Why Founders and Owners Should Want to Share Equity

Watch the video here

Let me ask you a question. Would you rather have a slice of Watermelon or 100% of one Grape? One of the questions I get a lot from entrepreneurs is about why they should give up equity or ownership in their companies. Why should they partner with someone and give someone a piece of the ownership? My simple answer is that a slice of watermelon is bigger and much more satisfying that a whole grape. In other words, because you can grow your company much faster and much bigger when everyone or most everyone is an owner.

Owners Work Harder

Owners work harder because they know that their extra effort will pay off in company growth and profitability and that profitability will be theirs. Discretionary effort is the goal of every great leader. Base effort is the amount of effort you have to put in to keep your job. Discretionary effort is the effort above and beyond base effort. Now, imagine two companies who are competing with each other. One has 25 employees who are all putting in base effort. The other has 25 owners who are all putting in maximum discretionary effort. Which one do you think will grow faster? Which one do you think will be more profitable? Which one will stay a grape while their competitor grows into a watermelon?

Owners Take Ownership

I regularly hear from managers that they wish their teams would take more ownership…of project, customer experiences, product development, market development, sales relationships and more. Well, guess what the secret is to getting people to take ownership? By making sure everyone has a piece of the company, no matter how small, they will take ownership for the outcomes of their projects and not just the inputs.

Owners Think Differently

People with jobs check out at 5 o’clock and go home. They leave their jobs behind. Owners never leave their job behind because they are owners. They want their company to succeed. They want their the company value to go up because they own a piece of it. Owners think like owners. They are always looking for ways to make their company better.

Owners Stay

One of the problems I see regularly in my consulting business is a lack of strong relationships between the company and its customers. Those relationships don’t get formed company to company. They get formed person to person…usually with the sales and customer service teams. Interestingly, these teams are precisely where companies have the highest turnover. How can customers form strong bonds with people who are constantly leaving? Research proves that when the front line is more stable, customer relationships are stronger and more loyal, resulting in higher revenues. Why wouldn’t you want those people to be owners?

Owners Deliver Better Customer Experiences

When I started my consulting company, I focused heavily on customer service training. Leaders would often laugh at me when I suggested that they train their front line employees. “My turnover is 200% in customer service they would say. Why would I invest in training them? Ken Blanchard has the best reply. What if you DON’T train them and they STAY? Face it. The front line IS your company to most of your customers. They may never meet you or any of the senior team. They don’t read your value and vision statement. They don’t know what projects you are working on. Their whole experience with your company is whatever happens to them with your front line sales and service team. To your customers, the front line IS your company. Shouldn’t they be owners? Shouldn’t they be telling customers that they are owners and that they really care about the customer’s experience with the company?

Giving Employees Ownership is the Right Thing to Do

Face it. You are starting your own company because you want to be an owner and control your own destiny. Do you think there is anyone on your team who feels differently? Everyone wants to be in control of their career and future. Treating people the way you want to be treated is the right thing. Do the right thing. Share the equity in your company. There are many ways to do it so find the way that feels right to you. Just get it done.

Making Everyone Owners is Smart Business

Sam Walton, the founder of Walmart said that his greatest mistake was not making employees owners sooner. Take a look at this stock chart and see if you can find the point at which employees became owners. It won’t take you long to figure it out. That’s why Sam said his biggest mistake of his career was not doing it sooner. In-and Out Burger in CA is legendary for their food and their service. Their teams are all working for the day when they get to open their own restaurant and get a piece of the action. Les Schwab Tire lets employees participate in profits. They are known for their exceptional service. There are lots of larger companies like Google and Amazon that have employee stock programs but most budding entrepreneurs don’t relate well to those stories. One of the greatest books ever on the value of employee ownership is The Great Game of Business by Jack Stack. His company started sharing ownership and now they own over 800 companies that were started by employees. So, it’s time for you to decide. A slice of 800 companies or 100% of one. A slice of watermelon or 100% of a grape. Personally, I LOVE watermelon!

Related Articles