By Ifty Nasir, CEO and Founder at Vestd.
For many founders, sorting out equity arrangements is dull company admin. It’s just ‘one of those tasks’, up there with filing your accounts, or sorting your tax returns.
If that’s you, then you are definitely missing a trick.
Equity is a tool for growth and a pretty powerful one at that. Over the past decade, the amount of share schemes in the UK have gone up by 80% and there’s a solid reason for that. Sharing your equity wisely = business success time and time again.
In this blog, I’ll break down how you can make equity work for you.
1. Create advocates for your business
Do you suffer from too few clients, or too many competitors?
How can you get people on side, invested in your success and organically spreading the word about what your business can offer?
The key here is to turn other people into advocates on your behalf.
By giving people a slice of the pie, you’ll be harnessing the power of a psychological phenomenon known as the ‘ownership effect’ and the impacts of this can be transformative.
If an employee or contractor owns even just the smallest slice of your business, they’ll be more loyal, they’ll work harder, solve problems faster and shout more loudly about your company. And, as a collective, your team will be more aligned in their ambitions and more harmonious in how they tackle the big goals.
So have a good think about who has contributed to your success so far and think about giving them some shares.
From a fairness perspective, it’s the right thing to do, and the net result is that you’ll grow a bigger pie to profit from.
2. Use conditionality
You might be wondering whether it’s wise to give shares away to people who might not deliver on your expectations.
You’ll be pleased to know that there are definite ways to protect your equity whilst supercharging the incentivising nature of shares and options.
‘Conditionality’ is simply the setting of terms around the gifting of equity. To put it in layman’s terms, you’re offering shares, but they won’t be released to the recipient until they’ve hit a few milestones.
This is incredibly easy to put in place from the off so it makes sense to do it.
My advice would be to agree on goals that are measurable, quantifiable and fair. So for example:
Stay with the company for at least two years.
Launch the new app by June 2023.
Bring in ten new clients by Christmas.
And so on and so forth. Agreeing to principles like these means that nobody gets burned.
3. Set up an EMI scheme
There are many, many forms of options and shares that you can distribute to relevant people. You can read more about the main types here.
However, one type of share scheme stands out head and shoulders above the rest, and that’s the Government backed ‘EMI scheme’. It accounts for the overwhelming majority of share schemes operating in the UK and with good reason.
It’s easy to set up, offers excellent tax incentives and our research shows that it does incredible things for business cultures and commercial bottom lines.
We asked 5000 business leaders and employees to give us their feedback on EMI and discovered that:
93% agreed that EMI had helped their companies to grow and develop.
95% agreed that EMI had improved employee retention.
93% agreed that EMI had helped their companies to attract new talent.
With figures like those, it[‘s easy to understand why so many companies are getting on board. If you’d like to read more about the research, click here.
If you qualify for EMI, it’s a bit of a no-brainer to get enrolled. You can find out whether you are eligible by reading this helpful article here.
4. Launch your scheme with a bang, not a whisper!
Ok, so you’re all set up and about to announce your scheme to your team. What next?
A big mistake would be to email everybody with a few dry details of their share classes and percentages. Make an occasion out of it!
Depending on the time of your year, you could use your Christmas or summer party as the forum for the celebratory announcement. Or (if you are not sharing with the whole team), why not take your chosen few for a memorable lunch to cement the sense of occasion in their mind?
Talking of which…
5. Use the right technology to reinforce the message.
In days gone by, share recipients would receive a slip of paper or card certifying their shareholder status.
We know from countless conversations that we’ve had, that this is an ineffective way to keep your share arrangements at the top of peoples’ minds.
For one thing, the certificate will probably end up in a drawer somewhere, living under ten tonnes of old paperwork.
To keep the arrangement ‘live’, it’s far better to use an app like Vestd.
By using Vestd, they can not only log in and check the value of their shares in real time, but they can also easily start making predictions about what their shares will be worth if the company doubles in size, quadruples in size, etc.
This keeps people excited about their cut.
And if people feel connected to a business’s fortunes in a visceral way, they’ll be more likely to make good decisions in the business’s favour whatever happens.
If you’d like to know more about what shares and options can do for your business, why not book a free chat with one of Vestd’s friendly experts here.
We’d love to help you take the next step, and to kickstart 2022 in the most exciting way possible.
Written by Ifty Nasir, founder and CEO of Vestd (www.vestd.com)