Avoid Co-Founder Equity Mistakes

Why Read: Gain crucial insights on co-founder equity distribution, vesting schedules, and managing founder relationships. These principles can help avoid common pitfalls and set a strong foundation for success.

Featuring: Michael Seibel (@mwseibel), Group Partner at Y Combinator

Link to Article: “Co-Founder Equity Mistakes to Avoid”

Key Concepts and Tactics:

• Be generous with co-founder equity 

  • Quote: "The core advice we want to give is be generous with co-founder equity. What you're trying to do is motivate your founding team to work extremely hard when it looks, for many of the first couple years, like things are not working. The biggest mistake is to be stingy on equity during this very, very, very delicate time in the beginning of a startup, causing people to leave while it's still possible you might make something big."

• Use vesting and cliffs for all founders 

  • Quote: "Giving away founder equity is not something that you should be innovating on and the best practice. All of equity comes with vesting and cliffs when it's given to Founders. Life happens, crazy happens, sometimes people have to leave and they don't even want to leave."

• Ensure co-founders are essential to the founding team 

  • Quote: "Your co-founders must be essential to your founding team. One of the things I think about with a founding team is like, it's the smallest number of people who can get an MVP built, get it in the hands of customers and start learning."

• Remember that equity is for motivating future work, not rewarding past work 

  • Quote: "Always remember that, once again, in almost every case when you're giving out co-founder equity most of the work in your company hasn't been completed... equity is about motivating people for work they have not yet done as opposed to rewarding people for work they have done."

• Give the CEO the ability to fire founders who are not performing 

  • Quote: "The CEO should have the ability to fire Founders who are not performing. So however you set up the equity split, the CEO should reserve this right, and honestly there has to be a captain of the ship. There has to be someone who's ultimately held accountable."

• Have a conversation about what happens if things don't work out 

  • Quote: "What's most responsible is if co-founders have a conversation about what will happen if things don't work out."

• Follow guidelines for co-founder breakups 

  • Quote: "If a co-founder leaves or is fired before their one-year cliff it's extremely typical for them to get just a token amount of equity. 5% to 2%... after the one year cliff but pre-product market fit we recommend that if a Founder leaves or is fired they leave with no more than 5% of the company."

• Avoid performance-based equity for co-founders 

  • Quote: "Some bad advice that I see is like, ‘oh we should have performance-based equity…’ needless to say at the beginning of the journey of a tech startup it's really unclear how to set those types of goals and those goals change."

• Don't consider part-time founders as true co-founders 

  • Quote: "I would argue that a part-time founder isn't a founder and shouldn't really be considered in this equation."

• Avoid complex or dynamic equity agreements 

  • Quote: "If you're trying to motivate people it's really nice for them to know what they have, and especially Founders. They're going to be a lot more motivated if they know what they have when they're starting versus some weird kind of thing that's hard to define…"

• Recognize the importance of the early years and co-founder motivation 

  • Quote: "It turns out with tech startups the beginning is extremely important those first four to six years is where a lot of value is being created and those first four to six years is when most companies die... you still want to be extremely generous with co-founder Equity because those co-founders actually got you the energy of activation your company needed to even be in the game."

Scaling GTM Teams

Why Read: Insights on strategic planning, customer journey mapping, team building, diversity in hiring, and fostering a growth mindset.

Featuring: Amelia (Lerutte) Ibarra (@miadia), SVP and GM at SaaStr

Link:“Top 5 Lessons Learned from Scaling GTM Teams at Notion, Asana, and Dropbox”

Key Concepts and Tactics:

• Develop a Clear Strategic Plan:

  • Point: Create and communicate a compelling vision and mission that aligns with your strategy and objectives.

  • "One of Robbie's mentors advised: Be brief, be brilliant, and be gone. You want to quickly create and communicate a compelling vision and mission that everyone buys into and underline that mission with a clear and concise strategy."

  • "You'll tie your company-wide and department-level objectives to that strategy and regularly communicate key results to assess how the strategy is performing."

• Map the Customer Journey:

  • Point: Understand and optimize each stage of the customer journey, from discovery to expansion.

  • "Once you've built a product, you have to create a GTM motion. To do that, you need to be clear about the customer journey. You want to map that journey to every function within your company."

  • "How your product is discovered, seeds and lands ultimately determines how you retain and expand your customer base."

• Balance Team Composition:

  • Point: Hire a mix of innovative "Jedis" and structured "stormtroopers" as your company scales.

  • "In the early days, you may need Jedis, the builders, people who can flex to cover many functions and set the DNA for your team or company... As soon as there's structure and order that they often build themselves, it's time to bring in the stormtroopers, the people who are high achievers but don't necessarily want to do as much innovation."

  • "You want to balance these two personalities. If you keep Jedis in a row too long, they get bored. If you bring stormtroopers to an unstructured environment too early, they'll struggle."

• Prioritize Diversity in Hiring:

  • Point: Actively seek to build teams with diverse perspectives and skillsets.

  • "It's cliche, but it is important that you hire for balance. Diversity comes in many forms; you don't want just a tick-the-box metric. As a hiring manager or leader, look at your people and find the strengths and gaps."

  • "Look at your teams and ask your leaders to hire people who are different from one another. When you bring in multiple perspectives, you often find the best solutions because everyone approaches the problem differently."

• Foster a Growth Mindset:

  • Point: Implement practices that encourage continuous learning and development within your teams.

  • "You want to thread a growth mindset into your teams, especially early SaaS teams. It fosters adaptability, continuous improvement, innovation, and resilience."

  • "You should implement the 10% rule with all your leaders – ensuring they spend 10% of their time each month learning and developing skills for themselves and their teams."