We’ve read and want to use Slicing Pie! Now what?
Great – you’ve decided you want to share equity fairly! Now it’s time to set up your pie and start tracking what you’re all putting into your business. Here’s our list of next steps, to help you begin.
(Hold up. Before we start: has everyone actually read Slicing Pie or The Slicing Pie Handbook? Yes? Marvellous… No? Then give those who haven’t 3-4 hours, so they can catch up. You’ll save time and avoid rookie errors.)1
1. Set up your grunt fund
First, set up your pie, a.k.a. grunt fund. Great places to start are Mike Moyer’s spreadsheet or Pie Slicer. You can use either as is, or as the basis for your own tracking system. If you use a spreadsheet, then you’ll probably need a timesheet template as well (there are plenty on Google).
Then decide on your time tracking units. You can track by whatever unit you like, e.g. minute, hour, day, week or month. Just make sure that your increments are useful enough to capture differences in commitment.
We use a spreadsheet based on Mike’s original Excel model. (To make ours simpler, we deleted the input types that we didn’t need. We don’t use the Pie Slicer, because it came out after we’d already set up and we don’t yet have a reason to switch.) We clock in and clock out to the nearest five minutes each day.
2. Agree your Slicing Pie numbers
Next, work out how you want Slicing Pie to apply to your business and basic pie inputs:
- Inputs: Work out which inputs you have. Most startups just start with time and cash for business supplies, though occasionally some have one or two more.
- Multipliers: Agree your multipliers, i.e. cash x 4, non-cash x 2. We recommend strongly that you use these and stick to the model, because Slicing Pie is very carefully balanced. So whilst it can be tempting to change it, doing so makes it less fair.2
- Loyal employee protection: Decide if you want this. If so, how long should your loyalty period be? And what % should such leavers keep? We’ve thought about this a lot. If you do – and you may not – then we suggest that employees who leave after 3 years keep 50% of their pie. (50%, because this is equally painful and favours no one. And three years, because if people stay less than that, it arguably doesn’t look loyal – though in some sectors, this may be shorter or longer.)3
- Personal car: Decide whether to record your business mileage expenses as cash, or as a combination of cash and non-cash. Using a combination is more accurate, but also more complicated. So Mike Moyer recommends treating business mileage expenses as a 100% cash contribution, which is what we also do. It’s up to you.
3. Work out your fair market values or GHRRs
Your fair market values (a.k.a. grunt hourly resource rates or GHRRs) are basically the salaries that you are getting pie for. The key to getting them right is to set them in line with the real world. Not too high or too low.4
- Reflect your roles: Set fair market values that reflect the roles you are actually doing – not what you are/were earning elsewhere. So if one of you is a banker but doing tech sales for pie, then that Slicing Pie salary should be for tech sales, not for being a banker.
- Benchmark: Find out what others are earning in similar businesses (if you don’t know already). When doing your research, keep in mind that startups can differ even in the same sector, e.g. some burn through cash, whereas others are very cautious. You may also need to look laterally. Job boards and salary surveys can be good places to start.
- Blend if necessary: People at startups often wear many hats, e.g. do CEO stuff as well as take out the trash, so blend salaries if appropriate. (Although one or two people we know have multiple GHRRs, we and Mike Moyer don’t recommend it, as this complicates tracking and pie calculations and is not how things work in the non-startup world.)
- Part-payment: Once you’ve worked out your fair market values, adjust for anyone who is being part-paid. (Note this will also affect those people’s multipliers.)
- Include a salary review: If you like, you can review and change your fair market salaries from time to time (e.g. just as companies do in annual performance reviews, or if you’re splitting a combined role that has a blended salary). If you’re keen on great business ideas – as we are – then check out Buffer’s awesome open salary setting formula. We use this too.5
4. Estimate and agree historic inputs
If you’ve already done some unrecompensed work before starting your pie (which is not unusual), then the next thing to do is work out how much historic time, if any, you all should record. This is called “retrofitting”. Do your time estimates as soon as you can – it’s much easier when everything is fresh in your minds. As long as they’re realistic and everyone agrees that they’re fair, it doesn’t matter if they’re not precise. Also record any old expenses etc that have been paid on behalf of the business but not reimbursed. In addition to what’s in the book, Mike has an online retrofit guide here.
6. Formalise your pie
- Fairness: make Slicing Pie values legally-binding;
- Team-building: simplify equity negotiations with new joiners and leavers;
- IP: ensure the business owns the IP that everyone involved is developing;
- Finance: guarantee that those paying business expenses get pie;
- Control: formalise who decides what, and co-founder rights; and
- Tax: tax-efficiently set up your business, so you can save tax if/when you sell.
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1 Seriously, reading a blogpost/excerpt or watching one of Mike’s videos isn’t enough. (We know. We tried.) This list also only covers a few points from the model. So it’s a terrible substitute for reading the book – even if you are bootstrapping. (Mind you, if you are, you will enjoy, as it’s so full of great information that it is a bargain.) We don’t mind which one you choose, though it helps if you all read the same. We really love the original Slicing Pie (v2.3 pub. 2012). It’s clear, snappy and contains all the basics. However, if you want something more detailed and up-to-date, then read The Slicing Pie Handbook (pub. 2016).
2 Having said that, if you have suggestions that can improve upon Slicing Pie, then we know Prof. Mike Moyer would love to hear them.
3 Loyal employee protection was added to the Slicing Pie model after the original book came out in 2012. It allows people who stay with the business beyond a certain period to keep some pie if they resign for no good reason before their pie splits. You can read more about it in The Slicing Pie Handbook.
4 Too high means non-time inputs like cash and assets get undervalued. Too low means if someone new joins, e.g. a consultant who charges £1k/day, the rest of you will be penalised.
5 We use this largely as is. However, we’ve tweaked Buffer’s experience multipliers, to try to mirror a bit better what happens in law firms. (We also added a few Star Wars references, but that’s another story.)
6 Seriously, we really do. However, if you’re a non-UK resident, check that you’ve got the right visa to set up and work in the UK – we can recommend immigration law specialists if you need help. And if you want to set up outside the UK, look for a Slicing Pie-friendly attorney in your chosen country (because our advice and solutions are highly specific to the UK).