[This document is intended for internal purposes and is not fit to be published as a blog post because it contains direct copy-pastes from the slicing the pie handbook. The goal is to summarize the book, present the model to collaborators and my(Etiene) opinion on it, and propose an implementation
EVERYTHING IN THIS DOCUMENT IS SUBJECT TO DISCUSSION, THIS IS NOT A MANDATE
I just read a book and thought it was cool] - Etiene
73% of teams split the equity within the first month of the startup at the heights of the uncertainty about their startup’s strategy and business model, their roles in it, and their levels of commitment to it.
Solution 1: The most common approach in the industry to adopt stock vesting.
Solution 2: Slicing the pie, a person’s % share of the rewards should be equal to what that person puts at risk. It is a dynamic model that changes over time.
With vesting we would have to predict the future value of someone's contribution and predict the value of the project. Many founders shrink the first because of risk and exaggerate the second because of enthusiasm. But collaborators also have immediate risk and the future value of the project is most likely $0 (the majority of start-ups fail). Also what happens if the person with bigger equity decides to stop working in the project?
If we apply the Slicing Pie model, each person will get exactly what they deserve to get — including me. If we want to create a working environment that is dominated by trust, fairness and cooperation where everyone has aligned incentives, fairness and adapdability to change need to be in the equation. It has two components: allocation (how much % of the company everyone gets), and recovery (what to do when someone leaves the project).
This model is conceived for before the breakeven point (when the project will have enough income to sustainably pay all its expenses). At that point we can freeze the slices % because we can just pay people with actual money. We can define what exactly this point looks like in more details the future.
I like this model because it is conceived exactly for projects like ours: with very little money. It's hard to find materials like this because most advice for entrepeneurship just assumes there's a lot of money coming from somewhere (VC investing, rich family) and don't take into account variable time contribution. Some of us are here full-time, some of us at varying degrees of part-time, some temporarily, and some have changing commitments over time. The example below shows how accumulating slices are used for sharing the company.