Equity comp at SkuSpring
When we started we knew that we'd have a growing team and we wanted to have the flexibility to bring seasoned veterans into leadership roles with ownership stakes in the company. We aimed to use equity in lieu of cash compensation for as long as possible, both to save precious finance and to someday (hopefully) richly reward those that came along on the journey with us in a meaningful way. Knowing this, we had a dilemma on our hands: we didn't know how many of our friends and past colleagues would join, and we wanted to set up a model that allowed people to continue to work in their day job whilst also contributing around the edges to SkuSpring, or to take a vacation like I did a few weeks ago, without the feeling of letting the team down.
So to the internet we went, and we found a model that was, in our view, superior to fixed equity splits, option pools or other schemes. Mike Moyer’s video and book, titled "Slicing Pie: Perfectly Fair Equity Splits for Bootstrapped Start-ups" covered all the key aspects we were hoping for - it even had a SaaS product to manage it all for us! Basically, the concept is that on day zero we haven't got enough information to set up the equity split. Instead, we manage the split by equating the stake that a colleague has put at risk to the ownership percentage. To do this for wages, we negotiate hourly rates, as we would anyway, and we apply multipliers to acknowledge the risk that colleagues are taking to leave their earnings within the firm when we pay in equity. We use the recommended multiplier (x2) for these earnings. We ask everyone to track and submit their hours weekly. We use this to recalculate everyone's equity position each week, in our case on Tuesdays. Additionally, if a colleague invests their own cash into the company, as some of us did to fund the launch in the US, we apply a x4 multiplier for that cash.
We chatted with Moyer, the founder of Pie Slicing, and found him to be as straightforward and thoughtful as his book suggested he would be. I asked him for a quote for this blog regarding his pie slicing method, and he said regarding equity splitting via the Slicing Pie model: "Keep in mind, you don’t know what [percentage] you are getting in advance, but you will always get the right number".
Now we did have some challenges. It turns out that the tax authorities have certain views on equity funding that are not exactly straightforward, and so we engaged the only law firm in the UK that specializes in Pie Slicing setups. It will take a bit of time for us to work through the legalese and planning to get it right, but we’re pleased to have found this expertise. Next, we made a mistake. In our zeal to implement the model wholesale, including the part that says when someone resigns for no good reason they need to "suffer the consequences" (pg 96), we lost sight of the fact that our colleagues are being generous with us, and that in turn, we need to be generous with them. We have seen the error in our ways and have removed that clause from our implementation of the model. And finally, we took umbrage with one of the terms used throughout the model: 'grunt'. We prefer 'colleague' or 'peer'.
Aside from these challenges, we are really quite pleased with how the pie slicing has played out. I look at the pie on Tuesdays to see the ownership percentages and am always pleased to see new colleagues growing their slices of pie!
Want to join in on this adventure? Please take a look at our careers pages. We are looking for great people to join us!