Seeking Better Startup Founder Agreements

Ever see a pie chart like this, or can you at least envision one, wherein a partner of yours (or God-forbid, you), expect a majority control of a startup? I get asked all the time, about how to handle retaining control when it was my idea or how to deal with a cofounder who wants too much.

My Cofounder wants 51%. What should I do?

We can learn a lot about entrepreneurs through the words they use to explain their situation. From asking about funding for an MVP, we can tell they’ve been misled. When talking about patents and their unique idea, we can tell they’re likely misinformed or overconfident. When they distinguish wants from needs or convey (as is the case here) that they’re working with someone unreasonable, we can tell their team will likely fall apart and cause their failure.

Before exploring the point of my article today, better founder agreements, let me explain what led me to considering that we need better agreements.

“Wants to take”

Well, what you should do without bothering further is quit.

Such a person, expecting they are entitled, is not a partner, that’s a wantrepreneur who is selfish, and frankly, ignorant of how this works – you should just run, but I know most of you won’t.

No one gets 51% outright. Certainly not for an idea, nor the vision, the strategy, a plan, nor the roadmap. It’s highly unlikely that anyone deserves 51% under any circumstances other than being the sole founder (which no, does not mean they own 100%).

If you want to play it smart, take their so-claimed brilliance and go start the company that should exist thanks to the idea, with a team more capable, collaborative, and experienced.

Startup founders earn equity for the following reasons:

1. Bringing resources – team, money, or both – this is usually considered the CEO
2. Developing the market – this is the CMO
3. Developing the solution – this is typically a CTO, but that depends on what you’re doing

See also : Startup KPIs

No one gets anything for talking about it. No one gets equity for bringing a team to do it for them.

EVERYONE must do something , and execute their responsibility, to get it, all by themselves.

We do this by setting a cliff (a point in the future when everyone earns some of the shares, and from then on earns more over time; with no one getting anything until then). You protect everyone else and the startup from the failure of a person by putting that in writing PLUS the fact that they are responsible for alone delivering the OUTCOME of their work expected.

Startup Founder Agreements are Failing Teams

I put outcome in big letters so it’s clearer – this does not mean putting in the work, it does not mean coding, promoting, or talking to investors, it doesn’t even mean doing what you said you’d do, it means the results of the work manifest, are productive, are effective, and are valuable.

1. We have the money or more people working on the team
2. We have growth, customers, partners, and investors – outcome, not work being done
3. We HAVE the fully developed solution, as expected – outcome

If people fail to do this, they are removed from the team. No hard feelings. No equity other than what is earned to that point.

Excuses are not allowed. If they don’t deliver but you’re willing to let them keep trying, you push OUT the cliff to a later date? If they don’t deliver the outcome when expected, they do NOT get their equity, they can continue working to deliver it, for nothing, with a new cliff set when they’ll start earning something.

Let me be clear too, these are the only 3 valuable roles in the company!

NOTHING else matters. These roles are not interdependent though they must work together… what that means is #1 can’t claim they didn’t deliver because either or both of other two failed to do so. That doesn’t matter because you don’t then get to start earning equity without you having delivered! They won’t get theirs; you don’t get yours. Simple.

See also: The Disconnect Between Sales and Marketing

Yes, raising capital might be dependent on growth or a delivered solution, but that doesn’t mean you start getting to earn equity without delivering your piece, just because they didn’t deliver theirs.

Marketing can do marketing without the other two

Developers can deliver a solution without the other two

Granted, not well, but it is possible, so no one gets to establish an excuse that they can’t do their job because the others aren’t – people that do that aren’t founders, they’re employees of a company with resources.

This is why, as should be the case, that while you’re not dependent on one another, you also are dependent on one another.

• Marketing can’t do their job well if the vision for the company is off somewhere else. They certainly can’t get customers is the solution is junk.
• Developers won’t create the ideal solution without marketing
• The CEO fairly can’t really get funding or more on the team, if there isn’t growth or a solution

Do the work, deliver the results, and earn your equity; if you don’t, you don’t have anything anyway.

I’m curious if you’re looking at the fact that team’s falling apart are the leading cause of startup failure, and if you are interested in or working on agreements that might better protect the venture itself, or the team committed and delivering, from a bad apple. Let me know.