

Advice for startup entrepreneurs: reward performance with vesting - alain94040
http://blog.fairsoftware.net/2009/02/11/reward-performance-with-vesting/

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pxlpshr
I just struggled with how to best structure our company in regard to apple's
financial cycle and payout for appstore developers.

I bootstrapped the company's initial costs as the founder, and the partners
are paid in profit share (initially 60% me / 40% them). This wasn't the best
route as nothing was being reserved for the company's growth or future costs,
but it got us started.

Yesterday I changed the entire structure. Now everyone gets 50% of the net
profits (myself included) and 15% is put into a 'founder's fund'. It's a cash
parachute for me if the company crumbles, and a cash pool for bonuses, hire
contract labor, marketing activities, etc.

For reward incentives, anytime we hit $XX,XXX a month in sales... then half of
the 15% that goes into the fund is split amongst the partners.

I think this is going to work well for our virtual team and keep everyone
interested in the general well being of the company and their respective
projects. I still retain 100% of the company's product ip, but partners are
able to publish under the company on their own.

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alain94040
Interesting. I'm exploring revenue sharing models for iPhone applications, so
I'd like to know more.

When you say 50% of the net profits, do you take into account any salary at
all, or is everyone paid only after there are profits?

You say everyone receives 50% of the net profits, and you set aside 15% for
expenses. That's 65%. What happens to the rest? Thanks.

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pxlpshr
No salary, everyone has stake in profits. The 'creator' retains 100% of his
product's ip. If a partner is no longer interested in working on a product, he
loses his profit share.

It's the best approach I've found for a boutique shop to minimize risk and a
bunch of paperwork and headache. 4 products in 4 months by team of 3. AppStore
is very hit-driven so until Apple makes some much needed changes in the
economics, it could be a bumpy road for awhile.

\+ 15% of a product's gross profit goes into the founder's fund. \+ the
project partners split the remaining profit into equal parts (usually 50%).
this is compensation. \+ every partner (including myself) is charged a
"partnership fee" = company expenses divided by # of partners.

I like this method because success in the AppStore is really dependent on
releasing updates often until a very, very strong product exists that you can
sell for $5.99+. That's our approach this year and profit sharing keeps the
developers interested in that goal.

Here's an overview of profit distribution for Jan. 09.

[http://www.grabup.com/uploads/3ad2c56bf88717180fa1b5c77645e3...](http://www.grabup.com/uploads/3ad2c56bf88717180fa1b5c77645e353.png)

~~~
Shamiq
Those expenses are sexy low. Mind disclosing what you're including in them?

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alain94040
This is an important topic to me. Again the other day, a friend entrepreneur
of mine asked me how to structure a deal. He is starting what could be a very
visible project with 2 co-founders. But he is unsure about the longevity of
one of them... I walked him through various scenarios, and it's clear that
vesting is a great way to keep everything fair under mot scenarios and
preserve everyone's ego in the short term.

