Welcome to the sixth week of the Tony Elumelu Entrepreneurship Programme!
Last week was heavily focused externally: looking at your customers and how they look at your business. This week, our focus turns internal, looking at the team within your business that will help you deliver the best product or service to your customers. Successful businesses require strong skillsets, and you will be learning how to identify potential skill gaps within your company. Once you’ve identified the necessary skills and the potential skills gaps, you can then consider ways of attracting employees (such as compensation) and the expectations you will have for future employees. Finally, you will be considering what sorts of Board Members and Advisors will be important to your long-term success.
While you learn about these important topics, please brainstorm ideas with family, friends, and your mentor. Right now, your mentor is likely one of your principal advisors, and their insights may be important as you consider other perspectives from whom you’d like to receive advice. We also invite you to interact with other Programme participants through the activity tab as you learn about this important topic.
Read the Glossary this week to understand terminologies!
Project To-Dos
Sixth Survey
Brainstorm critical skills that will be necessary to develop, market, manage, maintain, and advance your solution over the next several years.
Complete Personal Skills Assessment Survey
Consider skills within your team. Note strengths and weaknesses
Analysis of Business Skills
Compare the critical skills necessary to the success of your business, with your own personal skills and those possessed by your team. What are your strengths? Your weaknesses?
Brainstorm Ideal Team
In a similar manner to considering customers, brainstorm the types of individuals you would want to work with, as well as those who would be drawn to working on this problem with your team. What makes them want to work with you? How can you best showcase the value of being part of your business to them?
Complete the Recruiting Hiring Survey
Discuss hiring needs with friends, business partners, and mentors
Develop a recruitment pitch focused on people with the skills you want in your team
Using the Mock Interview Form, interview your Mentor or a friend
Complete Compensation Survey
Complete Compensation Worksheet
Read the Vesting Article
Complete the Vesting Scenarios Survey
Review your Business Model Canvas, especially Key Activities. What sort of work is most valuable to your company? How will you know when that work is being done?
Define what productivity and performance mean to you and your business. What are your expectations for each employee?
Identify the types of advice that would be helpful to business success. Consider individuals you know who would be helpful advisors to your business as it grows.
Read Advisors Board Members Article
Glossary of Terms
Vesting
Vesting means to give a person or organization shares of your company, either immediately or over some period of time that is defined in a contract.
Hire Slow, Fire Fast
“Hire slow, fire fast” is a phrase that is commonly used in startups to describe hiring practices. Usually it means that new people are tested extensively before being formally hired, and they are often on a probation period of some sort for some period of time.
Employees
Employees are people working for your company for an extended period of time in exchange for a salary and benefits.
Individual Contractors
Individual contractors are people working for your company for a short period of time, usually on a project basis, in exchange for money.
Board of Advisors
A Board of Advisors is an unofficial group of people who advise a company’s leadership. They have no legal roles or responsibilities within the company, and may or may not be compensated.
Board of Directors
A Board of Directors is an official group of people who have the legal right to buy and sell shares of the company, and to make important decisions about its strategy and growth.
Mentors
A mentor is someone who offers someone else guidance. While they are usually older and more experienced, this is not a requirement.
Advisors
An advisor is a person who offers business-related advice to a company’s leadership team. This is an official position, and they are usually compensated with either a monthly stipend or shares in the company.
Compensation
Compensation is anything received by an employee or contractor in exchange for their services.
Vesting
Vesting means to give a person or organization shares of your company, either immediately or over some period of time that is defined in a contract.
Hire Slow, Fire Fast
“Hire slow, fire fast” is a phrase that is commonly used in startups to describe hiring practices. Usually it means that new people are tested extensively before being formally hired, and they are often on a probation period of some sort for some period of time.
Employees
Employees are people working for your company for an extended period of time in exchange for a salary and benefits.
Individual Contractors
Individual contractors are people working for your company for a short period of time, usually on a project basis, in exchange for money.
Board of Advisors
A Board of Advisors is an unofficial group of people who advise a company’s leadership. They have no legal roles or responsibilities within the company, and may or may not be compensated.
Board of Directors
A Board of Directors is an official group of people who have the legal right to buy and sell shares of the company, and to make important decisions about its strategy and growth.
Mentors
A mentor is someone who offers someone else guidance. While they are usually older and more experienced, this is not a requirement.
Advisors
An advisor is a person who offers business-related advice to a company’s leadership team. This is an official position, and they are usually compensated with either a monthly stipend or shares in the company.
Compensation
Compensation is anything received by an employee or contractor in exchange for their services.
Mock Interview Form
Now that you have some idea of the type of people you will need to hire as your business starts to grow, you should think about the best way to hire them. Many people make the mistake of focusing too much on people who have similar resumes, backgrounds, or cultures.
You will need to hire a variety of people who think differently and work in complementary ways, otherwise your company will have serious problems. Diversity creates stability by allowing people to find common ground. Your company’s mission will become the glue that holds them all together.
Here are some things to discuss during interviews. Listen carefully to their explanation and try to ask “Why?” as much as you can to get them to explain their values and motivations.
Tell me a story about the first job you had and why you liked it, or didn’t like it.
Tell me a story about the most recent job you had and why you decided to leave.
What will you do for my company in the next year that will really make a difference?
What do you think is the best part of my company?
How would you improve my company?
What do you think is my primary responsibility as the CEO? How do you fit into that?
What do you think is the most important part of my company’s culture?
Now that you have some idea of the type of people you will need to hire as your business starts to grow, you should think about the best way to hire them. Many people make the mistake of focusing too much on people who have similar resumes, backgrounds, or cultures.
You will need to hire a variety of people who think differently and work in complementary ways, otherwise your company will have serious problems. Diversity creates stability by allowing people to find common ground. Your company’s mission will become the glue that holds them all together.
Here are some things to discuss during interviews. Listen carefully to their explanation and try to ask “Why?” as much as you can to get them to explain their values and motivations.
Tell me a story about the first job you had and why you liked it, or didn’t like it.
Tell me a story about the most recent job you had and why you decided to leave.
What will you do for my company in the next year that will really make a difference?
What do you think is the best part of my company?
How would you improve my company?
What do you think is my primary responsibility as the CEO? How do you fit into that?
What do you think is the most important part of my company’s culture?
Compensation Worksheet
By now you should understand that compensation means a lot more than just the amount of money that you are paying an employee. There are also performance options such as commission or bonuses, and even giving them shares of the company.
Now you need to think about your own company. You have two jobs as an entrepreneur. The first one is to find a business model that can repeat and grow quickly. Once that’s done, you need to hire as many great people as you possibly can, as quickly as you possibly can. It is never too early to start thinking about your next employee, or the next ten employees, or the next one hundred employees. Think big!
Most people underestimate how much they are motivated by things besides money. It turns out that a lot of employees will work harder and longer when they feel connected to the people around them, and the company’s mission. Make sure that you start your company with an emphasis on shared values and a common purpose. It will be much easier to manage your company as it grows.
What skill sets does your company require in the near future?
How much education and experience would you like your employees to have?
Based on your answers to the above questions, how much do you think an individual will want to get paid?
What sort of assets do you currently expect to have for employee compensation? How do you expect this to change in the near future?
What types of compensation will you be offering? (Wages, commission, bonuses, equity)
What do your competitors pay their employees? How does this vary based on the company’s stage of growth and by position?
By now you should understand that compensation means a lot more than just the amount of money that you are paying an employee. There are also performance options such as commission or bonuses, and even giving them shares of the company.
Now you need to think about your own company. You have two jobs as an entrepreneur. The first one is to find a business model that can repeat and grow quickly. Once that’s done, you need to hire as many great people as you possibly can, as quickly as you possibly can. It is never too early to start thinking about your next employee, or the next ten employees, or the next one hundred employees. Think big!
Most people underestimate how much they are motivated by things besides money. It turns out that a lot of employees will work harder and longer when they feel connected to the people around them, and the company’s mission. Make sure that you start your company with an emphasis on shared values and a common purpose. It will be much easier to manage your company as it grows.
What skill sets does your company require in the near future?
How much education and experience would you like your employees to have?
Based on your answers to the above questions, how much do you think an individual will want to get paid?
What sort of assets do you currently expect to have for employee compensation? How do you expect this to change in the near future?
What types of compensation will you be offering? (Wages, commission, bonuses, equity)
What do your competitors pay their employees? How does this vary based on the company’s stage of growth and by position?
Vesting Article
Vesting, or gaining shares of a company, is one tool that is available for you to entice employees, advisors, and investors. This is standard practice in many young companies because they do not have a lot of money to pay people. If you choose to give other people shares of your company, it’s important to understand the benefits and drawbacks.
Think of shares in a company, or “stock” or “equity” as many people call it, as a different form of money. The difference is that someone cannot redeem the shares immediately. Anyone who holds shares in a private company should be very interested in helping that company because their shares can become worthless, or almost worthless, if the company fails.
Paying someone money alone means that they are able to walk away easily. The money is already in their bank account. If someone is vested, though, they have to wait until the company is purchased by another company (an “acquisition”) or listed on a stock market (an “initial public offering” or IPO). This means that vesting helps you save money in the short-term, aligns the interests of the employee and the company, and gets the employees to stay longer.
Vesting also means that you are giving up a part of the company. As an owner, understand that vesting someone else is the same as losing a piece, however big or small, of your business. There are several main groups of people who receive shares of your company.
Cofounders. These people a part of the original team that decides to start a company together. They should provide some specific set of services for your business in exchange for shares of the company. Cofounders usually receive some shares upfront (if they have been working on the project for a while) and the rest over a period of time, usually four years.
Investors. These people give you money and often advise or make introductions in exchange for shares in the company. Before someone gives you money, you work out the details (on a legal document called a “term sheet”) with lawyers, accountants, and the investors. The investors immediately receive their shares when you get the money.
Advisors & Board Members. These people give you advice and make introductions for you in exchange for shares in the company. They have often run successful business themselves, or otherwise represent a particular field of knowledge or network of people that are important to the success of your business. These people usually receive their shares in regular instalments (once a month, for example), which can take up to four years for them to receive all the shares.
Employees. These people provide services for your business in exchange for shares of the company (along with other forms of compensation that we have already discussed). Employees usually receive their shares in regular instalments over a four-year period.
Vesting, or gaining shares of a company, is one tool that is available for you to entice employees, advisors, and investors. This is standard practice in many young companies because they do not have a lot of money to pay people. If you choose to give other people shares of your company, it’s important to understand the benefits and drawbacks.
Think of shares in a company, or “stock” or “equity” as many people call it, as a different form of money. The difference is that someone cannot redeem the shares immediately. Anyone who holds shares in a private company should be very interested in helping that company because their shares can become worthless, or almost worthless, if the company fails.
Paying someone money alone means that they are able to walk away easily. The money is already in their bank account. If someone is vested, though, they have to wait until the company is purchased by another company (an “acquisition”) or listed on a stock market (an “initial public offering” or IPO). This means that vesting helps you save money in the short-term, aligns the interests of the employee and the company, and gets the employees to stay longer.
Vesting also means that you are giving up a part of the company. As an owner, understand that vesting someone else is the same as losing a piece, however big or small, of your business. There are several main groups of people who receive shares of your company.
Cofounders. These people a part of the original team that decides to start a company together. They should provide some specific set of services for your business in exchange for shares of the company. Cofounders usually receive some shares upfront (if they have been working on the project for a while) and the rest over a period of time, usually four years.
Investors. These people give you money and often advise or make introductions in exchange for shares in the company. Before someone gives you money, you work out the details (on a legal document called a “term sheet”) with lawyers, accountants, and the investors. The investors immediately receive their shares when you get the money.
Advisors & Board Members. These people give you advice and make introductions for you in exchange for shares in the company. They have often run successful business themselves, or otherwise represent a particular field of knowledge or network of people that are important to the success of your business. These people usually receive their shares in regular instalments (once a month, for example), which can take up to four years for them to receive all the shares.
Employees. These people provide services for your business in exchange for shares of the company (along with other forms of compensation that we have already discussed). Employees usually receive their shares in regular instalments over a four-year period.
Advisors and Board Members Article
Companies have many moving parts, and especially as they grow, they place high demands on ownership. Whether considering strategic direction or determining the best course of action for a specific element of the business (especially when this is an area where you as the owner do not have personal expertise), it is important to have additional perspectives and insights. Companies often include two bodies of individuals who can oversee and support operations: the Board of Directors, and the Board of Advisors. Both should bring business experience, insights into ongoing operations, and networks that support your efforts.
Board of Directors
The Board of Directors is an official group, established and mandated by your company bylaws. Members of the board are tasked with overseeing company strategy and keeping the owner grounded in the process of running the company. There should always be an odd number of Directors to avoid ties when voting. The group is typically one of the most powerful within a company, but their specific authority and activities are detailed within the bylaws. Directors are ultimately responsible to company shareholders, and therefore are driven by the financial health of the company.
Seats on the Board of Director are important slots to be filled carefully. Initially, the Board should only consist of 3-5 members, with representatives from the founding team along with any initial investors. When selecting, weigh potential members amongst those who have provided the most support in getting to where you are now, and those who have the highest potential to continue contributing to the long-term health of your company.
As the owner of the company, you will need to interact with these individuals frequently, so it is also helpful to have a positive relationship with members of the Board. Members are rarely compensated in cash; instead, their standing within the company is a valuable commodity by itself. Ensure you discover members who will work well with each other and within this environment.
In addition to their leadership role, Directors should be considered high-level advisors. When selecting potential Board members, consider the experience, knowledge, and connections that each potential member would bring to their role. Directors with direct expertise within your domain, large valuable networks, and enough time to positively contribute to the company can have a strong effect on your company’s value.
Board of Advisors
Unlike the Board of Directors, the Board of Advisors is an unofficial group. Advisors should help strategize and solve problems within the company’s operations and future direction. In this standing, there is no one specific structure that this Board should follow - instead, it should directly reflect the needs of the company. The number of advisors and their specialties should complement the skillsets of existing team members, and the diversity of company operations.
For example, an agriculture company using technology to improve their crop yields and social media marketing to reach customers requires expertise in their specific crops, the technology they use, and their marketing platforms. If the founders are experienced farmers, they may want to bring in advisors with experience in the other domain. If the founders have experience in all three domains, they may instead seek to find advisors skilled in related disciplines, such as future technology development or specialized irrigation techniques. They may also be able to use their networks in important fields, such as legal support, venture capital, or marketing.
Both the Board of Directors and Board of Advisors are available to support your operations. You should be in frequent communication with both sets of individuals, using their knowledge and capability when necessary. Sitting on either Board is often an honor, but by agreeing to participate in your company actions, these individuals are also committing to your business success.
Dealing with Advisors and Board Members is a reality of life as an entrepreneur. As your company grows, you will devote more and more of your time to managing the people around you, and less and less time to building or selling the product. This is a natural part of success, a symptom of growth. The progression from I to II to III in this chart is not meant to be exact, only to reflect the feeling that you will have once you start going from meeting to meeting, rather than spending time with your customers or regular employees.
Companies have many moving parts, and especially as they grow, they place high demands on ownership. Whether considering strategic direction or determining the best course of action for a specific element of the business (especially when this is an area where you as the owner do not have personal expertise), it is important to have additional perspectives and insights. Companies often include two bodies of individuals who can oversee and support operations: the Board of Directors, and the Board of Advisors. Both should bring business experience, insights into ongoing operations, and networks that support your efforts.
Board of Directors
The Board of Directors is an official group, established and mandated by your company bylaws. Members of the board are tasked with overseeing company strategy and keeping the owner grounded in the process of running the company. There should always be an odd number of Directors to avoid ties when voting. The group is typically one of the most powerful within a company, but their specific authority and activities are detailed within the bylaws. Directors are ultimately responsible to company shareholders, and therefore are driven by the financial health of the company.
Seats on the Board of Director are important slots to be filled carefully. Initially, the Board should only consist of 3-5 members, with representatives from the founding team along with any initial investors. When selecting, weigh potential members amongst those who have provided the most support in getting to where you are now, and those who have the highest potential to continue contributing to the long-term health of your company.
As the owner of the company, you will need to interact with these individuals frequently, so it is also helpful to have a positive relationship with members of the Board. Members are rarely compensated in cash; instead, their standing within the company is a valuable commodity by itself. Ensure you discover members who will work well with each other and within this environment.
In addition to their leadership role, Directors should be considered high-level advisors. When selecting potential Board members, consider the experience, knowledge, and connections that each potential member would bring to their role. Directors with direct expertise within your domain, large valuable networks, and enough time to positively contribute to the company can have a strong effect on your company’s value.
Board of Advisors
Unlike the Board of Directors, the Board of Advisors is an unofficial group. Advisors should help strategize and solve problems within the company’s operations and future direction. In this standing, there is no one specific structure that this Board should follow - instead, it should directly reflect the needs of the company. The number of advisors and their specialties should complement the skillsets of existing team members, and the diversity of company operations.
For example, an agriculture company using technology to improve their crop yields and social media marketing to reach customers requires expertise in their specific crops, the technology they use, and their marketing platforms. If the founders are experienced farmers, they may want to bring in advisors with experience in the other domain. If the founders have experience in all three domains, they may instead seek to find advisors skilled in related disciplines, such as future technology development or specialized irrigation techniques. They may also be able to use their networks in important fields, such as legal support, venture capital, or marketing.
Both the Board of Directors and Board of Advisors are available to support your operations. You should be in frequent communication with both sets of individuals, using their knowledge and capability when necessary. Sitting on either Board is often an honor, but by agreeing to participate in your company actions, these individuals are also committing to your business success.
Dealing with Advisors and Board Members is a reality of life as an entrepreneur. As your company grows, you will devote more and more of your time to managing the people around you, and less and less time to building or selling the product. This is a natural part of success, a symptom of growth. The progression from I to II to III in this chart is not meant to be exact, only to reflect the feeling that you will have once you start going from meeting to meeting, rather than spending time with your customers or regular employees.
Sixth survey [Answers to the surveys are not necessarily correct, they represent my personal opinions].
How many employees do you have?
I am the only employee
2-4
5 -10
10 - 25
25 - 50
50 - 100
More than 100
Answer: I am the only employee
What percentage of your employees are full-time?
0-10%
11-20%
21-30%
21-30%
31-40%
41-50%
51-60%
61-70%
71-80%
81-90%
91-100%
Answer: 0-10%
Please rate yourself between 1 (weakest) and 5 (strongest) on building and maintaining business partnerships
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 2- Minimal Experience
How many employees do you have?
I am the only employee
2-4
5 -10
10 - 25
25 - 50
50 - 100
More than 100
Answer: I am the only employee
What percentage of your employees are full-time?
0-10%
11-20%
21-30%
21-30%
31-40%
41-50%
51-60%
61-70%
71-80%
81-90%
91-100%
Answer: 0-10%
Please rate yourself between 1 (weakest) and 5 (strongest) on building and maintaining business partnerships
1- No Experience
2- Minimal Experience
3- Some Experience
4- Good Experience
5- Strong Experience
Answer: 2- Minimal Experience
Personal Skills Assessment Survey
Starting and building a business is very difficult. You have committed to managing a variety of activities that are all important to commercial success. Failure in any major area will undermine the company, possibly causing it to fail. You cannot do everything. That is why you need to hire people. If you are a programmer, you will probably need to have someone who is more experienced in the industry where your customers reside, and maybe someone who runs business development, marketing, and/or sales. At the early stages you and your company are doing three things at the same time: understanding the problem; building your solution; and selling your solution. You will need to focus on one, and possibly two of these things. That means you will need help. This assessment will lay out some of the issues to consider. We will return to these later in the week. Please answer these questions to help us understand more about your skills, and how you need to balance them during the Programme.
What is your major skill?
a. Understanding the customer’s problem
b. Building my solution
c. Selling my solution
Answer: b. Building my solution
Where do you need the most help?
a. Understanding the customer’s problem
b. Building my solution
c. Selling my solution
Answer: c. Selling my solution
How confident are you in your business?
a. We are the next billion dollar company!
b. We are doing well
c. We are figuring out a business model
d. We are struggling
Answer: c. We are figuring out a business model
What is your biggest problem right now?
a. Not enough money
b. Not enough access to customers
c. Too many competitors
d. Problems with other founders
e. Can’t find good employees
Answer: a. Not enough money
How much time do you have?
a. I’m always working
b. I have a little free time
c. I have some free time
Answer: a. I’m always working
How connected are you to local resources?
a. I have many mentors, advisors, and supporters
b. I know a few people who help sometimes
c. I don’t get help from anyone
Answer: b. I know a few people who help sometimes
Starting and building a business is very difficult. You have committed to managing a variety of activities that are all important to commercial success. Failure in any major area will undermine the company, possibly causing it to fail. You cannot do everything. That is why you need to hire people. If you are a programmer, you will probably need to have someone who is more experienced in the industry where your customers reside, and maybe someone who runs business development, marketing, and/or sales. At the early stages you and your company are doing three things at the same time: understanding the problem; building your solution; and selling your solution. You will need to focus on one, and possibly two of these things. That means you will need help. This assessment will lay out some of the issues to consider. We will return to these later in the week. Please answer these questions to help us understand more about your skills, and how you need to balance them during the Programme.
What is your major skill?
a. Understanding the customer’s problem
b. Building my solution
c. Selling my solution
Answer: b. Building my solution
Where do you need the most help?
a. Understanding the customer’s problem
b. Building my solution
c. Selling my solution
Answer: c. Selling my solution
How confident are you in your business?
a. We are the next billion dollar company!
b. We are doing well
c. We are figuring out a business model
d. We are struggling
Answer: c. We are figuring out a business model
What is your biggest problem right now?
a. Not enough money
b. Not enough access to customers
c. Too many competitors
d. Problems with other founders
e. Can’t find good employees
Answer: a. Not enough money
How much time do you have?
a. I’m always working
b. I have a little free time
c. I have some free time
Answer: a. I’m always working
How connected are you to local resources?
a. I have many mentors, advisors, and supporters
b. I know a few people who help sometimes
c. I don’t get help from anyone
Answer: b. I know a few people who help sometimes
Recruiting and Hiring Survey
Finding the right people for a startup is hard. Even after clearly outlining the particular skills that you need, there are other things to consider. Hiring the wrong people is one of the most difficult problems to overcome, which is why one of things that entrepreneurs often say about employees is “hire slow, and fire fast.” Young companies require a lot of work from everyone, and that includes tasks that may not be directly related to their job title. When you hire someone, they will need know that you expect them to be invested in the company’s success as much as their personal financial gain. For hiring purposes, think of your company more like a family than a business. Please answer the following questions to clarify the type of hiring that you will need to do as your business grows.
How badly do you need more people to work at your company?
a. We really need help
b. We will hire some people soon
c. We don’t need anyone
Answer: a. We really need help
What parts of the business need people, if any?
a. Building the solution
b. Selling the solution
c. Running the company
d. Finding partners
e. None
Answer: b. Selling the solution
How long do you think you will need these people?
a. Just to get the solution built
b. Just to acquire our first few customers
c. Just until we get funding
d. At least a few months
e. Probably a few years or more
Answer: e. Probably a few years or more
Where do you think you will find good people?
a. Through referrals from friends and advisors
b. Through traditional advertising
c. Through digital advertising
d. Through a professional recruiter
e. Not sure
Answer: c. Through digital advertising
Select all the options you are willing to use to increase your workforce.
a. employees
b. individual contractors
c. employment agencies
d. partnerships
Answer: b. individual contractors
How long do you think it will take you to hire people?
a. less than two weeks
b. two to four weeks
c. one to two months
d. more than two months
Answer: d. more than two months
Finding the right people for a startup is hard. Even after clearly outlining the particular skills that you need, there are other things to consider. Hiring the wrong people is one of the most difficult problems to overcome, which is why one of things that entrepreneurs often say about employees is “hire slow, and fire fast.” Young companies require a lot of work from everyone, and that includes tasks that may not be directly related to their job title. When you hire someone, they will need know that you expect them to be invested in the company’s success as much as their personal financial gain. For hiring purposes, think of your company more like a family than a business. Please answer the following questions to clarify the type of hiring that you will need to do as your business grows.
How badly do you need more people to work at your company?
a. We really need help
b. We will hire some people soon
c. We don’t need anyone
Answer: a. We really need help
What parts of the business need people, if any?
a. Building the solution
b. Selling the solution
c. Running the company
d. Finding partners
e. None
Answer: b. Selling the solution
How long do you think you will need these people?
a. Just to get the solution built
b. Just to acquire our first few customers
c. Just until we get funding
d. At least a few months
e. Probably a few years or more
Answer: e. Probably a few years or more
Where do you think you will find good people?
a. Through referrals from friends and advisors
b. Through traditional advertising
c. Through digital advertising
d. Through a professional recruiter
e. Not sure
Answer: c. Through digital advertising
Select all the options you are willing to use to increase your workforce.
a. employees
b. individual contractors
c. employment agencies
d. partnerships
Answer: b. individual contractors
How long do you think it will take you to hire people?
a. less than two weeks
b. two to four weeks
c. one to two months
d. more than two months
Answer: d. more than two months
Compensation Survey
Compensation is important. It is the pricing for your employees, so many of the same lessons apply from our early work with pricing your solution. But compensation for your employees means more than just money. It is an indicator of an employee’s value to your company, and also a reflection of your relationship with them. There are financial and psychological aspects of compensation. Financial compensation refers to salary, benefits, and shares (or equity) in the company. Psychological compensation means that your company gives the employees important and meaningful work to do. It provides motivation for them to come to work each day. That is one of your strongest tools when you start negotiating with potential employees. Whatever their situation, people want to be a part of important projects that will change the world. Strong, diligent, dedicated employees will help your business reach new levels, and they need to be compensated for this effort or else they are likely to take their time and efforts elsewhere. That is why you must entice them to join, and then stay, on your team. You have worked extensively this week to understand your company’s current and future needs. Now you will start thinking about how to attract the people who will satisfy those needs. The three most important things to consider are: the value that each specific new employee brings to the business, the current rate that is paid to similar employees in the local area, your company’s available resources (especially money and equity). The more expensive someone is, the more you need to make sure they are immediately providing critical value to the company. Many potential employees may be good executives or workers in a large company but they are not willing to hustle, or to be flexible as the company adjusts its business model.
You are running a company that purchases different kinds of groundnuts from wholesalers, then resells them at a higher rate to large retail stores. Your operation is starting to expand, so you need to hire a few sales staff. What is the best compensation to begin negotiations?
a. Salary: minimal. Commission: High Rate. Equity: None.
b. Salary: minimal. Commission: Medium Rate. Equity: Some.
c. Salary: Competitive. Commission: Medium Rate. Equity: None.
d. Salary: Competitive. Commission: Low Rate. Equity: Some.
Answer: a. Salary: minimal. Commission: High Rate. Equity: None.
Your company is growing rapidly and you are attempting to hire a number of new employees. How do you best determine how much compensation to offer as a starting point for negotiations?
a. Consider needed skills, number of required positions, the expected contribution of each position to revenue, and available resources to determine the approximate cost per person and frame each compensation package using this information.
b. Survey local area companies who are hiring similar individuals to determine how much they are paying their employees. Set your compensation standards at a similar level to attract similarly qualified employees.
c. Consider the ideal education and skill level of employees and identify how individuals of such experience are paid in the local market. Advertise compensation at a similar level to attract similarly qualified employees.
d. All of the above.
Answer: d. All of the above.
After several months of operating a small farm tool company, you realize the urgent need for a marketing manager to oversee electronic and print advertising. You identify three similar companies that are paying marketing specialists 5,000 U.S. Dollars per year. Right now you are selling an average of 3,500 U.S. Dollars of equipment per month, of which 350 Dollars is profit. You have 2,000 U.S. Dollars in the bank. How much should you offer qualified candidates in a compensation package?
a. 3,600 U.S. Dollars per year, with 0.25% equity in the company and performance bonus
b. 4,300 U.S. Dollars per year, with 0.25% equity in the company
c. 5,000 U.S. Dollars per year, with 0% equity in the company
d. 5,700 U.S. Dollars per year, with 0% equity in the company
Answer: a. 3,600 U.S. Dollars per year, with 0.25% equity in the company and performance bonus.
Compensation is important. It is the pricing for your employees, so many of the same lessons apply from our early work with pricing your solution. But compensation for your employees means more than just money. It is an indicator of an employee’s value to your company, and also a reflection of your relationship with them. There are financial and psychological aspects of compensation. Financial compensation refers to salary, benefits, and shares (or equity) in the company. Psychological compensation means that your company gives the employees important and meaningful work to do. It provides motivation for them to come to work each day. That is one of your strongest tools when you start negotiating with potential employees. Whatever their situation, people want to be a part of important projects that will change the world. Strong, diligent, dedicated employees will help your business reach new levels, and they need to be compensated for this effort or else they are likely to take their time and efforts elsewhere. That is why you must entice them to join, and then stay, on your team. You have worked extensively this week to understand your company’s current and future needs. Now you will start thinking about how to attract the people who will satisfy those needs. The three most important things to consider are: the value that each specific new employee brings to the business, the current rate that is paid to similar employees in the local area, your company’s available resources (especially money and equity). The more expensive someone is, the more you need to make sure they are immediately providing critical value to the company. Many potential employees may be good executives or workers in a large company but they are not willing to hustle, or to be flexible as the company adjusts its business model.
You are running a company that purchases different kinds of groundnuts from wholesalers, then resells them at a higher rate to large retail stores. Your operation is starting to expand, so you need to hire a few sales staff. What is the best compensation to begin negotiations?
a. Salary: minimal. Commission: High Rate. Equity: None.
b. Salary: minimal. Commission: Medium Rate. Equity: Some.
c. Salary: Competitive. Commission: Medium Rate. Equity: None.
d. Salary: Competitive. Commission: Low Rate. Equity: Some.
Answer: a. Salary: minimal. Commission: High Rate. Equity: None.
Your company is growing rapidly and you are attempting to hire a number of new employees. How do you best determine how much compensation to offer as a starting point for negotiations?
a. Consider needed skills, number of required positions, the expected contribution of each position to revenue, and available resources to determine the approximate cost per person and frame each compensation package using this information.
b. Survey local area companies who are hiring similar individuals to determine how much they are paying their employees. Set your compensation standards at a similar level to attract similarly qualified employees.
c. Consider the ideal education and skill level of employees and identify how individuals of such experience are paid in the local market. Advertise compensation at a similar level to attract similarly qualified employees.
d. All of the above.
Answer: d. All of the above.
After several months of operating a small farm tool company, you realize the urgent need for a marketing manager to oversee electronic and print advertising. You identify three similar companies that are paying marketing specialists 5,000 U.S. Dollars per year. Right now you are selling an average of 3,500 U.S. Dollars of equipment per month, of which 350 Dollars is profit. You have 2,000 U.S. Dollars in the bank. How much should you offer qualified candidates in a compensation package?
a. 3,600 U.S. Dollars per year, with 0.25% equity in the company and performance bonus
b. 4,300 U.S. Dollars per year, with 0.25% equity in the company
c. 5,000 U.S. Dollars per year, with 0% equity in the company
d. 5,700 U.S. Dollars per year, with 0% equity in the company
Answer: a. 3,600 U.S. Dollars per year, with 0.25% equity in the company and performance bonus.
Vesting Scenarios
Let's consider three different possibilities to make sure you understand the concept of vesting. Remember that any specific compensation you offer an partner, investor, or employee should be reviewed by a lawyer and any mentors or other people familiar with the legal and financial aspects of local business law.
You have been offered a seed investment of 100,000 U.S. Dollars. The investor valued your company at 900,000 U.S. Dollars before giving you the investment, so the total value of the company is now 1,000,000 U.S. Dollars. The investor should now be entitled to 10% of the company. When do the investor’s shares vest?
a. Immediately
b. Over one year
c. Over four years
Answer: a. Immediately
You are talking to someone who is offering to be a cofounder of your company. They are older, experienced, well connected in the area, and are already working on several other related projects. They want 10% of your company immediately to join the team. What is the best response of the options below.
a. Accept the original offer.
b. Decline the original offer and don’t negotiate.
c. Negotiate with them so they get a smaller share of the company.
d. Negotiate with them so the shares vest over a longer period of time.
Answer: c. Negotiate with them so they get a smaller share of the company.
You trying to hire a technical person who will be an early employee. This person will lead the team that builds the product you are selling. Even though it is early, you believe the company is worth 500,000 U.S. Dollars. This person wants 45,000 U.S. Dollars per year and 2% of the company. If you can only afford to pay an annual salary of 35,000 U.S. Dollars, how much equity should you offer to make up for the difference?
a. 3%
b. 4%
c. 5%
Answer: c. 5%
Let's consider three different possibilities to make sure you understand the concept of vesting. Remember that any specific compensation you offer an partner, investor, or employee should be reviewed by a lawyer and any mentors or other people familiar with the legal and financial aspects of local business law.
You have been offered a seed investment of 100,000 U.S. Dollars. The investor valued your company at 900,000 U.S. Dollars before giving you the investment, so the total value of the company is now 1,000,000 U.S. Dollars. The investor should now be entitled to 10% of the company. When do the investor’s shares vest?
a. Immediately
b. Over one year
c. Over four years
Answer: a. Immediately
You are talking to someone who is offering to be a cofounder of your company. They are older, experienced, well connected in the area, and are already working on several other related projects. They want 10% of your company immediately to join the team. What is the best response of the options below.
a. Accept the original offer.
b. Decline the original offer and don’t negotiate.
c. Negotiate with them so they get a smaller share of the company.
d. Negotiate with them so the shares vest over a longer period of time.
Answer: c. Negotiate with them so they get a smaller share of the company.
You trying to hire a technical person who will be an early employee. This person will lead the team that builds the product you are selling. Even though it is early, you believe the company is worth 500,000 U.S. Dollars. This person wants 45,000 U.S. Dollars per year and 2% of the company. If you can only afford to pay an annual salary of 35,000 U.S. Dollars, how much equity should you offer to make up for the difference?
a. 3%
b. 4%
c. 5%
Answer: c. 5%
