Equity Expectations for Non-Investors

By Leslie Cook
Posted on January 1, 2024

Welcome to our Product Newsletter, a biweekly email highlighting top discussions, and learning resources for product managers.

What We Will Cover In This Edition:-

Top Discussions:

1) For non-investors, how much equity should be expected?

2) What can new PMs do when there is time to yourself?

3) Is the field of product management in decline?

Top Learning Resources:

1. How would you grow spotify By 20%? Product strategy question | PM interview

2. The art of writing a product requirement document

3. Type of product manager. Which one are you?

__________________________

Top Discussions

Question 1) For non-investors, how much equity should be expected?

I’m now in the process of launching a startup in the retail sector. I have startup expertise, and I’ll be contributing 100% of the required funds and possibly 30–50% of the required time myself.

The company’s goal is to promote lesser-known musicians. I’m not familiar with the artistic aspects of finding artists for merchandise or the viewpoint of an obscure artist.

I have a potential partner with this background who developed the idea but is unfamiliar with companies that are seeking only pure equity and will manage this area of the business.

Another partner wants to assist me operate the business when I’m pressed for time, but they’re only asking for pure equity. However, he isn’t much experienced, so I will have to show him the ropes.

How much should I give each of them? To put things in perspective, I am also attempting to form an LLC. I need to be certain that I have enough money set up for investors as well.

They are not requesting any compensation, to be clear. just equity.

– Alana Martin

Discussion

A] Let’s say that you must set aside 10% from the start for your Series-A investors and 10% for the stock option pool. (That could change; it’s up to you. The remaining 80% will go to the three cofounders.

You may have an advantage because you both seem to be familiar with starting techniques and bells and whistles. You will also be contributing the seed money, thus you should undoubtedly own the most shares.

Your first partner appears to be important because s/he understands the artistic side and is the idea’s owner. If you hadn’t invested any money, you and your initial partner would own almost equal shares (your experience would put you slightly ahead). However, money alters it:

Since your second partner will spend a lot of time organizing things, you also need them to be hard workers. However, given their inexperience and need for training, I believe that 10% should be sufficient for this partner.

I finally arrived at something like 41 – 26 – 13 equity by using some black magic calculus. However, you will make the decision and I know very little about the situation.

Whatever choice you select, make sure to clearly and individually explain it to each of these individuals. Stress your commitment, your knowledge, and the fact that you’ll put in at least a third of the required effort. Your startup will be severely harmed if they have second thoughts about being undervalued, and your investment will also be lost. Therefore, be sure to set aside enough equity so that each of them is fully motivated and committed. These are the individuals that ought to work tirelessly on this project with you from beginning to conclusion. If they are not satisfied, you will suffer now or in the future.

– Tina Greist

B] This isn’t actually how things operate, and I don’t mean to offend @AlanaMartin, who began this topic, but I wouldn’t use this as a benchmark to assess equity.
There is no requirement to “set aside” equity for option pools or investors. When necessary for the firm, more shares are issued.

In fact, I wouldn’t fret about the option pool or the investors at the moment. Your primary concern should be assessing whether you have discovered a real problem and whether there is a market for your solution because you are SO far away from this.

There will ALWAYS be dilution if you choose the financial method because of the way the math works. Instead, concentrate on what each of you needs in terms of ownership % right now; future funding rounds or dilution will take care of themselves.

-Bobby Duncan

C] You’re right; at this time, market research is crucial. I don’t plan to undervalue that. And from there, we’ll be able to tell who is genuinely devoted.

Your response has led me to believe that I do have a query. Don’t you want to consider dilution while choosing equity? That was the reason I even mentioned investors in the original post; I had never allocated equity in this manner previously and wanted to take dilution into consideration.

– Alana Martin

__________________________

Question 2) What can new PMs do when there is time to yourself?

At my previous job, the key feature I was working on would occasionally have a lack of traction and downtime, but the senior PM would constantly reassure me that she still expected to feel my presence. I don’t, however, tend to produce things out of thin air.

I’m dealing with the similar issue in my present position; the primary responsibilities I was hired to perform are currently moving rather slowly because they depend on integrating with other business partners who are doing so. I’ve only been working for this new company for a few weeks, so I’m still getting acclimated to things. What should a PM do in a situation like this to establish their authority inside the company? Thanks in advance.

– Albert Chappel

Discussion

A] I’ve been in my first PM role for about a year. We didn’t have POs at the time, so each one of us owned the every bit of the product. Today, we have established domain ownership categories. Review the current backlog to get a sense of what it contains if you know what you’re going to own. Are there several tickets with the same theme, outdated tickets that might be graveyarded, etc.?

If the product is software, experiment with it extensively and become as familiar as you can. Review any existing documentation on it. Schedule a meeting with the organization’s main players to find out more about them, what they do, and how you can assist them. Listen to their perspective. If they haven’t already, your manager should be able to locate those people for you.

– Mario Romero

B] Talk to your customers and ask for their feedback. This will help you understand their needs and improve your product accordingly. Additionally, building a strong relationship with your customers can lead to repeat business and positive word-of-mouth recommendations.

– Ahmad Bashir

Identify new market opportunities
Study your competitors for your advantage
Learn more about your product and new skills
Organize your work flow and documentations
Shadow other people to observe and learn from them
Think about your long-term roadmap
Plan and research new potential features that would make an impact
Meet with stakeholders to chat and build a strong relationship
Go to other community discussions and learn from other PMs.

– Anushka Garg

__________________________

Question 3) Is the field of product management in decline?

Hi all,

I’ve talked to a lot of software developers and engineering managers over the past six months, and most of them agree that having fewer PMs on their teams makes them more effective. Developers, EMs, and marketing managers all share in the duties of a project manager.

I was about to switch to PM, but now I’m having second thoughts. Any advice would be greatly appreciated.

– Bethany Grey

Discussion

A] I think it’s ridiculous that a team would perform better without a project manager. It is absurd to have managers, marketers, and developers responsible for vision, strategy, and other tasks on top of their already sizable workload.

You’re welcome to take our work off our hands if you believe a PM is unnecessary. They should manage all of our responsibilities while still completing the other tasks for which they were hired, in my opinion.

– Angela Blue

B] Ineffective or nonexistent PMs lead to feature factories.

It’s shocking how frequently I’ve encountered subpar software that was created by engineers chasing after “great ideas” from the C-suite, marketing, and sales. The fact that it took so much effort to produce makes those same engineers find it difficult to let go of the garbage.

– Bina Campos

C] I understand that in some startups or smaller organizations, the responsibilities of a product manager might be shared among different roles, such as engineering managers or even founders. This is a common scenario where resources are limited, and teams need to be versatile and adaptable.

In such cases, it can indeed lead to additional workload and challenges for everyone involved. It’s important to recognize that product management is a specialized skill set that requires dedicated time and expertise to be performed effectively.

If you find yourself in a situation where the product management responsibilities are overwhelming and affecting your ability to focus on your core responsibilities, it may be worth discussing this concern with your team or organization. Explaining the challenges and potential drawbacks of sharing the product management role among multiple people can help in fostering a better understanding of the need for dedicated product management resources.

Having a dedicated product manager can bring several benefits, including:

Focus and expertise: A product manager can dedicate their time and expertise solely to the product’s success. They can deeply understand the market, users, and competition, and make informed decisions accordingly.
Alignment and coordination: A product manager acts as a bridge between different teams, ensuring alignment, collaboration, and effective communication. They can streamline processes, prioritize features, and manage expectations across stakeholders.
Strategic thinking: Product managers bring a strategic mindset to the table, defining the product vision, setting goals, and creating a roadmap that aligns with business objectives. They can guide the team in making decisions that drive long-term success.
User-centric approach: Product managers focus on understanding user needs, conducting research, and gathering feedback to create products that solve real problems. They can advocate for the user’s perspective and ensure a user-centric approach throughout the product development cycle.

If your workload as an engineering manager becomes overwhelming due to additional product management responsibilities, it may be worth considering whether your team would benefit from having a dedicated product manager. This decision will depend on the specific needs and priorities of your organization, the complexity of the product, and the resources available.

Remember, it’s important to find a balance that allows your team to function effectively and deliver high-quality products while considering the limitations and constraints of your organization.

– Bobby Duncan

__________________________

Top Learning Resources

How would you grow spotify by 20%? product strategy question | PM interview

A comprehensive summary of the strategies that have been identified to achieve our goal of increasing user engagement on Spotify by 20% for worldwide users within the next one year. I have highlighted five strategies that will be implemented, the trade-offs that need to be considered, and the success metrics that will be used to track progress towards the growth goal.

The art of writing a product requirement document

The documentation is very boring and I hate writing PRDs. I had found a hundred excuses not to write a PRD. Call the developer and explain the wireframe. Create a process flow and tell developers to build on top of it. Print out the design and scribble my acceptance criteria on it.

All of the above activities are good to do, but they don’t replace the primary goal of creating a PRD. I recently learned this from a colleague. A colleague did an amazing job explaining the main reason for creating a product requirements document. In this article, I’ll share what he taught me and how it helped me write a better PRD.

Type of product manager. Which one are you?

Hi there, I am Amik, a Product Management enthusiast. Currently, I am working as a Product Manager Associate at RevoU. Back in July to Oct 2022, I took a Full Stack Product Management (FSPM) boot camp at RevoU, where I would be happy to share my knowledge and experiences about Product Management here. So, let’s enjoy the ride, shall we?

__________________________

If you enjoyed this newsletter, please consider sharing it with a friend by asking them to sign up here.

Who’s Prowess? We are optimist product managers, engineers, and educators working on creating a world where merit meets opportunity. On Prowess, aspiring and experienced product managers showcase skills, learn from the community, and connect with employers to advance their careers.

How can you grow with Prowess?