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If the Shoe Fits: the Startup Social Contract

by Matt Weeks

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

“Associate yourself with men of good quality if you esteem your own reputation; for ’tis better to be alone than in bad company.” –George Washington

3829103264_9cb64b9c62_mFor early stage companies (and for all well-run private, Pre-IPO or Pre-Acquisition firms), the stock awarded to employees and the executive team is a form of “social contract” that promises them unusually high “return” for their risk, hard work, “sweat investment” and belief in the company.

The unstated social contract goes something like this:

I will initially forego a higher salary and cash compensation, in lieu of stock options that will increase in value at a faster rate than possible elsewhere, and will “return” more than the forfeited cash compensation might have, over time.

This is both an investment risk approach (“Do I believe the company’s product or service can win in the marketplace?”) and a simple ROI calculation (“Is the salary/cash compensation I forfeit going to be made-up (and then some) in a reasonable amount of time?”)

Because I am now an “owner” (“investor”) in this company (seeking to boost stock value. i.e. company value), I presumably have strong incentive to help the company thrive.

This includes being diligent and helping avoid risk, helping to find and fix problems everywhere, as well as going above and beyond my “job description” to help the company thrive and grow. I am super-diligent and respect and protect the company’s assets, reputation and product/service quality.  I treat this as “my” company.

In short, as an owner-employee (at any level), I understand that I have to “have the company’s back” and that others in the company “have my back.” We all watch-out for one another.  Our stock positions fairly and accurately reflect our contributions and risk “investments” we’ve made in this venture.

If the workers and/or the exec team come to disrespect, disbelieve or ignore this social contract, the company is lost.

Option Sanity ratifies the social contract

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning
Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.” Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.

Flickr image credit: Kevin Spencer

4 Responses to “If the Shoe Fits: the Startup Social Contract”
  1. MAPping Company Success Says:

    […] that, it is your responsibility to honor the social contract you made with your employees, when they traded their compensation for equity in your […]

  2. MAPping Company Success Says:

    […] few years ago occasional contributor Matt Weeks wrote about the “startup social contract” and the repercussions when it’s […]

  3. MAPping Company Success Says:

    […] couple of years ago serial entrepreneur Matt Weeks wrote about the Startup Social Contract founders have with their people, with a focus on stock […]

  4. MAPping Company Success Says:

    […] further, I wondered whether this entrepreneur honored what Matt Weeks calls The Startup Social Contract at his company, since he obviously didn’t with his […]

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