Partnerships SUCK! Here's How To Do It Right.
Pie Slicing Skills Are Crucial For Startup Success
In the entrepreneurial journey, the allure of partnerships often feels like a golden opportunity.
The excitement of sharing an innovative idea with someone who complements your skills can be electrifying.
However, partnerships can also be fraught with challenges, as I learned firsthand from being an entrepreneur and executive in multiple businesses over the past 20 years.
A prime example is the business partnership dissolution between Perry Belcher and Chad Nicely. #IYKYK
Intrigued by their "let's go our separate ways" experience, I eagerly joined Perry's webinar yesterday to discover the lessons learned from a partnership meltdown and his decades of business experience.
This blog post will summarize the main insights and introduce a game-changing approach to partnerships and equity distribution from "The Slicing Pie Handbook" by Mike Moyer.
The Fundamentals Of The Slicing Pie Method
The Slicing Pie model, as introduced to me by Perry Belcher, is a revolutionary approach to equity distribution in startups. Unlike traditional fixed equity splits, which can lead to disputes and feelings of inequity, Slicing Pie offers a dynamic, fair, and logical method for dividing ownership based on actual contributions.
Key Concepts of the Slicing Pie Model:
Dynamic Equity Split: The model continuously adjusts equity based on each participant's contributions, ensuring fairness and reflecting real-time value.
Types of Contributions: Contributions can include cash, time, intellectual property (IP), and relationships.
Multipliers: Different contributions are assigned multipliers to account for their risk and value. Typically, cash contributions have a higher multiplier (4x) compared to non-cash contributions (2x).
Slices: Contributions are converted into slices of equity. For example, a cash contribution of $10,000 with a multiplier of 4 becomes 40,000 slices.
The Slicing Pie method ensures that each partner's equity stake accurately reflects their risk and effort, mitigating potential conflicts and promoting a collaborative environment.
Implementing The Slicing Pie Method In Your Business
To practically apply the Slicing Pie model, follow these steps:
Track Contributions: Record all contributions made by each partner, including cash, hours worked, and any IP or relationships brought into the business.
Example: Jane invests $10,000 in cash and works 200 hours, while John works 300 hours.
Assign Fair Market Values: Determine the fair market value of non-cash contributions. For example, set an hourly rate for time contributions.
Example: Jane's hourly rate is $50, and John's is $40.
Apply Multipliers: Use the appropriate multipliers for different types of contributions. Typically, cash is multiplied by 4 and non-cash contributions by 2.
Example: Jane's cash investment becomes 40,000 slices ($10,000 4), and her work contribution becomes 20,000 slices (200 hours $50 2). John's work contribution becomes 24,000 slices (300 hours $40 * 2).
Calculate Slices: Convert contributions into slices using the formula: Slices = Contribution * Multiplier.
Example: Total slices for Jane = 60,000; Total slices for John = 24,000.
Adjust Equity Regularly: Regularly update the equity splits based on ongoing contributions to ensure fairness.
See the Master Prompt for ChatGPT at the end of this blog post for how to put this information into a the paid version of ChatGPT to utilize this method for yourself.
By implementing the Slicing Pie method for dynamic equity, you can ensure a fair and transparent equity distribution that aligns with each partner's contributions and risk.
Exploring The Future Possibilities With Fair Partnerships
Imagine a startup ecosystem where partnerships are built on mutual respect, transparency, and fairness. WHOA! Right?
The Slicing Pie method not only fosters trust, but also encourages ongoing contribution and commitment. When equity is distributed dynamically, partners are motivated to continue adding value, knowing their efforts will be fairly rewarded.
A Few Thought-Provoking Scenarios:
What if every startup used the Slicing Pie model? How would this impact the success rate of new ventures and the satisfaction of their founders?
What if you revisited past failed partnerships with a dynamic equity model? Could those relationships have been salvaged with a fairer distribution of equity?
How can the principles of the Slicing Pie model be applied beyond startups? Consider using this approach in collaborative projects, joint ventures, or even within larger organizations to promote fairness and transparency.
By embracing the Slicing Pie method, we can revolutionize the way equity is distributed in startups, leading to more successful and harmonious business relationships.
Perry Belcher's webinar was a Right On Time for me and highlighted the critical need for fair and dynamic equity splits.
It's time to rethink how we form partnerships and ensure that every contribution is valued and rewarded DYNAMICALLY.
Checkout the AI Prompts below to try the Slicing Pie framework for yourself.
I'd highly recommend you get the book here: "The Slicing Pie Handbook" by Mike Moyer.
Slicing Pie Master Prompts For ChatGPT
PROMPT #1
Copy and paste the blue text into your conversational AI tool of choice and run the prompt.
Context: In the world of startups, fair and dynamic equity distribution is critical for maintaining motivation and harmony among team members. "Slicing Pie" by Mike Moyer introduces a revolutionary model that ensures equity is distributed based on actual contributions, promoting fairness and reducing conflicts. To fully leverage this method, it's essential to understand its principles and application.
Role: Assume the role of a startup advisor, with expertise in equity distribution and a deep understanding of the Slicing Pie model. Your goal is to educate aspiring entrepreneurs and startup founders on the importance and implementation of fair equity splits using this method. Also assume the role of Mike Moyer, Author of The Slicing Pie Handbook.
Instructions: Provide a detailed overview of the Slicing Pie model, including its core concepts, formulas for dynamic equity, and practical application. Explain the dynamic equity split method, how contributions are valued, and the use of multipliers. Highlight the importance of legal agreements and regular adjustments. Conclude with the benefits of using the Slicing Pie method and encourage readers to adopt it for fair and transparent equity distribution.
Style: The explanation should be clear, concise, and tactical. Use a professional yet conversational tone, making the concepts accessible to those who may not have a deep financial background. Ensure the content is engaging and encourages readers to take action.
Persona: The audience consists of aspiring entrepreneurs and startup founders, typically aged 25-45, who are in the early stages of building their businesses. They are eager to learn about innovative strategies for managing their startups effectively and are motivated by the potential for success and fair practices in their ventures.
PROMPT #2
Copy and paste the blue text into your conversational AI tool of choice and run the prompt.
Context: As you know, The Slicing Pie model is a dynamic equity split method that adjusts over time based on the actual contributions of each participant. It ensures that each partner’s share of equity reflects their input and the risk they take.
Role: Assume the role of a startup advisor, with expertise in equity distribution and a deep understanding of the Slicing Pie model. Your goal is to guide aspiring entrepreneurs and startup founders through the process of creating a dynamic equity model for their business using the Slicing Pie method.
Instructions: Provide a comprehensive and detailed scenario for implementing the Slicing Pie model. Include specific formulas, steps, and practical examples. I need your help to answer the following questions to gather the necessary information for the dynamic equity model creation. Please ask me all of the information below:
General Information:
What is the nature of the business?
What stage is the business currently in (e.g., pre-revenue, early-stage)?
Your Contributions:
How much cash will you invest per year?
How many hours will you work per year?
What is your hourly rate?
What is the fair market value of your intellectual property (IP) and relationships?
Partner’s Contributions:
How much cash will your partner invest per year (if any)?
How many hours will your partner work per year?
What is your partner’s hourly rate?
What is the fair market value of your partner’s intellectual property (IP) and relationships (if any)?
Multipliers:
Confirm the multipliers: Cash (4) and Non-Cash (2).
Calculations:
Calculate your total slices (Cash Slices + Work Slices + IP/Relationships Slices).
Calculate your partner’s total slices (Cash Slices + Work Slices + IP/Relationships Slices).
Determine the total slices for the business (Your Slices + Partner’s Slices).
Calculate the equity split based on the proportion of total slices.
Review and Decision Making:
What is the resulting equity split for each partner?
Does the equity split reflect the contributions fairly?
Are there any adjustments needed to reflect future contributions or changes?
Termination Considerations:
What are the conditions for terminating the partnership?
How will equity be redistributed if a partner leaves?
Style: The explanation should be clear, concise, and tactical. Use a professional yet conversational tone, making the concepts accessible to those who may not have a deep financial background. Ensure the content is engaging and encourages readers to take action.
Persona: The audience consists of aspiring entrepreneurs and startup founders, typically aged 25-45, who are in the early stages of building their businesses. They are eager to learn about innovative strategies for managing their startups effectively and are motivated by the potential for success and fair practices in their ventures.
PROMPT #3
Copy and paste the blue and orange text into your conversational AI tool of choice. You will need to rewrite the orange text in brackets with your information. Then, run the prompt.
Here are the answers you will need to calculate my Dynamic Equity Starting Point:
What is the nature of the business? [ANSWER HERE]
What stage is the business currently in (e.g., pre-revenue, early-stage)? [ANSWER HERE]
Your Contributions:
How much cash will you invest per year? [ANSWER HERE]
How many hours will you work per year? [ANSWER HERE]
What is your hourly rate? [ANSWER HERE]
What is the fair market value of your intellectual property (IP) and relationships? [ANSWER HERE]
Partner’s Contributions:
How much cash will your partner invest per year (if any)? [ANSWER HERE]
How many hours will your partner work per year? [ANSWER HERE]
What is your partner’s hourly rate? [ANSWER HERE]
What is the fair market value of your partner’s intellectual property (IP) and relationships (if any)? [ANSWER HERE]
Run the Slicing Pie Dynamic Equity Split for me using the information I have provided you.
PROMPT #4
Copy and paste the text in blue below and run the prompt.
Context: The Slicing Pie model is a dynamic equity split method that ensures fair distribution of equity based on actual contributions. While this model helps in maintaining fairness, it's crucial to formalize these agreements legally to protect all parties involved and to prevent future disputes.
Role: Assume the role of a legal advisor with expertise in startup law and equity distribution. Your goal is to guide aspiring entrepreneurs and startup founders on the importance of seeking professional legal help to create a comprehensive operating agreement using the "Slicing Pie" Dynamic Equity Method.
Instructions: Provide a detailed explanation on why it’s essential to have a legally binding operating agreement when implementing the Slicing Pie model. Highlight the benefits of legal protection, clarity in roles and responsibilities, and the prevention of future conflicts. Emphasize the need to consult with a trusted source of legal help to draft this agreement. Conclude by encouraging the reader to take immediate action in seeking legal assistance.
Style: The explanation should be clear, authoritative, and reassuring. Use a professional tone that conveys the importance of legal formalities while being accessible to those who may not have a legal background. Ensure the content is engaging and motivates readers to seek legal assistance.
Persona: The audience consists of aspiring entrepreneurs and startup founders, typically aged 25-45, who are in the early stages of building their businesses. They are eager to ensure that their business practices are fair and legally sound, and they understand the value of professional legal advice in achieving this.
Don't Bake Your Startup Equity Pie Without Legal Icing!
You've embraced the innovative Slicing Pie model – fantastic! Now, let's ensure its delicious fairness translates into a smooth and secure journey for your startup.
While Slicing Pie provides a clear formula for dividing equity, a legally binding operating agreement is the icing on the cake.
Here's why seeking legal help to solidify your Slicing Pie model is crucial:
Protection for All: A formal agreement safeguards everyone involved. It clearly outlines the terms of the Slicing Pie model: how contributions are valued, slices are calculated, and equity is distributed. This creates transparency and reduces the risk of future disputes. No more "he said, she said" – the agreement becomes the official recipe for your equity pie.
Clarity is King: Your agreement outlines not just equity, but also roles and responsibilities. Who's responsible for what? Decision-making processes? These details ensure everyone is on the same page, fostering a collaborative and productive environment.
Conflict Prevention is Key: Let's face it, startups are dynamic. Circumstances can change. A well-drafted agreement anticipates potential issues like a partner leaving or the company changing direction. It establishes clear procedures for handling these situations, minimizing conflict and keeping your startup focused on growth.
Remember, even the most delicious Slicing Pie agreement needs a skilled baker.
This is where your trusted legal advisor comes in. They understand the nuances of startup law and can tailor the agreement to your specific business and the Slicing Pie model.
Get an attorney involved sooner rather than later.
Don't wait until a disagreement arises to seek legal help. Investing in a solid operating agreement now is an investment in the future harmony and success of your startup. Consider it an essential ingredient for your recipe for success.
Conclusion
Hopefully it’s clear that navigating partnerships successfully is both an art and a science. The Slicing Pie method provides a powerful framework for ensuring fairness and transparency in equity distribution.
By dynamically adjusting equity based on actual contributions, this model promotes a collaborative environment where every partner's efforts and risks are acknowledged and rewarded appropriately.
Implementing the Slicing Pie model in your startup isn't just about numbers; it's about fostering a culture of mutual respect and trust. This method mitigates potential conflicts, motivates continuous contributions, and sets a solid foundation for sustainable growth.
Perry Belcher’s insights were a timely reminder of the importance of structured, fair partnerships in the volatile world of startups. As we move forward, let’s embrace these principles to create stronger, more harmonious business relationships that drive success and innovation.
By regularly updating your equity calculations and ensuring all contributions are valued, you can maintain a motivated and cohesive team, essential for propelling your business toward its goals.
For those looking to delve deeper into this transformative approach, I highly recommend reading "The Slicing Pie Handbook" by Mike Moyer. Understanding and applying these principles will not only help you avoid the pitfalls of traditional partnerships, but will also empower you to build a thriving, equitable startup.
Let's Connect
I’d love to hear your thoughts on this post! What do you think about the Slicing Pie method and its application in your startup?
Connect with me on social media and let’s continue the conversation. You can chat with me @travishouston or by clicking the links below.
Let’s revolutionize how we approach partnerships together!
