Today I incorporated a new business venture with 4 partners. The start of a new business is an exciting and stressful time.
I’m going to write about this over the next few days, but today I want to focus on equity distribution.
What’s the right amount of equity to give a partner? Sometimes startups make the mistake of skewing the percentages so disproportionately that some partners don’t have the incentive to grow the business on a long term basis. If you’re getting 90% and you give two other partners 5% each, you may be doing yourself more harm than good. Their short term excitement will decay once they see you taking flights to your Hawaiian chalet while they work themselves to the bone.
In this new venture I want to maintain a majority interest in the business, but give each partner equity that will make the venture attractive, but long term growth even more attractive. No partner wants to put in sweat equity to watch you get filthy rich. Consider that when you’re contemplating your riches. I’ve found that many people pull the rip cord and bail out because they feel under appreciated and under compensated.
You want to build a business where each partner brings something unique and valuable to the table that no other partner either wants to or can do. This is probably the most essential part of building a team. If you can foster an alliance that makes each team member equally valuable or indispensable, you increase the morale of the team.
At the end of the day, starting a business is about money. There are few people who can build and grow a sustainable business alone. Helping others become wealthy beyond their dreams may be the best way to make yourself wealthy beyond your dreams.
These are my 300 words for the day. I am Ralph M. Rivera.[line]