If you’ve read John Warrillow’s article series at StartupNation, you might just start believing that providing equity to your key employees is NOT a good idea. John should know – he’s exited four companies he’s created and this concept of hoarding your equity is pulled from his hot new book, Built to Sell, in bookstores now.
Listen to this podcast episode to learn why Warrillow believes it’s a bad idea to share equity with employees because, as he says, it dilutes the pot. Furthermore, he argues that employees with a minority share in a closely held business would gain no advantage during the life of the business anyway. And when you do provide equity, shareholders are entitled to a reasonable level of disclosure about your financial statements. Do you really want to be obligated that way?
Another reason he brings to our attention is that acquirers like to buy businesses in which the ownership structure is tidy. If and when you decide to sell your business, having lots of shareholders, holding companies and complicated legal engineering will scare off some potential buyers.
Lastly, there are attractive alternatives. A Long-Term Incentive Plan is an easy option that enables you to sidestep a complicated ownership structure for a customized plan that provides deferred bonus as a carrot for long-term performance and engagement in the business by employees.
Learn how StartupNation users can save $5 when ordering Warrillow’s new book, Built To Sell.
BONUS: Read Warrillow's accompanying article series, "Start Strong. Exit Strong." to learn about effective exit strategies for your business!