Should Co-founder Be Given Equity?

A lot of startup companies are better off with two people on board.  After all, the name "Company" literally means "more than one person".  When someone invite another person to be a cofounder, what are the points of discussions associated with equity share?

Here are a couple of major points to consider.

(1) Does the cofounder pay cash into the company coffer?
(2) Does the cofounder need to quit current job and forego salary?
(3) Does the cofounder need to take a pay cut from current level or industry standard?
(4) Should the cofounder be given private equity?

Keep in mind that a cofounder is important.  The founder is a status, a position, and a responsibility.  These three goes together.  The status means it is obviously a later badge of honor.  But the cofounder has to earn it with what he/she does for the company.  A cofounder should be a builder in chief - building the product, the sales channel, or something critical.

Later when the team goes to ask for funding from an investor, the investor WILL ASK this question "are both you working full time for the company".  It is important to keep this in mind.  If when you go to investor and one of you have not given up your job, it just looks bad.

A cofounder is not a high level employee.  A cofounder is a founder. 

Cofounder is not a gig.

The Top 3 Illusions of Startup Entrepreneur

The top three fantasies are

(1) If I make something, I would eventually find a buyer.  I can work hard.

(2) If I want to make something, I will find an investor who wants to support me.

(3) If I sell something, I will just add a portion for my profit.

These are extremely naive.  Let me explain.

If you make something, you will never find a buyer.  This could be because one of the following reasons:
(1) You won't make enough quality and hence can not control price against competitors;
(2) Dirty competitors will muddy the water in the channel.
(3) No one needs new things, really.
(4) People won't know you have something to offer, because the channel is so noisy.

These are but a few of the most common reasons.

Most people would say "I have an idea, I want to find an investor".  Well, today's investors are not dumb.  If you only show a promise, no one would bite.  People need you to show that you have validated the products and validated the sales, before they decide if your business can make them the desired returns.

The "I will add my profit on top" is a fantasy.  There are people with money who would gladly lose money to compete with you until you drop out of the scene.  There are people who would sell fake products and buy off all the bad scores from the web store management team.

If your offer is one of a kind special item, you may be able to sell a couple of items at your desired price, but that is it.

These three things are what many first time entrepreneurs all believe in.  They keep trying to find the buyer, find the investor, and find the profit margin, that do not exist at all.

The Core of a Startup

The Core of Startup

Dear Friend,

I am writing this to my former self living in 2010.  After having started and experienced, I wanted HIM to get it, clearly, quickly, convincingly.

Starting up a business means you, the founder, wants to have a business.  Because you can not buy a business or don't care about joining one, you need to start one.

A company is not a business yet.  A company will not automatically get business.  Honestly, a single person operating a solo entity is not even called a company.

Starting up is a multi dimensional, multi stage, multi phase, multi year, multi disciplinary engagement.  It is one of the most complex endeavor for a single human being.  It is a long journey of no return.  In this journey, you learn it all, and by personally failing.  Because it literally takes two lifetimes to start one business, no matter how small, very few people are blessed with the experience or success.

A startup is not a trial balloon or a vehicle of hope.  Startup is not to make something and then try to sell to people.  A startup company is not business yet, and a startup business is not a business yet.  These all remain to be proven.

A good business means continuous profitable sales.  The core of a business is sales.  Money-generating good business is rare and heavily competed - hence the phrase "there is nothing new under the sun".

A founder needs to build the offering, the company, the name, and the channel.  After you have those, you can try if people want to buy them.  If people don't want to buy, or you can not sell them profitably, then you don't have a business.  You had a run of curiosity.  You can be sure that no one will fund an expedition - both an expedition that you are not sure what you will get nor an expedition where you are sure what you will get.  It does not matter how good you prepare your motivational elevator pitch.

Startup is a skill that needs to be learned and practiced.  A clever or hardworking person is not enough.

To start up a business, you must know business, and you must know how to startup one.  And you must know yourself.  Further, you only learn the skills through personal experience, not just through books or conventional schools.

Starting up is ultimate learning, even if you are a professor or guru.  If you have read every book there is and have written books, you are still starting at ground level with everyone else.  Startup is a new set of skill.  You learn by personally experience (not by reading) and learn by failure.  Failure means you are trying hard enough.  If you want a business and fame and money, you must try hard and get out of the comfort zone.

There are investors out there.  Dumb or clever, they are extremely alert.  They only want to make money, no matter what they tell you.  They want their best interest, never yours.  They are not friends, nor eager benefactors. They are just potential investors.  Starting up is all YOUR business.  There is no one to help, only you helping others.

Because you don't have a lot of resources (e.g., money), you must start in advance and pick correctly. Ideally, you start when no one understand the vision and build diligently over 10 years.  Only then will your efforts be rewarded.  Vision is simple - it is earned by finishing a level once.

There is NO CHANCE SUCCESS.  Anything new takes a long time to be accepted or wanted.  Don't try to get lucky by acting on whims and logic guessing.  Building a new thing is just building a new thing, not starting up a business.  People generally don't need new things.  Starting up a business is offering new value in an old line of business through innovative and inventive method.

New business must sustain financial turmoils and copying/competition.  If possible, make sure your new business idea is not a small-business idea.  A small business remain small forever, but a new business must grow into a mature business at the end of the process.  If you want to do anything small, use your own money.  If you plant a watermelon seed, it will never grow into a tree.

If anyone utters one of the three phases, "I have an idea", "I was a good student" or "I don't like money", or "I want some extra income", run as far away as possible immediately.  You will waste a lot of energy trying to help or convert them.