The Founders' Pie Calculator
Interesting article by Frank Demmler in which he presents a tabular representation of a "founders' pie calculator."
Demmler suggests that splitting ownership evenly among the founders of a startup is not usually the optimal solution. He suggests that the startup determine the relative importance of the following five factors to the startup and then calculate the relative contribution of each founder to determine the allocation of ownership.
"Idea
The company wouldn’t exist if it weren’t for the original idea, and that is certainly worth something, BUT there’s a lot of truth in the saying, “A successful business is 1% inspiration, and 99% perspiration.”
Business Plan Preparation
The development of an initial business plan is a surprisingly difficult and time-consuming effort. To pull together and organize all the thoughts of the founding team, filling in the blanks, identifying and reconciling the differences, and producing a document that captures the essence of the business and helps persuade banks, investors, board members, and others to support the company is a mammoth undertaking, as anyone who has done it will attest.
Again, the plan is a necessary element of starting the business, BUT execution against the plan is where the real value lies.
Domain Expertise
To what degree do you and your partners have meaningful experience in the business of your business? Knowing the industry, having relevant experience, and having a Rolodex full of accessible contacts can greatly improve the company’s probability of success and speed its growth rate. Otherwise, it will take longer to get commercial traction and you’ll have to pay for these assets, usually by hiring someone and including equity in their compensation package.
Commitment and Risk
You’ve probably heard the old saying that “a chicken is involved with breakfast, but a pig is committed.” Similarly, the founders who join the company full time and are committed to making it a success are much more valuable than founders who are going to sit on the sideline and be cheerleaders. In addition, the opportunity cost for those who join the company instead of pursuing a career is not trivial.
Responsibilities
Who is going to do what? Who is going to go stay up at night when you can’t make tomorrow’s payroll? Where does the “buck stop”?"
