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People matter to organisations. While we may get a headache from those who overplay the importance of relationships against the basics of operations and the bottom line, there is no doubt that your team’s personal investment to your startup matters.
So, how do you actually set a team that works effectively? One way is by giving an actual share of your startup to employees — more commonly called staff equity, or a staff shareholding.
Memeburn found five things to consider around the issue staff equity, where you make employees part of the team and comfortable with periods of lower than average salaries, extra hours and the higher-than-average risks that face new businesses.
1. Costs: If you are a startup, costs need to be low — corporate salaries are not an option. It’s important to offer staff members a stake in your company’s success. If you set a goal expecting a worth US$140 000 in five years, 1% employee equity means your success or failure determines US$14 000 cash in the bank for that employee. It’s a small percentage for a relatively big stake.
2.Make it a process: Set milestones, don’t just give away employee equity upfront. Offer an employed member of the team the option to agree on receiving one quarter of a percent per every three months over your first year for example. This makes acquiring a stake in the company a process that depends on reaching goals you consider critical to the company’s success. Even if an employee only receives equity in their first year and works on salary from there on, their share and interest in the company remains, adding a different dimension to their relationship with their work.
3. Be conservative in the amount of equity you away (this principle applies to dealing with investors too): Once you give away equity you can’t get it back — unless you buy it back. And if all goes well, buying it back should be a whole lot more expensive as the value of your company gives away. Therefore be conservative in how much you give away.
Only give away the amount you know is critical to the company’s success. If one percent to two members of the team is necessary to get in place operations that will create successful company worth US$140 000 you are exchanging a piece of the success with those you need in order to achieve it. If your company hits US$1.4-million even better, that’s US$140 000 in value for a holder of 1% staff equity. That kind of opportunity does not come easily for the average employee.
4. Staff equity is a great way of making stakeholders actual shareholders: Employee salaries must be paid regardless of your success or failure, but a vested interest in a company’s success means an employee shares a long term vision that makes temporary setbacks and additional challenges far more palatable. Be certain you treat your staff team as shareholders in respect of updating them on the company’s progress, prospects and challenges, tying in the value of their work with the value of their shares.
5. Incentives really matter: Hundreds of Google employees became millionaires overnight when the company listed on the stock exchange and a number moved on to Facebook according to Dries Buytaert. It was not the salary that attracted them, it was the prospect for staff equity.
Buytaert effectively argues it’s important to recognise the enterprising spirit in each individual: “I firmly believe there is an entrepreneur tucked away in many of the best people. For those people, the daily satisfaction of working with high-quality colleagues in a fast-growing company, and the ability to share in the company’s success as a shareholder, is worth a lot more than a bigger salary and predictability.”