So you’re thinking about starting a company with one or more partners. How will you allocate ownership? This is an age-old question, and one that plagues many companies for years if not answered properly.
I recently had a friend lament to me that their partnership was on the rocks. Her partner promised a level of output that they ultimately didn’t fulfill. But their initial ownership split was based on the projected contribution and promised output. It went south when it became clear that her partner made promises they couldn’t keep.
Other partnerships can begin with, “well, we can’t think of any other way that makes sense, so let’s just go 50/50.” Inevitably, the challenges of not having a more strategic approach to structuring ownership rears its ugly head.
To make matters worse, people’s true colors tend to show more clearly under the microscope of adversity. So resolving inequitable ownership distribution becomes even more difficult.
Let’s explore that default 50/50 split a little further with an example.
A year into the company’s operations, Sam says to Marlon, “I’ve been thinking about our ownership distribution and think we need an adjustment. I’ve been doing most of the work, so I think 70/30 is more fair.”
Marlon replies, “it’s funny you should mention that. You’re right, it should be 70/30, but in my favor. True you’ve been doing more work, but it turns out my tech is far more valuable IP than we originally thought.”
It’s unlikely this will end well. Each of them, or both, will end up feeling slighted.
There’s an easy solution though!
At Brio Business Academy, we’ve uncovered a gem of a way to solve this problem. It’s called Slicing Pie and was created by Mike Moyer. The model, in a nutshell:
Partners agree on the value of each input (or contribution) as it’s added to the company. This applies to cash, time, equipment, and technology.
A partner’s interest is easily calculated as the sum of their individual inputs divided by the sum of all partner inputs. The inputs are recorded ongoingly through the startup phase and each partner can transparently see what percentage of the company is theirs at any time.
The model is so genius that we’ve used it internally and highly recommend it for other startups. So if you’re ever thinking about going into business with someone else … please stop, drop, and read Slicing Pie.
While we have no affiliation with Mr. Moyer, we at Brio Business Academy are always looking for opportunities to share powerful solutions to common problems of business ownership. The more we can save our members from painful pitfalls the better! For more help in starting and growing your business, check out our course offerings and coaches.