how to compensate people when you don’t
have any money so I got a great question
recently for one of my Twitter followers
love you guys in rich who’s who’s been a
great fan for a while and i really love
all this up he’s saying so thank you in
rich his question was so I have an idea
it’s going to be split between an owner
and development team what is the best
practice to split the percentage between
these two if the owner has no money this
is a great question and no one that a
lot of people struggle with and I did
too having built a few technology
companies and having a team and having
to split your percentages there’s no
finite 1answer fits all solution but let
me give you some of the things to think
about so people obviously have to be
paid right people obviously have to be
paid for the time that they’re putting
in feel like they’re getting compensated
and it’s pretty common that in a
start-up you don’t have cash to pay out
right you know I have a rich uncle
giving you the cash to launch this thing
so the three most common ways one you do
a revenue share to you do a proper chair
and three you give up equity in the
business and I’ll go through each one of
them quickly to give you a sense of what
you can do so the first one is a revenue
share and this is where you’re giving a
percentage off the top of every sale
that comes in from your business so I
don’t know what you’re making I’m
assuming is some kind of software every
time that software is sold they get a
percentage off the top of the revenue do
those five percent me that’s ten percent
whatever it is depends on your margins
right usually software has pretty good
margin so you can afford a higher number
but depending on what you’re making if
you don’t have the margins you can’t
support a high revenue sharing number
this is great in that it doesn’t give up
equity in your business and they get
their money coming in faster soon as
sales start happening they start making
money which can be a good incentive for
them one thing you might consider doing
is a sliding scale this is something
I’ve done a number of times with people
who are partnered up with in my business
so my business now I’m the only order
one hundred percent of the shares I
don’t any partners but I do a lot of
joint ventures with different people and
often is based on a revenue share what I
understand is I want people working who
who are committed to this who want it to
be great who want to pour their hearts
into it but it’s hard for them to do
that when they’re earning ten percent of
the money that comes in and at the start
is not a lot of money coming in people
need to earn a wage right not making
tons of money but they need to earn
something to pay the bills put food on
the table and so on so what I’ll often
do is a sliding scale and with my
products and services and the programs i
launched it may look like this for
example the goal is to get you to ten
percent of all of our sales so that’s
ten percent i can i can afford that in
my margins long term i want this to be a
you know million-dollar your company
that’s going to be one hundred thousand
dollars a year plus for you as we build
this thing up well I recognize that at
the start you know this is going to take
work you’re not gonna make money right
away you need to earn a wage so you’re
going to get fifty percent of the sales
up front so until you earn X amount you
figure out what is a livable wage until
you get to that point you are in half of
the sales and then after that it slides
down to ten percent so it gives them an
incentive to work harder right away
you’re losing a little bit amaro to
obviously at the start but you’re giving
them a livable way to keep them
motivated to incentivize they don’t to
go back and get a job and then
longer-term it still works out down to
that ten percent or whatever you think
is reasonable with your business the
second is a profit share and with a
profit share it’s a little bit harder
because you’re tracking all the way down
to the bottom line not just the top line
it makes them start to think more like a
business owner makes them start thinking
about where you’re spending the money
instead of just how to make more money
it gives them a little bit more
knowledge of how to run a business and
all the things to think about but it
means the money’s going to come in a lot
slower right you may not make any profit
for the
first gear and can they go one year
without making any money right some
people can do that a lot of people can’t
you know they don’t have the statements
they can’t build that up but that’s
another option to go if you can say
we’re going to give you x percent of the
profits as we build out you know that’s
a little bit harder to project you don’t
quite know how profitable you’re going
to be and you have to be i would say for
going that route to to be flexible you
can have a plan but be flexible because
it’s probably going to change as you
start getting into its services and
sales the third one is give up piece of
the company and this is what most people
think of you know i’m giving up x
percent of my company not just my
profits or my revenues but shares and
what you’re willing to think about is do
I want this person to be a part of my
business and owned shares is this person
think like a business person because
it’s really hard to get somebody out of
a company and just so much trouble and
headache like it’s like getting into a
marriage or you want to make sure it’s
the right person you’re gonna spend a
lot of time with this person you better
get along you better have the same
values and vision for what you want to
think and happen with the business so
with the shares there’s no right or
wrong answer okay at the end of the day
it’s going to come down to what you’re
both happy with but some of the things
to think about are one what does each
person bring to the table so you’re the
owner you’re the new the idea guy you’re
the creator what you need development
helps is worse coming on and being a
developer for you they might say hey you
know this two of us so 50-50 split makes
sense to me but you may think hey you
know what’s my idea I’m you just a
programmer I’m going to be out selling
this saying I need to bring on more
people I should all ninety percent you
own ten percent right so somewhere there
you have to find common ground but it
starts was thinking about who’s bringing
what to the table right and what are you
going to need to grow this into a real
business the program isn’t part of it
but what else do they bring or do you
bring and the whole needs analysis to
build a solid company you know who’s
bringing what to the table the other
thing to think about is what has already
gone into this business
if you’ve already put a lot of time
effort energy ideas dollars into this
company and they’re coming in brand new
then that has to count for part of it
right so when I joined my first offer
company I wasn’t the founder I joined
two or three years into the company I
became an owner in the business but I
wasn’t a full equal owner was an equal
partner I had a little bit less than my
other two founders because they had put
a couple years work into when I was
joining brand new when i started my next
software company i started with a
partner we had 50 50 each and then we
brought in the new person and made them
earn in they started maybe six months
after and so we made I made that person
for an in and he could earn up to a
maximum of i think twenty five or thirty
percent of the shares remember what it
was we wanted new person earning and
show that he was a good fit for the team
regardless of what you do you should
have something to protect yourself you
should have some kind of agreement so if
it’s the proper to revenue share that
there’s an easy way to cancel out of it
either of you can cancel whatever the
penalties are have that written down in
the contract so you’re not stuck with
this person for a long time if it
doesn’t work out if they’re not
programming or if you guys just don’t
get along anymore and on a shareholders
agreement that become part of your
company make sure you have a shotgun
clause which basically means that
somebody’s going to buy each other out
if you trigger a shotgun clause you
could say i’m going to buy your shares
for this amount of money or if you say
no you can buy my shares for that same
valuation and to make sure that one of
you is going to be out of the business
but you have to have something like that
in just so that you’re not stuck forever
with a partner who doesn’t work out I
know it’s it’s challenging it’s tough
and each negotiation is its own bear
that you wrestle with but hopefully that
helped shed a little bit of light if you
do revenue share profit share or send it
to the company and then help them figure
it down to what percentage you’re going
to give up for those are you watching I
love to know how you’ve done deals in
the past
leave a comment below let me know if you
have a business part now how you split
it up if you’ve done revenue shares and
so on i love to hear from you and add
some more contacts if you want to leave
a comment if you like this video give it
a thumbs up and you want to see more
like this click on my face subscribe to
the channel thank you so much I’ll see
you soon
have any money so I got a great question
recently for one of my Twitter followers
love you guys in rich who’s who’s been a
great fan for a while and i really love
all this up he’s saying so thank you in
rich his question was so I have an idea
it’s going to be split between an owner
and development team what is the best
practice to split the percentage between
these two if the owner has no money this
is a great question and no one that a
lot of people struggle with and I did
too having built a few technology
companies and having a team and having
to split your percentages there’s no
finite 1answer fits all solution but let
me give you some of the things to think
about so people obviously have to be
paid right people obviously have to be
paid for the time that they’re putting
in feel like they’re getting compensated
and it’s pretty common that in a
start-up you don’t have cash to pay out
right you know I have a rich uncle
giving you the cash to launch this thing
so the three most common ways one you do
a revenue share to you do a proper chair
and three you give up equity in the
business and I’ll go through each one of
them quickly to give you a sense of what
you can do so the first one is a revenue
share and this is where you’re giving a
percentage off the top of every sale
that comes in from your business so I
don’t know what you’re making I’m
assuming is some kind of software every
time that software is sold they get a
percentage off the top of the revenue do
those five percent me that’s ten percent
whatever it is depends on your margins
right usually software has pretty good
margin so you can afford a higher number
but depending on what you’re making if
you don’t have the margins you can’t
support a high revenue sharing number
this is great in that it doesn’t give up
equity in your business and they get
their money coming in faster soon as
sales start happening they start making
money which can be a good incentive for
them one thing you might consider doing
is a sliding scale this is something
I’ve done a number of times with people
who are partnered up with in my business
so my business now I’m the only order
one hundred percent of the shares I
don’t any partners but I do a lot of
joint ventures with different people and
often is based on a revenue share what I
understand is I want people working who
who are committed to this who want it to
be great who want to pour their hearts
into it but it’s hard for them to do
that when they’re earning ten percent of
the money that comes in and at the start
is not a lot of money coming in people
need to earn a wage right not making
tons of money but they need to earn
something to pay the bills put food on
the table and so on so what I’ll often
do is a sliding scale and with my
products and services and the programs i
launched it may look like this for
example the goal is to get you to ten
percent of all of our sales so that’s
ten percent i can i can afford that in
my margins long term i want this to be a
you know million-dollar your company
that’s going to be one hundred thousand
dollars a year plus for you as we build
this thing up well I recognize that at
the start you know this is going to take
work you’re not gonna make money right
away you need to earn a wage so you’re
going to get fifty percent of the sales
up front so until you earn X amount you
figure out what is a livable wage until
you get to that point you are in half of
the sales and then after that it slides
down to ten percent so it gives them an
incentive to work harder right away
you’re losing a little bit amaro to
obviously at the start but you’re giving
them a livable way to keep them
motivated to incentivize they don’t to
go back and get a job and then
longer-term it still works out down to
that ten percent or whatever you think
is reasonable with your business the
second is a profit share and with a
profit share it’s a little bit harder
because you’re tracking all the way down
to the bottom line not just the top line
it makes them start to think more like a
business owner makes them start thinking
about where you’re spending the money
instead of just how to make more money
it gives them a little bit more
knowledge of how to run a business and
all the things to think about but it
means the money’s going to come in a lot
slower right you may not make any profit
for the
first gear and can they go one year
without making any money right some
people can do that a lot of people can’t
you know they don’t have the statements
they can’t build that up but that’s
another option to go if you can say
we’re going to give you x percent of the
profits as we build out you know that’s
a little bit harder to project you don’t
quite know how profitable you’re going
to be and you have to be i would say for
going that route to to be flexible you
can have a plan but be flexible because
it’s probably going to change as you
start getting into its services and
sales the third one is give up piece of
the company and this is what most people
think of you know i’m giving up x
percent of my company not just my
profits or my revenues but shares and
what you’re willing to think about is do
I want this person to be a part of my
business and owned shares is this person
think like a business person because
it’s really hard to get somebody out of
a company and just so much trouble and
headache like it’s like getting into a
marriage or you want to make sure it’s
the right person you’re gonna spend a
lot of time with this person you better
get along you better have the same
values and vision for what you want to
think and happen with the business so
with the shares there’s no right or
wrong answer okay at the end of the day
it’s going to come down to what you’re
both happy with but some of the things
to think about are one what does each
person bring to the table so you’re the
owner you’re the new the idea guy you’re
the creator what you need development
helps is worse coming on and being a
developer for you they might say hey you
know this two of us so 50-50 split makes
sense to me but you may think hey you
know what’s my idea I’m you just a
programmer I’m going to be out selling
this saying I need to bring on more
people I should all ninety percent you
own ten percent right so somewhere there
you have to find common ground but it
starts was thinking about who’s bringing
what to the table right and what are you
going to need to grow this into a real
business the program isn’t part of it
but what else do they bring or do you
bring and the whole needs analysis to
build a solid company you know who’s
bringing what to the table the other
thing to think about is what has already
gone into this business
if you’ve already put a lot of time
effort energy ideas dollars into this
company and they’re coming in brand new
then that has to count for part of it
right so when I joined my first offer
company I wasn’t the founder I joined
two or three years into the company I
became an owner in the business but I
wasn’t a full equal owner was an equal
partner I had a little bit less than my
other two founders because they had put
a couple years work into when I was
joining brand new when i started my next
software company i started with a
partner we had 50 50 each and then we
brought in the new person and made them
earn in they started maybe six months
after and so we made I made that person
for an in and he could earn up to a
maximum of i think twenty five or thirty
percent of the shares remember what it
was we wanted new person earning and
show that he was a good fit for the team
regardless of what you do you should
have something to protect yourself you
should have some kind of agreement so if
it’s the proper to revenue share that
there’s an easy way to cancel out of it
either of you can cancel whatever the
penalties are have that written down in
the contract so you’re not stuck with
this person for a long time if it
doesn’t work out if they’re not
programming or if you guys just don’t
get along anymore and on a shareholders
agreement that become part of your
company make sure you have a shotgun
clause which basically means that
somebody’s going to buy each other out
if you trigger a shotgun clause you
could say i’m going to buy your shares
for this amount of money or if you say
no you can buy my shares for that same
valuation and to make sure that one of
you is going to be out of the business
but you have to have something like that
in just so that you’re not stuck forever
with a partner who doesn’t work out I
know it’s it’s challenging it’s tough
and each negotiation is its own bear
that you wrestle with but hopefully that
helped shed a little bit of light if you
do revenue share profit share or send it
to the company and then help them figure
it down to what percentage you’re going
to give up for those are you watching I
love to know how you’ve done deals in
the past
leave a comment below let me know if you
have a business part now how you split
it up if you’ve done revenue shares and
so on i love to hear from you and add
some more contacts if you want to leave
a comment if you like this video give it
a thumbs up and you want to see more
like this click on my face subscribe to
the channel thank you so much I’ll see
you soon
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