In this conversation, I sat down with my friend Doug Erwin, the Senior Vice President of Entrepreneurial Development at EDAWN, the Economic Development Authority of Western Nevada.
Doug is a former serial entrepreneur turned economic developer and executive coach, and he’s committed to growing Northern Nevada’s startup and technology ecosystem. His community work has helped change the perception of Reno and lay the foundation for future generations of entrepreneurs to thrive in the region. Doug is proud to support entrepreneurs as they embark upon their own journeys.
Doug shares, with great clarity, vulnerability and humility, his entrepreneurial journey and some key lessons he’s learned along the way.
I invited Doug to have a conversation with me about what it might mean to be a conscious cofounder, given Doug’s personal work on mindfulness. Towards the end of the conversation, we arrive at the idea that we are our own most important cofounder - the conversations we have with ourselves will either lead us to lean into or turn away from challenging conversations with our cofounders. And with the lens of Triple Loop Learning, we can start to create better cofounder relationships, not just with better contracts and financial structures, but from our way of being.
The basic metaphor is this: Work is a relationship. And relationships are made of conversations.
And you can hear this in Doug's description of a company as a “rebound startup” or talking about startups like a marriage.
And just like in personal relationships, sometimes, as Doug says, people want to turn away from the discomfort of having difficult conversations.
Doug mentioned research about splits among founders and how it related to the future success of the company. I did a bit of digging and... It’s counter-intuitive, that a startup with equal distributions is a red flag to investors, and that such a company is more likely to fail.
Doug suggests that unequal distributions are proof that the founders have had some hard conversations - which is a key skill in work and life.
However, roughly three out of four startups decide to split the business equally when they start up.
One of the main issues with this approach isn’t a question of HOW to make the split, but WHEN. A 2016 HBR article suggests that founders should wait to split shares until later, co-creating rules to determine the value of various contributions. (I recommend the book Slicing the Pie!).
The HBR authors suggest that “teams that negotiate longer are more likely to decide on an unequal split: the harder you look, the more likely you are to discover important differences. More generally, [they] argue that if cofounders haven’t learned something surprising about each other from their dialogue, they probably haven’t engaged in a serious enough discussion yet.”
The HBR article suggests that a hastily created equal split will sour over time - the percentage of founders who are unhappy with their split increases by 2.5x as their startups mature. That discontent can lead to rapid turnover, which can be problematic.
Another study, led by Professor David Noack, Executive Director of the Hall Global Entrepreneurship Center at the Goddard School of Business and Economics at Utah’s Weber State University suggests that an equal split, especially in early-stage companies, has another unexpected effect - making it unclear who’s driving the bus. According to Professor Noack’s research, if no one feels that they have ownership and responsibility, no one takes the wheel, which has a real effect:
Companies with an unequal split were 21.7% more likely than other firms to be up and running a year later.
And just like in a marriage, having a “pre-nup” conversation can be awkward, even when people know the data about divorce.
While it’s uncomfortable to do so, hosting a conversation to explore all the negative scenarios that might occur in the future, with corresponding actions to help avoid them, can help founders avoid headaches later on…and increase startups’ chances of success.
This is a conversation worth listening to…And I’m excited to share it with you!
Links, Quotes, Notes, and Resources
Minute 2
Daniel Stillman:
So for somebody who is starting down the path to entrepreneurship and is starting something out, what kind of advice would you give to them in terms of hosting a valuable, worthwhile, powerful conversation with somebody that they want to be a co-founder with or a partner with in an endeavor like building a thing?
Doug Erwin:
Yeah. Yeah, no, that's a great question. I think there is a bit of this myth of the solo founder in our world. Hopefully that's being dispelled. I mean, that does exist still, but a lot of people... I heard this flippantly that to create a startup company, you need a hacker, a hipster and a hustler, right?
So you need these three different people that make a startup work. But at a minimum, a lot of these companies are going to have partnerships. The way I look at that honestly, is I look at it as a marriage. You're about to embark on a life journey with someone for a long time and you're going to spend a huge amount of time together. And so, to at least treat at the same level of seriousness that you would a marriage.
Minute 6
Doug Erwin:
But the fact was, the founders that had unequal distributions had those hard conversations. You might go through that whole conversation list and say, "No, actually look, we're all contributing equally." And that's fine, but it was really indicative of like, "Let's actually have the hard conversation up front. It's sort of like, I mean, when is the best time to discuss divorce? When you're getting married, you know? When the things are good. No one wants to talk about divorce, but it's best to talk about the challenging times when things are good, because there's less at stake at that point. And so I think that it's like being very intentional upfront.
Minute 28
Doug Erwin:
But I mean, the reality of it is most startups fail. I mean, that's the truth of the matter, right? And to deny that is to deny just math. And so I think... It doesn't-
Daniel Stillman:
Yeah, not always a good path.
Doug Erwin:
No, not a good path. No reason to be in conflict with reality. The greatest suffering is when you're in conflict with reality. Now again, I know people don't want to jinx it or put some negative energy into it, but just having those, it's almost like how we talk about it when you want to have the money conversation one time. If you can just sit down and lay out, "This is what it looks like. This is how we break up." Now it may not be that way, but at least you've had that. It's there. It's filed. It's in the documents. And you just know that it's there and hopefully you don't have to go through it. I mean, when you buy a new car, you're really excited about a new car. You still buy insurance.
Minute 39
Doug Erwin:
I think so much of that is getting your own alignment around what you really want to create in the world, right? This is creating from an intentional place. And then also linking that with the reality. I think so much of that is those limits. Finding the right capital structure for your company is just aligning what you're trying to create in the world with the right form, right?
If you're going to go create a biotech company and you think you're going to bootstrap it, probably not likely given how much money it costs. Or if you're going to start a boutique in Midtown and you think you're going to get a bunch of angel investors or venture capitalists, that's the wrong form as well. But just aligning that and getting really clear about what your long-term goals are and then fighting the right form to match the essence of what you're trying to create.
More About Doug
Doug Erwin is the Senior VP of Entrepreneurial Development at the Economic Development Authority of Western Nevada (EDAWN), and a former serial entrepreneur turned economic developer and executive coach. Doug is committed to growing Northern Nevada’s startup and technology ecosystem and supporting entrepreneurs as they embark upon their own journeys. Doug’s work in community has helped change the perception of Reno and lay the foundation for future generations of entrepreneurs to thrive in the region.
Full Transcript
Daniel Stillman:
So we're live.
Doug Erwin:
We're live. Okay. Well, let's do it.
Daniel Stillman:
Doug. I want to officially welcome you to The Conversation Factory, and I'm grateful for this time.
Doug Erwin:
Me too, Daniel, I'm really grateful to have some time to chat with you. I really appreciate our friendship and what you're doing in the world.
Daniel Stillman:
And I'm inviting myself to slow down a little bit, because I think that's something that you're really, really good at doing and always reminding me that that has value. And so the reason why I wanted to have this conversation with you is because of your wealth of knowledge and experience around making businesses in both good and bad ways and because of your work at EDAWN. And so I'm hoping. For the folks who don't know who Doug Erwin is, can you give us the being, thinking, and doing of who you are? What's your essence?
Doug Erwin:
Sure. Yeah, no, I'll do my best to put in that context. Now I sort of describe myself as a serial entrepreneur turned community developer. Over the years, I've had a lot of different entrepreneurial experiences, but for the past 10 years, I've dedicated my life to helping develop the Reno startup ecosystem. And so kind of really building on my own challenges as a startup founder, my own experiences growing up in the Silicon Valley ecosystem and then really trying to bring those lessons to bear at a community level through EDAWN, which is the Economic Development Agency of Western Nevada. So for almost 10 years now, my sole focus has been on supporting entrepreneurs and growing a community of support so that entrepreneurs can find success in Northern Nevada. And then of course you and I have known each other. I've sort of built upon that over the last few years. Got really interested in doing more deep personal work, and so we went into doing some executive coaching where I mostly work with entrepreneurs and founders.
Daniel Stillman:
Nobody can do anything on their own. I think this is where the foundation of this conversation comes from me. I think we always have to bring other people into the creative conversation, whether it's enrolling people to our mission and vision, or literally splitting up the work and/or bringing on a co-founder or an employee. And I feel like there's always something gained from bringing someone to the creative conversation. And then there's always tensions because each party in that creative conversation can want to take things in a different direction.
Daniel Stillman:
So for somebody who is starting down the path to entrepreneurship and is starting something out, what kind of advice would you give to them in terms of hosting a valuable, worthwhile, powerful conversation with somebody that they want to be a co-founder with or a partner with in an endeavor like building a thing?
Doug Erwin:
Yeah. Yeah, no, that's a great question. I think there is a bit of this myth of the solo founder in our world. Hopefully that's being dispelled. I mean, that does exist still, but a lot of people... I heard this flippantly that to create a startup company, you need a hacker, a hipster and a hustler, right?
Daniel Stillman:
Right.
Doug Erwin:
So you need these three different people that make a startup work. But at a minimum, a lot of these companies are going to have partnerships. The way I look at that honestly, is I look at it as a marriage. You're about to embark on a life journey with someone for a long time and you're going to spend a huge amount of time together. And so, to at least treat at the same level of seriousness that you would a marriage.
Daniel Stillman:
Yes, totally. I think one of the tensions I've found is when something's new, you don't know what it's going to be. When something's new, it can feel like putting a lot of heavy weight onto those conversations can feel like a burden. So how do you find that balance? How would you suggest to somebody that they find that balance between the sort of robust depth of the conversation and the like, "Let's get it started, let's be agile and let's move quickly."?
Doug Erwin:
Yeah. No, that's a great question. One of the things that was really helpful, I can't remember exactly where the data was but I think it was Kauffman Foundation, looked at the success of companies, startup companies based on the founder share allocation. And so the companies that the founders had equal share distributions performed much worse or worse than the ones where they had uneven distribution. And so this was a little kind of like, why is that true?
Daniel Stillman:
Yeah.
Doug Erwin:
And fundamentally, I think the answer to that question is they had the hard conversations up front that said "My contribution is this. Your contribution is that. How does this work?" Those founders went through and said, "Okay we all are bringing different things to the party. How do we create an equitable distribution for that?" And so what their point about that was those founders already had established the right type of relationship, such that when hard times came, they could already face some of those challenges instead of like, "Oh yeah, yeah. We're all 1/3 partners." And so they didn't really create a structure to have those difficult conversations. And when things happen that are hard, which they always do at a startup, Then they have less resiliency to navigate through that.
Daniel Stillman:
That's so interesting and that is counterintuitive. I would think that if people are equal partners and see themselves as equal partners, that that would create more, more buy-in. But what you're saying is being clearer about who's contributing what and what the value of that is to the success of the company, it may not be equal.
Doug Erwin:
It may not be, and I'm not even sure that the real takeaway point was the share split. But the fact was, the founders that had unequal distributions had those hard conversations. You might go through that whole conversation list and say, "No, actually look, we're all contributing equally." And that's fine, but it was really indicative of like, "Let's actually have the hard conversation up front. It's sort of like, I mean, when is the best time to discuss divorce? When you're getting married, you know? When the things are good. No one wants to talk about divorce, but it's best to talk about the challenging times when things are good, because there's less at stake at that point. And so I think that it's like being very intentional upfront.
Daniel Stillman:
Yeah. So what would you advise or coach someone who's got a co-founder who's like, "I don't want to have all that negative scenario planning"? Because it really is. I mean, I remember going through that, sitting down with a lawyer and being like, "Okay, so if this happens, if this happens, if this happens, if this happens," and you're like, "Wow, this is getting pretty dark pretty fast."
Doug Erwin:
Yeah. Yeah. I mean, it's a difficult one, because I mean most people want to turn away from discomfort. I mean, I don't know that I have brilliant wisdom. I think there was another... I don't know who said it, but it's like contracts keep friendships. I'm not totally sure that's been my experience, but at least if it's laid out. I've had a couple personal experiences where I've had co-founders and it hasn't come together the way that we thought. Both cases I did not have contracts. And so it left a lot for interpretation. It maybe my fantasy about this, but I think there would be reality to it. It would've been much clearer if we had a buy-sell agreement or some other mechanism that said, "Hey, look, if we need to get out for whatever reason, this is what it looks like." Because in the moment there's a lot of emotion which leads, in my experience, to irrationality and lots of hurt feelings and other challenges.
Daniel Stillman:
Yeah. If you feel comfortable, I'd love to unpack, maybe give some more color to that challenge for you.
Doug Erwin:
Yeah. Yeah, for sure. Well, I have two examples where I was a co-founder. The one that was probably the most challenging of the two was my first real startup endeavor, which is a company called Pria Diagnostics. We built an at home male fertility test kit. The co-founder was my brother, which brings in a whole other element of complexity. He brought me into the company. He was a PhD out of Stanford. It was technology that came out of Stanford. I was really the only entrepreneurial guy he knew that he trusted. And so we came together in that. We ran that together for about eight years. We went and raised a bunch of angel money. We set up a bunch of partnerships.
Doug Erwin:
At some point our core product just wasn't going to work in the market, and so it started to unravel. We lost our key partnership. We needed to try and pivot, but it was 2008. Lots of difficult financial situations. And in that situation, basically he, after we'd laid off a big portion of the company, decided to go, leave and start something else. It was supremely challenging for me. I mean, I'll fast forward to it. Thankfully he and I have worked through that and there is a happy story here, which we're close and our kids are close and all of that. But for many years we were estranged. And so much of that honestly, for me, if I think about it was a lot of the expectations I had and these ideas that he and I were going to work together forever, like we were going to work together on these multiple startups. This was the first of that. And the hardest part about that for me was just that shattering of that fantasy.
Daniel Stillman:
That's brutal. And also, I can't imagine. Eight years is an amazing run.
Doug Erwin:
Yeah, it is.
Daniel Stillman:
An amazing amount of intimacy with your brother. And then the business breakup, him wanting to leave must have been really hard to deal with.
Doug Erwin:
It was very difficult. It was a combination of that. And then I was the CEO, but we had got down to like, we went from 27 to four or five people. The COO, in order for him to stay, he needed to become the CEO, but then ultimately I got the deal close. So there was, for me personally, just a lot of status, social status, estrange from brother, and then of course I didn't have any very good coping skills so that led to some personal challenges. I was drinking too much and just... It was not a good situation. Although of course upon reflection, it's the best thing that ever happened, it taught me so much. But in the moment, it was very challenging. And so much of this, I guess for me, was around unspoken expectations.
Daniel Stillman:
Right.
Doug Erwin:
We didn't have a language to discuss it. When he left, I felt abandoned by him.
Daniel Stillman:
You had no allowance for him for an exit for him before you would had sold the thing. That was presumably going to be the exit.
Doug Erwin:
Correct. Yeah.
Daniel Stillman:
So what do you think kept you from having some of that worst case scenario early on?
Doug Erwin:
A naivete. I mean, I think I was 29 when we started that company. He and I had been through a lot together, right? He's my stepbrother. We went to college together. We moved to the Bay Area together. There was just all of this implicit trust. Not once did it ever cross my mind that we needed to even have that conversation.
Daniel Stillman:
Yeah. Yeah. There's this unspoken trust, which is we should take for granted and we assume that it will always be like this.
Doug Erwin:
Yeah.
Daniel Stillman:
And because of that, we just avoid having the difficult conversation because I mean I guess it didn't even occur to you. But then when you get towards the middle of the downward arc, the beginning of the end, the end of the beginning, I don't know, when did you realize there was some trouble that you needed to start having these difficult conversations?
Doug Erwin:
Yeah. Of course we were also living together at the time, so I was living in his spare bedroom because I was in Reno and he was in the Bay Area.
Daniel Stillman:
Oh, my God. Talk about entanglement. Oh my God.
Doug Erwin:
Oh yeah. No, I remember that we were in the couch in his living room one time having a pretty heated argument and his wife was basically saying, "Hey, you guys got to work on some things." But again, it hadn't dawned on me that that was an outcome. I just thought that we were just going through something challenging. And again upon reflection, I think it was the right choice. I mean, it was definitely a difficult one and he needed to go move on. And in many ways, he may have been protecting me because ultimately I was CEO and I probably needed to go, but I had so much of my own identity wrapped up in that. And so I've looked at it from many lenses. There was definitely warning signs, I just wasn't aware and I was in denial.
Doug Erwin:
Just to add insult to injury, one of the things I'm very sensitive to with entrepreneurs is right around 2005 I won the Entrepreneur of the Year Award for the state of Nevada, which was this awesome... I got this great accolades. And at the same time the company was imploding and I knew it. Our partnerships were on the rocks. And so this dissonance between being put up on this pedestal and knowing things are crashing was brutal. So yeah, there was a lot packed up in that one.
Daniel Stillman:
It's interesting to think about like... It sounds like you've done a lot of work on looking at that past version of you. I'm hearing empathy for yourself.
Doug Erwin:
Yeah.
Daniel Stillman:
He wasn't asking... Oh yeah, sorry. Go ahead, Doug.
Doug Erwin:
Well, no, I just think one of the things, I mean for the longest time and our mutual friend Robert really helped me with this is I walked around thinking that was a failure. The most powerful reframe, the thing that it really opened up for me was like, no, it's not a failure, it was a lesson. And then when I really started to dig into the lessons, to create a lot of compassion. And that's why I said I honestly wouldn't have traded it for anything. I mean, I don't prefer not to go through that again.
Daniel Stillman:
Yeah. Fair. Well-
Doug Erwin:
But...
Daniel Stillman:
Yeah?
Doug Erwin:
It was worth it.
Daniel Stillman:
Yeah, because you were willing to learn from it.
Doug Erwin:
Yes.
Daniel Stillman:
What do you feel like when you went into your second big startup? What do you feel were lessons you took forward in the early stages of that one? Did things change for you?
Doug Erwin:
Well, so [inaudible 00:16:03]-
Daniel Stillman:
Did it take you longer to learn things?
Doug Erwin:
Yeah. If I was to summarize that startup, I would say it was a rebound startup. It was kind of I had this... I think my ego was very bruised. It was very difficult time. I think the guiding and thinking in my mind was I've just got to get back on the horse that kicked me. All of my identity was wrapped up in being an entrepreneur. I was in Entrepreneurs' Organization which I think is an amazing organization. But everything around my life was around being an entrepreneur and I just needed a new idea. And so I didn't spend a ton of time looking into the new ideas. And I ended up starting a standup paddleboard company. I co-founded a company called Tahoe SUP. So going from medical devices to consumer sporting goods is kind of a strange transition.
Daniel Stillman:
But also given... What year was this? I mean, I remember standup paddleboarding was exploding at one point.
Doug Erwin:
Oh yeah. We were early. It was like 2009.
Daniel Stillman:
And for people who don't know, I remember meeting this couple who did standup paddleboard stuff in the Rockaways. I did some standup paddleboard yoga, which is super fun. Because I'm really bad with inversions and it's just so fun to know you're just going to fall in. But these people were doing competitive... I was like, "There's competitive standup paddleboarding?" It blew my mind because I think of it as this relaxing sort of endeavor, but no, there's competitions. People take this shit real.
Doug Erwin:
Oh absolutely. And we were so early. I mean, if you ever read the book Blue Ocean Strategy, it was like a perfectly executed blue ocean strategy even though I didn't know that's what we were doing. At that time all the standup paddleboards were coastal and here we are in Tahoe and we created the whole category for touring boards and recreational paddleboarding. So very different board design, totally different messaging. Our tagline was, "We're not in it for three second thrills. We're in it for day long adventures." It was just a completely different way of looking at paddleboarding. And so it was amazing. I mean, we went from nothing to $3 million in sales in like a year and a half and was like a rocket ship. I mean, not a tech rocket ship, but nevertheless, a pretty big rocket ship at that time.
Daniel Stillman:
Yeah. A business is a business as far as I'm concerned.
Doug Erwin:
And in that situation, I joined a co-founder. Again, I didn't really process the learnings. I mean, I think I processed it a little bit, but I didn't really put it into action. I think one of the things was still in this... There's something about being a young entrepreneur where at least for me there's just a lot of youthful exuberance and you can really drive on that and that naivete gets you a long way, but ultimately you have to have some wisdom. And so I just think I was just trying to get right back up on that horse that kicked me off. And so we created a partnership that was really set up for failure probably from the day one. I brought in one of the investors from my other company, lovely woman, but was probably not her industry. And so we had this three way partnership between myself, this woman, and this other gentleman. It just was fraught from problems from day one. It kind of plagued us the entire time of the company.
Daniel Stillman:
Really? Is it okay to say a little bit more about what was off about the way you had partnered?
Doug Erwin:
Sure. I think there was a little bit of unequal power dynamic. The co-founder who really was the person who had the idea didn't have any capital and was sort of first out. So we brought in some capital and some business advice or expertise and he brought in all of these skills. And so there was a... I think he always sort of felt maybe like he wasn't unequal footing. I felt that partnership was... There's a lot of passive aggressive behavior going on. There wasn't a lot of communication. And almost from the very beginning we had to do a lot to try and keep the partnership functioning. It became a lot of work. There was just so much operational overhead that it was very distracting.
Daniel Stillman:
Just to keep the peace between the three of you.
Doug Erwin:
Just to keep the piece. Yeah, between the three of us.
Daniel Stillman:
I mean, I feel like this brings up the question of like, whether or not the people who are in partnership are doing their own work on themselves and are working with their shadows and their denied parts, their feelings of inadequacy or guilt or all of these pieces that we're bringing into a relationship.
Doug Erwin:
Well, I can just say at least for me, because that was in 2009, I hadn't even really started on my own spiritual personal development journey at that point. So I think my strategy for dealing with pain and complexity was drinking. I had started a little bit as a result of-
Daniel Stillman:
Was it an effective strategy at the time?
Doug Erwin:
Of course not.
Daniel Stillman:
No?
Doug Erwin:
I mean, it temporizes things. I was just in the beginning stages. I mean the Pria breakup sent me down a path that I just... I remember I was in Belize. I found this book in the airport of San Francisco called The Secrets to Happiness. It was like a one paragraph on all of the spiritual and philosophical traditions. I'm reading this, licking my wounds in Belize, trying to figure out what I'm going to do, and I was like, "I think Buddhism is the answer." And that's where it all started for me. But I was very early on in that I had no real training or understanding. I was working with my own therapist to unwind all of my own challenges. So I definitely was working through that at the time. But it was very early for me, so still leveraging former strategies. I had the pain and I wanted to try and avoid a few things, but fundamentally I was probably using the same strategies.
Daniel Stillman:
Yeah. I mean, because from what you're telling me about your co-founder who had the idea but not the money, I could really empathize with that position of like, "It's my idea" and the feeling of pride in that and the feeling maybe of shame or embarrassment or weakness that I didn't have the money to make this happen, that I have to rely on these other people. Instead of it feeling like a real partnership, it can feel like an unhealthy dynamic.
Doug Erwin:
Yeah. We were sort of bringing a tech startup approach into really a manufacturing business. I mean, one of my biggest takeaways from that was matching the right capital to the type of business you had. I mean, we were literally looking at this as an angel funded, high growth tech startup, and this is much more of like factory receivables and industrial manufacturing. It was just a different animal. I think there was just some inherent misalignment that. So I think that was definitely challenging. But I'm with you. As I think back on our co-founder's experience, I could imagine... The plus side of that whole thing is he ultimately ended up with the company. It's been sold a few times, but I think as of even last month, the company's still in business, he's running it. It's been a long journey to get him there, but it was ultimately the right fit. That one actually had a very positive outcome for me, meaning I got out without too much damage. The company went through a lot of damage, which is unfortunate, but the product exists and I learned a lot of lessons from that.
Daniel Stillman:
I think we only have a little bit of time left so I feel like one of the most powerful frameworks that I learned from our coach Robert is the very unique application of triple loop learning and that many people think about transformation just from the perspective of doing things better, but not realizing that requires us to think differently in order to do differently. I think a lot of advice out there falls under the do and think categories and ignores the triple loop of how do we be in order to think in these ways. Because the early advice you gave of at the beginning... In sales it's such simple advice. Just at the beginning before things get super hard, have the deep dive conversation about all of the scenarios and then work out the partnership deal in accordance to that conversation.
Daniel Stillman:
Now that's a pretty basic advice. And by basic, I mean basic like, "Yeah, basic." I mean basic like "Yeah, that's it." But unless I'm willing to be a certain way, I can't invite that conversation. And so I think that's maybe where the real transformation comes in. How shall we be in order to be able to invite and host this kind of a conversation in a powerful and effective way from your experience?
Doug Erwin:
What's coming up for me is really turning into what was uncomfortable. Like being okay with sitting with discomfort. There's so much excitement and exuberance when you're starting a company. There's so much potential. And that feels really good. That's such an uplifting energy. And so the idea of talking about what it happens if it doesn't work out is sort of the opposite of that. And so in that beginning phase, you sort of feed on that energy. At least I did.
Daniel Stillman:
Yeah.
Doug Erwin:
But I think it's sort of, again, recognizing that turning towards something that may be dark or uncomfortable is actually warranted, A, and will not diminish the light. There's so much light.
Daniel Stillman:
I think that's the fear, right? Certainly I've read way too many articles about the power of Steve Job's reality distortion field and how impactful that was to getting amazing things done and how entrepreneurs really create the future through this will. I think there is this real fear that if I step back and look at the discomforting possibility of failure and look at everything that could go wrong, that it will erase the light. But you're saying it doesn't have to be that way.
Doug Erwin:
I don't think it has to be that way. I think that's probably why people avoid it.
Daniel Stillman:
Yes.
Doug Erwin:
But I mean, the reality of it is most startups fail. I mean, that's the truth of the matter, right? And to deny that is to deny just math. And so I think... It doesn't-
Daniel Stillman:
Yeah, not always a good path.
Doug Erwin:
No, not a good path. No reason to be in conflict with reality. The greatest suffering is when you're in conflict with reality. Now again, I know people don't want to jinx it or put some negative energy into it, but just having those, it's almost like how we talk about it when you want to have the money conversation one time. If you can just sit down and lay out, "This is what it looks like. This is how we break up." Now it may not be that way, but at least you've had that. It's there. It's filed. It's in the documents. And you just know that it's there and hopefully you don't have to go through it. I mean, when you buy a new car, you're really excited about a new car. You still buy insurance.
Daniel Stillman:
Yes.
Doug Erwin:
You're going to get an accident. It's kind of in that vein.
Daniel Stillman:
I love this mindset of having it one time. I mean, I don't know if that's actually accurate. I feel like we generally have to revisit these conversations, but I like the idea of saying like, "Let's set ourselves up for success by building a platform and a foundation. Let's have this conversation." So I'm thinking of these two ways being of like, "Let's turn into discomfort and the willingness to do that." And the, "Let's really build a platform. Let's have this conversation. Let's have it one time." I mean, I think that's a little idealistic, but I think it's a nice way to... It feels like a very encouraging way to start, like, "Well, let's just have this one time." And it may be enough if you really have it in the right way. Maybe it is enough. Maybe I've just never been doing it right, Doug.
Doug Erwin:
Well, one time again, maybe idealistic, but at least you're getting it out in the beginning and it's being codified in whatever documents and you have an agreement. It's like how do we create an exit plan broadly? I mean, obviously if it comes up, you can never capture everything, but at least you have a framework for it so that everybody's in agreement and they know what it's going to look like. I mean, it's going to be uncomfortable if the founder relationships break up regardless, but I think having the conversation up front can make it less uncomfortable.
Doug Erwin:
Plus not to mention I can't tell you how many times I've seen these deals where people come in. Forget about the breakup, they just don't even have stock purchase agreements and things like that. So I've seen more than a few deals where a co-founder exits with all of their stock, and that pretty much kills the company's ability to go raise a future round of financing. And that scorned founder holds a lot of power over the deal. That is just not a good deal. It's a very novice deal that shouldn't happen, but I've seen it happen more than a few times.
Daniel Stillman:
Well, do you mind? I mean, this sounds like worth getting into the weeds a little bit, because I imagine that founder who wants to leave wants to take their investment and their capital with them. How do you balance the needs of the company as a whole and the future of the company to the desire of somebody to keep what was "theirs"?
Doug Erwin:
This is a great question. I think it really comes back to what type of company you're structuring. So if you're going to build a company that's going to take outside investment, by definition you are going to be selling equity over some period of time, generally speaking if you're building a high growth company. Any of those companies, the founders, the intellectual property, all of that really is property of the company. Any equity you have, generally speaking, would be earned out over a period of time. But you can see sometimes naive founders or people that go through that process end up with like 30% to 40% of the company, but have not agreed to be under a vesting agreement or something like that. When they leave they're fully vested and they can take all those shares. And that just creates... I mean, even worse if they don't have an assignment agreement, they haven't assigned their property. I mean, you would think that wouldn't happen given all of the accelerators and things, but I have seen it more than you know.
Daniel Stillman:
So if you were... Yeah, sorry, go ahead.
Doug Erwin:
Well, and I think that's maybe a little bit different. I mean, it would definitely be different if you're building a brick and mortar store or something like that where maybe you're not necessarily building it for outside investment from day one. But in a lot of cases, people maybe structure something originally, "Hey, we're doing this one thing" and they shift it to another thing and they just keep operating like that. Who likes to spend money on attorneys? Nobody.
Daniel Stillman:
Show of hands in the audience.
Doug Erwin:
However, that would be the other thing, is always get the right attorney in the very beginning and spend the money. No one wants to spend the money on attorneys, but getting those documents done up front save so much money on the back end.
Daniel Stillman:
Oh my God. Oh my God, I don't even think... I mean, this is my own horror story, but I think we spent a lot of time in a company I co-founded putting all those documents together and then I don't think we ever signed them. I was like, "Wait a minute. How did that happen? How did that happen?" I'm so ashamed. Did that bite me in the ass? Yes, it did. Am I ashamed about it? Yes, I am.
Doug Erwin:
It's a good lesson.
Daniel Stillman:
It's a good lesson.
Doug Erwin:
It's a good lesson. Transform that shame into a new learning.
Daniel Stillman:
So there's one other thing that I'm thinking of that sounds like from the level of mental models and being that is helpful in getting to yes in the Harvard program on negotiation they talk about creating more value and increasing the size of the pie. That it's not just splitting up the pie. Actually, I don't know if you've read that book Slicing the Pie.
Doug Erwin:
No.
Daniel Stillman:
It's a great primer on some of the stuff that we're talking about. It helped me back in the day, or at least it would have if I had signed my agreements.
Doug Erwin:
Page 1, sign the agreements.
Daniel Stillman:
Page 1, sign the agreement. Whatever you do, sign it. But I think there's this idea of like breaking up the pie. But what you're talking about, if your hope is to create a larger company over time, then there's this idea of the whole pie should get bigger through whatever it is that we do, right? There's like, "Well, this is my third." It's like, "Well, would you like 1/3 of zero? Or would you like 1/3 of 2X or 3X?" Or sorry. "Or would you like 1/5 of something that's three times as big?" It's like, well, that's a very different conversation to be having.
Doug Erwin:
Yeah, especially for high growth companies. I mean, I guess this is a real challenge with first time founders. This question of would you rather have 100% of nothing or 30% of a billion dollar company? You really have to buy into that mental model if that's the type of company. Now, it's not always done that way. There's a local company here, the founder owns 85% and he's never taken a dollar and he's bootstrapped it. That's great. He's going to be very successful. Most of them don't work that way. And so just that idea of... Well, and really, I mean, if you think about it, I mean, when you create a company, you are creating another entity altogether. And ultimately that entity transcends the founders, right? It becomes its own thing. I mean, we don't even need to get into politics, but I mean, the fact that corporations can be involved in political things, all that is just another example of the fact that they are their own entities. And so what you're really doing is how do I best-
Daniel Stillman:
Yeah. We could talk about whether or not that should be there.
Doug Erwin:
No. Yeah, yeah. That's a [inaudible 00:36:38]-
Daniel Stillman:
We should definitely get less corporate money in politics.
Doug Erwin:
Totally.
Daniel Stillman:
We'll have another podcast about that.
Doug Erwin:
We should make that one longer.
Daniel Stillman:
Yeah.
Doug Erwin:
But I mean, a bit fundamental, you're creating this entity. And so what's in the best interest of this entity that's going to most likely outlast the founders?
Daniel Stillman:
See, that's a very different level of thinking and being, right? It's like, "Well, I want my 1/3" versus, "What's going to create the long term health and wellbeing of this thing that we're creating together?"
Doug Erwin:
But I also think that starts with the intention of what you're trying to create, right?
Daniel Stillman:
Right.
Doug Erwin:
And so we're largely talking about venture funded startups. I mean, there are other companies that are multi-generational. And so I think in that very beginning, what are you trying to create? What do you really want to create and how does that business best align with your desires?
Daniel Stillman:
So when it comes to facilitating, leading, or coaching others or yourself through this conversation, I'm hearing some really powerful questions that we should be asking ourselves, right? What are we really trying to create, right? Am I going to put my needs over the needs of this thing that we're creating together? How might we turn into discomfort? My mom, I quote my mom I feel like in every podcast, partly because I know she's going to listen to the episode. Hi mom. She always says, "Start as you mean to continue," which is a very profound idea.
Doug Erwin:
Wow.
Daniel Stillman:
And it's like do you want to have a relationship where you can't talk about the hard things? I mean, nobody would cop to that. And yet we find ourselves backed into a situation where it's uncomfortable to bring something up. And so if we don't bring it up, it won't be brought up.
Doug Erwin:
Well, first of all, I'd like to meet your mom. She sounds like a wise, wise person.
Daniel Stillman:
Oh, you would love my mom.
Doug Erwin:
A wise person.
Daniel Stillman:
My mom would love you too, 100%. Mainly because she... All the spiritual stuff we talk about, she's the source.
Doug Erwin:
Yeah, I know.
Daniel Stillman:
She's the source of many of theses things.
Doug Erwin:
I appreciate that.
Daniel Stillman:
You should go straight to the source, not through the conduit.
Doug Erwin:
No, I appreciate all that. I think so much of that is getting your own alignment around what you really want to create in the world, right? This is creating from an intentional place. And then also linking that with the reality. I think so much of that is those limits. Finding the right capital structure for your company is just aligning what you're trying to create in the world with the right form, right?
Daniel Stillman:
Yeah.
Doug Erwin:
If you're going to go create a biotech company and you think you're going to bootstrap it, probably not likely given how much money it costs. Or if you're going to start a boutique in Midtown and you think you're going to get a bunch of angel investors or venture capitalists, that's the wrong form as well. But just aligning that and getting really clear about what your long term goals are and then fighting the right form to match the essence of what you're trying to create.
Daniel Stillman:
So you mentioned mindfulness and we're talking about form in essence. And so I'm wondering with literally our last few minutes, because you do a lot of work on mindfulness and you also coach people on essence, where do you feel mindfulness and being aware of our essence comes into this conversation about being a conscious co-founder?
Doug Erwin:
I mean, to me it feels like table stakes. How do you not have mindfulness if you're going to go into something consciously? And knowing what your own motivations are, understanding your having your own relationship to your mind, I mean, I don't know, this sounds a little cheesy, but that's the most important co-founder you need to have a relationship with it, which is your mind.
Daniel Stillman:
Oh, man. Wow. I mean, we were talking about this last weekend, this Carl Jung quote which I will mangle that until you make the unconscious conscious, it will rule your life and you will call it fate. I think that's the...
Doug Erwin:
Yeah, no, I think you're on it.
Daniel Stillman:
I mean, that's what you're talking about. Your mind, what we're working with here, is what we're bringing into the conversation. And we have to have that conversation with ourselves. What do I want? Am I working against myself?
Doug Erwin:
Absolutely. When I think about my own... I remember the first time I recognized mindfulness and it was in the midst of all the trauma of Pria failing. It was just a glimpse, but it was really powerful. But just knowing how my identity and all of my actions were completely unconscious, only upon reflection have I been able to do that. And now that I have a strong practice, I have a much... I mean, I'm not perfect in any regard with regard to this, but I see much more alignment with my actions and my intention and what I'm really trying to create. I think that was the first thing. Again, using Robert's frame, my first company's worked absolutely built based upon status seeking, scarcity and survival. Absolutely. I was fortunate to get an opportunity to go to do community work and create a whole startup community. And it gave me a lived experience of building from a place of abundant service and trust. And of course, and then ultimately understanding my essence and all of that.
Daniel Stillman:
Yeah. Well, we're almost out of time. Is there any parting thoughts, anything I haven't asked you about this topic that I ought to have asked you?
Doug Erwin:
I think that we've covered a lot of ground. Again, I think the most important co-founder is your own mind, like really getting clear with what your intentions are and understanding that. And again, turning towards everything. Again, just taking Robert. It's so much easier to turn towards it in the beginning when things are good and when things are difficult.
Daniel Stillman:
Yes. Well, that's really powerful, man. Thank you so much for making this time. I know you've had a very, very big week and you're about to head on vacation, so I'm not going to keep you here any longer. But I'm really grateful for your time, Doug. It's really great to hang out with you and have this conversation.
Doug Erwin:
I really enjoyed it, Daniel. Thank you so much for having me in your podcast. It's just an honor to be in relationship with you, my friend.
Daniel Stillman:
Thank you. Likewise, brother.
Doug Erwin:
Yeah, [inaudible 00:43:52].
Daniel Stillman:
We'll call scene.
Doug Erwin:
Awesome.