Sweat Equity

newfrontier

New concept being tried next month in Dublin. Just curious as to what you guys think of it. Basically the the idea is a business team is formed from a group of strangers with mixed skillsets, marketing, biz dev, tech dev etc .The idea being some one pitches a business idea and you get to work on the business idea for 5 weeks ..you then negotiate sweat equity if the biz takes off you get a percentage ..if the biz flops you only lose a bit of time.. interesting concept so I have 2 questions I would like feedback on. Q1 will it work? q2 What percentages would you give to get a good team working on an idea you have?

The Apprentice

Sounds bloody awesome to me ..

I have had 2 ideas that have been turned into two sucessfull businesses over the last 2 years although not by me so my brain is creatively switched on, pitched another third business idea with bplan with detailed forecasts and marketing plan to 20 odd people and it was well recieved and lauded. Had an Accountant look it over and she said it needed a jizzing up but was defintely one to push.
Although this third idea was and can still be a runner the initial capitol is out of my reach circa 70-100k, this is not something ive forgotten but financially out of my reach with the current economy with no assets.

Q1. I think it will work dependant on people being off sound mind with an equal footing, Having 40 Years in a Tech industry and frowing upon a marketer with only 5 may cause ripples but if everyone is on the same wavelength with service and ablity i would think this would work.
Q2. This i cant comment on but i would not work in an environment where someone with a different skillset got more collateral because of experience your either in the group or your not. Although the idea creator may feel out of sync if he presents an idea to a group of strangers and gets the same as someone that doesnt input a sucessfulll idea..

Perhaps a team of 5 with the idea creator getting 24% and others each getting 19% ??

Cianos

Can't see it working really tbh.

The model presumes that you need 5 people to start the business. Most times it's just 1, especially in the first 5 weeks. The extra baggage will cause imbalance and a lot of drag and probably tonnes of arguments.

5 weeks is far too little to determine the potential of a business. Most businesses don't turn a profit for a long time. I'd be surprised if a business was even launched in 5 weeks.

I just realised that you might be talking about a model where the other 4 people help the other person get set up, then after 5 weeks the other person is on their own but the 4 get a % for their efforts. This might work, but for 5 weeks work relative to a life of running the business, the %s would have to be tiny, in which case I can't see many people wanting to partake.

newfrontier

Thanks guys for your thoughts. I Will be taking part so will let you know how it goes.Just in case you want to find out more its called swequity and its on in the NDRC. More aimed at a web startup so fast turn around is possible and lots of cash is not required just a good idea and a good team...I can see it being an interesting experiment. Time will tell if it works but there is added benefit of the launchpad program afterwards where you get 20k and 3 months office space and mentoring if the idea has got legs. Will post an update here if you guys are interested.

tricky D

Sounds like a rehashed version of 'need a developer to work on an exciting new idea for later potential equity' but with more people. Some problems would be assigning fair value to each person's contribution and keeping up motivation when there's no guarantee of any reward. More people also means more points of failure and friction as mentioned.

The Corinthian

Q1: It's been tried before, but failed; if memory serves me, a former dotCommer set up a 'consultancy' with largely this model about ten years ago, but it never went anywhere. Not sure why it failed.

Off the top of my head, the principle problem would be to get people who have skills and experience worth a damn to do more than have a talking shop - getting them to talk together is easy, getting them to actually do something more would be akin to herding cats.

Secondly, it's probably not sustainable. Consider a group of ten such people; a good idea is mooted and four of them decide to run with it, likely taking them out of the group (as they will have to devote themselves to that idea for the foreseeable future) - already the group is almost halved in size.

Finally, there's the tricky question of trust. Who wants to give away their best ideas to a room of people who are quite capable of running with them - and without you? NDA's could be employed, but I'd imagine that they would be quite difficult to define, let alone enforce.

Q2: Depends how much you bring to the table. If all you're coming with is an 'idea' then you'll probably want someone who will be an equal or even majority partner. To be able to negotiate a much smaller chunk of sweat equity you would need to bring a lot more; that you have knowledge, experience or skills that the idea must have to succeed, finance, market research and a real business plan, etc.

All too often, you get would-be CEO's who have an 'idea' and nothing else (and often the 'idea' isn't even that special, even if it has legs). They bring little or no business plan, research, funding or even skills or contacts that are needed for the idea and then seek someone who does have essential skills to make it happen for a tiny percentage. They rarely, if ever, get anywhere.

I came across such a guy a while back. He pitched me an idea for a mobile app, in a particular market segment. He had a small amount of funding (savings) and had scribbled down lots of business models and prototype screens, but that was it. No detailed business plan, no market research, no real funding and he came from a background that had nothing to do with the market segment being targeted.

I think he offered me something like 8% sweat equity. Last I checked, two years later, he's still looking for someone and it's still just an 'idea'.

Hybrid models are an option; part sweat equity, part payment as they mitigate risk on the part of the potential 'partner' and keep down the amount of equity you have to give up.

newfrontier

Hi guys,
Just to give you a quick update the process has started by filtering ideas. Obviously the event is open to everybody so anyone can submit an idea; these ideas are vetted to see what is feasible and also more importantly what makes sense commercially.This vetting process takes place behind closed doors and the ideas with the best chance get through to the next round. This is the pitching round where the selected ideas are pitched to the teams and filtering part 2 takes place . No body likes working for free so this next round is crucial... pitching to the teams involves convincing team members your idea has merit and is worth the time sacrifice. Needless to say there will be tough questions asked!!! This is due to happen on the 20/6 so if you were there and in my shoes what would you do ?

Full disclosure: I am a participant not an organiser so helpful suggestions please.

arbitrage

At what stage are you at in the business?

Give as much information as you are willing to give us a better idea. Product or service, industry, full business plan or back of the benson box, ultimate aim/model, ect?

newfrontier

Hi Arbitrage,

Very early stage at the moment. Cannot give too many details away at the moment for obvious reasons. If all goes to plan it will shake up the market quite a bit and be quite disruptive. The idea is simple enough but the execution is vital. If the right team gets behind it. I believe there will be a very good return on time invested. I will let you know more as time progesses. I think there was about 50 ideas pitched and 15 have made it through to the next stage.

YouBuyLocal

See you there dude

Axwell

newfrontier wrote: »

Time will tell if it works but there is added benefit of the launchpad program afterwards where you get 20k and 3 months office space and mentoring if the idea has got legs. Will post an update here if you guys are interested.

If its part of the launchpad program then you also give away equity in your business to the NDRC as part of it.

arbitrage

If the idea is simple enough and there are no patents/NDAs in place then why would these professionals accept a small percentage and work with people they don't know much about when I assume they are capable of running with the idea themselves?

Exactly what skills and resources are you hoping these professionals contribute?

The Apprentice

You guys i think might be missing the point, you may have a good idea that may pan out but its the interaction that most people crave with fellow business minds with the evolution of either your idea or perhaps someone else's.

Bobby kerr is in my humble opinion a candidate for someone like this, he sold 51% state in insomnia valuing the business at 16m so you can gather how many millions he has from this last venture along with his previous hotel business and others.
Its not the equity or the money is at stake, although a factor its the drive that makes him want to create something that could be a winner, a success.

Its like asking robby keane or damien duff ... he guys wanna go for a few kicks in the park with their friends?? What do you think their reaction would be ??

I really do think its for the love and passion for creation of an idea in test face and following it to completion and not for the every loving conquest of euros. Guys like him value their time and know what its worth and obviously need to be compensated accordingly hence the equity shares.

pinto

Hi, I am also participant in the program. The discussion on this thread is very interesting. I am confused about the equity share part. Imagine a scenario where three people work with the idea owner for five weeks and then they all separate after five weeks. In this case how much equity can idea owner give to these three members because it takes years of 24x7 work on part of idea owner to maker idea work and it takes 2 to 3 iteration of Build-Measure-Learn (from Lean Concept) before you get correct Product-Market fit ?

newfrontier

tomorrow is pitching day so 16 ideas get pitched and 8 get selected ..should be a fun day. Will do an update over the next day or two to let you know how the process is going.

newfrontier

pinto wrote: »

Hi, I am also participant in the program. The discussion on this thread is very interesting. I am confused about the equity share part. Imagine a scenario where three people work with the idea owner for five weeks and then they all separate after five weeks. In this case how much equity can idea owner give to these three members because it takes years of 24x7 work on part of idea owner to maker idea work and it takes 2 to 3 iteration of Build-Measure-Learn (from Lean Concept) before you get correct Product-Market fit ?

I think this will be part of the negotiation process obviously a smaller share will be negotiated for a fully fledged idea with alot of work done, But some of the ideas are new ideas with no development so equity would be greater in this scenario.

arbitrage

So how did this go for ye?

Who were these professional advisors?

newfrontier

arbitrage wrote: »

So how did this go for ye?

Who were these professional advisors?

It is still going on for another 3 weeks , the professional advisers were very good, most had setup and run successful companies had raised cash in the 900k plus league so plenty of experience to tap into. A very good learning experience but not for the faint hearted!!! I think they are planning another one in a few months time.

arbitrage

Any updates?

newfrontier

Very interesting experiment, good mixture of people and skills. AS this was the first event a few mistakes were made, posssibly shorter..timescale and more focussed teams. If you have an idea worth investigation it is worth considering it ...be warned though not all idea owners make it through to formation!!
If you have an idea that you think is very plausible..it would be worth considering and if you would like to see what working for a start up is like ..also worth doing...There is plenty of more info and spin at ndrc.ie. But possibly others who entered might give their view....looks like a yearly event!!!!