The business is basically expanding the "brand" of a celebrity chef. I was a cheerleader for the chef and have been part of various negotiations. He now has a television show overseas that is successful. We are ready to expand the brand to other countries, as well as diversify into product, with the ultimate goal of a restaurant chain. We are looking to formalize our business relationship. The chef has virtually no business background; but he is both product AND spokesperson. We have a handful of functional employees...I will be taking on role of CMO, CGS and CBDO; creating both strategy AND marketing for the brand in addition to creating the relationships needed to succeed.
As you may suspect, there really isn't a hard and fast answer. You can review averages to see that a CEO typically becomes a major shareholder in a startup, but your role and renumeration will be based on the perceived value you bring to the organization. You value someone's contribution through equity when you think that they will be able to add long-term benefits, you would prefer that they don't move company part way through the process, and to keep them from being enticed by a better salary (a reason for equity tied to a vesting arrangement). Another reason is when the company doesn't have salary money available but the potential is very strong. In this situation you should be especially diligent in your analysis because you will realize that even the best laid plans sometimes fall completely short. So to get the best mix, you have to be very real about the company's long-term growth potential, your role in achieving it, and the current liquidity necessary to run the operations. It should also be realized that equity needs to be distributed. You cannot distribute 110% and having your cap table recalculated such that your 5% turns into 1% in order to make room for the newly hired head of technology is rather demotivating for the team. Equity should be used to entice a valuable person to join, stay, and contribute. It should not be used in leu of salary that allows an employee to pay their bills. So, like a lot of questions, the answer is really, it depends. Analyzing the true picture of your long-term potential will allow you to more easily determine the correct mix.
Hi,
I've hired and negotiated several top level execs at startups. On both sides, this is one of the trickiest negotiations that will have to be made at any stage of a company's life, since the value of the equity is highly uncertain.
This is tough to answer without knowing your background and without knowing how much the current company might be worth. As a rule of thumb a non-founder CEO joining an early stage startup (that has been running less than a year) would receive 7-10% equity. Other C-level execs would receive 1-5% equity that vests over time (usually 4 years).
I would adjust these numbers up somewhat if you have significant experience in the space or a track record of building and monetizing a brand.
I would adjust these numbers down somewhat if the company is generating significant revenue (>$1M) or can fairly valued (by a third party, such as a VC) at over USD $10M.
I would also adjust the numbers down if the company has received professional investment from a venture capital firm or a strategic partner. Also remember that salary and equity are both exchangeable and negotiable -- you may be able to get more equity for less salary and vice versa.
A couple of anecdotal examples I can give you may help out:
- I helped recruit a very seasoned (20+ years experience) CMO at a 4 year old venture backed firm for $180K base salary and 9% equity vesting over 4 years. This person was previously a CMO at a Fortune 500 company.
- A firm that I was involved in founding hired our Head of Business Development with 25+ years experience for $100K salary plus 2.5% equity.
- A personal friend of mine with 10+ years in the Sales and Marketing space just got hired (last week) as the Head of Sales & Marketing at a Series A venture backed Financial Technology firm for $100K salary and 1.5% equity.
Hope this helps -- I'd be happy to discuss further on a call to discuss your personal situation or answer any questions that you may have.
Vijay
1 - 1.5% equity would only be beneficial for a multi-million/billion dollar company. What is the most you think the chef will be worth? Let's say it is $4M tops. 15% would give you $600,000. I say shoot for no less than 15%. You may have to settle for less, but the chef has to know that without a reasonable percentage, motivation would drop substantially for most startup partners. By the way, think of yourself as a partner, not an employee.
Bootstrap. Read "How To Get Rich" by Felix Dennis. Or better yet just remember the camel's nose in the tent story.
Listen, in any business you have to take some chances and some risks. Make sure you don't need a license and go for it. Remember, timid business people have skinny kids. Paraphrased from Zig Ziglar.
I am not trying to sell you on calling me. Really, I am pretty busy with my businesses and consulting. However, I need more info before I could have a greater impact in helping you.
Ask, Ask, Ask, then Ask again.
Bonus:
Here is $10,000 worth of information for free and in a nutshell.
Concentrate on the 3 M's. There are actually 7, but 3 will do for now. These are Market, Message, and Media. They come in that order.
Who is your target market (customer, clients, buyers, users, etc.)?
Tailor your laser focused message for this target market.
What is the best media mix to get your message to that market?
Here's what you do...first, make it an offer that is so incredible that they cannot resist. Secondly, do all the work for them. Make it so easy to make the purchase now that they can do it virtually without effort. Thirdly, give them an incentive to act right now. Fourthly, offer an almost unbelievable guarantee. Fifth, offer a bonus for acting now. There are many other incredible steps, but these steps should help the novice to the professional sell anything.
Whether you are selling B2B or B2C, you have to focus on selling to only one person. You can actually sell to one person at a time while selling to millions at a time. They are one and the same. Don't get off track, what we call digital marketing selling is just selling in print. And that has not changed since Cluade Hopkins wrote "Scientific Advertising." Really long before he wrote the book.
The secret to success: I have had the pleasure of knowing and working with some of the biggest names in business, celebrities, actors, entrepreneurs, business people, and companies from startup to billion dollar operations. The number one reason for their success is doing what they know and love while doing it in new, creative, and innovative ways.
Ask, Ask, Ask. Have thick skin and learn from each "mistake." In a short while, the market will tell you what you need to do and who and what you need to ask. But get started now even if that just means asking a contact on LinkedIn.
While you are thinking, think big and think of something at least 1% better, newer, or different. And being cheaper is not a winning strategy.
Make decisions quickly and change decisions slowly..unless you are actually going off a cliff.
Remember these two 11 letter words...persistence and consistency. They are two of the most important tools ever invented.
Treat everybody you talk to and everybody you meet (including yourself) like each is your number one million dollar customer.
Best of luck,
Take massive action and never give up.
Michael
Michael Irvin, MBA, RN
