MarketMe 2.0

Experienced entrepreneurs know that when it comes to slicing up the equity in their new startup companies, the longer you wait to hand out big slices, the better.

That’s because a startup company can create a ton of value in a very short period of time, and in many cases, with relatively little effort.

It’s exciting to get others wrapped into your new idea, and their willingness to bet on your idea may feel like something you want to reward with shares of the company. The issue isn’t whether or not you reward these individuals, but really when you reward them, and with how much of the company.

As a rule of thumb, the longer you wait to slice up the equity (assuming you’re growing the company) the less equity you’ll have to give up. Here are just a few milestones that you may be able to get to on your own, before you’ve begun slicing up the cake.

Get Incorporated

The fastest way to turn your idea into a company, at least legally, is to incorporate. You can incorporate yourself on-line in less than half an hour for a few hundred dollars at most.

The benefits of incorporating early are that you can force every discussion of stock into a legal matter, and not just a handshake deal. If I just tell you that I’ve given you 50% of a company that hasn’t even been incorporated, it’s not the world’s most binding document. But if I update the Operating Agreement of an incorporated company to show that you own 50% of the company, there’s no question that you’re a shareholder in the business.

The process may sound simplistic, but it helps create some value. People tend to take ownership of an incorporated company far more seriously than ownership of an idea you emailed them, which usually means it’s not as likely to get diluted as heavily.

Build a Prototype

The next step is to put together a basic working model of your idea. No matter how rough your prototype is, having an existing product to talk about is far more valuable than just talking about it in a PowerPoint presentation.

Your prototype can come in dozens of forms. It can be a barebones version of the Web site you want to build. It can be a service that you want to offer that you’re delivering to customers by yourself right now. It can be an artists’ rendering of the product you intend to build.

Regardless of its form, the prototype gives you the ability to switch from just talking about an idea and to start talking about an actual product. It’s also possible that an early prototype could even lead to a sale to a customer, which would be the ultimate value generator!

Building a prototype can be a challenging task, and one that you may find yourself needing to seek outside help on. If you absolutely feel that the only way to present the product to a customer or potential investor is to bring on another equity partner, then so be it. But if you can get by with just some sketches or a simple working model to convey the product idea, this would be a great time to keep that equity in your own pocket for a while.

Get Some Traction

If you can get past the prototyping stage yourself, without carving up much equity, and get on to selling even just one customer on your own, you’ll have achieved one of the greatest leaps in value creation.

Getting some traction with partners and customers completely changes the value of your company. Up until this point you had a company with an interesting product. Anyone could second guess whether your idea was useful. No one can second guess paying customers though.

It’s not impossible to get this far with your company idea without any help at all. You can incorporate yourself, piece together a working prototype of your product, and pitch it to some early customers that you setup meetings with. In essence, you’ve done the hard part by actually starting the company. The next step is to grow it from there.

Time to Slice it up

Once you’ve put your company in a position that it simply needs to grow to create value, not just get started, that’s a good time to take on equity partners. At that point the value of having more employees, investors and partners will likely outpace the cost of giving up more equity.

In each step of the journey, you want to keep asking yourself “Is it at all possible for me to get to this next stage without taking on more help?” You may get past the incorporation stage and realize that any hope you have for growing your idea into a company is going to require a few partners. That’s not a problem, as long as you’ve agreed that unless you slice up the cake today, it’s not going to get any bigger.

Take a look around your office right now and ask yourself – is everyone happy? You may think so. People may be working hard, putting in long hours, and cranking through project after project to get your new startup company launched.

You may feel like you’ve got the entire team energized and ready to go at the office. But the real question is – are you winning the war at home?

Startup company managers need to realize that attracting and retaining key talent isn’t just about peppy sales talks and big pitches. It’s about fighting the war for talent on two fronts – in the office, and especially at home.

People don’t think of startups like regular jobs. At regular jobs you think about whether you’ll get a 10% raise and a good review. At startups you wonder whether the risk, time, and (usually) lower pay are worth the benefit of a substantially bigger payout someday.

For this reason it’s worth thinking about the world of your employees through the eyes of their friends, spouses and families. Is their job still as exciting as you thought it was?

Spousal Support

Whether you realize it or not, more than 50% of the decision to stay at your startup lies with the spouse at home. Happy spouses equal happy employees. If you think about it, you’ve really got to keep two people happy at all times.

The decision to join your startup probably wasn’t made by the big pitch you gave in your interview. It was made by the big pitch your employee gave to their spouse later that evening.

As you can imagine, their pitch probably didn’t include the long hours and endless stress you’re undoubtedly enduring. Instead, it likely focused on the potential for a big payout someday that could change their lives forever. If that pitch isn’t holding up at work any longer, you can imagine it’s probably not holding up at home either, which is a problem.

Comparison to Friends

Even if a spouse isn’t in the picture, you can bet the employee’s friends are. When an employee is buried in work at a startup, it often becomes the first topic of conversation among friends. At the very least, it’s because they are explaining why they’ve been so absent lately!

If you’ve ever listened to someone describe how things are going at work, you can usually tell within the first 15 seconds whether they are thinking about leaving the company. Excited employees will brag about their accomplishments. Disinterested employees will only complain about their struggles.

It only gets worse if the employees’ friends are enjoying more free time and making more money at the same time.

Your employees want to brag about what they are doing and create envy amongst their friends. There’s no reason your startup company shouldn’t give them that opportunity, as long as they feel confident that the big dream you’ve sold them is alive and well. Even employees that are missing time with their dearest friends will be proud to say they were at least building something great instead.

Think about the Children

If your employees have kids, you can add yet another group to the list of people you need to keep happy. Every minute that your staff stays in the office is a minute that they are not spending with their children, and those minutes cost a lot emotionally.

Those late nights when your employees don’t get to put their kids to bed and every long trip that guarantees missed baseball games and piano recitals puts them one step closer to the door. No one ever feels like they’ve spent enough time with their children, and when a job pulls them away even more, it’s a powerful breaking point.

When your employee gets off the plane from yet another business development trip and sees their kid waiting for them, the only thing running through their mind is “was this worth it?” When they walk into the office tomorrow, if there isn’t some justification for the time they’ve lost, they’ll be spending their time updating their resume, not working harder.

You can’t Win ‘em All

Lets’ face it – you can’t make everyone happy all of the time. Any job is going to put a certain amount of stress on employees lives and relationships. The difference here is that people in startups tend to think of startups as dreams waiting to be fulfilled, not just a regular job.

When the dream starts to fade, people often go along with it. That’s why as the Manager of a startup company, the only way to keep people excited is to keep the dream alive. Remind them why they risked what they did to start with you in the first place.

Attracting and retaining talent is about fighting the battle on all fronts. Your ammunition is the motivation and desire to build something big. If you don’t give your team the ammunition to stay, you’ve already lost the war.

There's an old adage that says "Entrepreneurs do what other people won't in order to do what other people can't."

The suggestion there is spot on - that the entrepreneurs who get to live the life people dream about did so because they were willing to make the sacrifices it took to make that life happen.  

So the question really is: can you afford not to be an entrepreneur?

If the answer is “yes”, your life will probably be just fine doing whatever it is that you enjoy doing.  But if you really want a taste for what it means to control your own world and reap the benefits of taking risks, starting off on your own is really the only option.

A Paycheck versus a Pay Out

Most people equate starting and growing a business to the financial rewards of being the business owner.  That's because business owners enjoy the difference between earning a paycheck and earning the bigger reward - a pay out.

You may think those with a big paycheck, like the Celtics' Kevin Garnett's $25 million pay stub, are the big winners.  Not at all.  It's the guy who can write that check, like Celtics owner and Highland Capital Managing Partner Wycliffe Grousbeckand, who paid $360 million for the entire team.

Even if Kevin Garnett continues to be the highest paid player in the NBA for the next decade, he still won’t be writing the checks that his boss can.  

The real cash comes from either the profits of the business on a regular basis or the eventual sale or IPO of the business down the road.  Until your earnings are tied to the performance of the company, not your position, you’ll never be in a position to enjoy the real rewards.

Give Yourself a Raise

As big as they can get, paychecks are inherently limited to what someone else is willing to pay you.  If you can’t stand the idea of someone else determining what your pay scale should be, then starting a company is the fastest way to change all that.  

The day you start your own company, the only person that will ever determine your income is you.  If you’re as good as you think you are, the sky’s the limit.  

Most entrepreneurs are financially stifled in their current jobs, particularly among younger workers.  Since salaries are often dependent on age and experience, not raw capability, your earnings may not at all reflect what you are truly capable of.  

Consider the fact that Bill Gates, Michael Dell, and Steve Jobs were all around 30 when their companies went public.  Can you imagine how little they would have been paid (by comparison) if they had stayed in their salaried jobs?  Clearly their ages had nothing to do with their capability, and starting their own venture was the only way to prove that.

Don’t Leave Money on the Table

When you’re working for a paycheck, you’re making yourself a bit of money, but you’re also making the company a bit of money.  Every hour of your time is putting a dollar in your pocket, but it’s also putting a dollar in the owner’s pocket as well, which is good for him, not so good for you.

The fastest way to double your money is to put both of the dollars in your pocket for the same amount of effort!  Of course as the owner yourself you may have more overhead than you would as an employee, but long term you’re not only maximizing the payout on your time, you’re creating a business that will one day exceed your own value.

Cumulative Value

Even if you’re incredibly well paid in your current position, it doesn’t change the fact that you’re only one person.  You can only earn as much as your own time and contribution will afford you.  At some point, in order to get to the next level, you need the company working for you, not the other way around.

That means taking on employees and leveraging the economies of scale.  As the employer, you can infinitely scale the size of your income by adding more business and more employees.  At some point the cumulative value of their contributions will far exceed what you could possibly earn as a W-2 employee.

Stop the Bleed

No one is ever surprised to hear that you can make a great deal of money as a successful entrepreneur.  

What is surprising is to consider how much you’re losing by not being an entrepreneur yourself. When you add up how much value you’re losing by taking a paycheck every week, you start to wonder what was keeping you from taking the plunge in the first place.

In many ways, starting your own company is the only way to eliminate the risk of not being paid enough.

A few hours ago at 11am ET one of the better domain extensions to debut in recent memory - .me – went on sale at GoDaddy for $19.99/yr. Since then, chaos has ensued, as apparently purchases are either not going through, or going through but the domain name remains available for others to buy. As an illustration of the problem this creates, according to the Twitter message below, at least 8 or 9 people are claiming to have receipts for the domain name aweso.me.

It’s not surprising to see a huge rush to register highly desirable .me domain names, but it appears GoDaddy is buckling under the pressure and is about to have an ugly mess on its hands. We’ve contacted the company to see how they intend to deal with the issue and will update accordingly when we hear back