07 June 2008
Dividing the Founders' Pie
It seems that this problem is quite pervasive. Smart, driven, innovative founders, invent something great. Several of them join together to form the entity necessary to bring it to commercial success. Then, thinking nothing stands between them and their fortunes, they ineptly stumble, fall and sometimes even disintegrate.
What occurred in this all too frequent scenario, is that the founders realizing that success and the rewards that come along with that, were unable to agree among themselves how they each had and would contribute to the success of the company - or how to divide up the founders' pie.
I've recently encountered two such situations, where founders asked me to be the "King Solomon" and divide up their "baby". In both situations I refused - no outsider is capable of accomplishing such a tricky maneuver. In my opinion, unless this is handled appropriately, the rest of the entrepreneurial journey is probably not going to be pretty, if it happens at all.
Divisions like this should be done early - before there is even a glimmer of hope of the success yet to follow. It has to be done when everyone is digging in, doing whatever it takes, and following that founder dream. It has to be organic. It has to be unanimous. It has to be final. And, it has to be over.
So when I was asked to participate in these two situations, I answered the only way I could. Divide it up evenly?
Does this make sense? Did everyone contribute at the same level? Wasn't it one person's idea and the others were brought along to "support" the idea. Isn't there one person who early on gave up everything else to pursue this invention? Is this fair?
My experience is that questions like this are only asked when there already are hard feelings among the founders. It means that they put off this important decision, for good (or bad) reasons and now with that glimmer of success peaking out, they decided this was an important concern.
Without reading minds of the founders, I bet they each feel that they contributed in some special way to getting the company where it is. I bet they each believe they had more impact than they had. I also bet they are not going to be happy with anything less than an equal share.
My "everyone is equal" suggestion may in fact not be entirely equitable. But it is aimed at a more important conclusion that I know is true... spending time dividing up the pie is precious time (and energy) wasted not pursuing the real goal - your own success. Getting this out of the way is critical to any future opportunities.
I've seen important promising opportunities fail by getting mired in this specific issue. They literally could not get past it and they failed. And, perhaps more importantly, I've seen first hand, companies divide the pie up evenly - with the founding partners clearly NOT contributing equally or being equally capable - in one case for 25 years - and develop extraordinary shareholder wealth. Is this a coincidence? I think not. Focusing intensely on the issues that matter - product success - is what startups are all about.
He who spends his time dividing up an all-too-small pie, will end up eating less than one who focuses only upon increasing the size of the pie.