ROBERT SMITH, HOST:
A quick warning before today's show. There is a curse word. It's in the first three minutes if you want to skip forward. And a special note - we wanted to urge you all to support our fellow NPR podcast Snap Judgment with Glynn Washington. Glynn brings you storytelling from places you never thought you'd hear from. They're doing a Kickstarter campaign to support the next season of the show. So go on over there. See what they have to offer - snapjudgment.org.
DAVID KESTENBAUM, HOST:
ALEX BLUMBERG: Hey.
KESTENBAUM: Tell everyone who you are.
BLUMBERG: Alex Bloomberg, and I used to work here.
KESTENBAUM: Not so long ago, and you left because you decided to do something that we've been reporting on for years, something that happens everyday out there in the economy. You decided you were going to try and start a business.
BLUMBERG: That's correct. I'm starting a podcasting business. Basically, I want to make more podcasts like Planet Money and This American Life more of that kind of podcast.
KESTENBAUM: And at some point you realized, hey, I have unusual access to this story because it's about me - I can record it all.
BLUMBERG: Exactly. So I have also been doing a podcast about the starting of my podcast company which I know is meta.
KESTENBAUM: The show today is basically going to be episode three from that podcast, right?
BLUMBERG: It's called Startup, and the idea was this was a chance to document all the excitement, all the thrill of creating something.
KESTENBAUM: Yeah. Moments like this one.
(SOUNDBITE OF ARCHIVED RECORDING)
BLUMBERG: I'm not feeling a lot of confidence.
NAZANIN BLUMBERG: You are not feeling a lot of confidence. Why?
BLUMBERG: I don't know what the fuck I'm doing.
KESTENBAUM: (Laughter) That's you and your wife Nazanin.
BLUMBERG: Yes, having a conversation that was - that was not the only time we had that conversation.
KESTENBAUM: This is the thing that's so striking to me listening to you document this whole process - it is so solitary, trying to do something like this by yourself. It's often so heartbreaking.
(SOUNDBITE OF ARCHIVED RECORDING)
BLUMBERG: I'm just one guy with this stupid little plan, and there's like a gazillion people out there with better plans that are going to make more money that people want to invest in more than me. I don't know.
N. BLUMBERG: I know. I just feel like you have like if they're ever going to invest in one guy with, like, a dinky plan, then that guy would probably be you (laughter).
BLUMBERG: Another (unintelligible).
I'm worried about going into debt. I'm worried about giving up a full-time salary. I'm worried about the impact on my kids. I have a 2 year old and a 4 year old Samira and Calvin and just generally the impact on my family.
N. BLUMBERG: You know what I did today while you were, like, being annoyed on your computer? I like forced Calvin and Samira to go outside, and Calvin didn't want to. And he was really tired so I ended up pushing the stroller with his scooter on it with one hand with Samira inside and carrying him on my back with the other hand.
So like yeah that sucks. It's not fun (laughter). He weighs 36 pounds. So, like, yeah, you know, like that's my support if you know. If I'm not saying the right thing, I am like doing that. It's hard being married and having two kids and doing this because there's - you just don't get the, like, generousness of spirit and sympathy that you would get if we didn't have a 4 year old and 2 year old, and I didn't have a full-time job. Do you want me to tell you what I think you should do?
N. BLUMBERG: I think you can't do this by yourself.
KESTENBAUM: That is what this episode you're going to hear is about - finding a business partner because, Alex, everyone was telling you you needed one. Potential investors were bringing it up.
BLUMBERG: Like, for example, here's this guy Micah Rosenbloom who works at a company called Founder Collective. I was asking him for money.
MICAH ROSENBLOOM: I would much rather bet on two people or three people than a single founder. Now, not to say if you look at our wall of, you know, companies here, there are single founders that we've bet on. But I think start-ups are a team sport. You know, like the probability of success, in my opinion, goes up and frankly I think it would be more satisfying to you because you'd have someone to share it with.
BLUMBERG: Oh, my God. I would love that. I mean, like right now I'm like - I don't know what the hell I'm doing. I don't know how to, you know - I mean, I should be telling you this but I don't know how to build a spreadsheet really, you know, and I've like struggled through it when I'm getting help with it, but I need somebody - should I be telling you that or should I not be?
ROSENBLOOM: I wouldn't necessarily say that about the sell thing, but I think the point is you need someone.
KESTENBAUM: For an entrepreneur, you are uniquely filled with self-doubt.
BLUMBERG: Well, I'm just trying to channel that the self-doubt that I think all entrepreneurs feel, but they can never say.
KESTENBAUM: You said it.
BLUMBERG: I'm saying it.
KESTENBAUM: You want to do the hello and welcome?
BLUMBERG: I would love to.
KESTENBAUM: Go ahead.
BLUMBERG: Hello and welcome to Planet Money. I'm Alex Blumberg.
KESTENBAUM: I'm David Kestenbaum. Today on the show, some of the great business empires throughout history have been built by people working in pairs. Here, we came up with a list - Hewlett Packard, Johnson and Johnson, Procter and Gamble, Ben and Jerry's, Blumberg and - (laughter). Blumberg and.
BLUMBERG: Blumberg and.
KESTENBAUM: Here's the show.
(SOUNDBITE OF SONG, "WANNA BE STARTIN' SOMETHIN'")
MICHAEL JACKSON: (Singing) I said you want to be starting something. You got to be starting something. I said you want to be starting something. You got to be starting something. It's too high to get over.
BLUMBERG: OK. So my investors are telling me I need a partner. My wife is telling me I need a partner. But how do I find a partner? I don't know anything about how to evaluate someone's business skills, so I just start asking around. And you know what it's like? It's a lot like dating when you're in your 30s and finally ready to settle down. Just as every encounter with the single woman back then would send me casting forward into an imagined domestic future together, every single interaction with an MBA starts me wondering could he or she be the partner I've been looking for? One guy seemed pretty good. But when I emailed about a second meeting, he didn't write back.
Another seemed ready to commit but something about it gave me pause. And this feeling is so common among people starting businesses that a business partner matchmaking site has sprung up, the name founderdating.com. After a month or so of futility, I just started trying to get OK with it. Maybe I'm not ever going to find anyone, I thought. Maybe I'm just destined to do this alone. That wouldn't be so bad, right? I mean, it's not the way I imagined it, but lots of people have very happy successful businesses doing it by themselves. And then I met Matt.
MATT LIEBER: I created a new file which, as you can see, it's called conservative operating model.
BLUMBERG: Matt Lieber, former public radio producer left and got an MBA from the Sloan School of Management at MIT. For the last several years was a management consultant to the Boston Consulting Group - in short, the business man of my dreams. We met through a mutual friend.
BLUMBERG: We got together one weekend over beers and I told him about my idea. He was really intrigued, said he'd been thinking someone should do this for a long time. He liked his job and all, advising huge companies about how to grow their businesses. But his heart, he said - his heart was still in radio. Things got serious between us quickly. During one of our first meetings, I was telling Matt about some potential investors were asking to see a business plan, but I didn't really have any idea what that was or how to make one.
A week or so later, Matt sent me one - seven pages broken down into sections, executive summary, route to market, execution and monetization. In the email, he even apologized for not including a financial pro forma, but told me he'd give me one soon. We continued to meet on weekends and at night having long conversations about these questions that were at the center of my company. Am I purely creating podcasts or am I also making a tech platform? Matt told me he was just going through the motions at work, but all he was thinking about was this business, couldn't get it off his mind. One morning, I woke up to find an email from him in my inbox sent at 4:56 a.m. Subject line - interesting data point. Meanwhile, in meetings with investors, I began referring to him as my partner, but he was still at his other job due for a promotion in just a month or so. It was exciting to be sneaking around like this on nights and weekends and take all the help I could get, but at a certain point, we needed to make some decisions. One afternoon, we finally had the conversation.
So the final thing to discuss which we had put on the agenda for last time is to follow up our conversation of where we see this relationship going (laughter).
LIEBER: Yeah, checking in on it.
BLUMBERG: I'm - you know, I swear to god it feels really emotional. I've been feeling like you have come up (laughter) in a couple of conversations, and I wanted to use the word business partner. So is this how this - is it always so - like relationship analogy in these conversations do you think?
LIEBER: It is a marriage of sorts.
BLUMBERG: All the way down to someone has to pop the question. I told Matt that since he and I had met, I'd been feeling a lot more positive about everything, felt like we had a great working relationship, we were able to give each other honest feedback without taking it personally. The last month or so had made me realize something.
I definitely want and need a partner. And like if you wanted to come along on this ride that would be great for me.
This was awkward to say out loud. I knew he wanted to be my partner, but he also had a lot to lose. If he did this, he'd need to quit his full-time job, not right away but in a couple of months. And during the months before he quit, he'd be continuing to do what he was doing now working nights and weekends helping whenever he could. And this is pretty common for startups. Founders have day jobs. They have lives, and that's why if every business partnership is a marriage, it's a marriage that by definition comes with a prenup.
LIEBER: I definitely want to be involved and continue to like build this and get it off the ground. I cannot - I don't believe I can spend the next eight months helping you in the way that I want to with no conversation about equity.
BLUMBERG: Well, yeah, no - I hate living in ambiguity. Like, I would love to have this conversation. Yeah. It's like I've been waiting for this conversation.
Equity - what that means is simply who owns how much of the company. And the point when Matt and I were having this conversation, I owned all the equity in my company - 100 percent. Now, that's 100 percent of a company that has zero value. So if I'd walked up to someone and said I'll sell you the American Podcasting Corporation for 100 bucks, I probably couldn't have found any takers.
But traditionally for startups, there's a conversation that happens before the company has actual value over how much of the company each of the early team members should get, how much equity they should own. And the fact that we were having this conversation was a relief. When you're in early stages like I am, there are lots of people out there who you rely on for help, for mentoring - my cousin who went to business school, the parent of a friend's girlfriend and acquaintance's acquaintance. Some of these folks are happy to help, others want to help but are expecting to be compensated with equity - maybe or maybe not. It's never really spoken of. For the last month or so with Matt, that had been hanging over my head. Every new draft of the business plan he sent me at 1:30 a.m. after working a 15-hour day at his regular consulting job, I couldn't help but think what do you want out of this? What's he expecting? Not that I wanted him to be doing it for free, quite the opposite. I wanted there to be something in it for him. I just wanted us to agree ahead of time. And what that something was. So this conversation was a giant load off my mind. Finally, it was clear. Matt wanted in. He wanted equity. We are on the path towards clarity.
So do you think I - do you want me to come, like, sort of like talk to other people that I know, talk to like my lawyer sort of come to you with like a, you know, a piece of paper?
LIEBER: That is one way we could do it. I mean, you can do that. We can independently do that and see where we end up.
BLUMBERG: Why don't we do that? I think it'd be interesting.
N. BLUMBERG: So why do you have your microphone out right now? We look like freaks (laughter).
BLUMBERG: It's a beautiful early summer evening. Just a couple of days after Matt and I had had that conversation where I asked him to be my partner. I'm walking with my wife Nazanin down a residential block in Brooklyn to a restaurant in our neighborhood to enjoy a rare evening by ourselves. And I'm also recording her for this podcast.
The subject of our conversation today is I have a big conversation coming up with Matt.
Filled Nazanin in on the previous conversation with Matt where we had agreed in principle that we'd work together just needed to figure out what our equity split should be.
So what number do you think I should offer him?
N. BLUMBERG: I mean, I think really like 10 percent is where - you know, like somewhere like that. Like, I think like if you - like, if you were kind of more - like it makes me uncomfortable to say 10 percent because I, like you am - I'm like - you think like, oh, my God, 10 percent. That's so dickish. But it's not dickish, you know, somewhere between 10 and 15 percent.
BLUMBERG: Now, Nazanin isn't the only person I've been asking about this. I brought it up with several people I know with business or startup experience
BLUMBERG: and most of them said start the negotiation out around where Nazanin is, but for me it's hard to take this conversation seriously. Right now, the company is worth nothing, and so the percentages don't matter. And in the scenario that the company ends up being worth millions, then it also doesn't matter. I'll be a lot richer than I am now.
N. BLUMBERG: You should care because you know you will care once he owns a part of your company.
BLUMBERG: I don't know if I'll care.
N. BLUMBERG: You will. You will care.
N. BLUMBERG: Yes. Yeah. I think it does matter. Like every percent you should think of it as like you're giving away like pieces of this thing that you're building you're just giving it to other people who may or may not deserve it.
N. BLUMBERG: And so like you're going to be working really, really, really hard and putting a lot of your time and money into it, and you're just giving it away. And so like you should think about it like you're giving away like little pieces of your fingers. You are.
BLUMBERG: My fingers were utterly imaginary.
Part of what's going on here is that for my wife, Nazanin, this conversation is touching on another deeper seated fear she has about me starting this business. Business is a realm where people like me get eaten alive. The day for our conversation finally arrived. Matt and I sat outside in my building's common area. We talked through a bunch of other issues that we had to discuss and finally got to the equity part. Matt went first.
LIEBER: When I look at the breakdown, I'm thinking of like high 40s to low 50s, so like a 47-53 or something in that range.
BLUMBERG: Right. All right. I was afraid you were going to say that. That - so the way I've been thinking about this is sort of like. I've been - so I've been talking to various people about like what, you know - what would be a fair situation. And, you know, people - various people have told me various things but nobody - like the highest anybody really got was like 10-12 percent in terms of what what they thought. I was arguing people up basically - basically saying like no, no, he's doing a lot of work he's going to have to leave his job, all this sort of stuff. And like - yeah, you know, yeah...
LIEBER: So what I'm hearing you saying so far is I've talked to a bunch of people who've done this before. When I tell them the situation they're like it could be 98 to 2 or it could be 90 to 10, but it's nowhere in the realm of what you're talking about.
BLUMBERG: And I'm not...
LIEBER: That is definitely a standard by which to judge what is fair. That is one standard. I think there are multiple. I kind of gave you what I thought were my standards. But what do you think? Like underneath that like what is important to you? Like is the thing - is it important - here are some examples of things that could be important. It is important that I be the CEO. It's important that I be in charge. It's important that this be my company. It's important that I own, you know, 80-plus percent of the company. That could be a thing. Tell me what is really important to you because I think it will help me as I - to understand.
BLUMBERG: Well, so I definitely - so I feel like there's like a - I think - I don't want to - the truth is I don't know what to say here because my main worry - something I'm afraid to admit out loud - I'm worried about being exposed as a rube or a sucker. I'm worried about what other people are going to think. If I go back and tell them - to use my wife's analogy - that I gave away half my fingers, Matt is a businessman. He's taking classes in negotiation. Still, giving him 47 percent that did feel too high. I tried to focus on why it felt wrong.
I'm key to the success of the company, you know, and I feel like - and I want to - and I want to feel like that - I want to feel that that is reflected in the cap table, I guess, you know...
LIEBER: There's a subtext to the I am key to the success of this company which is you are not - you meaning me. And so do you believe that I am key to the success of the company?
BLUMBERG: I believe that you are. Absolutely. Absolutely. No, that's why we're having this conversation.
Is this the way all business happens? You think it's about numbers and bottom lines, but really it's just about raw feelings. Do you respect me? Do you value me?
LIEBER: I can't imagine doing this for the numbers that you're talking about. I just can't imagine doing it. Because if it's 90-10, I'm like this - now it's a job. And in a job I'm not going to like - and then you're the boss. And I'm just not interested in that, and I don't think that will make the company succeed. Ten percent is just not - like I can't give this what it needs of me at that level.
BLUMBERG: And honestly I could see Matt's point. If I were him, I wouldn't have done it for what I was suggesting probably. Leave my good job for a tiny minority stake in a company that odds suggested would fail anyway? And, of course, he had his own friends and advisers who are seeing things from his perspective saying you're amazing. You've got this great job that earns a lot of money. If you're going to chuck all that, you have to make sure that you got a stake that's worth it to you.
We ended the conversation without ever coming to terms, and we went home to de-brief with our wives. I knew I was going to be recording my conversation with my wife. And so Matt and I agreed that he would record his conversation as well. One, it just felt fair, but, two, this is something you never actually get to hear in a negotiation - what the other side is actually thinking at the time. We agreed that we wouldn't listen to each other's recordings until well after the negotiation. This tape I'm about to play you of Matt and his wife Ellen (ph) talking the night after a big equity conversation, I didn't hear it 'til a couple weeks ago months after the negotiation was over.
LIEBER: I'm really disappointed. I don't think I totally processed it while we were talking, but now I actually think
LIEBER: he wasn't thinking of it as co-founders at all, even though he used that word before.
ELLEN: Were you really surprised at the number he chose? Were you expecting he was going to say these past few months have been so great, and I see you as super valuable to the creation of this company, so let's go 50-50?
LIEBER: No. I knew he wasn't going to go 50-50 because - so, yes, I was extremely surprised at 10 percent and sort of - and I was resentful of it because I thought it devalued what I had contributed and devalued my potential and my commitment that I have shown. But maybe he doesn't see it that way. Maybe he sees me as like a consultant who's helping him get this off the ground which was sort of originally in the first two meetings that we had that was sort of the set-up. But I had thought we'd move beyond that, and so yeah, I was really surprised.
BLUMBERG: Of course, back at my house that night, I didn't know any of this. Still, I was feeling bad about the way it had all gone down. I had been thinking of Matt as a consultant who was helping me get the business off the ground. At the same time, I'd been thinking of him as a co-founder, someone who was going to help me build this company from scratch. But, of course, you can't be both, and I didn't need a consultant.
It's too hard to start a business without a partner.
N. BLUMBERG: Yeah. You need a partner. You also need someone who's going to, like, challenge your ideas and push you to do things in a weird way and - I don't know - force you to think about money and..
BLUMBERG: Yeah. So how high should I go?
N. BLUMBERG: I think you should go no higher than 30 percent.
BLUMBERG: Back to Matt and Ellen.
LIEBER: Like you could - there's a simple mathematical equation which is - he came to 15 percent today. I came to 45 percent. If you meet in the middle, that's 30 percent. That would be one way to divide the pie. But I can't do that, and I feel like his whole perspective on this is kind of like, you know, you're trying to put one over on me, and therefore I'm going to try to do the same. And that's what the whole like positional bargaining of like I'm going to go really low, and you're going to go really high is. I don't know. It's kind of a bummer.
ELLEN: I know. I can tell you're very upset.
LIEBER: I'm disappointed because it seems like such a waste of potential. Like, this seemed like such a good potential partnership. Oh, well. Let's see. Maybe there is a way forward.
BLUMBERG: Matt and I had made plans to meet for lunch the following day to continue our discussion. I spent all the intervening hours reading everything I could on the internet about how to split equity among co-founders. There are elaborate spreadsheets you can fill out that help you calculate equity splits down to the decimal point. Whose idea was it? Give yourself one point. Who's got the most experience? That's another point.
But then there's this whole other school of thought that says it's not worth fighting over at all. You should just split everything 50/50. And the 50/50 idea was endorsed by this very successful venture capitalist guy in New York, this guy named Fred Wilson. In other words, there was literally no right answer. And I actually found that really liberating. Everyone out there - everyone who starts a business, they have to come up with their own answer. And so Matt and I were free to come up with ours. What mattered most said the Internet was arriving at something that felt fair to everyone. Starting a business is hard. Everyone's going to have to work their butts off. I didn't record our lunch. It was a loud restaurant and everything seemed so tenuous. I told Matt I'd spent a lot of time thinking. I thought the split should be 60/40. He agreed, and we wrote up a little contract write there at the table, a founder's agreement, literally just like in the stereotype on the back of a piece of scrap paper.
One, two, three, one, two, three.
LIEBER: Check, check, check. No, I am not hearing myself.
BLUMBERG: Are you plugged in?
BLUMBERG: And then we talked about it afterwards. You were really bummed out after that conversation.
LIEBER: Oh, yeah.
BLUMBERG: I'm sorry about that.
LIEBER: Thank you for your apology, but that's OK.
BLUMBERG: You thought that it was over basically or you were worried that it was over.
BLUMBERG: When you - when we - OK, so we left that restaurant.
LIEBER: I was really happy. I was so happy. Yeah.
BLUMBERG: I was so happy, too. I was so relieved and so happy and so shocked by how all the things I thought I was going to feel it. I did not feel at all.
LIEBER: You felt you were going to - you thought you were going to feel regret at having given away too much?
BLUMBERG: Sort of or something.
BLUMBERG: And I didn't feel that at all. I felt the opposite.
I felt relief. I wasn't alone anymore. I had a partner we had successfully divided up a company worth nothing. And now we had to make it worth something together.
(SOUNDBITE OF SONG, "WANNA BE STARTIN' SOMETHIN'")
JACKSON: (Singing) I said you want to be starting something. You got to be starting something. I said you want to be starting something. You got to be starting something...
KESTENBAUM: Today's show was basically episode three, Alex, from your new podcast about making a podcast company it's called StartUp.
BLUMBERG: You can hear all the episodes. There's many more to come. You can also go back and start in order Hear StartUp - hearstartup.com or you can find us on iTunes - StartUp podcast.
KESTENBAUM: They're really good. I almost missed my train and then I almost missed my stop while I was listening.
BLUMBERG: Oh, thanks.
KESTENBAUM: It's so nice to see you. Good luck.
BLUMBERG: I will take all the luck I can get. Can I do the honors?
KESTENBAUM: Yeah. If you want to send us an email...
BLUMBERG: That's right. If you want to send us email, send it to firstname.lastname@example.org. You can also find us on Facebook, on Twitter, on Spotify.
KESTENBAUM: Our show today was produced by Jess Jiang.
BLUMBERG: Hey, Jess. So good to see you again. And there's more things to promote.
KESTENBAUM: Yeah. This week we've got a special request NPR Snap Judgment is raising money on Kickstarter. If Snap has become a favorite of yours and you want to support it, you can make a contribution now at snapjudgment.org.
BLUMBERG: Can we do the thanks for listening together?
KESTENBAUM: Yeah, yeah, yeah.
BLUMBERG: Just for old times' sake?
KESTENBAUM: Yeah, yeah, yeah. I've David Kestenbaum.
BLUMBERG: I'm Alex Blumberg.
DAVID KESTENBAUM AND ALEX BLUMBERG: Thanks for listening.
KESTENBAUM: Thanks for listening.
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