Entrepreneurs and business founders are a bright and optimistic bunch, but ask them to tell you what keeps them awake at night, and they’re usually not afraid to let rip. In the early stages, it’s all about survival. But once businesses are through that stage, two issues dominate all others. First, entrepreneurs obsess about losing the company culture as their business grows. Second, they worry about missing out on the talented and highly-skilled people they need to keep driving their business forward.
When used in the right way, employee share ownership programmes can help address both those concerns at once. My advice to anyone building a business for the long-term is to start thinking about the company’s ownership model as early as you can. Getting it right in the early years will help you keep attracting and retaining the best talent decades from now.
However, retention is only part of the story. Share ownership is also about aligning your people with the mission and objectives of the business. When Octopus began back in 2000, there were three of us operating above a small London supermarket. We based our business model on caring more about our customers than our competitors did. As owners, this came naturally to us. But once we started hiring, we needed people who understood this mindset almost instinctively. We were never interested in hiring wage earners, we were looking for stakeholders willing to care about the business as much as we did.
In our case, we have hundreds of people on the front line, talking to our customers, every single day. I want these people to care – about our business, about our customers and about our future. And if they see we’re
getting something wrong, I want them to feel able to speak up. All of this is easier, and more likely, if they have a meaningful stake in the business.
But don’t expect share ownership to be an easy sell with all of your employees. I recently spoke to a start-up founder who had to convince his staff on the merits of share ownership. He said that offered the choice, most would prefer a subsidised gym membership. Given only half of all UK start-ups survive longer than three years, perhaps they have a point. That’s why it’s important to make sure share schemes have a tangible value and are not just seen as akin to buying a lottery ticket.
It’s quite commonplace to hear that the only way to create value from employee share schemes from unlisted companies is to sell or float the business. Don’t believe it. I think a well-structured share ownership programme is one that gives employees the ability to monetise their shares when they choose to, without feeling locked in for an interminable timeframe. Yes, this is harder for an unlisted company than for a listed business, but it’s by no means impossible.
For example, we create an internal marketplace for our shareholders every year. We publish our share price, alongside an annual report that explains how we’re performing. We then ask all our shareholders whether they want to buy or sell shares in the business at that price, for a certain time only. Creating this annual window lets people plan ahead when making important life decisions. Personally, I like knowing that shares in the business have helped people to buy their first home, paid for their children’s education, or even just allowed them to take a well-earned holiday.
Share options and share incentive plans should be attractive, but share ownership, and money in general, will only ever go so far. Every business functions because of thousands of decisions made every single day. As it grows, you can’t make all of those decisions on your own. Instead, you have to start relying more on the people around you, as hard as that can sometimes be.
Perhaps that’s why I’m such a big believer in employee share ownership. Because it means I get to sleep that little bit easier at night, knowing the people I’m working with are thinking and behaving like the owners of a business they are personally invested in. Which they are.
For journalists in their professional capacity only. Issued by Octopus Group January 2019.