According to Jim Dougherty, a senior lecturer at MIT Sloan School of Management, CEO and contributor to the Harvard Business Review network, there are two key documents to look at to quickly assess whether or not a start up organization's business model has a chance to succeed or not in the real world. As an investor or one of the founders of a would-be business, this is a great perspective that simplifies the "go, no-go" decision on investing time and money in the new entity.  The two documents are:

  1. The Compensation Plan
  2. The Pricing Plan

Think about it for a second.  Financial incentives are what make the business world go round. We love how Mr. Dougherty treated the use of these documents in his Harvard Business Review article:

"...When I get my hands on these plans, I read them while imagining that I’m an actual employee or customer. If I’m an employee, I ask questions like: Are my earnings capped?  Am I incented to be constantly closing deals or delaying until new sales periods? Am I more heavily incentivized to up-sell, to support existing clients, or win new ones? If I’m a customer, I ask: What is this pricing plan encouraging me to do? Am I rewarded for buying more, and if so when?  Am I incented to buy one service or product over others, or a combination of products?"

As either an investor or a founder, your honest analyses of the compensation and pricing plans will provide you with your best view of the start up organization's potential early in the game.  

Looking for legal help to start or invest in a new business?  Contact us and ask for a member of our Business Law team for experienced entity formation and business transaction attorneys.


- The Business Law Team
  Rogers Sheffield & Campbell, LLP

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