When it comes to partnering with someone else, the only time a 50/50 equity split makes sense is when you can’t do it without the other guy. If this isn’t the case, the person who’s bringing more to the table should get more equity. Everything feels equal in a 50/50 startup, which can handicap you because it’s harder to make decisions. The company needs a boss to call the shots and keep things moving forward quickly. This is usually the person who owns more equity in the company.
There are a few ways to determine who should get more equity, but more is usually given to the person who came up with the idea, who has put in more time, and who brings more value to the table. If you’re pursuing a biotech solution, and your partner invented the technology over the last five years, it probably makes sense that she would be the majority owner. If you plan to quit your job and work on this full-time, while your partner can only commit 10 hours a week, you should get most of the equity. Give this a lot of time and attention—misallocating equity because no one wanted to broach the topic can lead to resentment that festers over time. It’s infinitely better to figure it out at the beginning.
You need an advisory board to hold you accountable and challenge you. Forming a board actually isn’t that difficult once you know how they’re structured. Your goal should be to have four or five accomplished business people on your board, who have a mix of startup or industry experience. Create a short list of potential advisors, and then get to know each person over a few meals. Test the waters and probe to see if their experience would be valuable to your company, given its long-term direction. You know you’ve got a good fit when they get excited about your business and the prospect of getting involved.
Once you have advisors on the hook, it’s time to reel them in. Do this by putting some equity on the line. Normally, an advisor gets 0.5 to 1.0 in exchange for advising you over a set period of time, usually two years. In exchange for the equity, they agree to meet at least once a month for an hour. In these meetings, usually conference calls with your entire board, explain your most pressing issues. After you explain the situation, stop talking and let your advisors earn their equity. If you’ve succeeded in putting together the right advisory board, the advice you get should be pure gold.
The temptation of every overworked entrepreneur is to hand off responsibilities as quickly as possible. Don’t delegate duties until you’ve done the job yourself first. To do otherwise is to abdicate, not delegate. Whether it’s a lack of time or a low confidence, abdicating responsibility is irresponsible. Even if you’re a terrible salesperson, try to drum up a few sales before hiring anyone else to take over.
Proper delegation is essential. First and foremost, you’ll learn critical information by doing the job yourself. By going on a few sales calls, for example, you might realize that a core feature of your product completely missed the mark. Good luck discovering this insight through a game of telephone with your new salesperson, who barely knows the product, doesn’t understand customers’ needs, and probably doesn’t care about your company’s long-term success.
More than feedback, you need to know what it takes to get the job done. By doing it yourself first, you’ll know what to look for when hiring. Also, you will be able to tell when the person you just hired is cutting corners or trying to pull a fast one on you.
Don’t abdicate. Do the job yourself first, and then delegate.