No, don't work in "that" Start-Up.
Dude, I have an idea that will make us millionaires, I just need you to... 🙄! There are few ways to generate fortunes and millions to lose them. Know the wishes of your Partners, review the Contracts you sign and clearly define what each team member earns, contributes and risks.
Javier Caldito
3/6/20244 min read
You may have heard from a family member or friend that you are good with computers and websites. Maybe one of them has an idea for a website or digital service and needs you to develop it for them.
The illusion of visionaries can be contagious. Maybe the idea sounds good, maybe it will become the next Golden Unicorn, and you can be crowned like Elon Musk or Steve Jobs or Bezos; but no, the world is not that easy and success does not guarantee you will make money.
Ninety percent of startups fail, 80% in the first year. Therefore, before launching a business project with other partners, you have to assess how you are going to make money, what risks are involved, how the work is divided and what each partner contributes.
The business partners can collaborate with only two resources: Labor or Capital. All the resources must be oriented to develop a product or service with which the Company obtains benefits. Then, if profits are made, they will be distributed among the Partners in proportion to the resources they have contributed.
The Partners must measure the Resources in money dedicated to the creation of a product. What resources are needed to create a web page? You need a domain, internet connection, a computer and someone to work X hours in the creation of it.
The partners who contribute capital assume with money the costs of the domain, computer and internet connection. But you as a developer, you have to know in money how much you contribute working on the project. Give your working hours a value you are comfortable with, and multiply it by the amount of hours you expect to dedicate to the project.
If the Partner contributing capital contributes $500 and you contribute 50 hours of work at $10/hour, your Partner and you participate equally in the Partnership, and you both get 50% of the shares of the Partnership, along with the rights and benefits. Do not participate in StartUps where your contribution is undervalued by the value of your working hours, as you will work too much to earn too little. Equity partners value their money more than the time of others.
Also do not collaborate in Societies in which there are members who do not contribute anything or collaborate with "moral support", since they acquire a percentage of the shares that will come from the work that others do.
WHAT DOES EACH PARTNER BRING TO THE TABLE?
STAND ALONE IDEAS ARE WORTHLESS
Founding Partners often consider that only the Idea is something that can be commercialized or from which a return can be obtained. But no, the Idea alone does not represent Intellectual Property that can be licensed or protected. For that, it must be a creation that can be embodied in a tangible or intangible support.
Do you know Facebook? Mark Zuckerberg developed the Social Network at Harvard after brothers Cameron and Tyler Winklevoss gave him the idea of creating a dating app on the University Directory.
The brothers sued Zuckenberg over the full value of Facebook, even though they had no money or input into the creation of the Social Network. Therefore, I also do not recommend you to work on projects where the other Partner gives an "idea" and expects you to take care of everything.
RISKS AND DECEPTIONS
As a developer in a Project with Partners, unless otherwise agreed, what you create is not yours, it belongs to the Partnership. That is, if you create the Next Billion Dollar Software, it will belong to you only in proportion to the shares you own in the Company.
If you leave the Company, or mis-sell the shares, you will have no right to profit from a product that you developed on your own, even without the resources of the rest of the Partners.
Returning to Facebook, Eduardo Saverin, co-founder of Facebook, went from holding 30% of Facebook shares to 0.03%. Eduardo studied economics at Harvard, and still lost a fortune for signing contracts without having reviewed them properly.
Therefore, review and consult with lawyers all the papers and contracts you sign, since a bad signature can mean losing everything. Better yet, don't collaborate in projects with people you don't trust, and even if you do trust, don't trust too much.
NON-ALIGNED GOALS
The participating Partners do not necessarily have the same interests or desires. In addition, there may be hidden or conflicting interests among the partners. You, as a developer, may want the product to be launched on the market at an affordable price and to improve people's lives.
But the rest of the partnership does not necessarily want the same thing:
The Founder may want as soon as possible the shares of the Company to be bought by Investors, make a lot of money and forget about the Product.
The Sales Manager may be generating false or unrealistic expectations in future customers, to sell more before launching the product and generate maximum commissions per sale.
Other Developers may have overestimated their capabilities and expect you to do your share of the work, in order to keep their shares.
From Human Resources they are making hiring policies that are not useful to develop the product, but that serve for the Department to justify its existence.
Try to know as soon as possible what your Partners really want, so as not to be surprised by the actions of others and to protect your interests.
AN EARLY WITHDRAWAL IS A VICTORY
If all else fails, and you see that the project is going nowhere, you are not obligated to stay in it. Do not take it personally, it is a business, not a marriage,
Review the Bylaws of the Company and sell to the rest of the Partners the shares that belong to you. To the extent that the contracts you have signed allow it, do not sell your shares cheaply, because even though the Product created is not what was expected to be created, the Partnership may have under its control residual Assets and property that may have value to be sold individually.
It is not the purpose of this article to represent the Valuation of Companies, but it would be a small summary.
If you have 30% of the shares of the Company that has as purpose to create a Software of one million dollars, and the Software ends up having a value of 1000 dollars, you do not have to sell the shares for 300 dollars. But for 30% of the Company's Assets and property. For example, if the Company owns a $100,000 property, you could ask for 30% of the value of the property.