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Say one person comes up with the idea for a startup, and spends a significant amount of time over 2 years developing the business plan. That person then asks others to join the startup as co-founders to help build the startup.

When allocating equity to each co-founder, how much equity is that existing business plan worth?

The person who wrote the business plan is the startup's CEO.

The business revolves around a website marketplace.

The business plan includes:

  • multiple lucrative sources of revenue
  • a basic plan for user acquisition
  • identification of additional roles that will need to be filled
  • financial projections
  • detailed, yet incomplete, explanation of the website's functionality
  • some validated learning (as Jesper referred to)

The other co-founders are the CTO, the front-end designer and coder, and the artist.

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Two years to write a business plan? Yikes. 0 equity. – TimJ♦ Jun 22 '11 at 15:43

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Honestly?

Between zero and maybe 5% of the initial shares -- and 5% is on the high end, for a really extraordinarily good effort. In most cases, I would say a business plan is worth nothing at all.

By business plan I assume we mean ... the usual business plan. 10-15 pages of text with good market research, a loose idea about what the final product should look like, a pretty good expenses forecast, and dreams about funding and income.

Now, if the business plan actually contains what Lean Startup practitioners call "validated learning" and even has some pilot customers lined up, then it might be worth more.

If you're going into this as a founder, then you should look to justify your share allocation based on the value you're bringing to the startup going forward. Not on a business plan, which is a piece of paper which will soon need to be changed.

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+1 on the Lean Startup comment. – Ryan Heneise Jun 22 '11 at 16:43
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Two years on a business plan is... Wow. Mind-boggling. I can't imagine how far you'd be by now if you'd actually executed.

IMO, business plan preparation is worth near to nothing with respect to common stock distribution amongst founders. Primarily because the plan shifts often in most startups. However, maintaining and executing against a current, loose business plan is worth something, though, and the two should not be confused. (Also, the vision is worth something too. The individual(s) who came up with a well-conceived, original idea should get some recognition for it in the distribution.)

I think there's a kind of weird collective behavior I've seen in almost anyone I've worked with: Most people I've dealt with expect a business plan, but put no faith in one, for a variety of valid reasons. Never figured out why, but I do call it the "Safety Blanket Principle"...

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You're right: the business plan usually changes significantly over time. My view on business plans is that they're for proving, or validating, that the product or service is desirable to users, and that the revenue streams are valid and worthwhile. – a_fake_username Jun 22 '11 at 16:59
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If guesstimating, yes! :) The only time a business plan is potentially minimally close to accurate is for a non-novel idea and where the planner has a lot of domain experience. The only thing I look for in a plan is the ability in the startup to present a whole, cogent, consistent, appealing "best picture". IOW, if you can't even do that, your idea better be stand-alone amazing! – alphadogg Jun 23 '11 at 14:39

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