Your business plan option(s) as laid out below make little, if any, practical sense as presented in your OP and this is frustrating people. You seem to be wavering between going out on your own, and giving him a stern talking to and ultimatum in the hope he will come to his senses, and want to be your business partner. From a common sense perspective this expectation seems (to be frank) kind of silly, especially when you are describing him as an self deluding, borderline egomaniac who is not amenable to constructive criticism. Why you are even considering options 2 and 3 seems kind of baffling given the context of the situation you have described.
I apologize for not being clearer, the reason for even considering bringing him on board is that he has at least some of the capitol and most of the resources I would need. we are trying to create a new curriculum from the ground up and develop an entirely new way to run a driving school. now a logical person in his shoes would be willing to listen to his 50ish employees when they tell him this that or the other thing sucks, a reasonable person would be able to recognize that the plans we have laid out will be profitable for all involved and could seriously change the school from a perfectly mediocre to an industry leading business. its HUGELY tempting to at least make the attempt simply because everyone involved recognizes this, it would make things massively easier all the way around…until you get to the unreasonable guy at the top of the food chain.
I do agree with the posters who are saying theres no way we should even get involved with the guy but as I pointed out in the op I am very close to the issue and could use some outside the insight. sometimes you need another perspective even if all it does is tell you what you already know.
From the way you’ve described him… well, yes, you can ask, but he won’t give you what you’re asking for, so why would you? As far as I can tell, there’s absolutely no benefit to you to try to include him – and probably quite a few downsides (like getting fired as “competition”).
It really doesn’t matter if bossman has capital and resources if he’s not the type of guy to share them with you; and you’ve pretty much said that he isn’t.
I’ve worked for family businesses that were turned over to less than competent sons. Either the sons turned things over to the company workhorse or they ran the business into the ground themselves. Your situation with your boss does not sound promising, so maybe you should plan to move on.
I agree with Kaio - if he was a guy who would listen to good ideas from other people, he’d be doing it already. Your new business plan isn’t going to stun his ego into silence while his intellect takes over and makes better decisions. 
I normally would never do this, but I read the first two or three replies and am not even going to bother reading the rest of them. Usually I would before answering, in case there is something out there that sheds new light on a situation, but in this case…
The answer is simple. This guy is a problem. He will always be a problem. You will waste your business idea by making him a part of it. Pursue your ideas down any avenue that does not include him.
Best case scenario? You adapt his existing business to your model and profits increase. You die bitter and resentful at this twit taking all the benefits from your ideas.
So, basically, you want to take over his business? That’s about the only thing I can think of. He has the money, the clients, and the hard goods. You have an idea. With research. You want him to turn it over to you, and you make the decisions.
Have I left out anything?
You also have had a business, and it failed. Can he perhaps see that you may not have the bona fides requisite, to entrust his family’s fortunes to?
Actually, you may have a good business plan, but, I think you are a bit too impetuous with other people’s money. You ‘have a great plan, with all of your friends saying how wonderful it is…’ but you cannot find backers, so you want to go to a boss and demand that he put you in control of all of his assets??? This sounds too, too much like a pipe dream.
Best wishes, tho.
hh
Critical1, six months ago I went through a thought process somewhat similar to what you’re wrestling with.
I had been working as a consultant to someone whom I was considering entering a partnership with. It did not work out but here is something I realized: if you don’t like his business management style now, it’s unlikely that you will be happy working with him as partner.
Here’s my thread if you’re interested in reading about it.
I can’t understand what you’re saying here. Are you saying he can’t hire enough talented instructors to meet demand so he hires unqualified people rather than turn business away?
Cost reducing is an important part of running a business. Maybe with your fuller knowledge of the situation you’ve concluded that the cost reductions weren’t worth the savings but putting save in scare quotes belies that possibility.
If you think advertising the high quality of your service while cost reducing at every opportunity is tantamount to fraud I have serious doubts about your ability to run a business successfully. Maybe there’s a lot you haven’t shared but what you’ve posted implies you have a pretty faulty understanding of how to run a business successfully.
You should worry about this irrelevant guy less and focus on your own ability to run a business successfully. Previously running a business, even one that failed, is a fantastic experience to bring to a new venture. But at the end of the day, it did fail right? How much credit would you give to a new driver you’re teaching if he claimed he has previously crashed into a tree?
Not to be too big a jerk about it, but, it sounds to me like the SBA person didn’t think much of your plan. He said “Laying down the law to boss may be your best bet.” This doesn’t sound like he wanted to sink any SBA money into your plan. Isn’t their job to lend you money, if you have a viable plan? It sounds to me as if he was just shining you on. If you don’t get money from them, that means that *they *don’t want to go into business with you either. I think.
Best wishes,
hh
Are his parents, the founders, still actively involved in the business?
You need to state your thoughts more clearly, but I think what you are saying is that in the current economic situation, finding the funding to purchase the cars, the computers, the space, the advertising and the insurance are a problem, even with the help of the SBA. So your thought is to approach your boss and convince him to let you revamp the business to your business model, with you and your friends in partnership with him, and then try to move him into a peripheral position where he will have only a figurehead type job. You then will leverage the name recognition and contacts of his established business into a position of profitability. Right?
So if his parents are still involved, why not approach them? Might they be a bit more business-savvy than their son, and willing to entertain the notion of saving their family empire before it goes down the tubes? Or perhaps he will listen to the accountant, who can sit him down and have a talk with him.