Equity Sharing – Avoiding Remorse
Quote: “It’s good to be the King” – Mel Brooks (too many times to do attribution)
So here is the scenario – you are running a solid business; you own 100% and everyone around you (including employees) are advising you to consider sharing ownership. In private, you mull this over but very honestly, as Mel Brooks has said so many times, “it’s good to be the king.” Nobody to answer to; no pesky shareholder meetings and no reports to outsiders. Privacy, confidentiality, lots of benefits. You wake up every day, look in the mirror and have your board meeting. Life is beautiful.
Please do not misunderstand me; I do not mean to give the impression that sharing equity is wrong; there are too many success stories and some empirical evidence which supports the benefits of sharing ownership. But, to me, ownership is a state of mind. I have seen receptionists who exhibited more ownership traits than some partners did. Ownership is part of a culture of sharing and inclusiveness. It is in this type of organization that equity sharing works. But, for some mature and growing companies, owners are not ready to take on “partners.” Regardless of what others are saying, equity sharing does not work where two conditions exist; either a culture that does not embrace ownership in employee work styles (a subject I have blogged about before) or where there may be owner remorse.
I think we all know or have read about those “ownership cultures.” This is the Zappos/Southwest Airlines culture – everyone does what they have to do to give the customer the ultimate experience and behind the scenes, everyone does what they have to do to move the ball forward. They are terrific and can be created and when they exist, equity sharing is a natural extension. But what about owner’s remorse?
Some owners are meant to share and others are not and that is fine because I have seen both being “successful.” But, keep in mind any equity sharing type of program (we will cover the types in another blog) are designed to be incentive plans. If an owner or owners are uncomfortable with sharing, any equity incentive program will quickly become a disincentive and not only lose its value, but perhaps become a negative value driver. As an owner, you give some ownership and expect all to share the “burdens” that only entrepreneurs bear and understand. When they don’t, you stay up nights wondering if you made the right decision to give them equity in the first place.
So, two simple ideas to avoid equity remorse:
- Avoidance – if you do not feel comfortable sharing equity or ownership in any form, or your culture is not right for it, do not do it. Better not tohave it than to regret it every day.
- Alternatives – work with your advisor on bonus or “equity like” plans. There are plenty out there that do not have that “hangover” effect.
Just keep in mind – equity can be a “forever” thing so tread carefully!
