Igor Ashmanov about the division of the business

“I want to talk about the human aspects, because first you will encounter exactly the human aspects. Neither the technology nor the money settles anything, actually. It’s clear, that the team decides everything.

The structure of the business owners in some sense is the key. These are the people who decide how the business will develop. And now the question arises – whom to take in this business. This question you have to settle before getting the money. There are people who either have burned their fingers once, or those who decide that they will always get one hundred percent simply because of their innate greediness. I have seen such people.”

Igor Ashmanov about the division of the business

Ashmanov continues. “It’s not the worst model. It creates serious problems with the motivation of other people, but it takes away another serious problems, for example, how to share the income, or dealing with violation of control and so on. I never managed to own anything at one hundred percent. Once there was the episode: the current company “Ashmanov and Partners”, I once owned one hundred percent out there, but gradually I began to chop, chop, chop it, as it happens. Not even for investors, we didn’t have any investors there. I just gave the share to those who deserved it, in my opinion. You still will have to settle this question:  whom to take in this business.

In fact, it is clear, who you face as a co-owner: these are founders, some staff you will give shares, or slices, or options, any issue. Then comes Angel Investor, as it’s called in English. I have a feeling that there is some confusion, because business angels – it’s a little bit another thing. What has been said is a lower level of venture capitalist, which merely has less money. Paul (Cherkashin) is certainly not an angel investor. He is a professional investor, of course. He simply does not invest a lot of money, as I understand it. To get started you may encounter the very same three «F»: Family, Friends and Fools. These are the real angel investors, that means those who give money.

Well, and venture capitalists will come to you in the end, if you look for the money for development. Anything may happen or not. For example, my wife runs the company “Kaspersky Lab”. This company has created its own money, the owners are individuals. And still, though they have turnover of 400 million dollars a year, they have never drawn in the money. There are no investors, and never was. If the business develops fabulously, then maybe you will not need anybody,” tells Igor Ashmanov.

In any case, you have to understand that if you have a business with a wrong person, it is a monstrously expensive error in the beginning. For example, the control was in one place and the brains in another. This happens very often, I’ve seen it many times. Perhaps in the first phase, when all are together, all have a cup of the tea in the same kitchen, the company has only two rooms, and so forth, you might not feel this conflict or contradiction. But later, when the big money appear, and when you have to make important decisions, the company will start to break into pieces. Or vice versa, if there is a weak link in your company, for example, the person to whom you gave twenty percent, but he lagged behind the development of business, he wants to leave, he needs a car, and he generally feels the passion for consumption, he may begin to erode the company trying to sell his stake or claim the  money from you. That is an error in the beginning can lead to very unpleasant consequences. And they have one feature: once you have recorded the shares, you can do nothing with it. More precisely, it is difficult negotiation process. Once you have agreed with somebody on the shore, and then it turns out that this man was completely superfluous. You understand it perfectly clear in a year or five years. But the papers can do nothing, and the concepts too. It is clear, what share this man had. Very often, the co-founders, of course, may be thrown away, you can make different moves. If you start remaking all these, you will need to either negotiate or do some unethical things. In any case, it will be difficult and will cost either deals with your conscience, or transactions with the unnecessary co-founder.

Here is a basic principle, I developed it for myself, it is very simple: as the co-owners you should accept those and only those who have a significant impact on business development. I will cite an example from a completely different field, not from start-ups. I worked for a company that developed electronic dictionaries “Multilex”. Once Swedes, who wanted to distribute this e-Swedish-Russian dictionary, applied to us. I went on the beaten track: I went to the largest dictionary publisher in the country and said: “You also have a Swedish dictionary, behold, I have it on the shelf stands with your logo. Sell me license on its computerized form to this, as always (then I had a right for  the thirty dictionaries).  They said: “We can not!” – “Why?” – “Well, there  are  three authors, there are two authors, doctors, experts in the Swedish language from philology  department of the university (I do not remember now). The third author – a Ph.D. student, whom they designated as the author simply because he read in their entries. Well, he worked as a proofreader. He was a good clever graduate student, helped them, of course, free of charge, they included him as the author. Now both of these professors died, and only one author remains, who requires some kind of crazy sums of money, is inadequate, and does not allow to publish a new dictionary. As a result, the heirs of two of these genuine authors do not receive anything from this dictionary. In fact, it is clear that he has not made a significant contribution to the business, in this dictionary. They got him out of friendship, of compassion, I do not know. This is a mistake. Because authorship  is as much a sacred thing as property.  You can’t call anybody as an author, if, in fact, he is not. And it is the same with  the property.

I have seen all these cases, which are described here. When the co-founders are joined by a couple of programmers, simply because the founder was drinking beer with them, and they are generally good guys. In this case, it’s obvious, it’s known, it’s verified that they would come to a new company to work solely for the paycheck. They did not have any ambition to receive a share. But they were given the share, and they began to tear the company apart.

Let me explain why. You take the old comrades. You take the family for them not to be offended. You take someone who always sat next to you: “Well, how can I not take him”, because often these people go from one company to another. “Here we all went from this company, so we all together will be the new owners.” And so on. These are totally wrong motives. Later it will hit so hard that it is better to think first.

There is a system that perfectly shows itself in the mafia, as well as in many types of family businesses when only the relatives are taken. It also works, as well as a wholly-owned property by one person. It is simply another form of business organization, it should be understood, and it should not be confused. I have never opened family companies. Now I have one company which, unfortunately or maybe fortunately, I own with my wife. But generally speaking, I do not understand family business. There is a very big plus, it seems that relatives do not give out each other, do not steal and so on. But the disadvantages are clear: you take a relative, but he or she can be a total idiot and he does not affect the development of a business or even prevent it. This can be, too. So I would not advise relatives.

Somebody may accept the official as a co-founder, who says: “Come on, I will provide you with a license”, or something else. And the official is drawn in. My personal opinion is that it is completely wrong. First, the majority of officials who are trying so hard to get into the business, do not fulfill their promises later. And at the next change of government in this ministry, in the city and so on, you’ve got a “passenger” who has done nothing, but now just takes money.

You should never accept so-called “passengers”. Because the business is such a thing, where there is never enough gasoline, and the passenger is unnecessary. Everything is concentrated at the end: “We’ll take this guy, he will carry us in his car anywhere, as long as we organize our firm, and for this we’ll give him ten percent.” You probably remember the story, it seems it was about Google, the story about guys who rented the garage and did not want to pay two thousand five hundred dollars per month, so they suggested ten percent of Google to their housekeeper. But she refused. I suspect that, of course, no one would give her ten percent. There is no likelihood that she  would have received ten percent of the company when Google became what they are now. B Google rewind  from many others. But she would have been given something, of course. That is, she did nonsense. But this shows that Breen with Paige did not understand what they were doing when they  offered such a deal, and didn’t really understand whom to give a share. Now I think they are versed in that very well already, better than we do.

Articulate this principle in a different way to make this clear. The share of the authorship or something else, patents, no matter – it’s strategic assets. They can not be exchanged for tactical. A tactical – is now a good relationship with this guy. Because we now go with him in a rocking chair or a bath. The fact that he now carries us and we save on the office, because this man gave us an office, and we therefore can not pay the rent, and this is very cool, and so we’ll give him twenty percent of the company. And then we’re still going to start paying for the office, he gave us will not actually needed, it will not be understood in the business, but it will have sufficient control to interfere with us.

He will definitely disturb you, it must be understood. Too many people, when they see that they have, firstly, there is a lever, and there have money, they begin to wield this lever. Absolutely. Expect that this will not happen, of course, possible. There are decent people who just got a piece, they realize that they are lucky and do not really show off. But this is rare.

Justifiable cause clear what. They are obvious: this partner has some exclusive competence. Suppose you come up with a cool project, you engineer, and he, say, great seller and marketer, and we with him, this product is invented. Then yes. You do not have enough of its marketing expertise, it your technical, it is reasonable. Or he invests money or some strategic asset. For example, technology, patents, something else, I do not know. Strategic asset for small business can be a building, for example, or “Kamaz”, if you’re going to some kind of traffic to deal with. That is, we must understand that for you is a strategic asset. In any case not to take tactical assets.

“Together with you tolerate the hardships, a lot of work.” Such might be. The fact is that a startup – it’s many years of deprivation in fact. It must be understood. We must understand that making your company, you will limit your intake. If you have someone in mind is a beautiful picture that you have something figured out here on you to run over people with money, right there you have it all went, and you feel fine … Maybe someone here both the ascending and go. In this situation, these people, I think we should pity, because what they do not limit yourself and do not suffer, making his company, and they had it all easy – it will hit them later.

Basically you have to give up buying a new car, apartment or something, to move to some bad conditions, work hard, work hard, stay up all night, nervous, come the weekend. When one of our companies opens, then we decided for the second year that we can not go to work on Sundays. On Saturday, we stopped going, I think, for the third year on the job. And depart every day at eleven. This is reality. Maybe someone you are lucky, and it will work in a comfortable environment, get a lot of money, do everything right. There are people who know how to find the optimal path. I, for instance, for such do not belong, and most people also do not apply. This means that you will have many different hardships.

I watched the man who buys a new good car runs a chain of failures. They must pass through all the rake through all the trouble through which must pass a driver. This brand new car they will not start. She is discharged battery several times over the winter. No matter that this leads to: forgot to turn off lights to inexperience, it does not matter. It must break and leave the bumper, its hitting the truck at the exit from the court, and so on. There are a number of troubles, which can not be avoided. These troubles terribly nervous energy consuming, give gray hairs in his head, and so on. Startups it has to go. Again, maybe there are people who are committed smoothly, they are. Probably. There are probably people are brilliant in the sense of driving and everything else that once learned and drove off.

Someone with whom you are basing the company, he has with you all this transfer. It can not be somewhere else and still be the owner. But either he should give money, a strategic asset, then perhaps you can get rid of these all suffering. Something that people should invest: either the nerves, the heat of the soul, your time, or strategic certain things. Or he has already invested a lot of skill, effort and labor that, in principle, the share may be a reward for past some achievements.

When you decide at some stage to give stock options to its staff, for example, you must clearly decide that you have this option. The American model, as I understand, and indeed the most common – that option is a hook that makes a key employee, it is important not to retire and wait for him to give this option. In fact, such a carrot on a string in front of his nose. Basically, it’s completely working model. So at Microsoft, for example, a large number of employees have become millionaires. This is a company with the most millionaires have a thousand employees. In general, there is the largest number of millionaires of the world, and so on. This model works. I think that smart talented people to keep on the hook is stupid and wrong. What is shameful. I for myself have chosen another model. When I myself am simply saying: “All right, this man for quite some time in our team, it’s time to get a share just for past accomplishments.” Even if he retires after this, I have to it will not claim. At least I thinking, this is my model. But I do not advise it. Just need to understand why you find this option or share giving. Because, generally speaking, once you give the share is not an option, people can actually retire, or become the enemy, or go to a competitor. It must be understood. According to our laws, for example, you can not prohibit a person quit or switch to a competitor. Even if he is a co-owner. So there just have to decide immediately.

For some reason I’m talking about all these difficulties and so on? Start – is a process. There is an opinion and, in my opinion, even some venture capitalists, start-up that a ballistic missile. That is, you have chosen the correct model, you write the correct ekselki, proper business plan, gave the money to run, and it just gets in the set point. I know several times seen decisions in the funds at the startup. Literally, they said: “You tell us how much you will have customers in three years in August!”. It is a complete absurdity. All the startups that I saw doing now does not what they were going to do first. That is for two-three-four-year start-up makes some pretty fundamental wagging, turns. For example, the old business model did not go, go new, slightly different. People there were not those, and so on. It is manned flight. Must expect that a team that is flying in this airplane, it will bring much needed and plant. You will pass through a number of risks and challenges, the founders must be to limit yourself to the consumption of the other side where all the activity and so on. That’s why you need to choose the people with whom you have those two or three years will spend together, and they are, relatively speaking, its end of the log must carry. Only for it can give lot.

Angel investors, which I understand as the angels – who are they? These are the same: family, friends and sometimes fools who have nowhere to do with money. This is a little money and need a small share. Because if an angel investor wants a controlling stake, it means that he or a fool or a wrecker. And in general it is impossible to deal with. This is usually by personal acquaintance, usually an investor who makes that kind of money, it is in the business understands. He, of course, you will ask or be asked in six months, to invite in restaurants or to come home, but he still does not understand it. This is his fundamental feature. Pasha (Cherkashin) said, “Well, the investor must be able to or may have a desire to steer, change the color of the buttons.” It’s actually wrecking, and it is rather a different type. This refers to the wild investors. And angel investors – it’s just who gave as a friend, because he has cordial disposition to you or your start-Apu, liked it, and he must have you believe. He must believe that you’ll get. Professional “angels” in my opinion, does not happen. All those who call themselves such – it’s actually venture capitalists, just a special kind of

But to take angel investor whether such a business? If you need money, you probably take it. But we should understand that it is very slippery. That’s because the man still believes – and yet this is purely an emotional thing. He does not understand business, and he is not sorry for the money. That’s all for now. This man because he is not professional, it is impossible to explain how competently and civilized way to handle the situation when the money ran out, and incomes have not gone. He does not understand deadlines. It is always pretty dumb. One must be careful with this.

In a small proportion have to take it only if it was not his last money, if not very very close relationship with him, because you have a better chance to quarrel with him. And take the money and lose a friend – this is a bad exchange. This can be seen at the first stage. If it climbs to draw and say: “No, you should not do it, and then – I advise you not to be the case. Well, he should be honest and not prone to conflicts. Because if it’s just the rowdy, then he will make trouble in six months at the latest. But sooner. And it you want? You have already spent the money, you have already given it a slice, and you now have the interminable scandals: “Where is my money, when the result will be?”. And so on. This category: family, friends and fools “- and that she is different. Therefore it is better to watch in advance who you are taking. This is a person with whom you live during the first three years. Ideally, of course, if he just will not ring, and then be happy to receive dividends, and then offer to sell its slice of the much more money. But there are very few.

I’ve seen enough of so many wild investors. Wild Investor – an ordinary person from outside the industry. As Pasha (Cherkashin) said, on property he earned money. I have seen such, in the plywood business. That man has built the number one player in its industry, money is printed there, as the printing press. Expand the business he can not, because there, the market seized, competitors are all rested, even if he is there to invest all his money, he had virtually no market share will increase. There is no flexibility on investment, it means he needs the money from there and just take off somewhere to another place simply to invest. Here he begins to search. He told friends that on the Internet. Here he comes and begins to search. Moreover, it is ready to sacrifice for charlatans, because every second or two out of three starapschikov – it quacks who maybe do not even realize that they are quacks because they think they have an idea. Then they start to just really say much. If a person says is beautiful and he has charisma, that is, he is persuasive, he’s given money. Under this could be nothing at all. Such a wild investor – is a ready victim.

He has one bad feature: it is often their ideas are. He comes to the Internet is not to invest. He comes to realize himself, because, for example, he was finishing an aerospace university, he feels that he is highly intelligent man, and he arranged the pay toilets, relatively speaking. Or rub shoulders with gangsters, cashing engaged, or something else. He sad that now he himself does not implement. He comes to the Internet. But he does not want to just give money, he is not interested. He wants to participate. He comes to actually for entertainment. It must be understood. Many of these investors have come to be entertained. Well, or his ego grow.

While he has enough money, he did not believe them, so there is no business plan, it is usually because estimates about how much it is necessary. The question of what will happen when the money runs out, is usually behind the scenes. Startupers foolish to think that it’s good, but it is very bad. Accordingly, the investor usually tries to capture a larger share. Why? It’s very simple. First, he always did in its plywood business. , If he bought the factory, he bought control of it. Why do you plant out of control? It is time. Secondly, in his business people had no such value. There was a lot of these assets: factories, stocks of goods and so on. Thirdly, he has his own ideas. He believes that much invented himself. Very many of these inverters are first come up with a project and then start to draw people there. I’m on these too had seen enough, now the Internet, too, are many. Here they came, they have money, they begin to do. Therefore startups for him actually – it’s just an employee on the payroll.

Do not confuse this situation. It seems that this is your start-up, and he somehow thinks his. And, of course, in no case should not be given control. It happens again, that good people find each other and they are fine. This happens, I also saw a couple of times. But count on it better not. Do not be such a wild investor to give control, because it has a strong non-business reasons. Someday they will prevail. Someday, they say. This one here is garbage, buried in the very foundation of your startup work.

What he does, it’s a wild investor? He wants to control, he really wants to steer. Pasha as saying: “Come change your user interface, because he knows better.” He wants quick results. Why? He gave money, gave the idea, therefore, everything is already there. Where are the results? The fact that there is a boring as a time to do, he does not take into account. And he does not know how it’s done in this industry. For example, he does not understand what programming is and how it takes time. The most important thing is that from his point of view, everything has been done: the decision to give money, and given the idea. So he starts to dig potatoes and watch sprouted or not. Every day. In addition, once he has an idea, and he learns all the time, all the time he learns new on the Internet. He uses every two months and says, in fact, all he had done wrong, because he just saw another project that he brought to mind. And it changes every two months course, not letting finish made. In these circumstances, the team all the time sausage. They have all calls from this wild investors await with dread. Next he begins to impose his own people, he said: “I have a CFO, he will work with you. This is my grandmother, I must follow them. ” Then he a marketer, a girl on advertising, and so on. In the end, he begins to push out the founders, because they have accumulated irritation of the investor, he has accumulated a feeling that they will not admit that they are struggling with it, but it’s his ideas and his money. Why would he need such a partner? He starts to push them. In the end, he pushes the founders or closes the money tap. That is, all ends in failure. They are breaking down, not because they have not reached customers, but because he behaved as such there were investors. Whether to take it into a business? I would not recommend it. Only to minority stakes, only good people, but without any of his ideas, and only with agreements on roles in business. The fact that he does not interfere and so on. Otherwise it will just work for wages. But I think the agreement you will still not be able to. More precisely, it will not comply with its agreements with you.

Clearly, then follows the valley of death, startups, where the initial money you have run out, earnings are not started, start-up continues, as the gun eat money every month. To stop the business – it means completely close the project, and venture capitalists in the valley of death not found. They are outside. What to do? That’s the very same prison. I do not want to talk in detail, it is a topic for another conversation.

Next comes a venture capitalist. He always wants to reduce their risks, he wants a company with cash flow, with a proven business model. Himself, of course, he usually has no control. Sometimes sends its financiers. Takes a small fraction, if it is reasonable. There are funds that try to take control. They absolutely can not be the case. Because if a wild investor simply does not understand what he is doing, if an angel investor, too, just do not understand, he can still be explained, if the fund takes a large share, so it is a rogues, or a complete idiot. They can not deal with. I categorically do not advise you.

An investor typically promises the smart money that will be a synergy with his projects that he will bring you to the west, that he can then he knows how it is. He pays all the same, usually on schedule. Here’s how I asked Pasha to whether to close the valve. Close the valve still rare. And he seems to be not involved in operational management. But it describes an ideal investor. Take him? Of course, taking on a smaller proportion, not to control, with no operational control, specifically say this. In any case not to believe in the promised synergies. None of them ever does anything. That’s not true. You have to understand that venture capitalists are no resources for this synergy. Sometimes it is a strategic investor. For example, the company Mail.ru wants you to buy. Perhaps, then indeed, it will give you traffic. But if an investor who has just managed a few projects, there will be synergy there, do not believe in it. That is, once again, in the ideal case, perhaps, perhaps.

No need to give yourself to overload the paper work, constantly writing reports, to include you in the reporting system of the fund itself, specially programmed scripts for Excel. This is wrong. In fact, the normal investor rather simple balance and everything. The main thing you do not make a mistake in the sum. You still go wrong in it, but it’s better to get closer. Because money always ends before it is known. But if he promised to promote, then it should beat, although this is little hope.

All the same, all the shares that you have laid down, you two or three years will seem totally unfair and wrong. People change, they are sick, they go on maternity leave, they can become a whore and quarrel with you or go to the competitors and the share they already will be. With the funds the same: the Fund does not fulfill the promise of synergy, you will blackmail the next tranche, and so on and so forth. Competence may be irrelevant: you swerved a startup, you start to do something else. Those people who you took a share of these competencies are generally unnecessary. A proportion, as I said at the beginning, are fixed. Imagine, you have programmers for what they were drinking beer with you. Five years later, you have a company earns twenty million dollars a year, and these people sit on the board, but you gave them thirty per cent, because they wanted to be honest. And they are beginning to make decisions, two programmers who do during these five years, but the programming did not begin to make decisions that cost millions of dollars. And they can take them, because they share the. In any case, there is bias. This imbalance is growing. All you have to change. This theme totally separate conversation, how to change. It is very difficult to buy it, negotiate, there will be insults, scandals, noise, and sometimes the press will fall. But it will still have to do. So do not expect that once you commit, as a ballistic missile, the hit point, and all.