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A Fair Way To Divide Up Ownership Of Any New Social Enterprise

This post is based on the response of Joel Spolsky to a question on Answers.OnStartups.com. The conversation was basically addressing startups but many aspects of it are very relevant for social enterprises, too.



My experience is that many social enterprises, especially those that are coming from the NGO sector with members having a background in social sciences tend to avoid the question of ownership at beginning of the work. There is an enthusiasm in the air, everybody is supernice, we hold each others hand and make this planet to be a better place together.


And just as at startups, almost everything that can go wrong will go wrong, ending up in angry, shouting matches between the founders as to who worked harder, who owns more, whose idea was it anyway, etc..


Even if your social enterprise has a legal form of a non-profit organization, for your entrepreneurial activities better to apply the startup ownership model making sure that the situation is crystal clear for everyone from day one.


I completely agree with Joel Spolsky that the most important principle is:


"Fairness, and the perception of fairness, is much more valuable than owning a large stake."


The model Joel is suggesting helps you to build up an enterprise based on co-ownership which is in itself a very impactful model of entrepreneurship fitting the idea of social enterprises.


He suggest to add people in "layers":


  • I would always rather split a new company 50-50 with a friend than insist on owning 60% because "it was my idea," or because "I was more experienced" or anything else. Why? Because if I split the company 60-40, the company is going to fail when we argue ourselves to death. And if you just say, "to heck with it, we can NEVER figure out what the correct split is, so let's just be pals and go 50-50," you'll stay friends and the company will survive.

  • The top layer is the first founder or founders. There may be 1, 2, 3, or more of you, but you all start working about the same time, and you all take the same risk... you are maybe quitting your jobs to go work for a new and unproven company.

  • The second layer is the first real employees. By the time you hire this layer, you've got cash coming in from somewhere (investors or customers--doesn't matter). These people didn't take as much risk because they got a salary from day one, and honestly, they didn't start the company, they joined it as a job.

  • The third layer are later employees. By the time they joined the company, it was going pretty well.


A social enterprise is usually rather small, you may end up having 3 layers. There might be two founders, five early employees in layer 2, 25 employees in layer 3.


The founders should end up with about 50% of the company, total. Each of the next layers should end up with about 10% of the company, split equally among everyone in the layer.


The basic idea is that you set up "stripes" of seniority, where the top stripe took the most risk and the bottom stripe took the least, and each "stripe" shares an equal number of shares, which magically gives employees more shares for joining early.


It is very nice to talk about all of this but it seems to pointless at the beginning when we have only plans and dreams and actually our bank account is at 0.


Here is the next principle coming: