Slicing Pie

            Multipliers

            I recommend a non-cash multiplier of two (2) and a cash multiplier of four (4). These numbers are set based on my personal experience with the model and they are important. Resist the urge to change them! The multipliers make the model work. Without them, you will be less successful in achieving a fair split.

            Multipliers assign a risk premium for the contributions. For non-cash contributions, the risk premium is twicewhat you put in.  For cash, it’s four times the contribution. Cash is given a higher premium because it’s much harder to save money than it is to earn money. The multipliers recognize the difference in scarcity between cash and non-cash contributions. Most (not all) people have more time than money.

            Sometimes people think that the multipliers should change over time to reflect the possibility that risk goes down over time. Early contributions, they argue, are riskier than later contributions so the risk multiplier should go down over time.

            I completely understand the logic, but in practice startups are much too volatile to definitively ascertain a level of risk. Risk may appear to go down as traction is gained and revenue is generated. If a major customer cancels, however, risk may go up. Similarly, if a company grows so fast that they can’t provide a meaningful level of service risk could go up.

            Startups have so many ups and downs that trying to predict risk at any given time is futile. In the Slicing Pie model you have to measure what you can measure. Because of this, I keep the multipliers constant.

            Lastly, the multipliers will protect the company and the individual contributors from decisions one may make that adversely affect the other. I’ll cover this in more detail in the chapter about the recovery framework, but just keep in mind that the multipliers effectively act as a retention program for the company and a severance program for employees. They are a key part of why the Slicing Pie Model works so well for so many companies.

            Updated: 04 Apr 2016 06:22 PM
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