In my continuing research on alternate equity plans, I spoke with the founding member of a real estate company that originally started with 6 partners, and has grown to an 80 partner firm. The founding of the company was that each partner bought 1/6th of the company and any future distributions would be divided equally among the members.Â Â At the inception of the company, there wasn’t enough revenue to actually have any distributions, but everyone was providing sweat equity and the real estate sales model comes with a well defined commission structure.
The biggest hurdles for the company was when the 6 original partners had to make a decision of whether to keep the company small or to broaden the ownership to include more of the associates and employees.Â The two times the company had to make the transition it almost destroyed the company as you had to deal with partners who didn’t want to grow the company bigger or dilute the equity they have created within the company.Â The majority of the partners argued that by broadening the equity participants you could get even larger returns.Â The company ended up choosing to broaden the number of participants in the equity plan, which fortunately also coincided with a growth of the business which brought greater returns for everyone. In retrospect, the founder thought that Bill Gates, Jeff Bezos and many of the internet startups got it right from the start by starting off with an options and equity plan so that the incentive to help everyone participate in the growth of the company was broadly distributed throughout the organization.
The hardest part about building a business is that if you want growth you end up having to give your business away. You have to give ideas, equity, incentives, and successes to people you have enlisted to help you grow the business. By broadening the base of the number of people working to make your organization to grow and flourish you increase the probability that you will be successful. The transition from growing “my idea” to “an organization of ideas” is likely to be the biggest issue in managing the growth of an entrepreneur started organization.