Equity · Equity contracts

Equity Plan for Professional Services Startup

Adam Johnson Co-Founder @ Axia CPQ. Salesforce Consultant and Architect.

September 12th, 2019

We're a Professional Services Company providing Salesforce consulting services. We'd like to offer Equity as an incentive to bring on new Employees. We've looked into varying options, vesting schedules, and plans and thought that Upstock may be a good option for us. When talking through with a potential recruit the model was confusing and not the value add we hoped for. We're looking to have a vesting schedule, and we like the idea of RSUs or Equity Pools where people that stay longer and are with us at the cash out event will be rewarded. We can potentially commit to the amount we'll add to the pool over time, but this model doesn't guarantee any % inside of the pool for any one person, so we're struggling with a better way to either A. communicate this model, or B. define an alternate Equity model that will entice candidates to help us grow and reach our goals.

Mike Moyer

September 13th, 2019

If you're a bootstrapped startup, there is only one equity-split model that will deliver a fair result. It's called Slicing Pie and it allocates equity based on what actually happens prior to break even or Series A. All other models are based on guessing or predictions of future events. You DO NOT need an option program or equity pool during the bootstrap stage so don't waste your time and money.

When you are able to start paying fair market salaries at breakeven or Series A, you will no longer need to rely on equity to acquire resources. You simply pay for everything. If you are paying someone a fair wage, they should give you their best. You can layer in a bonus program to keep incentives aligned, but there is no reason to mess with RSUs and options.

Equity is a very misused tool and it can be the subject of all kinds of tricks. Many people think it's some kind of magical thing that makes everyone work harder. It's not.

Equity represents an investment. Giving it to someone who isn't willing to invest is pointless. Giving someone an option to buy something they don't want to buy anyway is even more pointless. Options and RSUs have all sorts of strings attached making them unnecessarily complex.

Employee ownership is great, but there is no need to give the company away. After bootstrapping your shares will have a price. Provide opportunities for employees to buy shares in the company. This will tell you who believes in the vision of the company and its prospects. If they leave the company they keep their shares because they bought them. No strings attached. No need for strings.

Paul Garcia marketing exec & business advisor

September 13th, 2019

Here's something to consider. Look at some of the employee-owned business models that are out there (ESOP). Rather than trying to explain something that is complicated, consider using an established model that already exists, if it accomplishes what you're hoping to accomplish. Inventing a new scheme is hard. Tweaking an existing scheme is much easier. Whatever plan you choose will likely have significant tax implications and you will need to discuss your plan with an attorney, as it might require restructuring of the company to set it all up. There are many famous employee-owned companies you can model.

Adam Johnson Co-Founder @ Axia CPQ. Salesforce Consultant and Architect.

September 13th, 2019

Thanks. That makes sense. We don't plan on taking any funding. We were looking at using equity to compensate for lower initial salaries. As founders we are also taking very reduced salaries at the moment, so we don't want to just "give away" equity just for joining the company, but use it as a tool to reward those that help us reach our goals. Your insights are very valuable and give us a lot to chew on.