Is your big biller valuable enough for a slice of your equity pie?

Last year I was coaching a newly acquired client of
mine. As the sole owner of a small but very successful agency, she was
working with me on various strategies to capitalise on her recent
growth.

 

She has a team of six relatively successful
consultants. Three of those have been employed long term with her. One
of those consultants was easily the biggest biller of the three,
although this success has only become consistent in the past 18 months.

 

Mindful of the need to, in some way, lock in her
senior people, the question my client asked me was ‘Should I offer my
senior consultants an opportunity to purchase equity in the business?’.

 

This was a tough question and not one that I felt was
mine to provide an answer to, but, instead to suggest to her the types
of things she would do well to consider in making this decision, such
as: 

  • How much equity to offer?
  • At what price?
  • Is each senior consultant offered the same amount
    of equity?
  • Does the equity automatically entitle each equity
    holder to Director status (with voting rights or without voting
    rights)?
  • Can they purchase more equity at a later point?
  • What happens to the equity if they resign?
  • What are the restrictions, if any, as to whom and
    when, the equity (in full or in part) can be sold?
Beyond these questions there is the fundamental
question as to whether any of the senior consultants in question
actually deserve   the opportunity to purchase equity.

 

As I pointed out to my client, billings are just one
piece in the puzzle when you are considering the ‘worthiness’ of an
offer of equity to any person. Billings are a headline statistic, that
although important, is just one of a number of factors that you should
consider in the offer of equity.

 

Here are ten factors that will (or should) provide a
broader and more rounded perspective on any employee’s true worth are
the following: 

  1. Billings history  
    (How consistent have they been over the longer term?)
  2. New business development  
    (Do they bring in new clients or mainly service existing clients?)
  3. Client development  
    (Once they start working with a client company, do they develop more
    relationships within that company?)
  4. Referrals to other consultants  
    (Do they consistently bring in business, or open new doors, for
    other consultants in the company?)
  5. Use and development of agency intellectual
    property   (Do they actively and
    consistently use, develop or help develop, the tools that build the
    company’s client, candidate and employee value proposition?)
  6. Development of agency brand and reputation
     (Do they regularly attend networking
    events, write blogs, provide valuable updates on Twitter or LinkedIn
    and/or go the extra mile at client and candidate functions?)
  7. Development of talent within the company  
    (Do they actively and consistently play an important role in
    mentoring, training and otherwise developing other employees or do
    they just focus on their own billings?)
  8. Respect for all employees, regardless of the
    employee’s job title, tenure or seniority  
    (Have they earned the respect of other employees
    or do they simply demand/expect that respect?)
  9. Leadership behavior  
    (Do they consistently display the behavior, especially under
    pressure, that you would like to see replicated throughout the
    company or do they only display this behavior when they ‘feel like
    it’ or want something from somebody?)
  10. The journey ahead  
    (Do they see attaining equity as an end unto
    itself or is acquiring equity just the start of a new, higher level
    of commitment to the company where they are eager to share the
    responsibility of growing the company into the future and embracing,
    not avoiding, the challenges that this growth will inevitably
    bring?)
The first nine criteria are ones that you will judge
based on past behaviour. This should not be a difficult task.

 

The final criteria is the toughest one to consider
because you are speculating about future behaviour. No doubt you will
have some evidence for that person’s likely behaviour given your
consideration of the previous nine factors, but ultimately you have no
way of knowing for sure.

 

Is your big biller really   valuable enough for
a slice of your equity pie?

 

I suspect perhaps not quite as valuable as they think
they are.

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