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This is not going to be possible if you work for a Fortune 1000 company. It’s highly unlikely to happen if you work for a public company. But if you are employed by a small to medium-sized business in a thriving industry, there are ways to induce the boss to give you a piece of the pie.
What I did was straightforward. After developing strong marketing skills and coming to figure out how the industry really worked, I conceptualized, developed, and created the marketing plan and materials for a brand-new, very exciting product. The product was different enough from the company’s existing products to call it new and different but close enough to take advantage of some of the resources the company had.
222 AUTOMATIC WEALTH
I created the product in my spare time. And when it was done and ready to be marketed, I handed it to my employer with no strings attached (or so I thought). I didn’t ask for a piece of the business that my boss already had—that was his. However good I was in working for him, I realized I had no right to the business he had created before I came or to anything I created during company time and using company resources. I asked for—and asked only for—a small piece of the product I created. And I told him that I’d be more than happy to fund its launch by risking my own money in proportion to my equity.
He was smart enough to recognize in me someone who was going to be successful. He must have figured that he could deny me and risk losing me (and my future wealth-producing potential) or agree to my terms and see what I could do for him.
He gave me 25 percent of my product, made me pay good money for it, and told me he hoped that one day it would make us both lots of money.
I don’t have to tell you how motivated that made me. With his help and guidance, I went back and took another look at that product and refined it and then refined it again and then again and again . . . till it was twice as strong as it had been originally. And once we got the product right, we went to work on the promotion. It took about three months of working nights and weekends to take this new venture from very good to very likely. And all that extra work I was happy to do because I had a 25 percent share in its future.
The result was about as good as you could imagine. Within days of the launch, we’d recovered our initial investment. A week later, I had an extra $7,000 in my bank account. And before 12 months had passed, I had made my first million.
And that was all besides the money I was earning—and the profits my boss was making—on the first business.
As time passed, I came up with many other new and original product ideas. Most of the time we put them into the core business. But every once in a while, my boss/partner felt that an idea was sufficiently unique and/or risky to merit being launched independently. When that happened, we negotiated my equity. In some cases, I got less than the 25 percent he gave me in that first deal. But in most cases, I got more. At the end of an 11-year stint together, our combined businesses had sales of more than $135 million, and I had a significant stake in many of them.
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Now the Shoe Is on the Other Foot
Since then I’ve used this model backward with superstar employees who have worked for me. Although I don’t believe that giving employees equity increases the quality of their ideas or the value of their work, I do recognize that every once in a while you hire someone who is an unstoppable wealth builder and you realize that unless you make it worth that person’s while to stay with you, you’ll lose him or her to a competitor or to the person’s own ambitions.
In such cases, I try to work out some sort of flexible, long-term financial arrangement that either includes equity in a new start-up or provides substantial bonuses and payouts that resemble equity in some portion of the business that this person will create and grow.
Again, the vast majority of employees—and I include even the best employees here—do not qualify for this type of treatment. I’m talking only about that very rare individual who understands how your business works, knows how to create sales, and can and will produce new products and a never-ending stream of profits. That’s the kind of person with whom you want a longstanding, mutually rewarding business relationship.
So this game works both ways: If you are employed, you should turn yourself into a superstar, create a new line of products, and then try to get equity in their future. If you have employees and are lucky enough to have a superstar among them, make a lifelong deal with that person now so you won’t have to compete with him or her later.
No matter which side of the field you are playing from, this game has the same basic rules:
• You can’t expect equity in a business that was there before you.
• You can’t begin a new business that is the old one in different makeup.
• You can’t work on the new business during company time.