Many employees look at their bosses as well as the company they are working for and say - "I can do that. And better!" Similarly, many bosses in the SME space look at a key person in their organisation and believe that they need to give that employee some skin in the game in the form of shareholding in order to retain them. Both notions have their place in the right place and circumstances, but both are fraught with danger. Here are some of the things that both owners and potential future owners need to consider before taking the next step.
It may be a very enticing thought to be the business owner - the master of your own fate. But if you think that is likely to give you more flexibility in your working days and more control over your lifestyle, you’re likely to be disappointed. Once you have your own business, your client is the boss! Upset that boss and you may not have any income that month. There is no employment law to protect you in that scenario.
There is also no security, no guaranteed salary at the end of the month. And there is risk – substantial risk. Many would-be business owners want to start something on their own, but bemoan their lack of funding. The reality though, is that those who are business owners also lacked finance to start up. However, they took a chance – they begged and borrowed from anyone who would listen to them in order to get going. And very often, the first venture failed and they had to start again. The point I am making is that one has to be prepared to put everything on the line, both financially and personally to go into business for yourself. You need to start with a business plan and thereafter be prepared to put in non-stop effort. You may need to be the marketer, the salesman, the finance guy and the operations manager yourself. You also need to recognise that which you are not good at, so that you can seek the right advisors to cover the gaps in your skill-set. And accept that the work day does not end at 5pm or start at 8 am. The successful entrepreneur eats and sleeps his or her business, constantly thinking about ways to improve and succeed at times when others are relaxing or sleeping.
The rewards? They are really of your own making – your success will determine your income and your lifestyle. And never forget, in a world where employment in becoming increasingly hard to guarantee, you at least hold the right to being employed in your own hands!
As the owner of your business and the person who took the risks I referred to above, be careful of giving too much away too easily. Remember, you will have limited opportunities in your lifetime to realise the capital value in your business, so make the best of them. Giving “soft” shareholding to employees can dilute your opportunity to cash in on later opportunities. It is also a reality, in my experience, that those who do not have to pay for their shares or take no personal risk in acquiring them, value their shareholding less. They have nothing to lose and the “get rich quick” mentality can creep in. Next thing, that employee is looking to leave and get paid handsomely by you for shares they never paid for! Exactly the opposite of what you were trying to achieve, which is to retain that person in the company. Off course, there are ways to manage these risks and that is where a good advisor or consultant in invaluable. There are ways to incentivise, empower and retain key individuals without giving away your company. Off course, there comes a time to consider succession planning and/or realising the value of your business, but that is a matter for a separate discussion!