How Derek Sivers sold CD Baby for $22M without taking VC
venturevoice.com
venturevoice.com
However, I strongly disagree with building a company that lacks proper equity distribution for employees. A lot of the culture problems he alluded to could have been prevented by keeping the team smaller and increasing team ownership.
It's great to be a founder and own 100%. But I'm not sure it's smart to build companies where people aren't on the same page when it comes to owning the creation they build together.
I let the CFO choose the profit-sharing plan and blindly trusted her choice, until 6 months later my accountant showed me it was giving almost all net profits back to the employees, and had doubled most people's salaries.
So I tried to scale it back, which of course led to huge upset, and endless company-wide meetings and votings and such, which at that point the whole mess had changed the day-to-day focus of the company so much I just felt like shutting it all down and starting something new. But I sold it instead.
Lots of great lessons in what not to do. :-)
It'd be interesting to hear what the reaction was. Honestly I've often wondered what would happen if you had a "gilded-company" style compensation -- everyone gets paid twice as well as anyone else in the industry, but at the same time, it's far more difficult to get hired / easier to get fired for nonperformance.
There's a lot of research that suggests employee compensation is inversely correlated with satisfaction with one's job -- no matter what the job is. How strange is that? If you get paid more, you actually feel like your job is less important or interesting, and vice versa.
What sort of macro effects did you see?
In hindsight if I had to do it all over again, I would have tied profit-sharing to improvement in performance above the current baseline, and also had healthy bonuses instead of everyone sharing equally, whether they were coasting or thriving.
Keep in mind this was a company of 85 people, 50 of which were in the warehouse $8/hr pick-pack-ship, 28 were customer service answering emails, and only 6 jobs were "other", such as bizdev, tech, or management.
I agree it's admirable to give the capital away. But, not uncommon now-a-days with owners. I think one difference is many owners continue to grow their personal wealth until they die or turn to philanthropy (with a successful track record they can likely grow that money better than most trusts).
I think you'd be surprised how many executives and owners give their money away. I'm talking about executive management in fortune 1000 companies and small business owners. The ones that aren't in the limelight and don't have anything to prove. They choose their most meaningful causes and make a difference there. From my experience most of successful people I know are responsible and understanding of their success and wealth.
Now that doesn't mean there isn't a small minority that are a bunch of jags - but it does mean the silent majority is exactly that - silent.
[EDIT: Wording]
The charity - the final beneficiary - is the one that gets an additional 3.3 million dollars in your example, since the money was put into the trust before capital gains tax - instead of the donor paying tax first, then giving to charity after.
How could a business owner be ignorant of policies for a full 6 months? Wasn't his signature required to implement the plan in the first place?