Good News, Bad News

You have a great idea and the idea is good for our life-support system, Earth. On the other hand, you don’t have capital and your friends are busy with their own jobs and can’t join your project.

You need capital!

The Foundation

Description,

Cash Infusion

If you want to, and can, then take in capital. For starting companies seed capital, as it is called, comes from friends, family, and “fools”. Friends and family know you and trust you, and believe in you, ‘fools’ that they are. The thing they have in common is that they all want you to succeed.

Seed capital is formalized and made legal as a Note that promises them, 1) their money back plus some upside, or 2) future shares of the new company. Note that your startup company won’t have shares (but hopes to, one day).

Result

What we are proposing here is you treat capital infusions as a Radical investment.

Radical investments include paying back the principal and an upside over a certain time. It could be 120% over two years, or double after five, or whatever you think is realistic and reasonable. Very important: Radical investments do not include any other powers. This won’t be a surprise for the friends/family/fools crowd. It will most likely be a surprise to traditional Fiat capital investors; even unacceptable. However, a few “traditional” investors may be inspired enough to go along with a Radical-investment.

The guaranteed return may do the trick.

Instead of promising wild returns, you may structure it as a reasonable, even low, guaranteed return plus a percentage of dividends for a fixed period of time. This avoids the “power over forever’ setup of today.

Predictable Recurring Income (PRI)

Once you have the capital it will go into whatever you have to buy up front. It may also go into a the Predictable Recurring Income (PRI) fund, used to pay all co-owners until revenue comes in.

You may be able to take in less capital if co-owners can afford to wait for revenue. In that case you won’t need a PRI fund.

Hiring

You are not going to do any hiring, you are finding co-owners. You should repeat this, out loud, many times. Like a mantra.

Since you are not hiring, you are not going to interview people. One way to not fall down the interview habit hole is to tell the person you are talking to that 1) you are looking for co-owners, not employees, 2) this is not an interview, and 3) please, let me know when this starts to feel like one.

What you are going to do next is to explain what a PRI fund is and how it works.

The PRI Fund

This is what the PRI is,

• Until revenue starts to come in, the PRI Fund pays co-owners.
• Well, actually, it is not the revenue, but the earned dividends that pays the PRI Fund. Earned dividends is what is left of the review after paying off all expenses, etc.
• Even after earned dividends start to materialize, the PRI Fund may supplement a co-owner’s take home.
• Eventually, the earned dividends a co-owner gets starts to pay off the co-owner’s debt to the PRI fund. How much of it goes into paying PRI Fund depends on what co-owners agreed to.
• Finally, after the PRI debt is all paid up, co-owners take earned dividends home, in addition to their home pay.

This is how take home is determined,

• Each co-owner states what she needs to take home.
• If this figure is would, co-owners decide how to handle, say, the PRI Fund drying too quickly.
• In the happy path, the stated figure is acceptable and doesn’t cause any commotions.

This is the important, and probably most contentious, thing of all: a withdrawal from the PRI Fund is a personal debt that a co-owner is responsible for. Other policies are plausible, but this seems to be the most reasonable. Co-owners are not exchanging their time for just a salary as is the case in Fiat land and the people drawing from the PRI Fund are co-owners. Each needs to realize that they are responsible for what they take out of the fund.

This means that co-owners need to decide what to do with people who exit while still having PRI debt. For example, you may decide to put limits on time (We have agreed to do this for six months…) or amount (We have agreed to do this for as long as the $500,000 in the PRI Fund lasts), or you want to have a discussion with the PRI debt to RADs falls too low. The point is that it is up to you, the co-owners.

The RADs! Mobile App

Co-owners use the RADs! mobile app to recognize the contributions of other co-owners. The RADs! app later converts these contributions into RADs at the end of each, say, monthly cycle.

Co-owners can recognize anything as a contribution. These can range from a tangible benefit to the company (e.g., … found us a place to store return merchandise for free.) to something more intangible (e.g., … took the time to talk to him and to help him get his mental health taken care of. or even … it gave me a lot of joy when he did that.)

RADs can factor anything through them. For example, if I have 10% of the RADs distributed and you have 20%, you get twice as much as I do of whatever is being filtered through the RADs this time (e.g., earned dividends).

Explicit Alignment

Since you have co-owners, and no boss, you still to somehow align on what needs to get done, etc., and that is what the Explicit Alignment tool is about,

Co-owners should get together to figure out what they’d like to put down in the Explicit Alignment. This is extremely key.

These not cast in stone, but have different rates of change,

• The Mission will change as often as necessary. If there is more than one team, each team may have its own mission, but it must align with what the co-owners have agreed are Impact and Purpose.
• The Purpose will change less often, but it could change as new co-owners join.
• The Impact should not change at all, at least not without a deep discussion. This may happen, but it is a major thing, equivalent to creating a new company.

Explicit Relationships

An Explicit Relationship is a guide to an exploration among would-be co-owners to make sure that they can get aligned and they want to work with each other. Even if this is a relative or somebody you know very well, don’t skip doing the Explicit Relationship. Maybe it turns out to be perfectly boring or you may discover surprises along the way.

Also,

• What thoughts does this bring up?
• Does it work for you?
• Does anything need to change or be clarified for you?

For example, allot one hour each to Mindset, Transparency, and Collaboration. We have spent more than three hours on these, and it has been very worth it. Doing it will get you to a level of trust with other co-owners that Fiat businesses don’t ever get near. This practice creates a baseline for the relationships that are so important to our success.

So…

To create a Radical startup, do whatever works for you. We are not preaching a dogma, only a way to do it more easily and with a definite intention to get away from the Fiat way of doing things.