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I think the author conflates fairness with equality and inequality with self interest. You can be fair but unequal and unfair but equal. Also, just because you

by ansy 15y ago

I think the author conflates fairness with equality and inequality with self interest. You can be fair but unequal and unfair but equal. Also, just because you might be getting the smaller share of an unequal deal does not mean you aren't still serving your self interest.

swombat 15y ago
No, I think you misunderstand me. The purpose of a 50/50 split is effectively to convey the following point: "We could argue about this and come up with some percentage split, but actually, the most important thing isn't for the percentage to be accurate, but for it to make both of us feel like we've been treated fairly and equally." It sets the tone for the rest of the "adventure". "We're in this together, whatever happens!" is the core message. This is important when the relationship between the founders is, in a way, irrational, based on unconditional friendship, and that relationship is being transferred into the business context. The purpose of an unequal split is to fairly (!) represent the different contributions to the business. "I'm bringing in all those things, and you're bringing in these things, and so I deserve 70% of the business and you deserve 30%." It also sets the tone for the future. "We'll each get the part we deserve" is the core message. In the equal split context, it's unlikely that either founder will walk out unexpectedly, so long as they both entered into this with their eyes opened. With the unequal split, I believe it's a lot more likely - if it ends up not being in the self-interest of one of the founders. Having the larger share doesn't mean that you won't walk out, either. I was in a 70/30 split in my first startup, and I had the smaller share... and my cofounder effectively walked out of the business! I was shocked, because I thought that we were in it together, but it made sense from my cofounder's point of view because the business wasn't making enough money to be worth his time, so it was not in his self-interest to continue it.
- shasta 15y ago
  If you go to dinner with a friend who has chicken and water while you have the lobster and wine, then your friend might suggest "let's just split it" as a way to simplify the math and that's fine. But you shouldn't suggest it. Similarly, an offer to split things equally might well be a good way to increase good will, but only if the idea comes from the person who's definitely contributing over 50%.
- ansy 15y ago
  I understand what you're saying, but fairness is a poor word to use for what you're describing. Especially when you use it in contradicting ways. In your first example equality is "fair and equal." Removing the "equal" as redundant, you end up with equality being fairness. In your second example inequality is fairness. But somehow the second example is not "fairness" according to your article; it is "self interest." I guess my argument is that in any relationship self interest and fairness are the same thing. To long time friends, 0/100 could be considered fair because it's not really 0/100. There's a lot more equity there than the company. Maybe the guy's a great fishing buddy and some tiny venture is worth so little compared to that you'd just as well give it all to your friend so he can spend more time fishing. Also, because your investment with the person is so much more than the size of the venture, the total cost of walking away may be much more than you are currently losing on the venture. Contrastingly you might not know a cofounder at all. Your relationship with him is worth virtually nothing going in. All you've got is the value of the venture. So as the disparity of initial contributions grows, so grows the desire to find a more accurate equity split. Likewise, because the value of the relationship is only the value of the venture, the cost of walking away is much lower so it is easier to reach that point.

by ansy 15y ago

swombat 15y ago

No, I think you misunderstand me. The purpose of a 50/50 split is effectively to convey the following point: "We could argue about this and come up with some percentage split, but actually, the most important thing isn't for the percentage to be accurate, but for it to make both of us feel like we've been treated fairly and equally." It sets the tone for the rest of the "adventure". "We're in this together, whatever happens!" is the core message. This is important when the relationship between the founders is, in a way, irrational, based on unconditional friendship, and that relationship is being transferred into the business context. The purpose of an unequal split is to fairly (!) represent the different contributions to the business. "I'm bringing in all those things, and you're bringing in these things, and so I deserve 70% of the business and you deserve 30%." It also sets the tone for the future. "We'll each get the part we deserve" is the core message. In the equal split context, it's unlikely that either founder will walk out unexpectedly, so long as they both entered into this with their eyes opened. With the unequal split, I believe it's a lot more likely - if it ends up not being in the self-interest of one of the founders. Having the larger share doesn't mean that you won't walk out, either. I was in a 70/30 split in my first startup, and I had the smaller share... and my cofounder effectively walked out of the business! I was shocked, because I thought that we were in it together, but it made sense from my cofounder's point of view because the business wasn't making enough money to be worth his time, so it was not in his self-interest to continue it.

shasta 15y ago
If you go to dinner with a friend who has chicken and water while you have the lobster and wine, then your friend might suggest "let's just split it" as a way to simplify the math and that's fine. But you shouldn't suggest it. Similarly, an offer to split things equally might well be a good way to increase good will, but only if the idea comes from the person who's definitely contributing over 50%.
ansy 15y ago
I understand what you're saying, but fairness is a poor word to use for what you're describing. Especially when you use it in contradicting ways. In your first example equality is "fair and equal." Removing the "equal" as redundant, you end up with equality being fairness. In your second example inequality is fairness. But somehow the second example is not "fairness" according to your article; it is "self interest." I guess my argument is that in any relationship self interest and fairness are the same thing. To long time friends, 0/100 could be considered fair because it's not really 0/100. There's a lot more equity there than the company. Maybe the guy's a great fishing buddy and some tiny venture is worth so little compared to that you'd just as well give it all to your friend so he can spend more time fishing. Also, because your investment with the person is so much more than the size of the venture, the total cost of walking away may be much more than you are currently losing on the venture. Contrastingly you might not know a cofounder at all. Your relationship with him is worth virtually nothing going in. All you've got is the value of the venture. So as the disparity of initial contributions grows, so grows the desire to find a more accurate equity split. Likewise, because the value of the relationship is only the value of the venture, the cost of walking away is much lower so it is easier to reach that point.