About 4 years ago I took a shot at building a music startup with several friends of mine.    We were a group of 10 builders who just wanted to build things and we weren’t really thinking about how to organize ourselves well. I think this is common really when it comes to people who get jazzed by creating new things but, don’t really think about how the success of the project will be divided up between them. It somewhat reminds me of a poker game when you don’t play with real cash. People just play and think differently. “Why not go all in?” “Why not give this guy 50% and that guy 30%?” It all is somewhat meaningless when you start with zero. Sure you can have everyone pitch in some money. Maybe then it makes it feel more real?

Now some people seem to have a sense of value from the beginning. If for some reason you can get two of them on your team at the same time then you will notice that they will come up with a system and take it all very seriously. Perhaps you file it as a corporation and hand out shares. Perhaps you have a percentage based on how much you contribute. You can arrange this any way you want but, what you end up with is a group of people trying to bootstrap them selves into a business starting with nothing.

Now this fascinates me. What is an effective way for people to arrange themselves before money is involved? You end up in a weird quagmire where no one really wants to talk about money and ownership. You want to talk about what you are building. At the same time this is one of the most important aspects of business. If you don’t handle this situation early then as soon as money is involved everyone will be forced into this situation. And I guarantee that this is when all of the assumptions, handshakes, and verbal agreements are forced out in the open. All this miscommunication of what is owned by who and how everyone is going to be paid is suddenly a big focus. This is when drama begins….

So for years now I have been mulling around an idea for building a simple set of rules that any group of people could adopt and start working from. This wouldn’t be legally binding, that could happen later. But, it is an way to get your friends together, build something, and not worry so much about creating a corporation and handing out shares. That can be done later after your team has decided if the idea they are working on is even worth the sweat they have put into it. What I’m thinking of is more like board game rules. You pull them out of the box, everyone reads them together, complains that they are too hard, and then slowly your group starts forward. After everyone knows the rules they just go about doing what they are doing.

This is what we came up with.  Big Slice Small Slice Rules

It comes down to treating your group as if it is a consulting firm and everyone has an hourly rate. You can adjust people rates depending on tasks, or skills they bring. It also has this idea of budgeting. Instead of this vague notion of printing your own money (stock), just budget some portion of the company to satisfy creating some portion of the project. For example to finish phase 1 you budget 10%. What is so great about this is that it is low overhead to get rolling with, it sets the teams expectations, you can add and remove people easily, and the ownership adjust proportionately to what people contribute. As a bonus when it finally comes time for money everyone knows roughly what they have contributed so at least, you have some idea of where to begin with pricing things out.

Now going back to our original startup. We fortunately never had any money involved. We had somehow organized ourselves into 3 LLC’s with a variety of ownership and it was rather complex. I think it could have been a mess but, in the end it ended up being a good learning experience for all of us. At one point one of the guys remarked that “A small slice of a big pie is just as good as a large slice of a small pie”. It was a good point and where the Big Slice Small Slice rules (BS3 rules) got their name.