In the introduction to Slicing Pie there is a story about partnerships. In the story you and I decide to clean a house together for $50 and things get complicated.
[box type=”info”] If you haven’t read the book you can have a free sample
that includes the housecleaning story.[/box]
Here is how the story would have played out if we used a Grunt Fund to divide up what we should make for the single cleaning gig.
If I secured the gig and I needed help I could ask you to join me in cleaning the house. We could agree that we are each worth about $10 per hour on the open market so our [tooltip text=”Grunt Hourly Resource Rate or GHRR!: this is the theoretical value of one person’s time relative to another person’s time. It is not an actual value, it is used to calculate an individual’s percent of the pie.”]Grunt Hourly Resource Rate (GHRR!)[/tooltip] would be $20 to account for the risk that we might not get paid (which in this case is low).
I showed up with the bucket of cleaning supplies that cost $10. However, I had the cleaning supplies at my house so it was not an expense incurred for this gig. The supplies have been used so the bottles aren’t full. We agree that the supplies are, however, business enabling and agree to allocate $5 in pie for the supplies.
So we go clean the house and it takes four hours. Four hours at our GHRR is $80 times two so the [tooltip text=”Theoretical Base Value or TBV: because start-up companies are assumed to have no actual value in a Grunt Fund we use theoretical values with allow us to understand how important one contribution is relative to another contribution. The TBV is the sum off all the theoretical values of all contributions from all participants. It is used to calculate an individual’s percent of the pie.”]Theoretical Base Value (TBV)[/tooltip] is $160 plus the supplies bringing the total TBV to $165. Notice that this theoretical value is much, much higher than the actual value of the gig which is $50. This is fine. The Grunt Fund doesn’t track actual value it tracks relative value. The TBV will allow us to allocate the proceeds fairly. In this case I get 51.5% (85/165) or $25.75 and you get 48.5% or $24.75. This is perfectly fair. We both worked, but I get a little extra for the supplies which probably wasn’t all used up so I can take the rest home.
Let’s say that when we are actually on the job I’m working hard while you are slacking (as described in the book). I, as the senior partner (Grunt Funds always have a leader), can ask you to pitch in a little more and outline specifically what I want you to do. You now have the choice to either pitch in or leave. If you leave you will forfeit your slice of the pie which is fair because I now have to do all the work. If you stay you are expected to pitch in. If you pitch in everything will be fine.
However, if you continue to slack off it is perfectly fair for me to fire you on the spot. Again, you would forfeit your slice of the pie. If I failed to provide clear instructions and an opportunity to correct your behavior I have no good reason to fire you. If I fire you anyway you would be entitled to the slice of the pie that you earned.
The Grunt Fund fairly allocates the proceeds of the gig in proportion to our respective contributions. Additionally, it provides a fair way of managing your poor performance and provides a choice for you to bail out or pitch in. I, as the manager, also have choices. I can either give you an opportunity to pitch in or I can pay you to leave. All possible scenarios are perfectly fair.
This is a very simple example, but it does illustrate the power of the Grunt Fund and its ability to help measure relative value contributed to an organization.