Start-Up Law: I’m A Start-up Founder. Can I Pay Employees With Shares?

Every early stage start-up company battles with restricted cash flow and not being able to pay market related salaries to their employees. Bulking up employee salaries with equity is a common method to attract, retain and incentivise top talent.

Can I pay salaries with shares?

South African labour laws require that employees be paid certain minimum wages, and “remuneration”, as defined within the Basic Conditions of Employment Amendment Act, either means in ‘money or in kind’.  ’In kind’ does not include shares or participation in share incentive schemes, as determined by the Minister of Labour. As such, there is no room for start-ups to completely substitute paying salaries with shares or share options. However, there is no restriction in topping up below market related salaries with equity via an employee share ownership plan (‘ESOP‘).

Employee Share Ownership Plans

There are a variety of ways in which employees can be incentivised, and it will always be important for the start-up founders to consider what goal they wish to achieve by incentivising their employees.

ESOPs can be structured in several ways, for example: employees may be offered direct shareholding in the company, options for the acquisition of shares in the future; oralternatively, a phantom / notional share scheme can be set up.

ESOPs permit employees to share in the company’s success without requiring a start-up business to spend precious cash. In fact, ESOPs can contribute capital to a company where employees need to pay an exercise price for their share options or shares.

The primary disadvantage of ESOPs is the possible dilution of the Founder’s equity. For employees, the main disadvantage of an ESOP compared to cash bonuses or bigger salaries, is the lack of liquidity. If the company does not grow bigger and its shares does not become more valuable, the shares may ultimately prove to be worthless.

Key Features

Some key features to consider when setting up an ESOP are:

  • ELIGIBILITY – who will be allowed to participate? Full time employees? Part-time employees? Advisors?
  • POOL SIZE – what percentage of shares will be allocated to incentivise employees?
  • RESTRICTIONS – will employees be able to sell their shares immediately?
  • VESTING – will there be a minimum period that service employees will have to serve with the start-up to receive the economic benefit of his or her shares?

Employee share ownership plans are great corporate structuring mechanisms for attracting and retaining employees, as well as fostering an understanding of the company ethos and encouraging loyalty and productivity. It is essential when implementing an ESOP that all the tax implications are considered and that the correct structure and legal documentation are in place.


5 Ways to Drive Leads and Double Your Profits

As a marketer, the right digital strategy can drive leads, increase profits, and eliminate the competition. But in a crowded marketplace, how do you cut through the noise?

Enter Joshua Harris, entrepreneur, master marketer, and member of The Oracles. His company, Agency Growth Secrets, teaches entrepreneurs how to grow highly profitable digital marketing agencies and win their clients unmatched results.

What’s the key ingredient to his secret sauce? The right data. “The data we use plugs into Facebook and Google, slashing the cost on these platforms by 25 percent to 75 percent,” shares Harris.

Here are five data-driven strategies that Harris uses to drive leads—and generate insane profits for his company and clients.

1. Eliminate non-buyers from your targeting.

To get the biggest bang for your buck, eliminate non-buyers from targeting. “In Chet Holmes’ famed market pyramid, he showed that only three percent of people are ready to buy immediately. So, any money you spend on the remaining 97 percent of people is a waste,” Harris explains.

“Current ad platforms don’t have a way to eliminate these non-buyers, so marketers leave money on the table with the standard pay-per-click model,” he adds. Instead of using the “spray and pray” method of broadcasting your message to everyone, Harris recommends using precision targeting to identify people who are ready to get out their credit cards now

“If you know who’s right for your offer, you don’t need to pay $10 to Google for a click. You can put your offer on The Google Display Network. You can send the prospect a postcard. There are multiple ways to reach someone when you know who they are.”

2. Implement a closed-loop attribution tool.

To prove your value proposition to marketing clients, show how your work has influenced sales. The right big data technology has the power to do just that.

“The platform we use shows metrics on a consumer’s browsing history, where they encountered our ad, and how that ad influenced them to buy,” Harris shares.

With closed-loop reporting, cookies and other tracking codes (such as UTM parameters) are used to flag a URL to identify specific visitors. These codes are then used to track where a visitor encounters your ad and how that interaction informs a sale.

What you can’t measure, you can’t manage. By using closed-loop reporting, you can measure success and manage your business.

3. Embrace people-based marketing.

People-based marketing means being able to recognise the name of who you’re dealing with. “Website traffic is mostly anonymous and fraught with fraudsters and bots,” Harris cautions. “With people-based marketing, you track channels to ensure your ad or message is getting delivered to a real person.

“We track URLs, buy data from publishers, and use paid subscriptions to create profiles of our target customers. When we reach out, we know we’re communicating with an actual client.” If you want real results, you need to verify that each person you’re targeting is an actual person.

4. Predict a path-to-purchase.

By analyzing data correctly, marketers can predict who is going to do what next. “With our platform, we feed a hundred potential buyers into our system,” Harris explains. “Then we examine all the different online behaviors of prospective buyers before they purchase. Their searches leave a trail of breadcrumbs, and we connect the dots.”

When analyzing data, Harris advises focusing on what signals potential customers give off before they buy. “If you put the pieces together, you can anticipate a client’s next move by their online behavior before they do.”

5. Advertise across channels.

Once you’ve targeted the right client, reach out across channels. “Instead of spending $1,000 on just Google AdWords, use content management software that works across mobile and desktop platforms,” Harris advises.

“Use Facebook, Google, YouTube, Pinterest, Display, direct mail, phone calls. The point is not only to use the best channel, but to use all channels. In other words, become omnipresent. If a prospective buyer sees you everywhere, they’re more likely to buy from you than an obscure competitor.”

Ultimately, with the right data tools, you can consolidate your marketplace and eliminate the competition. As Harris points out, “a competitive advantage is either operating cheaper or commanding a premium price. Our platform allows you to operate at a lower cost with your ads. Because your costs are lower and your frequency is higher, you can convince your customers that you have a better offering, set the buying criteria, and drive profitable sales.”

To learn more about data-driven targeting, click here.

Source: Entrepreneur

Is my small business growing?

I’ve been in business for a year now and boy has it been one exciting journey. I remember before starting my small business, I anticipated immediate growth. I was so excited I already imagined spending money on necessary company assets to further grow the business. I was excited at the opportunity to employ people, already had great people in mind, their packages and even imagined how they would love me for being the most amazing boss in the world….Figured I would have a nice office with a picture of my beautiful wife on the desk. Yup, this is what happens in the first year of a new business. I really thought this is what my first year would be like and it sure sucks to be wrong.

I started the business knowing I would do things differently compared to my unknown competitors within my industry. I knew I had what it takes to make my company a success. What I did not know was that growth takes time no matter who you are or what your idea or business is. Unless you’re a 17-year-old kid who developed an app that…I don’t know…. helps toddlers tie their shoe-laces whilst preventing them from falling over; moms are just jumping for joy at this app and you instantly needed huge offices with developers, designers and an expensive coffee machine… growth takes time. As with anything in life growth takes time! I most certainly never thought that I would lose three clients within my first year of operating. Three clients!!! That’s like losing a million rand if you’re a small business owner. Let me just explain that me losing those clients was purely because my clients had no budget left to continue with my services. And this I also did not anticipate. So yes, after just one year of being in business I not only believed I did not grow but that I shrunk too.

I own a digital marketing agency and we assist start-ups and small business owners with digital marketing strategies that help accelerate their growth. This allows the business owner to focus on sales and operations, basically everything else whilst we focus on their marketing. My job is to help small businesses increase their brand visibility so that the company can attract more customers via communication platforms that promote this. Many small business owners in South Africa, not all, have amazing businesses but lack the help and time it takes to grow the business, and marketing is definitely one of the cornerstones to any business. It helps keep the roof up, if done right. Heck, if done at all!

This is amazing, right??? That’s what I thought! I still think this. I love my business. It’s a passion! I’m good at it! The thing is… I am not the only person or company doing it, so does this mean I should let go of this passion? Does it mean I can no longer continue with my business because there are many other key players I must contend with? Does it mean I now have to pursue another venture or seek employment again? Absolutely not! I have invested 378 days of my life to my business and most of those days to our clients. I have made sacrifices, mistakes that I care not to ever remember again nor to let you know about in this article because of its embarrassing nature. I have learnt what to do and what not to do in my business and industry and this is not taught at a tertiary level. This is practical learning, ‘On the job learning’ as it is better known. I have held my breath in anticipation of a phone call from a potential client. I have sent thousands of emails and made hundreds of phone calls to secure client meetings and new business deals. I have raised my standards of what I will accept in my business and what I will not accept. I have turned potential clients down, not due to arrogance but in an attempt not to do business with other businesses that aren’t in line with what we do or offer and to protect my name and that of my business. I have decided that my business will deal ethically always, no matter the cost! I have made difficult decisions for the sake of my brand’s reputation and personal sanity. I have celebrated signing new clients and have triumphed over losing clients. And after having invested just one year of my life, which I am sure you can agree with me that this is a long time to do all that is necessary and learn all that I have learnt, for me to just turn my back on it, growth or no visible growth, I simply cannot do.

You see, growth in a business does not always mean that your turnover and profits will be in a positive this is not the only way to measure growth in a company. This is obviously a sure sign of growth but to a small business owner who still has to realise this, it is not and can’t be the only measurement for growth. Being successful in all your daily activities, achieving all your set weekly and monthly goals leading up to your first year in business is a sure sign that your business is growing. Deciding to plant a seed in the ground comes with the expectation of growth. One plants a seed in fertile soil, it’s fertile if you’ve made sure that it is good for planting and you are sure of the fact that this seed will get enough water and sunlight throughout its lifespan and that it will grow to be tall and strong. It wasn’t planted as a fully-grown tree, it grew to become a fully-grown tree and the same is true with your business. You as a small business owner can’t see the end from the beginning and with the right amount of perseverance, determination, courage and most of all FAITH, your business will grow. It might not seem like it, the same way the seed in the ground doesn’t seem to be growing after having planted it, but time and patience will reveal the truth. Then after having done all things necessary to make sure that the plant survives i.e. keeping your business doors open and in operation, you realise that growth was in fact subtly taking place all along.
Ruben Chavez said it so “Remember, growth is a process. You may not be exactly where you want to be but you’re closer than you were yesterday and that’s what counts”

Article by Shannon Rosenberg, director and owner of Eighty6 Marketing (Pty) Ltd
[email protected]

Source: Startup Magazine

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