Category Archives: Startup Business

Equity Hours

For those who are not already wealthy, time is the business asset that can create ownership.  The ability to own is the #1 differentiator of a capitalist system. How can time create ownership?

In the Harvard Business Review’s Tours of Duty: The New Employer-Employee Compact, it is encouraged for employees to have end dates baked into their work contracts. It reads, “A tour of duty also establishes a realistic zone of trust. Lifelong employment and loyalty are simply not part of today’s world; pretending that they are decreases trust by forcing both sides to lie.”

Every employment relationship should be set up with an end date in the contract. If things go well, it creates an expected time to re-negotiate terms or move on. Without an end date to a business relationship: you do not own, you are owned.

Traditionally, if you worked with a Silicon Valley tech company, you’re either an investor, a founder, an employee or a contractor. Investors have a lot of ownership for little use of their time, founders have have a lot of ownership in exchange for a lot of their time, all employees split about 10-15% of the company (even though they provide +95% of the aggregate time spent on company) and the time exercised by contractors varies greatly by business model but either way, they rarely have ownership.

In a time when Zuckerburg’s taking a $1 salary and the CEO compensation in America is 331X the average worker (for reference, the ratio is 50X in Venezula and 11X in Japan…), how can the middle class not look for fairer ownership distribution as a potential solution in order to rise into the upper class?

In terms of equity, I believe that successful early hires at startups get the short end of the stick. My logic: If you’re a sole founder, your first hire is half the business, your second hire is a third of the business, your third hire is a fourth of the business, your fourth hire is a fifth of the business, and so on. But equity is not distributed this way.

Rent has risen astronomically (current median = $4,225!) in the 4 and a half years I’ve lived in San Francisco. Want to stay in the startup game? Want to get out of the startup game with a chunk of change for your people? You Need Equity To Live In Silicon Valley.

With my time, I plan to blur the line between investor, employee and contractor. ArtMap will not work for you, but ArtMap will work with you. When summarizing it as “with” vs. “for,” Reid Hoffman favorited my tweet… maybe this is the crest of the employment wave?

The ArtMap Inc. business model accelerates the startup employment relationship. It starts with an hourly rate. Much like law firms who work with startups, a portion of the compensation is expected to be paid in equity. I believe at least 25% of time should go toward earning stock. ArtMap Inc. structures relationships to vest stock at the price of the previous round of funding, for example, 20 equity hours at $150 / hour is equivalent to purchasing $3,000 worth of stock.

Why is this good business? Our incentives are aligned. I’m taking risk with the companies, the companies are taking risk with me. The most common denominator of successful people is the ability to delay gratification. Let’s set our goals high, execute, and reap the rewards of betting on our own abilities. And if we fail, we will have failed together.

If you work “with” companies and not “for,” how do your assumptions change? It’s talent acquisition vs. employment partnerships. If you are a business, accepting a traditional full-time job is the equivalent of being acquired. To make equity hour partnerships, business relationships need to have prices and quantities in writing.  If you don’t have ownership stake in what you’re working on, you do not believe it’s future value is greater than the short term compensation.

Old school business leaders who brag about the volume of reports who work “for” them will never attract the best people because they prefer obedient followers over creators.  Duration of employment is lower than ever before, currently resting at 18 months for a full-time employee in Silicon Valley. More talented people are taking on more part-time roles as advisors because time with person who has the right experience and skill goes a long way.

My background is as an early startup hire. If your company is going to really grow, every early hire must pour heart and soul into the business. In my opinion, startups often make the same mistakes when getting their business of the ground. Would you rather hire a less talented person full time or a more talented person part time ?I’m looking for top-notch tech teams, underserved marketing, and validation via respected funding and customers.

 

To learn more, read “Tech Marketing: ArtMap Inc Spring Class 2015.” Photo Credit S-Media. Connect at LinkedIn & Twitter.