I’ve talked a lot in this blog about the mistakes I’ve made over the past couple of years, what I’ve learnt, and the ways I apply all this to how I run the company now.
I don’t regret any of the mistakes I’ve mentioned so far. Each one helped me grow as a person and as a business leader; each contributed to Posse’s evolution into the awesome platform of tomorrow.
But there’s one mistake I haven’t discussed yet, and it’s the only one I regret. I fell into it at the beginning when, surrounded by a group of friends, I formed the company.
Posse was my idea. I drove it right from the start. But in the early days, I didn’t know anything about running a technology company. I wasn’t confident that the idea would work and that I wouldn’t end up with egg on my face.
In the interests of spreading the financial and reputational risk, I asked a few friends to help. After I’d written the plan, fleshed out the idea and who’d be involved, I sat in a cafe and wrote on a napkin how I’d divide up the company.
Different people would have different responsibilities, and for that they’d receive a percentage of the shareholding.
I appreciate that this blog will touch a raw nerve in some people but I think it’s an important story to tell. I’ve decided to write it because, since I don’t have any plans to start another company, this isn’t a lesson that I can learn from. But I hope that my telling it may prevent others from making the same mistake.
I meet lots of enthusiastic young entrepreneurs at various events who tell me of some great idea, and they’re starting a company with a bunch of people.
When I ask how they’re dividing up the company they say something like, “I own 50% and the other 50% is split between a guy who’s doing the technology and another who’s going to run the operations and raise the money”. Sound familiar?
Haggling over nothing?
Although I didn’t screw myself that badly, the setup is similar for many young companies.
At the very start, no one wants to haggle about shareholding because it just seems silly. At this stage, the company isn’t even worth anything, so why argue over 30% of nothing. Right?
Wrong. The company does have value at the start.
It’s worth the energy and intellect the founding team is prepared to invest.
When I think back to 2009, the year I started Posse, I too felt that this newborn idea didn’t have inherent value. Now I look back at the colossal amount of work and perseverance I’ve put into it. I dropped a successful music company and gave up virtually all of my free time for three years. That level of commitment was the company’s only asset at the start.
The problem is there’s no way of measuring future contributions, so you just guess and split the company. What usually happens is that one or some people will work incredibly hard to get things off the ground and others will drift, either because they can’t handle the pace or aren’t focused on the project.
This irks the hardworking founders, who try to negotiate the others out of their shareholding. The slackers say no and everyone falls out.
Then, either the company falls over or moves on with a bitter founder.