How to Reward Leaders Without Giving Up Equity — Transcript

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1. 0:00We sell the paid ads and growth advisory
2. 0:03to eight and nine figure e-commerce
3. 0:04brands.
4. 0:05>> Sweet.
5. 0:06>> We do three and a half.
6. 0:07>> Okay.
7. 0:07>> We'd like to be at 10 and 20.
8. 0:09>> Okay.
9. 0:11>> Feel super clear on our top priority
10. 0:13against our supply constraint.
11. 0:15>> Uh talent?
12. 0:16>> Yeah. Talent acquisition and first
13. 0:19getting LTGP on talent.
14. 0:21>> Okay.
15. 0:22>> Um something that's unclear is
16. 0:24we've just established this past 12
17. 0:25months our leadership team.
18. 0:27>> Okay.
19. 0:27>> two team leaders, head of growth and
20. 0:29head of strategy.
21. 0:30>> Mhm.
22. 0:32>> They're all just on salary at the
23. 0:34moment. Um but putting together or
24. 0:36building an incentive a great incentive
25. 0:39plan for them as a group
26. 0:41to carry us as we two and three X head
27. 0:44count.
28. 0:45>> Um I would just go profit share pool
29. 0:4710 to 20% and then they get slices of
30. 0:50that slice. So it caps. So basically
31. 0:52it's like if you hit say like
32. 0:54simple math, $100 a year of profit, $20
33. 0:57is always going to be allocated or 20%
34. 0:59is always going to be allocated to all
35. 1:00leaders.
36. 1:01Um and so they get slices of that pool,
37. 1:04but then you always have 80.
38. 1:06And then they think like you do, which
39. 1:08is like if we're going to bring this
40. 1:09leader in we got to give up some of this
41. 1:10pie,
42. 1:11but they should be able to grow the pie,
43. 1:13which is the exact same math that all of
44. 1:14us do when we bring someone in. And so
45. 1:16it gets them thinking more like owners.
46. 1:18That's the simplest way I could break it
47. 1:19down. Are you planning on trying to sell
48. 1:21the business anytime soon?
49. 1:22>> Uh potentially. Yeah.
50. 1:23>> Okay.
51. 1:24If you want, you can include a profits
52. 1:26interest in the in the sale, which you
53. 1:27can have be proportional
54. 1:29uh to their interest.
55. 1:30>> Yeah.
56. 1:31>> And then if they leave, comes back to
57. 1:33you.
58. 1:35>> Yep.
59. 1:35How would you apportion that percentage
60. 1:37split against those different roles?
61. 1:40>> It's going to be
62. 1:42So first off, you're going to want to
63. 1:44leave probably 2/3 for future talent if
64. 1:46you want to go big. And so do not be
65. 1:49like, "Okay, I'm going to blow my whole
66. 1:50like
67. 1:52slice of pie on these people." because
68. 1:54the best talent is in the future. It's
69. 1:55not right now. But I'll give you the the
70. 1:57pitch or the walk-through that I have
71. 1:59with um
72. 2:01with somebody who's in this in this
73. 2:02position
74. 2:04is that and this will probably apply to
75. 2:05half of you.
76. 2:07Um
77. 2:08who here has somebody that they were
78. 2:09considering tying into your business?
79. 2:11Okay, so I'll give you quick quick big
80. 2:13picture advice. Um
81. 2:15if you never want to sell the business,
82. 2:17don't give shares away.
83. 2:20The only thing that is guaranteed 10
84. 2:21years from now is that you will still be
85. 2:23in the business. That's it. Everything
86. 2:25else is not guaranteed, so I would not
87. 2:26encourage you to give real shares away.
88. 2:28Thing one. Thing two. There are four
89. 2:31things that equity provides. One is cash
90. 2:35flow.
91. 2:37The second is sale bonus.
92. 2:40Sale dollars. The third is risk.
93. 2:44And the fourth is control.
94. 2:46And so when I have a conversation like
95. 2:48this, I'd be like, "Okay, cool. So, do
96. 2:50you want any risk?" And they're like,
97. 2:51"No, I don't want any risk." And you're
98. 2:52like, "Okay, cool. So, we don't want
99. 2:53that." Uh I'm not going to give you
100. 2:55control, so that's off the table. So,
101. 2:57all we have left are cash flow and the
102. 2:59chance that we sell. And that's what
103. 3:01we're going to do. And so, um
104. 3:03I'm sure in Melbourne I don't know the
105. 3:04legal situation, but like there's a
106. 3:06version of we'll give you a profit
107. 3:08share, which comes off bottom line.
108. 3:10And
109. 3:11uh in the event of a sale you'll get a
110. 3:13sale bonus. Now, the issue with that is
111. 3:15it's going to be taxed as income, at
112. 3:17least it is in the US if they have a
113. 3:18sale bonus. Um rather than capital
114. 3:20gains, but there is no real other
115. 3:22alternative because either they have to
116. 3:24take on risk and not get control and pay
117. 3:27taxes um on you gifting it to them or
118. 3:30they have to buy it and give you money.
119. 3:31Most people don't want to do either of
120. 3:33those things and you have to agree on a
121. 3:34valuation. It's a whole [ __ ] mess.
122. 3:35And so it's easier to say, "I'll give
123. 3:37you some money today, and if we sell,
124. 3:38you get money tomorrow, and if you
125. 3:39leave, you get neither."
126. 3:41>> Mhm.
127. 3:42And then that sale, you know, I've just
128. 3:44said that, the sale number is that
129. 3:45predetermined?
130. 3:48>> There's a zillion ways to slice this,
131. 3:49but the simple way is like if you have a
132. 3:5110% profit share like for the whole
133. 3:53company, right? And somebody let's say
134. 3:55gets 10% of that. So, they have 1% of
135. 3:57the profit. You could say
136. 4:00when we sell, you will get
137. 4:02a proportional amount relative the total
138. 4:05for that 1%. So, they'd get 1% of the
139. 4:07sale. Sure.
140. 4:08>> Yeah.
141. 4:09>> And when you write that, make sure that
142. 4:10it's the percentage of cash, not
143. 4:12calculated on the total value of the
144. 4:14sale.
145. 4:14>> Yeah.
146. 4:15Sorry, I lost thing.
147. 4:16>> I got [ __ ] on that one before, so
148. 4:18there you go.
149. 4:19>> Start. Um
150. 4:21the head of growth is pretty much the
151. 4:24sole sales guy.
152. 4:25>> Uh-huh.
153. 4:26>> Um or our first sales guy, not a founder
154. 4:28led.
155. 4:30He'd be at this table
156. 4:32commission on clip of sales plus this
157. 4:35percentage of profit share or it's one
158. 4:36of the other.
159. 4:37>> a founder?
160. 4:38>> No.
161. 4:39>> It just sounds like he's your sales guy.
162. 4:41>> Correct.
163. 4:42>> Yeah. I don't think
164. 4:42>> New role for us, yeah.
165. 4:43>> Well, he gets commission.
166. 4:45>> Yeah.
167. 4:45>> He already participates
168. 4:46>> table.
169. 4:47>> Uh-huh.
170. 4:48>> The other guys at the leadership
171. 4:49>> Does he do marketing?
172. 4:50>> He's started to, yeah.
173. 4:53He's developing into He's backfilling
174. 4:54that head of growth role.
175. 4:58>> Giving equity to sales guys like kind of
176. 4:59like one of those day one mistakes
177. 5:01that I'd prefer you avoid.
178. 5:02>> Yeah.
179. 5:03>> So, I if that guy is like really
180. 5:05ambitious and really hungry and smart
181. 5:07and you think that he's going to be
182. 5:08there long term, I would say, I want you
183. 5:10to the leadership table. I don't think
184. 5:11you're ready there yet. This is what I
185. 5:13would need to see. And just make it
186. 5:14quantifiable.
187. 5:15>> Yeah.
188. 5:15>> You need to get like you need to master
189. 5:17demand gen which creates five deals a
190. 5:19week, five deals a month. Whatever that
191. 5:20number is that you Like if he actually
192. 5:21did this, you'd be like, you earned it.
193. 5:23So, whatever that is.
194. 5:26>> Sweet.
195. 5:27Thank you.
196. 5:27>> roll.
197. 5:28>> Yeah, you bet.
198. 5:29>> I can't give you every single SOP, that
199. 5:30would be ridiculous. It would be like
200. 5:31this long. But, these are the top five
201. 5:33SOPs that we have used to scale that
202. 5:35Leila actually put together for us cuz
203. 5:37she's really been the one who operates
204. 5:38the business. And so, yeah, I don't know
205. 5:40what's inside of it, but um it's good
206. 5:41[ __ ] So, be sure to check it out cuz
207. 5:43Leila made it and she makes good stuff.
208. 5:44It's free.