Questions

Bringing my developer in house full time will provide a small short term lift in revenue with increasing value as the company grows and scales to multiple web properties. He isn't interested in salary as much as equity. My 50/50 business partner and I on the other hand are not interested in giving away equity. We are open to profit sharing, or any other creative solution that will continue to motivate and incentivize him for the long term without having to give up a % of our company. Any feedback greatly helps - thanks!

I cofounded a startup that was able to raise a mid-seven figure Series A round of funding. What I learned is that when that kind of money is raised, service providers wanting a piece of it start circling like sharks. In this case, if you're only paying this developer in cash, I'd put him into the service provider category, which is why I believe my experience is relevant to your question.

We ended up paying big salaries and consulting fees. We didn't share much equity. This created serious misalignment between the motivations of our service providers and our company.

In our case, our development team was an offshore one, with an overly aggressive salesman hovering in our office, slipping invoices under my door for work we didn't request. They saw a pool of money sitting there and were doing everything they could do extract as much of it, as quickly as they could. I realize this may be an extreme example, however you might be surprised at how quickly this may happen when sharks smell money in the water.

One lesson I learned is it's much easier (and fun!) to reach the company's goals when the motivations of everyone are synchronized. It's much harder, if not impossible, when some stakeholders are motivated by short term gains and others by the longer term payout.

Especially if you're a small team, you want everyone in this together, moving toward and motivated by the same goals. Even if the developer feels like he's being fairly compensated now, my sense is that resentment may grow as the equity value of the company far eclipses what he's being paid, especially if he can draw a direct correlation between his work and value created.

So if you're not interested in giving away equity and that what motivates this particular developer, I'd suggest either -

-Getting comfortable with giving away equity

or

-Finding another developer

Happy to discuss further on a call, having lived it and learned this lesson the hard way ;)


Answered 5 years ago

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