Have you ever wondered why entrepreneurs are willing to work longer hours, endure constant rejection and never give up? It’s because the business they’re working on is theirs, it relies on them to succeed, and the rewards are reflective of the amount of work they put in.
Growing your business with a founder or founders that are driven to succeed will only get you so far, though. How do you translate that drive to employees and make them want to work longer and harder to succeed? It’s actually quite easy. Make your employees a ‘business owner’ too by offering them a share of the business.
There’s no use owning 100 percent of a business full of employees that clock off at 5 p.m. and don’t want to work hard. But, there is use in owning 80 percent of a business that’s worth a bucket load of money, with the other 20 percent shared amongst your employees. Making your employees co-owners of your business is the ultimate way to incentivize hard work.
An employee with a stake is better than one without
I wanted to share with you my experience on both sides of the business fence – working for “the man,” and conversely, being “the man.”
About 17 years ago, I knew that my passion for cars and IT needed to translate into an automotive blog. A place where I could write news about the automotive industry and review cars was my dream job as a kid.
I worked on my site day and night, it was called TheGarage, and I did it part-time while working in IT and studying at university. About a year after the site started, I realized it was becoming successful but a bit much for me to handle on my own while also working a day job.
A short time after that realization, I met Alborz Fallah, the founder of CarAdvice.com, another automotive blog that was about a year old at the time we met. I decided that my best option would be to sell my site and join forces with Alborz.
And that’s what I did. I sold my site, plus my backlog of content, to Alborz for $1, along with an equity stake in CarAdvice.
Over the next 14 years or so, I finished my Mechanical Engineering degree and landed a professional job in engineering while writing about cars in my spare time. I remember working in that engineering job like it was yesterday. I’d turn up at work each day at a set time, wear the clothes I was told to wear and make endless sums of money on high-margin jobs to make my bosses look good.
Sure, the pat on the back was satisfying, but it’s ultimately not as satisfying as the pat on the back that comes from a huge payout when you sell a business you created. Don’t get me wrong – I loved the challenges presented by the job, and I loved the people I worked with, but I hated the fact I could only ever earn my salary, no matter how well I did.
When I realized how much owning part of a business creates drive
Ultimately, it was one of the fly-by-night managers that sent me over the edge and made me realize I had more to give than this 9-to-5 engineering job.
So, I resigned, called up Alborz and scored a full-time job at CarAdvice. I took a massive pay cut, but the website had transformed from a backyard blog to a company that employed 50 people across Australia and was one of Australia’s biggest automotive publishers. I could see the vision, and that’s all that mattered.
I also still had my equity in the business, and based on the business’ current valuation, I knew that every extra minute of work I put in would be paid back in spades when we cashed out.
Five years after joining CarAdvice full time, we sold the business to Nine Entertainment Company for a final valuation of over $60 million following a three-year buyout period.
I’m not saying that any single thing I did led to the sale or the final valuation. Still, I do know that the hundreds of hours I spent away from home co-hosting our TV show, offering automotive media commentary, co-hosting our national radio show and producing thousands of hours of video content contributed in some way.
The only reason I put in the extra effort on those things was my equity stake in the business. The payout allowed me to pay off most of our mortgage, buy a couple of fun cars (a Toyota Supra and Tesla Model 3 for those of you wondering!), and invest in my family’s future.
What we’re doing differently this time around…
Alborz Fallah, CarAdvice co-founder Anthony Crawford, and I left CarAdvice in late 2019 and co-founded CarExpert.com.au.
During the Nine Entertainment Company three year buyout period of CarAdvice, we realized we were being shackled by corporate overlords that didn’t see our vision for the company’s future.
We tried retired life, but it really didn’t sit well with us. We’ve started another automotive site doing what we love – writing about and reviewing cars. This time around though at CarExpert, we don’t want to build a business up over 15 years. We want the best people right away. We want to hit it hard and incentivize our employees properly.
Along with our CEO Andrew Dalton, we have raised over $3 million in funding for our new business in the current pandemic climate, which has allowed us to hire the best-of-the-best to tackle automotive publishing in Australia. In fact, a big chunk of the staff we hired left our previous business, they are the best writers, sales and tech people in the industry.
This time around, we are allocating a much larger chunk of equity to our employees. We have the best people. We want to retain them and share the rewards with all of them.
Why you need to make the change now
If you’re at a pivotal moment in your business right now and have stellar employees that you can’t survive without, consider creating an equity pool for your staff. Consider these three points when structuring your ESOP (Employee Stock Ownership Plan) pool:
- Don’t be stingy
- Give your employees a decent chunk of the business. If they value what you have offered, they will work harder every day to make it worth even more. Offering a pittance can be seen as an insult, won’t offer adequate incentive and will work against what you’re trying to achieve.
- Consider good leaver/bad leaver clauses
- You don’t want an imploding employee to leave the company with an equity stake – it’s not good for employee morale (knowing that a bad leaver still has equity), and it’s not good for your business. Implementing a system where ‘good leavers’ get to keep their equity and a system where ‘bad leavers’ lose theirs will help keep employees in check.
- Allow employees to get proper tax advice
- One of the big mistakes I made as an employee with equity was not getting proper tax advice. I ended up paying more tax than I really should have. Allow your employees enough time to get proper financial advice before committing to an ESOP scheme.
Original source: Entrepreneur