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How do I create performance based equity for co-founders?

We are bunch of co-founders working together on our idea. We haveĀ  a MVP, few hundred users and paying customers.

We haven’t quit our day jobs yet. Yes we will quit them soon.

As a CEO-founder I feel that some co-founders are not obsessing over the start up and owning it like a co-founder.

Here are some signals for lack of ownership:

    1. They consistently don’t finish the sprint stories and don’t kick themselves for not doing it. There is also a little under-estimation of effort from them but there are other factors as well.
    2. They don’t find enough time to work on the start-up outside full-time job.Ā  Yes everyone’s time commitment would vary because of commute, family obligations but I think there is a lack of general focus on how you spend time during the day so that you can carve out a hour or 2 everyday. There is always some excuse. I don’t want to micro-mange but shit needs to keep moving everyday even if marginally. Also I don’t think this will change after we quit and get full-time on this, because there will always be 10 hrs of work to fill every hour. Its a founding team trying to find Product market fit after-all.
    3. They don’t come up with ideas to make process better, to grow , to reduce wasted time, to try new experiments. I think this could be a result of them already not finding enough time to complete their own stories. However as co-founder I feel you need to obsess over something : growth, sales, tech, culture , design, funding .. anything. But obsess 24/7

I have tried sharing our success stories, communicating vision, yelling on missed deadlines, doing regular retrospection meetings, giving ownership etc.

One thing I would like to point out is we are still making good progress given that we have full time jobs. Also people are working on weekends to make shit happen. Also everyone is signed up for quitting their $200k+ jobs. So there is commitment.Ā  It’s just that I don’t feel it’s co-founder level ownership and obsession.

I feel they might grow into a real co-founder spirit eventually as we quit. Managing energy is hard when juggling start-up and full-time job. But I want to make sure that I reward the ones who do grow up to it and not everyone.

Hence 2 main questions:

  1. Is there a way we can do an equity split that apart from vesting schedule has a built in performance component for co-founders including myself? Any formula here that investors would approve of in the future
  2. Any tips on managing co-founders as a CEO co-founder? Success takes lots of effort and patience and I want focus and speed.

I often think this as a shortcoming in me as a CEO being not able to motivate them in the manner I am. Again this was my idea and I sold them on it and brought them on so I don’t expect to be same level of energy but product idea keeps morphing and they can play an active role to make it their own.. They have given many weekends nights on this for few months.

Know that quitting on the team/idea is not an option. I feel this could be fixed

  • I see it a lot when the main founder is stingy or makes it as if the other founder has to prove themselves to be worthy of equity. The cofounders get annoyed and just hangs around since it’s cool to be part of a startup but otherwise have no motivation.

    Reply

    • We agreed on equity and its been awarded.

      However the equity split is not equal (More like 40-60 range) . I worked on it for 1 year before the other person joined and was already making progress. But I needed a co-founder to be able to focus on growth, customers etc.

      Maybe equal split is the issue.

      But now I am stuck in chicken-egg situation. I don’t mind going equal but how can I give more given that there is already lack of commitment!

      Reply

      • 40/60 is more than fair for a late cofounder. Seems like lack of motivation is not due to it. Maybe hes just not startup material. Good luck unwinding the partnership though.

        Reply

  • All the “performance” metrics you mention above are bean counter things like hours worked.

    A more useful measurement is a set of agreed upon accomplishments with schedules, ownership of subsets to complete accomplishments, and measurement thereof.

    I have little patience for those who equate hours with getting things done.

    |f you want hourly employees – go hire some. If you think you can do better, then do it yourself.

    Reply

    • The are not hourly metrics.

      We follow scum and as I mentioned ‘stories’ dont get completed. Stories are basically chunk of work that gets accepted by the other person when I offer them for the week.

      I end of doing 50-60% of them or they just dont get done for the week and keep on overflowing.

      Reply

      • If you have a relatively mature path of these tasks towards product, then you can vest equity based on completion of said tasks.

        I personally don’t like these types of metrics much because then the battle transfers to who gets the easiest metrics to get done. And if you say that you can “rate” the metrics, then the battle moves towards the rating process.

        No matter what, the result is a lot of wasted time and effort.

        A more fair way – but of course one still vulnerable to politicking – is a blind ballot system with the number of ballots allocated according to some external metric. However, as you believe you’re the CEO, you might not be happy with comes out.

        Reply

  • Making $200K+ and having a life outside of work….hard to be motivated for anything because life is too easy. Perhaps they are possibly not as passionate about the idea?

    Regardless, set up a vesting agreement with each co-founder, clearly outlining deliverables that need to happen over the next 4+ years with month-by-month vesting.

    Reply

    • Yes we have a vesting schedule in place. And its the same for both founders.

      Deliverables are hard to outline since this is pre-funding with limited users. But we have initial product and few customers.

      I am supposed to handle marketing, product, sales etc and other person to handle development. But I end up doing half of weekly stories as well which leaves me exhausted trying to focus on user acquisition which requires lot of experimentation. ( We follow scrum and commit to stories for the week)

      Reply

  • You come across as petty and difficult to work with. This startup is apparently your baby, and you want to set the vision, decide what people work on, give orders and so on, but at the same time you expect other people to bring 100% passion to make your dream reality? Get real.

    You want to be the CEO when it suits you and be a part of a group of 100% committed co-founders when it suits you. You want your cake and have it too.

    If you want co-founders, start treating them as co-founders and not as employees. When you assign people homework you shouldn’t be surprised they start behaving like students. So you got to give your co-founders the authority and autonomy to push the company forward, according to their vision. Stop calling yourself CEO. Don’t give orders to your partners. Start working together as peers and the passion and commitment will come. If you do everything right, then maybe you’ll EARN the CEO badge.

    Reply

    • Yes, this is something I am contemplating. I do agree that the problem could be with me as much with the other person.

      I want the other person to come up with stories , drive the vision etc. But they don’t so I do it. I will rather spend more time talking to users or growth hacking user acquisition.

      Maybe the CEO word came out bad. We both are software engineers from a startup with successful exit. It’s just that I have a business bent and the other person won’t even talk to a stranger in a coffee shop to ask for feedback (I have done that with 50+ strangers) or think about user acquisition etc. So we agreed to double down on our interests and strength. You can call me biz dev, hustler, ceo whatever. However, keep in mind I do setup infrastructure , monitoring and contribute to 50% of coding as well.

      He is the hacker, CTO etc. But I haven’t seen him talking about hiring, convincing anyone to join the tech team, find contractors and manage them etc. I have to do some of it and I am happy to do it.

      Can you elaborate more on how I can not assign work? I think this might be the reason or worth a try. Also I am curious to know your experience in starting your own company or working in founding team, angel etc. Just to know if you are talking from experience or brainstorming ideas and both perspective are welcome.

      Reply

  • If you really want to provide performance based equity, set aside an equity pool, say a total of 30% of common stock and divvy it up based on their commitments. Be warned though that this can and most likely cause a ton of issues. Its hard to be fair based on scrum tasks, you’ll get people gaming the system, or not just giving a crap about the quality of their work and over time about the start up.

    Reply

    • Is that an acceptable practice? To keep common stock away?

      I was thinking about giving up most of my equity and some of the other persons equity so that we both are equal say 35% each.

      Remaining 30% could be allocated to any one of us after a year based on commitment, performance by the board.

      Some or all of it can also go to an additional co-founder/early employee who adds a lot of value in early days.

      Reply

      • Hi!

        I am almost one year late to this post. But I am having the exact same situation ou are having. Since itĀ“s been several months, do you think we can talk or share here with me how you handled this issue eventually?

        My situation is the same. 50/50 with a friend who is supposed to be the CTO since he wonĀ“t talk to a person in a coffee shop. But itĀ“s me who plans the development and itĀ“s me who does everything else. HeĀ“s just an underperforming employee right now, and I want him to be the cofounder I signed him up for. I want him to show passion and initiative.

        Maybe I’m pushing him too much as well, and I am the problem like they told you. I just tried to not assign him any tasks last week, to see what he came up with while I focused on developing other areas. The result, after 5 days, is that he didn’t do anything, literally. He said he was checking out some online courses and he had a bad week…

        However, in my case he “is full time” indeed. Meaning he quit his job for this. However he stays at home and probably puts in 2 meaningful hours a day.. or less.

        I really could use some guidance here. I donĀ“t wanna fail before getting started just because of this.

        Thank you in advance!

        Reply
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