Aligned incentives and real ownership provide alternative approaches to managing a business

Ownership is a cornerstone of our operating model – and not just owning a piece of the company. This idea extends into the reaches of how the business operates, what decisions we collectively make and how individual projects are chartered and operated. Numerous variations and options exist to apply the “employee owned” model. We collated learnings from 18th century pirates and some progressive, modern day businesses on how ownership wealth can be redistributed based on Fount’s foundational values. The application of distributed ownership contains specific underlying mechanisms and design choices somewhat unique to our business, but should have broad, relatable use across industry verticals. We have codified the path to ownership as well as the triggers to establish participation in an unbiased approach. Our organization designed a system to align incentives for both the company and individual, while also providing an improved customer experience with our partners.

“There’s nothing beyond greed. Greed is the purest, most noble of emotions.”

Quark (Star Trek, DS9)

All decision-making is driven by incentives. For the Ferengi (Star Trek), it is profit. As for hu-mans, it is more complicated. Our species’ innate desire for self-preservation invites innovation and with scarcity, greed. Even the purest of heart may be tempted for self-gain at the expense of another’s opportunity. Considering these heavy concepts, is it possible to enter into financial arrangements where incentives are designed in a way for mutual benefit? Further, what does it take to keep individuals engaged in an effective manner? How do we run a profitable business while maximizing our crew’s loyalty and satisfaction?

Fount’s Model

Our answer? We concluded that by distributing non-trivial amounts of the company to others, they will be significantly more invested in its success. This is the first step in providing an incentive for self-preservation.

How it Works

By design, our founders are slowly diluted, while newer crew are obtaining shares at an equal rate as a founder. Every three months, we tally individual contributions (by effort; not earnings), award shares, and provide payouts on leftover profits. Here is how it looks in practice:

Ownership is directly proportional to effort.

This stacked area graph may look confusing at first glance, but treat each shaded area as growing or diluting relative overship of the company. For example, three founders begin with equal shares (data omitted when the company was shared evenly among founders) and roughly around the same time (one quarter later), three additional pirates began to accrue shares. Each pirate’s share awards are equal assuming minimum criteria are met. As soon as an individual pirate ceases to contribute, their respective overall ownership begins to dilute. Further, payouts are only awarded to active members. If an individual with some ownership does not meet the minimum criteria for being considered active, they are omitted from the award entirely.

Shares in the company do not just represent future opportunities, but actualized dividends every quarter.

So, why is it designed this way?

We figured that immediate rewards are a great way to build trust and loyalty among the crew as well as provide a mechanism for everyone to understand how ownership is distributed among the company. For the actual number of shares, minimum qualifications and requirements, we ran hundreds of simulations (in the most impressive Google Sheets workbook you have ever witnessed, authored by our own Ryan VanMiddlesworth). We tweaked the parameters to arrive at a solution that felt right. We are driven by the notion that early crew members are about as valuable as the founding team a few years down the road. As a testament to the design, the first non-founder is approaching similar equity as the founders 6 years in. As a further motivation to enhance equality, we also review the share distributions and may modify the total sum available to all qualified individuals. This lever allows the team to reflect on the current ownership status and make adjustments for equitable distribution.

What about freeriders?

With the right incentives in place and the minimum contribution requirements, this has not been an issue, but since our team votes on everything, it’s a matter of calling a vote to rescind our engagements with the problematic individual. Awarded shares are not stripped, but further accumulation and payouts cease.

Our Path

This entire model is embodied in Fount’s only business structure: The Quarterdeck. Inaugural accumulation typically occurs around one year after starting with the company. Typically, each calendar quarter marks specific milestones and is laid out like so.

These milestones are levers in place for the company and individual to evaluate each other. When an individual makes it to Q4, we mutually agree that we have a great fit for a new owner to hop on board. At this point, new crew members are used to how we operate and can begin undertaking ownership responsibilities and reaping the rewards.

Company Incentive

Awarding ownership provides benefits back to Fount and our customers. The incentives mutually align – individuals are awarded for their contribution and provide Fount with exceptional talent who pour their love of the craft into projects for our customers. In short, individuals who are valued and happy tend to transmit that into their work. Fount’s incentives are designed so that 75-80% of our gross earnings go directly to the pirate. Further, with quarterly ownership awards, individuals are incentivized to continue contributing to the company’s overall success.

Summary

Ownership is not limited by recurring financial rewards; ownership provides the foundation for individuals to steer the direction of the company. Specifically, everyone contributing to a particular project is there by choice. Every customer we serve, pirate we onboard, Labs idea we start, marketing campaign we pursue, or where to hold our next happy hour are decisions managed by an equitable and fair distributed model, borrowed from 18th century pirates. Providing a fair and equitable structure enables a symbiotic relationship between the company and the individual contributors. In addition, individuals who are invested in the company’s (and their own) success inherently translates into more meaningful customer experiences and stronger relationships.

Interested in adopting this operating model for your company? Contact us.