Category: Entrepreneurship

Continuing with yesterday’s post on Co-Founder Equity Ideas, there’s another point that needs to be made: adding a third co-founder can be one of the most “expensive” things a founder does, assuming equally split equity. Think about the standard scenario where there are two co-founders, each with 50% of the company. Now, introduce a third, equal co-founder where each has 33% of the company. The original two founders would have 33% less — that’s a huge amount of dilution.

Here are a few thoughts on a third co-founder:

• Two co-founders is almost always better than three, especially when there isn’t a clear division of responsibilities, as it’s easier to make decisions and get everyone on the same page
• Adding a third co-founder with equal equity results in substantial dilution for the first two co-founders
• Consider adding the third co-founder down the road once the startup has made more progress and the co-founder can be brought on at a different equity level (they could be an advisor in the interim)
• If the startup raises money, there’s often the ability to pay more salary and less co-founder-level equity, such that the dilution from the investment is better overall for the original founders

Think about the great tech success stories like Apple, Amazon, and Google — there’s rarely more than two co-founders. Know that having a third co-founder is rare and brings with it a high cost.

What else? What are some more thoughts on the high cost of a third co-founder?

Recently an entrepreneur was asking me for ideas on setting up an equity arrangement with his co-founder for their new startup. Over the years I’ve seen a variety of arrangements, both good and bad. Here are some of the key ideas:

• Require Vesting – Yes, everyone is in this and fully committed. Only, things can, and do, change. Have a vesting period (typically four years) with a one year cliff and full acceleration on change of control. And, when raising money, expect investors to ask for founder vesting (some amount recognized for time served and some amount remaining).
• Don’t Delay the Ownership Conversation – Co-founders are so excited, and focused, on their idea that they wait too long to have the ownership and equity splits conversation. Have the conversation right away and make sure everyone is bought in.
• Do Equal Ownership Splits or Value-Based Splits – Equal equity ownership is the most common approach I see (e.g. two founders each with 50% of the company). Another approach I see is one based on some form of value the founders bring to the table (e.g. if one is more senior or has been working on the idea before bringing on the other, then there’s an unequal split).
• Have a Buy/Sell – One more critical item is having a buy/sell agreement that outlines to potentially buy out a co-founder if he or she leaves. A simple buy/sell formula or plan is recommended.
• Document the Commitment – Write down what each person will be doing, how much time they’ll be spending, and any other expectations to earn their equity. I’ve seen several examples where a co-founder ended up not being a co-founder and instead was more of an advisor or consultant.

Choosing a co-founder is often one of the most important decisions an entrepreneur makes. Document the relationship and follow these best practices.

What else? What are some more co-founder equity ideas?

New Year. New goals. Welcome 2017! I’ve mentioned it before but it’s worth repeating: set SMART goals. Too often, I hear goals that are vague and ill-defined. At a minimum, make them measurable with a defined due date.

From our friends at Wikipedia, here’s the original definition of SMART goals:

• Specific – target a specific area for improvement.
• Measurable – quantify or at least suggest an indicator of progress.
• Assignable – specify who will do it (alternatively, use achievable to denote goals that can be accomplished).
• Realistic – state what results can realistically be achieved, given available resources.
• Time-related – specify when the result(s) can be achieved.

Take each New Year’s resolution you have and make sure they follow the SMART goals format — it’s worth it. Here’s to a great new year.

What else? What are some more thoughts on New Year’s resolutions and SMART goals?

Now that we’re in the last week of the calendar year, it’s time for one last end of the year review. As an entrepreneur, there are so many things going on that it’s easy to not stop and take care of the basics. Here are a few ideas to put on your end of year review:

• Thank your friends and family for all the support they provide
• Tell your employees and team members how much you value them
• Reach out to your board, advisors, mentors, and coaches and tell them what they mean to you
• Polish your Simplified One Page Strategic Plan one last time
• Plan you New Year’s resolutions (and implement a plan to stick to them!)
• Review the year and ask the start, stop, continue questions

The end of the year is a great time to reflect and review. Take a few minutes and make it count.

What else? What are some more end of year items to review?

Merry Christmas! Here’s a fun talk on Creativity, Inc. by Ed Catmull. Enjoy!

From YouTube: Ed Catmull, president of Walt Disney and Pixar Animation Studios, shares some of his formative career experiences and offers a glimpse inside the working culture of Disney and Pixar. In conversation with Stanford Professor Bob Sutton, Catmull offers additional insights from his book, Creativity, Inc., including lessons learned from his longtime working relationship with the late Steve Jobs.

Recently an entrepreneur asked me for ideas and tips about work/life balance. I replied that balance implies that they’re constantly aligned, which I don’t think is the case. Things regularly ebb and flow, requiring a work/life blend with some guidelines around them.

Here are a few strategies I use for work/life blend:

• Written plan and expectations with spouse (alignment is key)
• Limit morning and evenings events to one per week average over the course of the month (e.g. if I have two evening events one week, I’ll work to have none the next week)
• Limit work travel to 5-10 nights per quarter (often for tradeshows or visiting a customer/partner)
• Weekly date night (key is to get out of the house without the kids)
• Quarterly family vacation (go out of town for a long weekend or on a week long trip)
• Continually ask the start, stop, and continue questions

A work/life blend is personal to everyone’s unique situations. After years of refinement, this approach has worked for me.

What else? What are some more thoughts on finding work/life blend?