What it takes to build Facebook

To continue our series of weekend videos, here is a nice one from Y Combinator in which Mark Zuckerberg talks about early days in Facebook. Highly recommended to watch. For those who don’t have time for a 36-min. piece, here are our favorite lessons-to-learn from the video:

– On motivation: Stay inspired by what you are doing. There will always be skeptics saying that your thing can’t be a business. Just care about what you are doing, and that’ll drive you forward.

– On hiring great people: The only way to determine whether a person you are hiring is really good is to realize if you would want to work for that person.

– On making decisions: Out of a hundred things that you can potentially go do, pick up the one that actually matters.

– More on motivation: In the early days Facebook had a serious competitor called “College Facebook”. Every time the competitor would launch at a new school, the whole Facebook team would literally not leave the house and work until they address the problem. They still have this concept of “lock-down” at the company and many teams do it themselves.

– On founder equity (we couldn’t miss this one!): All founders must be on vesting schedule. Mark heard nothing about vesting at the time when they started the company. They just divided equity, and then his co-founder Eduardo left. “That mistake probably costed me billions of dollars” – says Mark. But even when things like this happen, it’s important to move forward.

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The score is 4:1 – do you still have doubts on how to split founders equity?

You may still have doubts whether an unequal equity split between founders is worth all that fuss. Calculating founders’ input into the startup, having conversations about involvement, commitment and future expectations, making promises to each other and feeling anxious about not being able to live up to them. Wouldn’t it be easier for founders to split equity equally and get right to work, feeling mutual trust and respect?

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In order to resolve this issue we decided to bring to your attention the most influential posts on dividing equity between startup founders that are out there on the web. If you are like most tech startup founders we know, you should believe in numbers. So, we decided to count voices in support of unequal equity splitting and voices in support of equal equity splitting. The results turn out to be quite convincing.

 1. A very old post by Dharmesh Shah on OnStartups.com – a blog for entrepreneurs with more than 23,000 subscribers. In spite of the date of its creation, the post hasn’t lost its relevance. It talks about different factors which lead to unequal splitting. And its definitive answer to the question “Should we divide equity in our startup equally” – is “no”.

1:0 for unequal splitting of equity

2. The most well-known advocate for equal splitting of equity is Joel Spolsky. He wrote a widely-cited post on “totally fair splitting of 1:0 for unequal splitting of equity ownership in a startup” which features an interesting method of splitting equity not just between founders, but between the whole team including employees. Joel’s website where this post was originally posted got closed, but luckily there are plenty of reposts on the web.

1:1

3. In reply to Joel Splosky’s post on fair equity splitting in a startup Dan Shapiro writes quite an expressive piece on this topic with the headline: “The only wrong answer is 50/50”. In his post Dan gives examples of what should be counted in when dividing founders equity – things like coming up with the idea, creating an early product, being a CEO, full-time commitment and cash contributions. He also gives his estimations of how valuable are these factors relative to one another.

2:1 for unequal splitting of equity

4. A great post on this topic by Mark Suster (I love his posts for always being so much to the point). Among other important things Mark talks about something nobody else mentions: that 50/50 splits between founders are in fact unstable. They create no true leader. They create a feeling of shared responsibility, which is not a good thing for startups in which one founder is always more involved and committed than the others.

3:1 for unequal splitting of equity

5. Not just entrepreneurs and VCs discuss the topic of equity splitting in startups – business professors do too. A huge supporter of unequal equity splitting is Noam Wasserman, a professor at Harvard business school, whose brilliant case study of equity splitting in two startups we discussed earlier in this post.

4:1 for unequal splitting of equity

To conclude:

The results are quite convincing: 4:1 for splitting equity unequally between founders even in spite of hard negotiations and calculations (which can be made a lot easier if you use a formula or a model like the one we created at Founder Solutions). This is not to say though that 50/50 split is always a wrong decision. In very rare cases, as one can imagine, even the most sophisticated formula might point to this result, and then you should proudly go for it. But even then a question will remain: if your team has founders who are so much alike, wouldn’t some diversity of experience and expertise add more value to your startup?