The proprietary/open balance in startup mode.

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I’ve written some before on our efforts to peer-produce Shouldess Inc. (^shldlss), the developer of VenTwits and the for-profit cohort of the Social Venture Commons (^svc). We’ve decided to launch early and iterate rapidly with VenTwits and its group focused cousin GroupTwits (to be turned on soon). We’re also planning to open source our code once we’ve rebuilt a core based on how people actually use it.

I believe in the principles and power of peer-production but am finding it a constant tension as we build the for-profit startup. A big part of that I’m sure is my experiential conditioning. What’s been most recently tested is how much of our business strategy and development plans should be in the public domain.

Taylor Davidson, who is stepping up to help on the financial modeling and strategy side asked me point blank. I fumbled some lame answer that didn’t really say anything. As I’ve sat with it now for a couple of days, I’m actually questioning what if anything should be kept private. It comes down to speed of execution and I also think that the more broader the engagement the greater defensibility we have – provided we execute. If people are a part of it, they’ll rally to support it.

What do you think? Is there anything that should be kept private? Why? What are the risks? What are the benefits?

Right now I’m feeling ready to open everything up and push this experiment even further.

Foolish or fruiful?

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Kudos for Equity

Owning equity in a for-profit venture is a powerful motivator – particularly in the early stages.  It’s also one of the most contentious, negotiated parts of building a high-growth venture. This comes from our organizational conventions of control and scarcity – we need to control and amass resources to control and weild power and get things done.

In taking a peer-produced approach to building Shldlss, the for-profit offshoot of the Social Venture Commons, I found we needed a new model to fairly attribute the economic value to those who actually created it. After many conversations, including on this post, here’s where I’m at with what has now become our “Kudos Model” for economic value distribution.

  1. Phase: Set the phase of value creation ending with a valuation event or economic value distribution
    For shdlss this is the founding phase extending through to Series A investment. At this point we should have a reasonable grip on the value of what’s been created and what others think it’s worth.
  2. Proportion: Set the estimated proportion of enterprise value that will be newly created during this phase.
    For founding phase this would be 100%. Over time, the new value created will likely be proportionately less each time – though not always. A basic benchmark for where to set the proportion might be what a comparable venture might issue in option pool.
  3. Appointment: Appoint key people to allocate Kudos.
    For shdlss we will go probably go to 4-6 people who have been and are committed to being involved for the whole phase.  This appointment is happening essentially half-way through the phase and will be done shortly.These are people who are closely involved in the project for the entire phase and will have a reasonable sense of the relative value of contributions made during the phase.
  4. Allocation: Have a KudoFest at the end of the phase.
    All appointed people will gather to review the stream of all contributions made during the phase. We will use the twitter and VenTwit streams as the core history. Each appointed person will then be able to allocate 100 Kudos to those who made meaningful contributions. They must allocate all Kudos and cannot allocate any to themselves. The 100 limit means the smallest contribution they can recognize (1 Kudo) represents 1% of the value they have to distribute. After each person does their allocations, we will aggregate the allocations and have an initial allocation. The group will then review and discuss and can make any changes provided their is unanimous consent.
  5. Distribution: Distribute financial value rights according to Kudos allocation.
    During the founding phase, this could be in common or preferred shares, in subsequent phases this could be through options or other forms of financial value sharing.

This will no doubt evolve as we work our way through the process. As the lead founder, I’ve been asked why I would do it and even told that I’m crazy for trying it. With where I’m at now, I can only see us all as having a much more to gain. Without the spirit of this in play we wouldn’t be where we are at – and that’s what it’s all about – getting it done – together.