How to tell my co-founder that he is lazy and needs to step up his game?

I have a two member software start-up with a co-founder who is also a very good friend.

We make decent money through our products and services, but could do much much better if my co-founder did not waste 5 to 6 hours every day on social networking and the like.

I have tried giving him 1-on-1 objective feedback, but he is the kind who does not believe much in giving or receiving feedback, and retaliates by becoming negative if someone wants to give him some feedback. The situation is even more delicate because we are good friends with each other, and have close family ties too.

How should I tell him that I find it very difficult to work with a person who wastes so much time every day? Or should I just make an excuse and exit ?

*get out now. *you don't trust your business partner to manage his time, that is an awful basis for a partnership. It can only get worse.

You need to manage him by setting milestones and dates for progress and projects.

Don't try to dictate what he does during the day, that will come across as "micro managing" and won't get positive responses.

Instead say "We need to build widget Foo for customer Y. They are ready to buy, but we have to deliver in (target minus 7 days), can you pull this together?" He may want to negotiate for a longer time (that why you pre-pad the delivery date with a shortened schedule), but either way, let him have a part in defining the date within reason.

Then, don't worry about WHEN he chooses to work throughout the day, just focus on the final deliverable, along with checkpoints along the way.

Now, if you do this, and he still doesn't meet the date, your conversation will seem less critical. You both agreed on a macro-goal and gave him the freedom to work how/when/where he felt it was most efficient for himself. As a business, you need to be able to project timelines, take on new features, and so on. If he cannot be managed high-level, and he is opposed to direct feedback and management, how does he suggest you continue to make this a viable business? (rhetorical question).

Can't add much to the two excellent answers already given, but I will add a couple of observations...

"feedback" can very often be received as unfair criticism, especially if you are feeling resentful whilst delivering it, which may be why he's becoming negative. If he's marketing and SEO, like Don suggested it may be he thinks it part of his role.

You also need to decide for yourself now if the friendship or the business is more important to you. In attempting to get him to put in a fair balance, however diplomatically, you may find yourselves starting down a path that puts the friendship at risk. My gut feel would be to make only limited efforts to get him to sort his act out, then get out fast - or you risk spending 6 months trying to make the impossible work, building up resentments on both sides (and absolutely burn the friendship on the way out).

Disclosure: I'm affiliated with a commercial performance management software service.

If someone is lazy, that means they are not meeting expectations of the other players. To that end, what I would suggest is two things.

1) Start doing regular check-ins about expectations and review outcomes. A weekly meeting generally suffices.

2) Tie executing on expectations to compensation/incentives. And make it equal - that is, you treat them the same way they treat you. This way there is no double-standard.

Then who cares if he spends 6 hours on social networking so long as he gets his work done. If there are only two of you, consider getting an advisor involved in the discussion - someone your partner would respect.

I've spent the last year working on this problem and built a performance management system to calculate impact based on performance evaluations (fairsetup.com). This could work, or there are other ways that you could do it. I would just focus on the goals (growing the business, ensuring traction, meeting milestones, etc.)

Well, I can relate to you since I've had the exact same experience. In my case, however, it wasn't that he was lazy. I was more of the "go getter" and he was too risk aversive.

At the end of the day, you need to find someone with complementary skills and someone who certainly doesn't slack off. That quality doesn't work in any kind of business setting. So if you've already tried to offer feedback and have failed... try again!

But if it's still not working out, offer to buy his share out or move on.

Ive seen similar issues myself and the best thing I think one can do in this scenario is build a stronger team without him..

Suggest to him that you both dissolve 10% each to get someone in on 20% equity. Ok you lose 10% but you now have a team member who is actually helping you. If you can do that a couple of times, you have diluted the impact his laziness has - but then new two new members can sell to each other and they get controlling share of business! So gotta tune equity/contracts to deal with that

Depending on your contracts with each other you can consider:

http://en.wikipedia.org/wiki/Stock_dilution But some might consider this underhand?!

Start paying large performance linked salaries, see if it motivates him?

He is lazy / wastes 5-6 hours every day on social networking and the
like

Rather than labeling what (s)he does as "waste", why not focus on gaining consensus on what the current task at hand is, and working on sharing progress status / discussions / insights on a continuous basis? Sometimes what looks trivial to one is actually not so trivial to actually implement.

This way, you (both) have a better understanding what progress is being made and whether you both (as an organization) are working towards a common goal.