“Coming together is a beginning. Keeping together is progress. Working together is success.”
You have come a long way since discovering yourself. Realizing what is important to you. Finding people who share the same core values and ambitions. A business concept is agreed on and you find yourselves prepping for one of the most important discussions that will shape how the team operates from here on out. Who does what? How much do I get for it?. Early on in my first couple of businesses we were usually all friends. So we would reach very vague agreements that pretty much everyone would be doing just about everything and we would split the equity of the company equally between everyone. At the time this seemed like a great idea, there was no conflict and this was the fastest way to get going. This is the greatest advantage of using this method when answering these questions. With experience though I have witnessed the dark side of this option as well.
Among the first things that usually happens with this agreement will be; some team members are pulling more than their own weight. This is also a natural progression as clear objectives for each team member are not given. Resulting in some team members realizing that they don’t have to do too much and can just tag along for the ride. I had this happen to me quite a few times. It becomes like Survivor , the TV show. People begin to form alliances and plan to oust members out of the tribe. It becomes unpleasant because before this venture we were all friends. Friendships are lost forever, confrontations are a common occurrence and usually something like 5 months down the line you have lost friends, money and even your passion to ever do business again.
After I learned this lesson the hard way a couple of times I decided to do research on the topic and find a better way to go about it. I have been using a method which I am still perfecting along the way. It provides a more structured approach to this common problem and it has resulted in reaching agreements which set out clear objectives, expectations and commitment.
There are a couple of key concepts that need to be agreed upon first. When starting any business every team member should understand that they are taking a substantial risk. Everyone in the team should believe 100% in the idea or concept. Before the business starts the idea is worth exactly $0. So having heated arguments about the millions of dollars you are going to make in the coming years is a bit premature and frankly making castles in the air. Once we have reached this stage we can move to the next.
There are a 4 key components which are involved in equity split up:
1. Commitment: Will the team member be full time, part time, work over the weekend or on a consultant basis.
2. Experience of the partners: Partners who have successfully sold companies, worked at a startup companies, have experience working in the corporate world, have gained expertise in a given field or skill set, have had international exposure in multiple markets.
3. What skills are they bringing to the table: Is a team member bringing a critical skill set to the business model? Do they have substantial experience in managerial skills, sales and marketing, public relations, technical/IT, customer support. Every team member should identify how they are going to bring value by being part of the team.
4. Money: Every team member needs to have skin in the game. Without it team mates feel you are free riding. So every team member has to decide what sort of money or sweat equity he/she is prepared to put into the venture.
Each component can be a allocated a particular weightage. Depending on what type of startup venture it is. Some are capital intensive others are experience dependent. Once a weight has been allocated you will be able to gauge in a much more practical way “how much should you get?”. After the venture begins you have to put into place performance benchmarks to ensure that team mates are actually doing what they committed to. This will be talked about tomorrow.
I hope this system helps makes the process of “who gets what” a little simpler and I wish you all the very best in your new ventures.