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How to Divide the Pie? Dynamic Equity Share by Mike Moyer
The document discusses a method for fairly dividing equity among business partners using dynamic equity splits as proposed by Mike Moyer in 'Slicing Pie.' This approach assigns value to actual contributions, encouraging motivation and accommodating changes within the team. It emphasizes that individuals should receive equity proportional to their contributions to the business.
How to Divide the Pie? Dynamic Equity Share by Mike Moyer
- 1. How to Dividethe Pie? - Ed Kuiters
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- 5. But.. I haveno money to hire.. ..YET.. Equity
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- 12. 50/50 50/50 You do allthe work?
- 13. 50/50 50/50 You bring inanother guy?
- 14. 50/50 50/50 Your partner wantsto quit?
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- 18. Wait!.. What if therewas a fair & effective way to divide the pie?
- 19. Dynamic Equity Split MikeMoyer – 'Slicing Pie'
- 20. Fair & effective? •rewards for actual contributions • accommodates for changes • flexible in the face of rapid change • motivates to contribute
- 21. Work hard now Getwhat you deserve.. later Fair
- 22. Your Share Reflects WhatYou Actually Contribute
- 23. You Contribute 50% = YouShould Get 50%
- 24. You Contribute 10% = YouShould Get 10%
- 25. You Contribute 69.2% = YouShould Get 69.2%
- 26. How it works 1.Assign a leader you can trust 2. Assign a theoretical value to the various inputs provided by each participant 3. Individual Value ÷ Total Value= Shares %
- 27. 1. Get aTrustworthy Leader • Holds all “equity” • Manages your “equity fund” • Deals with people who are departing
- 28. 2. Assign TheoreticalValues
- 29. Time Negotiated Base Salary - CashCompensation X Two ÷ 2,000 = Hourly Rate
- 30. Time ¥10 million - ¥4m salary(¥6m at risk) X Two (¥12m) ÷ 2,000 = Hourly Rate: ¥6,000/hr
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- 32. Everything Has aTheoretical Value • Unpaid Commission x 2 • Cost or resale value • Unreimbursed Expense (4x)
- 33. People Contribute Different Things Person2Person 1 Person 3 Jr. Developer Founder Rich Uncle
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- 40. Sales Guy Person 4 Anew guy..?
- 43. Person 1’s Share* ÷ *Ifthe Person Does Nothing Else
- 44. Person 2’s Share* ÷ *Ifthe Person Does Nothing Else
- 45. Person 3’s Share* ÷ *Ifthe Person Does Nothing Else
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- 49. What You Get •Fair • Rewards for contributions • Motivation to contribute • Accommodates changes in the team
- 50. Outgrowing Dynamic Equity •Real revenues • Positive cash flow • Organization gets too big (diminishing returns) • Significant investment
- 51. .. or ed@kuiters.net MikeMoyer “Slicing Pie” ($8 at Amazon)
Editor's Notes
- #2 Ed Kuiters Netherlands Software company Collaborate with a Russian software company Maritime maintenance, Meteorological Institutes Latest project; easy to use accounting software for small business. How to divide the pie? How give all participants in a start-up a fair share .
- #3 I have new business ideas all the time. Everywhere I look I see opportunities for better products, improved services.. and I bet there are many people like me here tonight. People who are running or are considering to run there own business?
- #4 So what happens if you get a new idea? Quick business plan.. Huge growth potential? Hostile takeover Google?
- #5 Talk with friends, experts & you discover that your sales skills may not be enough to get your business going, or that you will need a programmer for a prototype or someone who knows the industry you are targeting inside out.. You need partners
- #6 But you did not make any money yet.. you need people who are willing to work for free? Is that possible? Yes; equity.. allow people who believe in your idea & are willing to contribute to share in future revenues.. What do you need is: Persuade people about your idea Make clear how you are going to share profits with them..
- #7 OK, your plan is brilliant.. so your business will generate a lot of pie (profit).. but how are you going to share it with them?
- #8 Well.. 50/50 is fair..
- #9 But it was my idea..
- #10 Hey, but I have much more experience than you. Also, I know this market. You only had the idea. Without me you will have nothing. Hmm..
- #11 Let's assume we agree that we both get 50% of the shares
- #17 Basically you are STUCK.. you agreed on the division of shares.. no way to get out of this.. This is a very complex problem. Both parties will have arguments why their share should be bigger.. And we don't have a Crystal ball.. I saw this go wrong in my own business and in the businesses of friends. This is so difficult..
- #18 Perhaps it is better to do it myself.. ?? NOT a good idea. There is a rather big chance that you are NOT superman; not the best sales man, marketing man, software developer, people manager in the world.. Collaboration is good to compensate for your weaker points, make use of connections, get advise from experienced business men, etc, etc.. BUT, I cannot pay them & I don't know how many shares I should give them..
- #19 Today I will show you a fair and effective way to divide the pie. Why is this so VERY important? Because it will stimulate you to engage in partnerships, seek help from others and create synergy.. like Jobs & Wozniak at Apple, Allen & Gates at Microsoft, Page & Brin at Google Don't be discouraged, dividing the pie in a fair & effective way is much easier than you may think.
- #20 I had the same problem in my latest project. Four people; 2 accountants & 2 IT people want to start a new business.. but we first need a prototype and test our ideas & our market before we are going to make any money.. OK, we need equity.. but HOW are we going to divide the pie later on?? This is how & when I found a book from Mike Moyer. He is a serial entrepreneur and found a great way to split equity among start-up members..
- #28 This does not have to be the leader of your new business or the founder.. this is just a person who you all trust.
- #29 There are many things a start up needs, for example .. time, work captital, relations, office space, make expenses, capital, etc.. These contributions needed for your start-up or project need to be assigned a value as early as possible..
- #30 Annual salary => you do not get a salary.. but you hope to be compensated later.. This is a risk, that's why you need to put a markup on your salary => * 2
- #31 Example
- #39 Total Theoretical Value: sum of all contributions Mr A: hours Mr B: hours (at a higher rate) & equipment Mr C: investment Contribution of Mr A is 2 mln on a total theoretical contribution to the company of 34 mln = 6%
- #48 Mr D has a 4 million sales * 10% * 2
- #52 If you have a brilliant idea & decide you are going to pursue it.. unless your dream is to become a street musician there is a fairly big chance that finding 1 or more partners who can bring something extra to the table is be a good idea. Even if you do not make money to pay them yet, you may be able to a) convince them of the brilliance of your idea & b) explain to them how their efforts will be rewarded.. If you need any help with b).. go out and buy this book. You may also contact me and ask about my experiences with the methods described in here. Before you know it, you might be targeting Google for a hostile take over...