Why you should change the way you think about equity and who you should be sharing it with.
Sharing equity can be tough. As a founder you value every single drop of blood, sweat and tears that has made your company to what it is today.
It’s understandable that for some people ‘giving’ away chunks of the fruits of their labour to people who weren’t there in the tough early days can be a difficult process. Surely these newcomers haven’t earned it yet?
But as counter intuitive as it can seem, giving up equity is more often than not the best way of getting more for all your hard work, not less. Because if you really want your efforts to pay off as much as possible, chances are you are going to need a lot of help.
And most importantly, if you are too cautious with sharing equity it can actually become damaging and end up souring all the great results you’ve had to date.
Change the language around equity
In our most recent blog we discussed how shareholder agreements should be tailored specifically for each company. That it should inspire, not restrict, you and your team.
It’s the same for equity. The way a company shares (or doesn’t) its equity is a strong representation of a company’s culture. It should be at the core of your planning, not an afterthought. It’s all about strategy.
A key step to take when you think about equity is to change the language around it.
Don’t think about ‘giving up’ equity, think about ‘sharing’ it. Rather than ‘letting it go’, think instead of ‘investing’ it in someone with real potential to help you. It’s a small adjustment, but a worthwhile one. Too many people see sharing equity as a ‘loss’ or something to regret, when if it’s done correctly it should be seen as positive progress.
Share a little (but do it often)
A useful philosophy for sharing equity – especially for founders a little hesitant to do so – is to give a little, but give often.
The starting point should always be asking yourself if one of your employees consistently performs in a way that really pushes your company forward. If they are always moving the needle for you and taking others along on the journey with them, then you need to do all you can to keep them.
Because if you don’t recognise it and reward it, then sooner or later someone else will and you’ll lose them. You can start by offering them a small amount that can grow to a higher figure if their performance continues on its upward trajectory. That way you show how much you value them, boost their morale and incentivise them to keep performing, all at the same time.
You only need to share more equity if they keep getting results. A little, but often.
Follow the leaders
The best companies have the best leaders. Leaders should be at the forefront of the people you consider offering equity to – either to retain them or to attract them.
Look at your leaders and identify who are the ones that make a real strategic difference and would be incredibly difficult to replace. Who is most important to growth? Then invest in them.
The advantage of doing this is threefold. Firstly you motivate your leaders to keep growing. Secondly it makes it easier to develop internal talent, as employees can see a potentially great outcome if they keep developing. Thirdly, it helps you attract leaders to fill the areas where you lack depth.
The last point is crucial. Make equity a part of your recruitment process where appropriate. This is especially vital as you approach the stage where you are looking for major investment or even an exit. Getting experienced people in who have been there before can be tough to do if equity isn’t on the table.
Where to share
The key functions we always advise our clients to look for strong leaders and to consider sharing equity with are operations, sales, marketing and last, but not least, finance.
These are all critical components to scaling your organisation and increasing its value. Finance is probably the most overlooked of the four functions, but at ValueMaker we simply can’t stress enough how key this position is.
Finance isn’t just number crunching and backwards looking process. Finance is critical at every stage of your journey to success. If you have a handle on your finances coupled with a strategic leader who adds real insight into your decision making process, you are halfway to realising your business ambitions. So make sure not to neglect finance leaders when it comes to equity.
A little can lead to a lot
Equity should inspire, not restrict. Make the sharing of equity a key part of your strategy for growth and the way you reward employees and recruit the best talent possible.
Owning 100% of your company but lacking the means to truly nurture it is futile. Better to own less, but have it really flourish and be ripe for investment. So get sharing.