Posts Tagged ‘shareholder equity’

Entrepreneur’s Equity

Thursday, December 13th, 2018

I am often asked by founders and entrepreneurs in small businesses, “at what point should I consciously start sharing equity in order to attract and retain key people?” My retort, which stuns a lot of them, is “why would you ever consider doing that?”

After all, as the founder or entrepreneur, you have taken all the financial and non-financial risk to this point, you have established the business to maximise your independence and freedom, and you have paid your employees handsome salaries, bonuses and benefits for producing expected or superior results. 

A great many founders and entrepreneurs confuse gifting equity with two issues: (1) “producing results” and (2) “rewarding results”. 

You produce results by hiring qualified people, creating a positive environment, giving them clear objectives, metrics (progress and success),  accountabilities and timelines.

You reward results through a range of financial and non-financial incentives (pay, benefits, bonuses, gratifying work and meaningful career progression).   

My point here is not that you would never offer equity to a key individual but rather you must have absolute clarity about what you are seeking to ideally accomplish, the alternatives, the pros and cons of each and the best solution for your business. Being “frightened of them walking out” is rarely ever a good reason for an entrepreneur or founder to do it without rationally  examining your “fear”.