Compensation · Consulting

Compensation for Startup Consultancy

Anonymous

December 26th, 2018

Hi There,


i run a growing Consulting business in Canada. So far, I‘m the only employee (There is 1 other Director in the company) I’ve been getting help from a network of Freelancers. I plan to hire my first employee in May. This person, will effectively be a co-founder.


In terms of background, we’re a cash-flow business. The company is 6 months old and is profitable. We’re not building an app or piece of software. We’re offering consulting services to meet a clear demand in the market. I have no plans to take on investment for the next 24 months. I’ve invested my life savings starting the business.


It would be great to hear ideas as to how I should compensate my co-founder. I want them to stay for at least 3 years. I feel a salary with benefit’s and a bonus system linked to profits would be sufficient for now. Down the line, equity might be necessary. I’m open to ideas and still very green in this space.


Thanks,


Rory

Pilar Manchón Director of Intelligent Digital Assistance & Voice at Intel Corporation

December 26th, 2018

Cofounders with no equity are not cofounders but first employees. Moreover, even a little equity won’t be enough to call the cofounders. Either you are the sole founder and hire partners or employees, or you are willing to let go of meaningful equity for a true cofounder... My two cents!

Eric Kaufman Managing Director, Acumen Business Advisors,llc, Startegic Advisor to startups and small businesses

December 26th, 2018

I agree with Pilar. This new person is an employee - especially if they are not bringing in equity, critical expertise or access to a substantial new market segment or industry.


Cofounders are beneficial if the original founder lacks either the vision or the capacity to execute. But based upon your information, you are already the visionary and the one executing whatever consulting you're performing.


In addition, cofounders are usually in at the beginning and normally do not have an exit time pre-determined for them by the founder.


Hope this helps.

Daniel Canelea Senior Solutions Architect at TD Wealth

December 27th, 2018

I am a consultant myself and from my past experiences , a good consultant , one that can add value to your business , will not be incentivized by equity or salary alone . A combination of both would be ideal (especially if you are taking a salary yourself) . If you would like to call that person a co-founder and start off on the right foot , you two will have to sit down and discuss what each of you bring to the table , as if you start this company again on day 0 , otherwise , you will have an employee with some shares . A true partner must have some degree of participation in decision process regarding how you run your business .

Robert Warren Hess Entrepreneur, business owner, investor, seasoned early stage advisor, corporate secretary, operation

December 27th, 2018

Question number 1: why would you need to have him as a co-founder or business partner? "Slicing Pie" by Mike Moyer, in my view, is a 'must read' before you issue any equity.


I agree with previous comments. If you are cash flow positive and profitable, I see no reason to give away any ownership or control in your company unless the hire is bringing something critical to your company's future. There are other compensation alternative to equity.


Good luck and have a great 2019.

Anonymous

December 27th, 2018

Thanks all. Some great responses here so far.

I want to add some color if I may..

We live in a world of high growth start-ups. It seems every technology company is attracting millions in investment....companies that are simply ideas for the most part, generating no revenue, making not profit and need investment to build something.

I can afford to pay people well. I can match the market rate and am willing to offer a % of our profit as an incentive (to work hard) to the right candidate. If the business continues to flourish, I would be willing to offer the right person equity in 24 months or so.

I'm just wondering, whats the norm for small, high growth, profit generating businesses? Is giving equity away unusual, or typical? . creating an equity sharing model is expensive.. it requires hiring lawyers and accountants...Is there anything wrong with hiring good people, paying them well, taking them on an adventure and not giving them a part of your company?

Johny Rulan

December 27th, 2018

As others have said, this person is effectively acting as your first employee.


I think salary, benefits with equity is great compensation for your first employee. You could do a mix and match and considering that you are investing cash into this company, you could give them more equity to retain cash input to your company.

Aniketh Preeth Narayan Can do best with the least

December 26th, 2018

interesting,any other info you can disclose as to what type of consulting business

Dom DaFonte I build products and see if they stick.

December 26th, 2018

Here's an exercise you could run though that should hopefully help you flesh out the compensation and benefits you could offer your potential new hire.


Picture yourself as someone looking for employment for the role you are looking to hire and ask yourself these questions:

> How much is my time worth? An Experienced remote web developer in my space can earn 100-140k/year. If I were looking for my hourly rate I'd divide that by average pay.

> What role will excite me? Is your role a rewarding one?

> How long term is this role? If I were going to a fresh consultancy, I'd want to know what type of project you have and how many hours your clients have already paid for. This would give me some litmus of how long I'll be employed for.

> What other perks will I get? Is there a bonus structure, and what type of targets do I have to hit to earn one?

> Equity? This isn't important if I'm just your employee , but could be interesting. Honestly I wouldn't be super excited for equity in a consultancy unless I received a percentage of the net income, or there was a possibility that the company could be sold for some decent money.


I personally wouldn't be interested in working for an unknown consultancy without any signed project work and without an attractive salary.

Rory Galvin Founder

Last updated on December 27th, 2018

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Anonymous

December 27th, 2018

I think long term, equity if definitely a great incentive for the right person. The part I struggle with is offering a slice of my company after just an interview process. It's a massive risk after all. I'm naturally thinking how to mitigate that risk.


Offering equity is something I would be a lot more comfortable doing after working with the person for 6 months - 1 year, so I can really understand if they are 1) a good partner/good fit for each other 2) committed to building something.


Just wondering if any of you have taken a similar approach regarding the courting period? Most co-founders, in the traditional sense, know each other from college. previous companies etc.