Options for Paying Employees in a Startup?

Discussion in 'Growing and Managing a Business' started by Delight, Dec 14, 2009.

  1. Delight

    Delight
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    Hello,

    I have an online startup and some really great volunteers. My partner and I have a solid business plan and are approaching investors and potential advertisers. I highly value the volunteers who have helped develop the company, and now one has approached me about payment for his commitment.
    I don't know what I can offer him to keep him on board with the project. I know he enjoys his work and believes in it, but how long can I really expect a qualified worker to "volunteer" or "intern", right?
    I am looking for ways to compensate him and others until the cash flow comes. Any advice or input would be greatly appreciated, as I don't want to lose my staff but can't afford to give them salaries yet.
    Thanks so much!
     
  2. Fergal

    Fergal
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    Welcome to Business Advice Forum Delight and thanks for asking your business questions. You are very lucky to have good staff working for you on a voluntary basis and it is understandable that they are now looking for some return for their time and work.

    You might consider having a chat with the staff themselves and ask them for their suggestions as to how they would like to be rewarded. If you can't afford to pay salaries at this time, then maybe they would be happy to receive shares in the business or even share options, to purchase shares at an agreed price in the future.

    Yet another option is to seek funding for the business and then pay salaries from that funding. Good staff won't commit their time for free, for ever and they will expect to be rewarded. If you have a good business plan you should be able to source funding and your funders will understand that you will only keep your good people, if they are paid for their work. Have you any plans to approach venture capitalists or other financial institutions?

    Please post back with your thoughts and let us know if you have any further questions.
     
  3. Delight

    Delight
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    Thank you for the welcome and the reply.
    My partner is very nervous about offering shares in the company. I am also nervous about it, but we may not have many choices. Do you think it is a safe option? Would that make each of our employees partners in our company?
    We have also considered retroactive pay, but it is so hard to gauge who is working how many hours when it's all online, and then I wonder how far back do we pay them, at what point do we pay them (how much money would we have to generate first?), and then I wonder if we pay them by salary, hourly or by piece contributed.
    I know we need to take a step forward so we can hang onto our people, it's just such a huge first step and it's intimidating.
    We are currently looking for funding through grants, private investors and angels. When our website is finished, we will offer advertising opportunities, but it's hard to sell anyone on that yet, as the site isn't ready. We have had good feedback on our business plan, so the wheels are turning.

    Any other thoughts or opinions are really appreciated!
     
  4. Fergal

    Fergal
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    I can understand why you are nervous about giving away a share of your company. It is not something to be taken lightly and you would need professional advice from an accountant or a lawyer and perhaps from both of them. Do you have access to this type of advice?

    Have you considered an open source, collaborative software model (e.g. like PHPBB or BaseCamp)? Do you think that could work for you. Open source programmers do a lot of work on their relative projects, in return for the status, recognition and personal satisfaction that they get from being involved in those projects.

    What about offering your staff a share of the project revenue, while they are still working on the project? This would be more straightforward than giving them a shared ownership of the business.
     
  5. ally34

    ally34
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    Hi

    Many startup businesses face a difficult conundrum. While they need quality employees to succeed, the necessary funds aren’t available. However, if a startup business owner can get creative, they can figure out how to pay employees without going over budget.
    1. Stock Options. This is a popular option for startup businesses. Even if money isn’t available, offering stock
    can help persuade an employee to come on board.

    2. Pay on Commission. Depending on your business model, it may make more sense to pay for performance. This option makes the most sense for those involved in sales.

    3. Deferred Payments. Some employees would be open to the idea of receiving their payments at a later date. One large balloon payment on a certain date sounds tempting on paper. However, be sure to have a lawyer go over any such agreement.

    4. Escalator Salaries. When hiring, outline a plan for the employee to make more and more as time passes. One idea is to sign a contract in which the employee makes 10% more each month until a certain amount is reached.

    5. Hire Interns. As we discussed yesterday, interns and a startup business are a perfect marriage. Startup businesses can save money while interns can get invaluable real world experience.


    Thanks
    Have a nice time ahead.
     

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