What's the point of this page?

We have an initial, core group of trusting people.  It'll be easy for us to work though decisions around equity and revenue splits, responsibilities, and other issues that make these first few businesses work.  However, what about the next 10, 100, 1000, 10000....people?  What are the attributes of a system that helps people understand how to design the next 1,000,000 entities in a way that reduces the likelihood that the partners and system fall into the old traps of fear, hoarding, jealously, mistrust and competition?

 

When should ownership be decided?

How is ownership decided?

How is ownership maintained?

What kinds of roles are there?

How are roles decided?

 

 

THE FEW, MOST IMPORTANT SYSTEM RULES (For Emergent Behavior)

- Everyone must have more than one project

- Everyone must have more than one partner

- No legal paperwork between partners until the first dollar of revenue is imminent

- No more than 3 partners per project (but with unlimited revenue sharing collaborators)

- No one can own more than 50% of any one project

- No more than $10k investment per project prior to receiving revenue (service) / beta pilot (product)

- ...

- ...

 

 

 

Goals:

- Minimize the risk! Design and launch the company with zero upfront capital. a small, trusted group of partners, in a way that creats profit instantly.

- How can you avoid having any fixed, obligatory costs? (Avoid creating a beast that needs to be fed)

- Instead of making upfront investments in startup costs, where can you bring in partners to take on those responsibilities for a share equity or revenue?

- Let go of time.  Focus on productivity instead of urgency.  It's more productive to do nothing except wait and keep an eye out for the perfect partner than it is to build something unnecessarily.  Instead of thinking how long or short something will take, focus on finding the right partner / customer...and then begin mashing the business together. 

 

 

"How do you split the equity when you get started?"

Initial Entity Ownership:

- What are the few, most important talents or resources that the entity will need over time?  Bring the talents into the pool as equal partners.

- Use round numbers.  Also don't predict the split too soon, agree to wait until the business takes shape and there's more insight into who is contributing what. 

- Have multiple projects and be too busy.  That way you're incentive is to see how much you can share, rather than how much you can hoard.

- If it's a one-time or intermittent contribution, use revenue-sharing instead of equity.  Here's an example:

    * You find a website developer who can build your site for $10k.  Rather than paying them a flat fee, find someone who will do the same work for a percent of the revenue generated, say up to a point.  Pay the 20% of the initial revenue, up to, say, $30k.  Now they're incented to add their own creativity to build something that scales revenue faster so they can share in the upside.

- Number of partners: will the 7 +/- 2 rule hold as the max # of partners?  If you grow past that, do you split the team again like an amoeba?

- If you're bringing a new talent into the system, help them understand the big picture principles and avoid the desire to hoard (and the best way is to get them into multiple projects ASAP)

- One exercise: assume you give the new person (if they are the point person, the key person, to make a new venture work)....give them 100% of the equity.  How do you maximize their desire to build the entitity?  Who do they want to bring in, and how would they divvy it up?   Even if you're a cofounder now, should you just be a referral partner/revenue sharing partner without any equity? 

 

 

Predicting Equity Value

- It's impossible to predice ahead of time who will be able to contribute the most to a venture (in any given period, such as a day/month/year).

- In earlier stages, leave a portion of the equity aside for either future partners, or to reallocate among the current partners depending on who contributed the most during the definition stages.

 

 

Profit sharing:

- Likewise, to align everyone's incentives, set aside a portion of the profits (23%), and at the end of the year decide how to divvy it up fairly.  This could be spread among both partners and associates.

 

 

 

Titles: 

Titles divide people and teams.  Titles encourage everyone around you to put you into a box (oh, you're a salesperson...you can't know anything about support...)   Avoid having normal titles at all, even such as "cofounder", CEO, president...etc.  Titles create weird dynamics in peer groups, and end up creating limitations through labels. 

Exceptions:

- Goofy titles that have nothing to do with a job ("Monkey Wrangler", "Rule breaker")....Rabble rouser / Instigator / Disposable lighter repairman / Thumbtack sharpener

- The title really speaks to the person's unique genius ("Sales revenue multiplier"..."Logo god")

- It's necessary (a need, not a want) for some weird reason when dealing with customers

 

 

Employment Agreements

 

 

 

No Selling

- "Selling" implies you're trying to convince a prospect that they need what you have

- There are situations that create 'sales' behavior that can distort the basis of trust that you need to establish with your client. 

- For example, being on a sales quota creates pressure to push clients into buying, rather than letting them buy when they are ready

- Design situations to take the pressure off "having to sell":

    * Have multiple projects and sources of income...this reduces the incentive or pressure from any one direction

    * Practice patience!

    * Remind yourself that in the long term, much more will come to you by letting something go now and thereby increasing the trust in the relationship (or, at least you're avoiding decreasing trust by pushing them to buy sooner than they are ready)

    * Instead of salespeople, set up referral relationships with trusted associates.

    * Stay lean - always have less capacity than you have demand

    * With referral or other incentives, they should be large enough to celebrate success, but not so large that they distort behavior in a way that degrades trust.  With referral partners, they should be large enough to help the partner remember to suggest the service, and to reward them, but not so large that they try to sell their client / apply extra pressure.

 

 

What about when the initial partners are ready to move on, and need to turn the business over to the next generation team?

- The incentives have to be to keep the active team motivated and desirous of success...don't let old partners hoard too much and prevent the new team from 100% desirous of their own success.  

- Let go!

- Do the partners hold onto any/some of the equity?  1. Decide how much equity the new partners need, and 2. If there needs to be a transfer/sale from the old to the new, how best can it happen?  (Ouch, what about taxes, regulation...)

- Does the next team 'buy out' a part of the equity with a percent of ongoing revenue?  (Sort of like the employee stock ownership acquisitions)

 

 

danger danger!

- Be careful when designing org's - power does corrupt.  Keep decisions based on natural integrity, not artificial power

 

 

Categories of Roles

CEO / Managing Principal

Principals

Contributors (regular or irregular)

Supporters (inactive contributors)

Advisors

Associates (employees)

Contractors