It can be tricky to attract and retain the right talent. Money is scarce and taking on a startup job comes with great risk. Bigger companies will most likely offer better salaries and more security. Here are the key learnings from our Startup Talk #12 at PSV Academy where we explored the tension between giving employees attractive warrant programs and building a thriving company culture. There’s a great deal of complexity in the field between the two and much more to it than we can boil down in a single article here in our ‘Thoughts’-section, there are a few key points that will help any founder nail the balance between using equity and culture as motivational drivers.
What motivates your ‘suspect’?
Not everyone is motivated by the same. Some are driven by purpose, some by money, some by culture, some by flexibility, some by the quality of the lunch theme… You get the point. And with competitive salaries as a rare sight in startups, it’s likely that you’ll need something else to offer key employees in the early stage additional to a cool culture and eco-friendly values. And this is where warrants can be a handy tool. But putting together a fully functioning and compliant warrant program isn’t a walk in the park and you can’t, or shouldn’t, do it without help from a lawyer. At least that’s the advice of Mattias Vilhelm Warnøe Nielsen, Partner at Moalem Weitemeyer Bendtsen. And now you probably think ‘of course a lawyer will advise using a lawyer’, but Christian Lund, co-founder and CEO in Templafy, backed him because his experience is: Warrants – you don’t do that on your own, you ask a lawyer. Period. So stop Googling for a plug&play template for your warrant program and stop playing the YouTube warrant tutorial. Instead, keep reading to figure out warrants isn’t the only option you need to consider for driving motivation and what to think of when you get to the point where your business is mature enough to walk down the warrant path.
Incentivizing talents & teams w. Nicolaj Højer, Business Angel and External Lecturer at CBS
Work deliberately with your culture
With not everyone motivated by green faces, Mads Klarskov Petersen, Director of Talent at PSV, argued that culture can work as an equally effective driver of motivation. But what does that even mean? Culture can easily come off as quite a fluffy thing with no clear right or wrongs. A reoccurring theme in the field is a ‘winning culture’. You’ve probably heard it a thousand times before. Yet, culture is part of any organization whether it’s cared for or not it reflects in the way colleagues interact, behave, and work. And surprise, surprise everybody states they have a ‘winning culture’ because who would say they have a ‘looser culture’. But what exactly defines a winning culture and how can it be used for incentivizing teams?
Let’s start with cutting out all the common adjectives like ‘fun’, ‘easygoing’, ‘challenging’, etc. that a vast majority of organizations throw around to describe their ever so great culture. It’s generic, subject to relativity and doesn’t provide for any specifics on the culture in question. Instead, the focus should be revolved around two things: The values, vision, beliefs and the dynamics idiosyncratic and inherent to a specific organization.
First, the values, vision and beliefs of an organization seem to be increasing in importance for today’s employees. And the employees you’re able to attract can very much come down to just that: Who’s your product for, how does it create value and how is it reflected in the cultural DNA (read much more about that in the learnings from StartupTalk #4). If it speaks to the personal values and beliefs of a (potential) employee they’ll be more motivated to work for the big vision. Practice what you preach, or you’ll be counterproductive and confuse your fellow colleagues.
Second, you should actively look for what’s driving your company and how it is changing along the way. In other words, Mads, argued for looking for changes in the trajectory: What has changed since the last time? If you’re able to identify these elements, you’ll be able to recognize what drives value and be proactive about it. And this enables you to actively work with the value-drivers of the culture, which you can specify further by emphasizing and structuring the processes.
And in case you still think it’s a bit fluffy, we’ll tune in on a specific example: Christian Lund and Templafy have been deliberate on their culture from day 1 and is continuously attempting to impose and retain the DNA of the company to all employees. This task increases in difficulty having offices in several countries. Therefore, whenever Templafy hire a new employee, they fly them in for a two week trip to Copenhagen during the onboarding process. This way the new employee witnesses the culture firsthand, which not only makes for a common starting point, but also makes it easier to subsequently collaborate online as well as working remotely in your job when necessary.
Have a transparent strategy
While making a two-week trip for every new employee might seem like an overwhelming task, it’s highly effective. But there’s other ways around keeping track of your culture and utilizing it for your benefit. Basically you need to understand what makes people do what they do best. While this sounds a bit philosophic and intangible, it often comes down to simple elements: People feeling safe, free and aware of what’s expected of them. If this is established, you’ve come a long way. However, it shouldn’t be taken for granted, why it’s recommended to build a structure around it making the culture more tangible. This can be achieved by having a transparent strategy, where employees are included, and expectations are continuously aligned through symmetrical communication.
Even though vision, values, beliefs and culture can be effective incentives for attracting and retaining talent, it’s rarely enough in the long run. As we’ve established there no one size fits all. People are motivated by different incentives and it can rarely be boiled down to one factor for each person. This is especially evident with key hires in management roles. Why come work for a startup for 1/3 of the salary compared to what they can have at a big corporation? Well, it could be due to the potential of future ownership through warrants.
Incentivizing talent and team at different stages w. Christian Lund, Co-Founder & CPO at Templafy
Warrants — a (potential) driver for motivation
In short, warrants are basically a right to future ownership (equity) subjected to certain criteria. If you do this and this within this period of time, you’ll have the right to this amount of ownership. Simple, right? The process behind a warrant pool and program is not as simple as the nature of it, hence it’s a don’t do this at home case. Get help from a lawyer — one who is somewhat specialized in the field.
A good starting point is to have an idea of the vesting conditions (how, when and to what extent). The more specific you are, the better. That goes for every aspect of your warrant program, but especially for the milestones or KPIs of the vesting scheme. Leave as little as possible up to interpretation. Binary metrics, like a certain increase in sale or customers makes it easy to declare whether or not someone has successfully fulfilled the objectives.
Another aspect that must have clearly defined processes is when someone is leaving. And we know, it’s an emotional topic, but even though you’ve been best mates since kindergarten, chances are that one or more people with equity will leave the company at some point down the road. It could be yourself — you don’t want to end up like co-founder of Facebook Eduardo Saverin, or at least the way it was portrayed in The Social Network, and if somebody else leaves you don’t want dead equity dragging you down either. Therefore, it’s important to clarify what happens when someone leaves on different terms and what to do with the vested and unvested equity. Ask yourself, your co-founders and your lawyer all the dumb “what if…” questions and find a solution to it.
It’s not a DIY type of thing it’s your most expensive saving
Just to underline the point: You’re going to need a lawyer. And we know entrepreneurs are cheap, but it’s going to be your most expensive saving. You’ll need help on formulating the right schemes, grants, vesting periods, exercises, cycles, different leaver scenarios, making sure it ties together with your shareholders agreement, and the list goes on and on.
It’s only a valuable tool if the employees understand the potential future value of their warrants and are motivated by financial drivers. If neither, it probably be an effective tool for incentivizing and then it’s a waste of equity. Make sure that warrants are the better alternative to incentivize employees, if not other instruments might be a lot cheaper as well as less complicated.
Even though warrants make for a complicated matter that requires a lawyer’s pricy attention, they make for potentially great incentivizes. As Christian Lund claimed, warrants work as fuel during good times, since you’re in on the ride and the financial upside benefits yourself as well, and great glue during the tough times, as you earn it over time so you don’t just leave, as you don’t want to risk losing what you’ve earned so far.
