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I’ve written about finding the right advisors and maintaining great relationships with them, but compensation isn’t something we’ve addressed yet.
And that’s because there’s no blanket advice here that’s going to work for everybody.
First of all, we’re not talking about cash compensation here. For advisors that you actually want, you won’t be able to offer enough cash to make things interesting for them (that is, they’re already financially successful). Anyone you pay for advice without having them invested in your success is simply a consultant.
Good advisors might not even ask for compensation at all, though it’s good practice, if they’ve consistently been delivering value for your company, to formalize the relationship with equity shares.
The two most important factors are:
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Value: How involved will they be? How will their expertise and advice translate into value for your business? What, exactly, do you imagine that value will be?
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Leverage: Who’s getting more out of the relationship? Are you a fast growing company with traction that many people want to help in exchange for equity? Or are you unproven, pre-launch and desperate for an expert to come in and help you get things off of the ground? The latter company should be compensating the right advisors far more heavily than the former one.
I’ve seen equity compensation ranging anywhere from .25% to 1% for very valuable advisors.
But my personal preference and again, this doesn’t mean it’s right for everyone is to have them invest in your company, as we did, to take the relationship even further.
A proven process for changing company culture.
When I was a teenager, one of my first jobs was at a dry cleaning business.
It was a small outpost of a regional chain, and we were known in the area as the “cheapest option.”
Our prices were low, and that’s pretty much the extent of what our customers liked about us. We very rarely got praise for our quality of work, or our speed, or our customer service. But people did business with us because we were cheap.
That is, until the summer when corporate HQ decided to raise our prices.
We couldn’t continue to operate with such thin margins, they said, and our rates nearly doubled overnight.
They were still pretty low, but they deeply tarnished the one thing that customers appreciated us for. We no longer felt cheap, because the prices were more than what our customers were used to paying.
Sales dropped, and management panicked.
“We need a new differentiator,” they said.
Not long after, my manager called us into his office and told us: “From now on, we’re not going to be known as the cheapest. We’re going to be the friendliest. Put on a smile and give our customers an experience to remember.”
(He was a former sailor and his exact phrasing probably included a bit more, uh, “adult” language, but the point remains the same.)
And that was the last that we the employees ever heard of this new culture change.
Our customers, of course, heard all about it.
The local TV and radio ads for our business no longer mentioned the price, but instead went on and on about how wonderful it felt to do business with us, their friendly neighborhood dry cleaner.
We flew the customer service flag high, but behind the counter, we were never even told what “great customer service” meant, or how we should deliver it.
It was simply our new motto, mandated from the top.
Unsurprisingly, the culture change didn’t work. It didn’t take long for our new customers to see that the actual experience didn’t feel very much like what our advertising promised.
Sure, most of us were friendly, but we had no training in what real customer service should be, and the business’ operations didn’t change either, so we continued to have long turnaround times for cleaning, and worst of all, we kept losing track of our customers’ items.
That business no longer exists.
There’s never enough cash. Here’s how to get more for your money.
Outside of a handful of venture-funded companies, the term “cash-strapped startup” is entirely redundant.
I’ve never heard an early-stage founder say “we’ve got enough cash.”
It just doesn’t happen.
When your dreams are big, but your growth hasn’t caught up to your ambitions yet, you just won’t have the money to do everything that you want to do.
Of course, you’ll dream about making that extra hire, getting that pricey software suite, or buying that way out of your budget ad campaign.
And sometimes, you’ll splurge and actually buy something you can’t afford (sometimes, it can be worth it), and it will scare the hell out of you.
In the early days, that’s just life.
But aside from the obvious solution simply embracing the constraint and understanding that scrappiness is a virtue there’s another approach that far too many founders don’t apply.
That approach?
Negotiating.