Ownership
Designing the Future
From equity-based models and control-based ownership to steward ownership and hybrid structures, the choice of ownership greatly influences a company’s future.
Successful navigation requires strategic planning, transparent communication, and a deep understanding of immediate and long-term impacts.
With proper advice and innovative solutions, companies can manage ownership transitions effectively, build and maintain great teams, attract the right investors, and ensure sustainable growth that is aligned with their mission and values.
Owning past, present and future
As companies scale, they encounter diverse ownership-related challenges and opportunities,
that significantly influence their future success and sustainability.
When resources are limited and time is constrained,
the easy, short-term solutions tend to win from longer-term investment and strategies.
At the same time those early, presumably harmless easy decisions
may prove to become life-threatening in later times,
both for the stakeholders (and their value) as well as the company itself.
Equity-based ownership
Most companies start out with a simple equity-based structure
where Founding Teams hold significant equity stakes, reflecting their initial contributions and risks,
and External Investors (Venture Capital (VC) firms, Private Equity (PE) firms, and angel investors provide capital)
enter the scene when funds are exchanged for equity to scale the company.
As companies grow further, building and maintaining quality and knowledge becomes more and more important,
and Employee Stock Ownership Plans, (ESOPs), in one way or the other, begin to play a role.
Control-based ownership
Soon the importance of successfully strategizing
and executing that strategy towards a sustainable future is gaining ground.
Different values and methods of valuation come together and (sometimes) collide.
The direct and immediate value of money and assets may divert from
the value of (having and bearing) responsibility and decision-making power,
the value of building trust, tradition, reliability, culture and legacy (conservative), or
the value of acknowledgement, trendsetting, ground-breaking and innovative (progressive).
Phantom stock
To keep a close eye on the envisioned future and a company’s strategy,
new methods of valuation and reward come to play:
bonus schemes , tied to business and/or personal goals,
and ‘profit sharing’ become popular.
These pose as many advantages (keeping stakeholders focused and engaged),
as threats (when bonus or profit share turn from an ‘optional extra’ into ‘acquired right’).
Hybrid ownership
Hybrid models such as (multiple) class shares with different voting rights,
allowing to make a distinction between control and financial profit,
and convertible instruments that offer returns in the future,
are often-used mechanisms, that can prove to be fruitful.
But also, when chosen too quickly and easily,
can pose substantial risk for future growth and funding,
with disproportional high (re-structuring) cost in later times.
Steward ownership
An upcoming trend is steward ownership, that aims to combine
the positive outcomes of several traditional ownership models.
With steward ownership, a non-profit part is in control of a company’s strategy and operation.
Special representation involves employees and stakeholders in governance,
ensuring democratic mission-aligned decision-making.
Finally, purely financial stakeholders are organized in
non-controlling structures that focus on a ‘fair revenue’,
(with ‘fair’ meaning a finite, restricted multiple or amount, in a specific, limited period of time).
While it may seem that unique or new types of ownership could deter conventional investors,
they are rapidly gaining popularity due to their focus on ‘purpose’ on top of or beyond plain financial drivers.
The fair game
When a company evolves, ownership structures grow and change with it.
And with each transition, new opportunities and challenges arise.
We often look for the ‘fair’ in our valuations, but ‘fair’ is always in the eye of the beholder.
‘Fair value’ is especially high when valuating past or present accomplishments,
especially low when looking at the road ahead work and future uncertainties.
‘Fair timing’ may range from ‘now’ to ‘forever’ and
a ‘fair deal’ can turn from ‘respectful and friendly’ to rough and downright ugly.
And that is all because we are trying to valuate a company (and its foreseeable future)
…through the eyes of people.
It may even become even less fair, when other external forces come into play:
legal and compliance issues, tax complexities and environmental regulations,
can put a lot of pressure on a company and its leaders.
Own your share
Ownership in fast-growing companies equals a delicate balance of
strategic foresight, equitable distribution, effective communication, and understanding one’s responsibilities.
By addressing ownership thoughtfully, companies can create robust structures
that sustain growth, attract and retain talent, and ensure long-term success.
It is imperative to view ownership not just as a financial stake
but as a matrix of responsibilities and influence that drives collective progress and innovation.
Only when ownership is properly structured, managed and cultivated,
can it also be effectively distributed and shared with other stakeholders and the world around us.
As a trusted advisor, our goal is to empower leaders and key stakeholders of growing companies
to successfully own ánd share their past, present and future.
Take the Next Step
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