 years, it has a good reputation within the niche and turns over a reasonable ‘lifestyle’ income.  Over the years I’ve been asked by my customers to provide an OSX and iOS version, problem is I don’t know these platforms and am very, very limited in the amount of time I have available.

So… a good friend of mine (who happens to be a Mac developer) has offered to develop both these systems. I will not be paying for the development but rather agreeing a revenue share of the profits from the Mac versions.  So things to consider when agreeing the share amount:

1)    The ‘Brand’, reputation and marketing I’ve built up over the years
2)    Shared business Algorithms and eye candy
3)    The current customer base
4)    The share will only be for monies gained from the Mac version

I’m quite happy to do a revenue share as I’m a sole trader and it would be nice to bring on a business partner who shares the same interest, problem is what percentage is fair for both parties?
Steven Beckett Send private email
Monday, January 27, 2014
 
 
You did all the original work and he's only porting it?  You need to get more than 50% of the profits, for sure.  How much more over 50% depends on how much you want to stay friends.
PSB136 Send private email
Monday, January 27, 2014
 
 
The friendship is very important. I wouldn’t say it was ‘just’ a direct port as some very good feedback has been gained for the product. Going forward we’ll both be looking into innovations across the entire range so he would not be just a developer
Steven Beckett Send private email
Monday, January 27, 2014
 
 
Imagine it becomes a hit on the other platforms, and you have to split hundreds of thousands with him just for the porting job.  Would you be happy on this scenario, after so much more you've invested than him?

In my country's  law, the translator has as much right to the translated book as the original author has to the original version. The translators of "The Lord of the Rings" tried to made a killing just by translating Tolkien's work. I personally didn't think it was fair.
http://www.bokorlang.com/journal/33copyright.htm

IMO it's better to pay for the development and be done with it for once. And have him sign a contract giving you all the IP rights for the code.
Mauricio Macedo Send private email
Monday, January 27, 2014
 
 
I cannot see this ending well. Well, the only way for it to "end well" is that if app on other platforms goes bust. If it is successful both of you will after some time start thinking that other is getting more out of it then he puts in.

You will think that you invented it, grew it, got market recognition and customer base (which is indeed more important) and should be getting more money. Your partner will think that he created it, puts all the work in and you get majority or half profits...

This will create rift that will be hard to sort out later. If you do decide to proceed, I recommend not starting without water tight contract.

Much better solution is you pay for development and ongoing support and keep all proceeds to yourself. Yes, its more risk but...
Blocky Send private email
Monday, January 27, 2014
 
 
There is absolutely no such thing as "just a port" to OS X from Windows, unless you started with a cross platform toolkit, which is obviously not the case.

The labor involved will probably be more than it would take to rewrite from scratch using modern libraries (but less than time to develop from scratch starting 10 years ago, and figuring out the features and such).

If I was the other guy and wanted to offer the same functions on OS X, I'd just clone the app. Easier, faster, and no weird situation with some partner.

So this guy is probably wanting to make the deal because the brand name and reputation has some value. 50% of retail? No. A $25/unit royalty might be nice if it's a $500 product. But that would be if he didn't use any code and rewrote from scratch and is just licensing the name.
Scott Send private email
Monday, January 27, 2014
 
 
"IMO it's better to pay for the development and be done with it for once."

FWIW, if you try to get estimates from porting shops for moderately complicated (500,000 LOC) code bases, it's in the $2-$10 million range for a port from Windows to Mac - but that's an estimate and they are allowed to go over.
Scott Send private email
Monday, January 27, 2014
 
 
+1 Scott.

I wrote both Windows and Mac OS apps and there's really nothing much in common.

As Scott said, the other guy could just clone the app with not much more effort than if he had access to the original source code.

If Steven had the resources to develop Mac app himself, he would assume all the risk and got all the benefit.

With partnership, the while risk will go to the other guy and therefore most of the benefit should go to him as well.

The right way to look at this is that Steven does marketing/generates sales leads for the hypothetical mac app. It's similar to an affiliate sale.

Affiliate deals like that are in 30%-50% for the lead (i.e. Steven's share) and I would say in this situation the higher end of 50% would be fair, given that Steven has established brand, website etc.
Krzysztof Kowalczyk Send private email
Tuesday, January 28, 2014
 
 
Krzysztof,

The affiliate approach is the way I’m thinking too, just the percentage to consider.

The OSX & iOS version will use all of the Windows business logic which, for the most part is written in standard C++, areas of translation include file handling and string management. The UI (MFC) wont/can’t be ported so will be new.
Steven Beckett Send private email
Tuesday, January 28, 2014
 
 
Its not just the rev-share. Make sure you get ownership of the Mac version in case your partner wants out.

That said, I think its great that a friend wants in on your business. Be fair and he'll feel more for it.

I'd say offer him 40% of sales to your existing customer base, and 60% of new sales as long as he is on board and keeps the product updated. If he wants out, offer him 40% for a year after he leaves.

Sure, its "a lot" to pay him, but hopefully he will give you input to improve your Windows version too - and its money you wouldn't otherwise get. Don't underestimate the cost and time needed to "just" have a shop port your Windows version to Mac.
Jaywalker Send private email
Tuesday, January 28, 2014
 
 
A 60/40 split would probably be fair.

Especially if you weren't planning on investing to create a mac version in the future.

Typically I recommend partnering 50/50 on projects as it keeps everyone interested and putting in a high level of effort.

Think about including a clause where your respective families/kids get your share of the revenue if one of you should pass on while it's still profitable.

An exit plan could also be included where one or the other could buy out the other one for maybe 50% of their revenue share over 24 months or something like that . . . if one of you lose interest in the project in the future.
Scott U Send private email
Tuesday, January 28, 2014
 
 
It seems he is becoming a partner more than a "porter"... and it complcates things a bit.

Since you are the enterpreneur, pay him a fixed amount as freelance job, you keep code ownership.

Viceversa, he becames the enterpreneur, keeps code ownership and license your brand name paying you royalties and a service fee for web site usage...

Third way, hire him for a fulltime job for x months with a good pay: you are the boss, have sources, etc. After x months, check copies sold and decide how to proceed.

It all depends on how many copies of the mac version you think to sell and how much do they cost...
fp615 Send private email
Wednesday, January 29, 2014
 
 
To paraphrase fp615 and others, first agree on how you are going to split risks.  It is easier to get to revenue/ownership split from there.
Dmitry Leskov Send private email
Thursday, January 30, 2014
 
 
Before I get into what I think is important about to consider about the rev split.  Consider this from a 30,000 foot view: 

News Flash: PC sales are dropping http://online.wsj.com/news/articles/SB10001424127887324695104578414973888155516 

Mac, iOS, and Droid is where the growth is.    My Mac version converts 2x as good as the PC version.  And represents a huge chunk of my sales.  Mac users have more money.  iOS and droid are exploding with growth. 

I am terrified everytime I go into a store that offers laptops, tabs, and smartphones.  The laptops are in the corner and nobody is interested. 

That being said let me get back to your question.
As far as what is best to your bottom line.  I agree with everyone who says bite the bullet pay once for a port and keep 100%. 

But I think you want a business partner.  from your comments:

"would be nice to bring on a business partner who shares the same interest"

"The friendship is very important"

"Going forward we’ll both be looking into innovations "

The right partner can really help and the wrong partner will be a disaster.  I don't think there is an in between or way of knowing ahead of time.  A bunch of really smart people have got into bad partnerships, and I am sure they didn't know ahead of time.

For better or worse, it sounds like you want to try this.  And it sounds like this is more about taking on a business partner for all aspects of your business.  Not just a port.  "Going forward we’ll both be looking into innovations " 

I don't think there is a right answer for what percentage is fair.  Software affiliate deals can be 80% or 15%.  And partnerships also have a very wide range. 

 If this is going to be a partnership.  I think the MOST IMPORTANT THING is to have in your agreement is a long term vesting schedule.  It acts as sort of a PRENUPTIAL if things don't work out.  Not having this was a BIG ROOKIE MISTAKE I made with some former partners. 

Your brand took you years to build.  Handing away a piece of that or even just exclusive rights to 50% of the revenue on your brand name for other platforms is a f@@@ing marriage. 

IMHO - If he is going to have a percent of the IP for MAC, iOS, and Droid this should be based on years of being a business partner.  You can pay a high rev split on new sales in those platforms from day 1.  Whatever percent makes business sense.

But don't give exclusive rights to your IP on other platforms without getting at least a few hard years of building the business with you.  5 years sounds about right.  And don't give anything in the first 12 month anniversary. 

More on Vesting: 

http://thenextweb.com/entrepreneur/2013/07/21/startup-founders-heres-why-vesting-is-your-best-friend/#!uIoiL

http://www.calstartuplawfirm.com/business-lawyer-blog/considerations-for-vesting-schedules-of-founder-stock.php

http://venturebeat.com/2010/06/02/stock-vesting-why-is-four-the-magic-number/
C. Stark Send private email
Friday, February 07, 2014
 
 

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