As entrepreneurs embark on the exciting journey of starting their own businesses, there is one common puzzle that they all encounter – the equity split. To demystify this complex issue, we recently had the privilege of hosting seasoned entrepreneur and professor, Mike Moyer, on our podcast. In this riveting conversation, Mike shared invaluable insights from his years of hands-on experience, highlighting common pitfalls and strategies to navigate the equity-splitting maze.
Starting Up – Common Mistakes in Equity Splits
Mike Moyer shed light on the most common mistakes that new entrepreneurs make when dealing with equity splitting. A common misstep is creating a false sense of value when a startup is formed. Entrepreneurs often make fixed equity splits in advance, assuming future events and the value that will be created, which can be a disastrous approach due to the unpredictable nature of startups. Mike suggests opting for a safe agreement or convertible note, which provides a better solution for equity splitting.
Building Brand and Generating Word of Mouth
Mike shared strategies on how startups can build a system that generates word of mouth. Adding personality to a product and making it interesting can get people talking about it. Additionally, creating an engaging presentation is crucial to selling the product effectively.
Equity Split and the Slicing Pie Method
One of the key highlights of the discussion was Mike's introduction to the slicing pie method, an innovative approach to equity splitting. He talked about his unsuccessful commenting app project and how it led him to make better decisions in the future. The slicing pie method offers an efficient way to split equity and track contributions within a startup.
The Importance of Accurate Tracking
One cannot emphasize enough the importance of accurately tracking equity and contributions within a startup. Mike advises entrepreneurs to track their time and expenses diligently. A common oversight in startups is the non-payment of salaries. Just because you're not getting paid doesn't mean you don't deserve it. That non-payment of salary will translate into equity later on, so it's essential to keep track of it.
Mike’s Advice for Aspiring Entrepreneurs
For young entrepreneurs just starting, Mike suggests bootstrapping the business as long as possible. Building value during the bootstrap phase is essential. Raising outside funds should only be considered when there's a fear of failure. Another crucial piece of advice is to gain experience in the industry you want to pursue before starting your own venture. Learning the business on somebody else's dime can provide a wealth of insights and help form crucial relationships.
The Slicing Pie Model
Mike's revolutionary slicing pie model has changed the startup landscape. Over the last decade, the model has helped around 30,000 startups worldwide. It provides a clear, fair answer to the equity splitting puzzle, enabling entrepreneurs to manage their partnerships effectively.
In conclusion, understanding equity splitting is a crucial aspect of building a successful startup. Entrepreneurs must strive to avoid common mistakes and embrace innovative methods like the slicing pie model. And remember, in the world of startups, accurate tracking and fairness in equity splitting can make all the difference between success and failure.
