Building a startup is, to a large extent, about being able to attract the right people, people who can contribute their skills and effort over time, so the company becomes big enough and strong enough to survive.
Founders often don't have the financial muscle to fund the resources and people needed to make that happen. So they need to get creative.
Different ways to finance the business
One option is to fund the business through a consulting model, selling skills by the hour. That gets cash in quickly, but it often makes it hard to prioritize product development. If you don't manage it well, the original idea and long-term vision can end up giving way to short-term revenue goals. Over time, that can undercut the company's long-term potential and its ability to scale.
Two other, more focused approaches: raise money from investors, or get one or more pilot customers to cover part of the development cost. These are often referred to as "venture building" and "bootstrapping."
A vision and mission that resonate
Whichever direction you go, aim to have a strong vision and a well-considered mission that resonates with the people you want to hire, and with the people already working in the company.
If you can't create intrinsic motivation through belief in (and ownership of) the vision and what you're going to achieve together as a company, it's hard to make up for that with external motivation and incentives.
A strong vision that resonates lifts motivation and can also make candidates moderate their salary expectations somewhat, in exchange for being part of something meaningful and useful.
Competitive compensation
Smart people are in demand. They tend to have multiple options on the job market, and they know their own worth. Competitive compensation is essential if you want to hire them.
When the company's cash is tight, it's hard to offer competitive terms if salary is the only thing on the table. To supplement, or to a greater or lesser extent, replace salary, you can offer employees ownership. If things go well, that ownership can represent significant future value.
Broadly speaking, there are two ways to give employees ownership:
1. Let them buy shares in the company directly, or
2. Give them options, which give them the right to shares later.
Depending on the company's stage and existing ownership structure, you also need to consider whether new shares should be issued for the purpose or whether some of the existing shares can be sold.
We help advise on designing effective and motivating employee programs, if you'd like support.
By offering a combination of salary and shares, startups can compete with large companies for the best people.
Build commitment and contribution toward shared goals
Employee-owners feel a stronger commitment to contributing to the company's growth and development goals, and they're more loyal to the business.
To make sure that the effect lasts and that the ownership trade is a fair one, we at Unlisted generally recommend vesting periods on shares and options. That secures a stronger commitment to the company than handing out shares or options without vesting, and it reduces risk for the company by helping avoid "dead equity."
Avoid extra work
You'll get more engaged and motivated employees by offering share and option programs, but there's no point pretending it doesn't add some admin for leadership, especially as the company grows and more employees join the program.
A well-designed program can cut some of that overhead. But to keep the admin burden low as the number of employees rises, you need a solid system for tracking and managing the share register and the program itself.