Skip to main content

Two Entrepreneurs Working With Two Devs (Part 1): Equity and Experience

I’ve talked with a couple entrepreneurs recently who are struggling with early partners. I’ll break this post into two parts – 1) this post describing the opportunities of equity and experience, and 2) the follow-up post next Tuesday regarding the traps of early partners with minimal startup experience. But first, the setting:
  • Entrepreneur A hired a developer early on to build an alpha product with a promise to pay for services renders in a couple months. Post-work, they’ve parted ways, and the entrepreneur wants to pay off the developer and retain all code. The dev, however, wants some ownership of the company and code.
  • Entrepreneur B is highly successful in a services business, and now wants to build a product addressing a pain in the current business. The entrepreneur planned to work with a developer to build the product as a test before any mass market approach. The entrepreneur wants to pay for the consulting services with no equity share, while the dev wants share for mass market opportunity.
In both cases, the entrepreneurs hatched the ideas and have the intellectual property to market their products. The devs do not have industry experience and bring “pure” development capacities. Neither dev has worked in an early-stage startup before; however, they’re highly interested in working in a startup due to the potential. This, of course, is expected. Entrepreneurship and startups are the “it” things today, and everyone wants to latch onto something and someone successful.

Typically, experienced pros with early-stage startup experience (devs or business-oriented) tend to ask for money rather than equity. (I say that with lots of asterisks, though.) Experience shows that most startups fail rendering equity meaningless while even moderately successful startups yield modest disbursements to equity employees. Salary is the “sure thing”. David Cummings even refers to equity as “icing on the cake” with benefits and salary as the main financial compensation.

The flip side of this is what the entrepreneurs bring to the table that make the opportunity more enticing for pros to sacrifice salary in favor of equity. Here, expected opportunity outweighs the (risk) loss of immediate salary.

Okay. I’m going to stop here, and let you noodle on what you think the trap is for both entrepreneurs as they work with (have worked with) the devs. Till Tuesday!

What do you think the traps are? How would you handle either/ both situations if you were the entrepreneurs?

Comments

Popular posts from this blog

You Make Time for What (and Who) Matters

I’ve always been a big proponent that you make time for the things and people that matter. Sounds simple, right? Then, why do so many not implement this better in their lives? Let me take a moment to recognize this more explicitly.
I touched on Laura Vanderkam’s TED Talk “How to Gain Control of Your Free Time” in last week’s post. In it, she shares a story of a woman who had a leak in her home. Coordinating with plumbers, and getting everything resolved, the woman estimated that it probably took seven hours of attention. That’s seven hours of “stuff” the woman hadn’t planned on doing. If you were to ask her (or most anyone) to find seven hours in the week before, she’d have told you, “heck, no, I don’t have seven hours. I’m busy!”
I was thinking of Laura’s talk in conjunction with Jacob Christensen’s How Will You Measure Your Life. Specifically, I’m aligning “making time” with Christensen’s Resources-Processes-Priorities framework. We make (process) time (resources) for the things th…

Vertical SaaS? Horizontal SaaS? It’s All News to Me

Not sure why, but I have only recently heard of a term called “Vertical SaaS”. Okay, there’s also “Horizontal SaaS”, too. Based on some light research, looks like vertical SaaS is also a growing trend and the number of companies fewer than horizontal SaaS providers.
Vertical SaaS borrows its moniker from the concept of vertical integration whereby there is more control over a supply chain from raw materials to point-of-sale. Here, vertical SaaS companies focus on a niche market (industry) offering a solution that enables more process control.
Horizontal SaaS providers get really good at a particular offering, and widen their market to reach scale. Their focus is on breadth of market, and thus, its sales and marketing strategies can require more resources.
Many vertical SaaS companies (such as Veeva Systems, Guidewire, Fleetmatics) are doing well usurping legacy systems of traditionally slow-tech-adoption industries. Here, vertical companies develop a best-of-breed product, and focu…

My Life-Defining Moment Happened When I Failed to Make Varsity in High School

Ever stop to think about who you are? What makes you tick and tock? How about what you truly enjoy and what you’re good at vs. not good at? Or what/ who has shaped you into the person you are today?
I’m at this stage of figuring out whether to continue independent consulting while iterating on ideas for the next startup or take on some full-time employment (consulting, product management, or otherwise). My recent post about my daily/ weekly schedule was an interesting exercise in stepping back and recognizing what I’m actually doing in a day, and made me really think at the macro level.
In one of my recent reflections, I thought about defining moments in my life. One of those watershed events that truly transformed me was my failure to make the Varsity soccer team in high school. I won’t rehash the whole story here – shared the story almost a year ago in my post titled “Getting Through Dark Moments and the Most Vulnerable Story I've Ever Told Publicly”. It’s this moment that I w…