Why and how did you become interested in an employee share scheme or arrangement for your business?
As we are a startup company, we could not afford to go out and hire the quality of people that we wanted directly. Part of the philosophy of beany.biz is that we don't invest in buildings, expensive hardware on the ground or cars, but we do invest in people and technology. So we had to attract the best people with share incentive schemes.
So in the early days of development, the key people were paid below their market value but this was recognised by offering them the chance to 'work for shares'. This allowed the company to grow and expand rapidly without high capital requirement. It also ensured that the people involved all had a vested interest in the outcome of the business. The motivation, drive and commitment of the team is outstanding. Now we have a key member of the team who is working towards a shareholding, which crystallises next year
Can you tell me about what was involved in setting up this kind of arrangement?
It wasn't easy! As with any kind of negotiation, you have to share some underlying beliefs so transparency of process, dealing with the right people and lots of documentation is required.
As this was a startup and there was no budget for expensive lawyers and advisers, we basically worked through the process collaboratively between the parties with full disclosure of all information; all information concerning the company was available in Google Drive and accessible to everyone. We did not rush the process and took our time with each person so that people had time to do their own due diligence and consider their options.
Possibly the key factor is ensuring that you're dealing with the right people who line up with the company objectives - everything else is just a slow process.
We started with a very detailed shareholder agreement, which covered everything from governance to management to the share options, looking at who had responsibility for what and what the exit strategies would be. We then signed agreements that detailed how the share options would work. The shares themselves are parked in escrow for the employee concerned and this was all outlined in both the shareholder agreement and in the individual agreement between the company and the employee.
What have been the major challenges you've encountered so far on the journey?
I think the major challenges are around the lack of information available for ordinary small or startup businesses, without having to invest significant funds in legal costs. It involves some thinking across a range of business issues from ownership to employment to funding as you balance the need for the best people with the risk of minority shareholders and the monitoring of the KPIs that sit with the option.
It's complicated and somewhat uncharted territory - at least for me!
How about the benefits?
The benefits are substantial. The team we have now would have been completely outside of our range if it was not for the share incentives. Not only do we have the best team in New Zealand for our business but they are locked and loaded as far as motivation goes.
What advice would you have for other small business owners considering this kind of arrangement in their own operations?
• Negotiate openly and fairly.
• Document everything. It's amazing what gets flushed out when you write it down and ask everyone to sign!
• Only use this mechanism to obtain, and retain, the right people - ultimately all business is about the quality of the people you work with.
Coming up in Small Business: Do you need a business plan? How do you go about putting one together and what impact can it have on your operation? If you've got an interesting experience with business planning to share, drop me a note: nzhsmallbusiness@gmail.com
