Post 5: The Mobile App Business-incorporation & partnership

I’d like to use this blog, in part, to chronicle the process toward building and launching the Mobile App I’m working on with my partner Tim Jones.

This post is “Post 5″ because I’ve already written 4 prior posts on the subject, i.e: A new idea hatching, Mobile App wireframe slides, Wireframing the app, Now working on the revenue model

Here’s my disclaimer.  Anytime you do something new, you might succeed or you might fail.  But you will undoubtedly figure out how to do it better next time.  That is likely to be the case for me as well with regards to this Mobile App business.  I’ve built a Digital Media business, and have been the Sales/BD guy on teams building enterprise software businesses.  In each case I’ve learned a lot.  But honestly, I’m not sure if the balance of my learning is more about what wrong steps to avoid than what rights steps to take.

This is the first time for me building a mobile app business, so I think it’s likely these posts might more often than not be an embarrassing example of my fumbling inexperience on the subject.  However, this doesn’t bug me.  There is really no shortage of blogs out there telling the entrepreneurs of the world how to do everything right.  It’s possible this blog may end up being more about what to avoid than anything else.  Regardless, if that personal embarrassment can serve as something that emboldens some readers to start something up, build something new, create something on their own, then I’ll count this as a contribution to the greater good.

My goal here is to create and to learn.  If it also results in financial success, well then bonus!

So, on to the latest…

Yesterday I met with Tim to walk through the wireframes & use cases for the app, discuss the revenue models supported by the app and talk about higher level stuff like what do we want out of this partnership and how should it be structured.

First, I’ve learned it’s very important for partners to be sure they are on the same page from the beginning regarding what they want out of this new venture.  It’s kind of like asking your serious girlfriend whether she wants kids, 2 kids, 3 kids, etc before getting engaged.  Often you may not know if you’re going to be “1 and done,” “2 and through,” or “3 and free” so far ahead of time.  Plus, life stuff comes up that may change your views over time.  But talking about it is key.  If you get engaged and then have the conversation for the first time…complications.  Worse, if you get married and then have the conversation for the first time, worst case.  Or, it’s like asking her how big of a house she expects to live in when you do have kids.  You gotta know these things up front as they can create all kinds of unneeded and complicating stress down the road.

Same with partnerships.  Are we building something we expect will change the world?  Or is this going to be a cool little lifestyle business than never gets us famous, but pays the rent.

Tim and I talked about that stuff and felt comfortable with the sense that we’re pretty much on the same page.  I think it helps that both of us have been in the Valley for a while now, so maybe lack some of the extreme idealism of our younger entrepreneurial friends in the start up community.  I’m not knocking idealism, but I do know how it complicates things sometimes uneccessarily.

So, next we talked about what form of incorporation makes the most sense.  Should we just file an LLC or should we do an S-Corp or go ahead and create a C Corp?  For us, this is a function of how we expect to grow the business over time.  And whether we expect to sell the business at some point.

In terms of growing the business, it’s important to us that we be in a position to give future employees a stake in the game through some form of Option Plan.  That makes an LLC complicated.  Also, Tim and I are inclined toward the concept of F Class Equity, which at this point, I think might mean we need to go ahead with forming a C Corp.  (Here’s a post by John Bautista explaining Founder’s F Shares) I’m no accountant/lawyer, so I may be wrong here.  But I think in order for us to have F Class Equity in addition to Common, we’ll need to form a C Corp.  The down side here is the way C Corps are taxed relative to S Corps and LLCs.

I’ve done LLCs…probably won’t do that again.  It got way too messy way too early in the the business’s financing.

I’ve done C Corps, but those were companies we expected to raise large VC money for, and I don’t have that expectation here.

So, the question really is whether we need a C Corp to do F Class Equity for me and Tim, or if we can do that in an S Corp and gain the tax benefits from that form of incorporation.

I’ll do some research and let you know.