Don’t Make the Most Expensive Mistake of Your Career!

Hooray Equity!

So, you have an idea! Great!

And you found a team! Wonderful!

But you don’t have enough cash to pay them…drat!

Never fear! Equity is here!

Just give each person a percentage and they’ll work hard, and, voila! The company will succeed!

STOP: Most people get this part horribly, horribly wrong…

WARNING

Doing this wrong could easily be the most expensive mistake of your career!

Fixed/Static Equity Splits

Most people divide up equity using a “fixed” equity approach. This means they give each person a set percentage of shares based on certain assumptions about what they will do for the company in the future.

Usually in equal chunks, like 50/50 or 25/25/25/25. This assumes that each person on the team will contribute equally to the success of the business.

Lots of smart, successful, well-meaning people (like lawyers, advisors, mentors, etc.) recommend this.

Sometimes, teams dole out unequal chunks, like 60/40, 51/49, or other variations. This assumes that each person will not contribute equally to the success of the business.

Lots of smart, successful, well-meaning people (like lawyers, advisors, mentors, etc.) recommend this, too.

But things change. Nobody can tell the future. Not even smart, successful, well-meaning people (like lawyers, advisors, mentors, etc.)

Anything could happen! What if your assumptions about what people are going to do turn out to be wrong (as they most certainly will)?

“No problem,” say the smart, successful, well-meaning people (like lawyers, advisors, mentors, etc.), “just slap on a time-based vesting schedule to protect everyone.”

But this assumes that the original, underlying fixed split was fair and it assumes that the passage of time is the only thing that matters.

Now we’re piling assumptions on top of other assumptions.

Whenever equity is doled out in fixed chunks to participants in an early-stage, bootstrapped startup with, or without, time-based vesting, things get ugly fast.

The Fight

First, reality sets in, and you realize your assumptions were not right.

Next, people notice the anticipated workloads don’t match the split.

Then, disagreements arise, trust deteriorates, fighting ensues.

The battle over equity splits takes over while progress in the business suffers.

You go back to the same smart, successful, well-meaning people (like lawyers, advisors, mentors, etc.) who suggested the fixed split in the first place to help guide your renegotiations.

Based on more assumptions about who did what and who’s going to do what.

Team members feel screwed (some of them are screwed).

Perhaps some leave demanding costly buyouts from the remaining members. There’s a gone resource and gone money…

Perhaps the fighting will continue until everyone gets fed up and quits.

This is a common outcome.

Download the Cofounder's Guide to Fair Startup Equity Splits

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What Slicing Pie users are saying:

Brayden Jones

Love your work on Slicing Pie—it's an absolute game-changer for startup equity splits!

Mark Kovats

Thanks again for the Slicing Pie model! It's helped me be a more thoughtful & fair founder.

Yusuf Elsayed

I love your emphasis on fairness in the book and how helpful you've been.

But what if the business is successful in spite of disagreements?

Some will get an undeserved larger share of the success than others, success will be clouded by animosity and resentment among the team members.

If you got a smaller share of the success than you deserved the fixed equity split decision could be the most expensive decision of your life!

If you got a larger share of the success than you deserved, congratulations, you just took advantage of the people who helped you succeed…

**Fixed equity splits don't work for bootstrapped startups.**

Don’t get me wrong, I have the utmost respect for smart, successful, well-meaning people (like lawyers, advisors, mentors, etc.), but when it comes to splitting equity in an early stage bootstrapped business they are all flat-out wrong!

The Slicing Pie Model

The Slicing Pie Model is the only solution to this problem.

It works for every early stage bootstrapped company in the universe.

1
Slicing Pie is based on facts, not assumptions.
2
Slicing Pie is dynamic, not fixed.
3
Slicing Pie self-adjusts to stay fair; it doesn’t require fighting and renegotiating and buying out deadbeat partners.
4
Slicing Pie always creates a perfectly fair split no matter what happens.

How Slicing Pie works:

Here are the basics of how Slicing Pie works:

Think of your startup as a gamble (because all startups have a chance they might fail).

A successful startup is one that generates profits or grows in value.

When you, or a teammate, contributes skills, expertise, advice, time, money, ideas, relationships, facilities, supplies, equipment, or anything else to a business and you are not paid you are, in effect, placing a bet on the future success of the business.

The amount you bet is exactly equal to the unpaid portion of your contribution’s fair market value. No more, no less.

Fair market values are facts. Everything in business has a fair market value that can be counted a tracked.

Skills, expertise, advice, time, money, ideas, relationships, facilities, supplies, equipment, or anything else a business consumes every day can be expressed in terms of dollars, euros, pesos, yen or whatever currency you happen to use

Every day that you work and are not paid for your skills, expertise, advice, time, money, ideas, relationships, facilities, supplies, equipment, or anything else you contribute means your bet grows over time

Eventually (hopefully), the company will generate enough revenue or raise enough money to pay you for your contributions and you no longer need to bet

The same is true for everyone on the team. If they aren’t paid, they, too, are placing bets on the future success of the business. They keep betting until the company can afford to pay them

When the betting stops you can easily add up the fair market value of each person’s bet. No need to speculate or assume anything

Each person’s share of the equity should be based on each person’s share of the bets.

This is a logical, obvious, unambiguous conclusion and it is the foundation of the Slicing Pie model.

Slicing Pie is based on observable facts, every other approach to splitting equity is based on assumptions.

Of course, you may have questions like:

How do I value my ideas and time?
How do I keep track of everything people contribute?
What do I do if someone quits or gets fired?
What kind of legal contracts do I need?

This web site is dedicated to helping people understand and implement the Slicing Pie model in their own startups.

The Slicing Pie Online Course!

To fully appreciate the power of the Slicing Pie model please take the online course. Which covers:

The equity allocation framework- how to fairly allocate equity amoung founders, partners, and other early participants.
The equity recovery framework- how to get equity back when someone leaves the team.
FAQs- answers to common questions about the model.

It's everything you need to get started. It will change the way you think about equity forever.

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The most common thing we hear about Slicing Pie is, "I wish I had known this before I started my last company!" While we can't change the past, we can solve your equity issues for the future. We promise that Slicing Pie won't just be good advice, but the best advice you have ever received on the subject. If it's not mind-blowing, we'll refund your money.

Mike Moyer