It is easy to over-compensate any offer of help when you first start your business. And by that, I mean giving away equity in your company to people that are keen to support you. In a later episode, I will talk about the importance of having a business partner and the importance of properly motivating people to make your business successful, but there are other ways of doing this than simply offering shares in your business.
Starting a business will probably be the hardest thing that you do, as once you have momentum it is much easier to make decisions and work out a plan for what you’re going to do next. All of the late nights, effort and risk are all related to your ownership of the business and the potential value it might be worth in the future. Therefore, don’t be too free and loose with it especially in the early days when the business itself isn’t worth much.
In previous businesses I have always tried to offer staff shares as I think it is important for them to be invested in the success of the business. But if something is given for free, then its value isn’t necessarily appreciated. Also, if you are not planning on getting really big and making your business a public company, then there is no tangible value to the shares you have offered anyway. This won’t make people feel any closer to the business, therefore, than if they didn’t have them to begin with.
The business is most important to you and that is really where most of your shares should lie, especially at the beginning until you can supercharge it with further investment.
Instead you can motivate business partners and staff in other ways, the most successful is a bonus share where you look to share out a large proportion of profits in the business as and when they materialise. That way they have a tangible understanding of the value, what they can do to influence this and are bought into the long-term success of the enterprise.
Undoubtedly it is the shares in the business that are worth the most, but it could take five, ten or even twenty years to realise this value, so you really need people invested for the long term if they’re going to see the return.
As I have mentioned previously, the ability to get your business started is the most important contribution you will make. Scaling a working model will bring further innovation and opportunity – and ultimately value. It is your initial idea however that will have been the catalyst to this process, and hence why you should see the lion’s share of the return.
Lots of people have ideas, but few turn them into reality. On one side of the coin is risk; on the other, reward.