How do we pay our venture team?
Discussions About Venture Team Compensation and Incentives
In the early stages, when the intrinsic motivation we discussed in a previous Article is high, there are many intangible rewards for the venture team. They have the chance to change and experience personal growth, to exercise autonomy, and to be exposed to new business venturing. Larry Page, co-founder of Google, said he found that when you get a small group of people motivated in an innovative environment “work isn’t just work—it becomes their enjoyment.”
Financial rewards are important too, as they can be offered to venture team members as a way of retaining and motivating them. Equity in the venture is first, and most important. Stock in the venture gives the member a direct financial stake in the overall performance of the venture.
But there is no time-tested formula to cover how distributions should be planned with respect to the allocation of stock and timing, such as the vesting periods. Salary and bonuses are money paid directly as paychecks, or indirectly to consultants by agreement. Commissions are given based on percentage of sales made and usually reserved only for the marketing and sales executives. And profit sharing is cash distributed to eligible employees based on the venture’s profit.
Key Success Factors
Simply by definition, a new business venture is short on human resources. A common pitfall is not being prepared for how dynamic the process of team building is and for the changes that will most likely occur over time. It is important that initial talks and agreements have understandings and mechanisms to “facilitate and help structure graceful divorces” as the venture grows.
Remember that no venture team is ever perfect; do not expect to find a “venture team in a box.” But there is a growing body of research in the venture capital community that suggests that most of the reasons for new business failure may be traced to specific flaws in the venture team. So investors will expect that you have worked with consultants and advisors to perform an objective analysis, and that you have some kind of plan to fill in the flaws and weak spots.
There is no doubt that the combination of the right team of people and opportunity can be a most powerful venture. Bill Coleman is a co-founder of BEA Systems, which claims the distinction of being the fastest software company to reach $1 billion in revenue. His advice for finding the best team members is key: “I wanted all of them to have the following four experiences: To be the best at what they do; to have been a successful executive in a large, high-growth company; to have been an executive in a start-up; and, most importantly, to have survived at least one failure.”