5 ms·

Why does no one run a completely employee owned tech company? What is the disincentive for modeling your company as employee-owned and operated? It seems that w

• ddulaney 2y ago
  The only reason to sell any of your company is to raise money. If you can raise all the money you need from your employees, then you can be employee-owned.
• asynchronousx 2y ago
  I think it’s that last part, we expect hyper growth in tech forever or it’s considered a failure.
• deleted 2y ago
  [deleted]
• xyzzy_plugh 2y ago
  You guessed it. I know some totally employee-owned tech cos, and they can work, but the one thing they can't do is raise money like founder-centric startups.
  • righthand 2y ago
    I would think as long as the company is happy then investors wouldn’t matter. Then your goal would be for example, to pull in a wealthy person who could invest in the company and work (law? Accounting? Cto?). Then sell their shares when they help it grow in value and would like to exit. That at least would allow investment growth without selling the farm.
• amendegree 2y ago
  How do you take outside investment if all ownership is with the employees? Even a self funded company has a different problem, the person/people who started it did a lot of the heavy lifting and took on massive risk, they want to be compensated for that risk, and are loath to share it all with others but in some sense, many self funded startups are 100% employee owned… just by a small subset of the employees.
  • Benjaminsen 2y ago
    You do it as a partnership where new employees buy into the company when they get hired.
    • shawabawa3 2y ago
      It would be very hard to find talent willing to do that
      • righthand 2y ago
        I doubt it if everyone is leaving mega tech corps at 30-40 years old nearly ready to retire.
      • dkekenflxlf 2y ago
        Actually, some of the Big4 has a partner model where you can buy in if you are promoted to partner level
    • WrongAssumption 2y ago
      No one is doing that. Reality is employees want the upside without the downside risk.
      • righthand 2y ago
        But VC backed companies have way more risk for average employees. How can that be true if you might never get a non-diluted share or any compensation when sold off?
• James_K 2y ago
  The typical answer is finance. As a socialist myself, I think all finance should be done through loans instead of selling off parts of the company. That way it stays employee owned.
  • WrongAssumption 2y ago
    No one is going to make a loan for such high risk to get a 5% return.
    • James_K 2y ago
      Suppose instead of loaning to a single company, you loan to many different companies to balance out the risk and return. Just a thought. Additionally, it would make sense to randomly give out larger loans for the sake of potential innovation.
      • s1artibartfast 2y ago
        You can't make loans at a loss and make up the difference with volume. VCs target 10X (1000%) exit because the average startup is a loss at 5% return on interest. Imagine funding 10 companies, 9 bankrupt, and the remaining one only pays back 5% more than you loaned it.
        • James_K 2y ago
          You assume loans need to be profitable. In a situation where the government is issuing loans, it also reaps the rewards of increased tax revenues from high performing businesses. The objective of the loan is to stimulate the economy, not to turn a profit.
          • s1artibartfast 2y ago
            I don't think the economy needs or benefits from that type of stimulus. It just sounds like burning taxpayer money to me.
• avree 2y ago
  Probably because most companies aren't able to make profit on the first day, and most employees aren't willing to invest significant capital to get the company to the profitability line? There are niche examples of 'bootstrapped' companies that are employee/founder owned...
• tomlue 2y ago
  I run a bootstrapped cheminformatics company that’s been gaining traction, and I currently own it outright. I’m genuinely interested in a model like you’re describing—something that aligns everyone’s incentives and keeps them at the top of their game, not just waiting to vest or check out once they do. In my experience, equity alone can become more of a distraction than a motivator. It sometimes encourages people to mark time rather than consistently push the envelope. I’m wondering if a profit-sharing model, possibly combined with some consulting-group best practices, might be more effective at sustaining high performance over the long haul. If you know of a proven employee-owned approach that doesn’t dilute accountability—and actually ensures teams stay fully engaged—I’d love to explore it. My goal is to bring in the best talent, focus everyone on building the best product, and reward them in a way that keeps us all hungry for continued success.
  • righthand 2y ago
    I don’t have a model specifically but companies like “Bob’s Red Mill” and “King Arthur” are employee owned and rather succesful. Though those are not tech companies I can’t imagine the base model being drastically different when adapted.
    • genewitch 2y ago
      Theres at least two sporting good store is employee run and for some reason my brain can't remember the name (it insists its DEI) But https://www.nceo.org/research/employee-ownership-100 https://www.nceo.org/research/employee-ownership-100 There's a lot. I didn't know brookshires was a cooperative
      • vonmoltke 2y ago
        > Theres at least two sporting good store is employee run and for some reason my brain can't remember the name (it insists its DEI) It's REI, and it's actually a consumer co-op owned by its members, not employee-owned.
        • 2y ago
• advisedwang 2y ago
  Investors want ownership, so to be completely employee owned means completely employee funded. So unless you have 5-10 employees willing to work for free until profitability PLUS paying infrastructure costs in the meantime, you are constrained to activities that can be profitable from day one. This is why you can see employee owned consulting and services companies but not major development projects.
• earnesti 2y ago
  Are you asking why startups need investors? Seriously? Yeah, if a company is profitable from day one, there is no reason to take investors money. However that happens rarely. And while some people are happy to work without salary in the beginning if they get equity, for others with different risk preferences or life situation it is a big no-go, therefore also different shares of equity and different compensation...
  • righthand 2y ago
    No I’m not asking that. Your insinuation is that a startup that can barely support 1 employee would need 10 employees day 1 instead of growing as it goes. VC money isn’t the only way to expand your business. If you’re not racing to market then there’s really no need to be successful 10+ employee company on day 1.
• presidentender 2y ago
  If the company is employee owned, how do you propose that an investor even could back it? Investment results in an ownership stake.
  • righthand 2y ago
    You give them shares like every employee has. Employee-owned just means that you need most of the company to agree with it. As long as there is a fair playground where your on boarding investor doesn’t end up eating all the shares then it could work. Ideally your investor would come on as an employee validating their stake instead of an outside pressure.
• dylan604 2y ago
  > Why does no one run a completely employee owned tech company I think this might be selection bias or something along those lines. There are probably more companies than you'd expect that are techy bootstrapped companies, but they don't make the news because they don't have the funding round type of announcements. These companies also tend to do something not centered around AI or socials, so again, they fly below radar. I've worked at more than one
  • righthand 2y ago
    Sure and I guess that I shouldn’t expect to read about them here necessarily.
    • dylan604 2y ago
      No, I'd expect people posting here are doing so specifically in a hope to get a VC to come knocking.
• fra 2y ago
  Because you won't find anyone competent to take on the terrible shit-shoveling gig that is being the CEO for an equal share in the business.
  • righthand 2y ago
    I think in an employee owned model the CEO is less visible and a different role, that role is then incentivized to actually drive the business instead of creating hype in the market to ensure valuation for investors/stock markets. The value of an employee owned business is that you can vote the CEO out if they’re not working in the best interests.
    • fra 2y ago
      With all due respect, I don't think you know what a CEO does day to day. Investor relations and PR is ~5% of the job at an early stage startup.
      • righthand 2y ago
        Frankly what the CEO actually does day-to-day doesn’t matter relative to a startup or a publicly traded tech company, or anything in between in the scope of ownership and organized employee value. I’ve watched a company in deep debt spiral out of control because the CEO didn’t understand the business and let bottom up management be how the company runs. The board that also didn’t understand the business just let 3 rounds of layoffs occur before forcing the CEO out. When layoffs come, if it is going to be the employees who pay the price, they should have a mechanism to push the pilot out of the seat before it costs them.
• csa 2y ago
  > Why does no one run a completely employee owned tech company. What is the disincentive for modeling your company as employee-owned and operated. It seems that would be the best path to an efficient company and a focused company that’s not angled to be taken over by outside aggressive for profit interest and dismantling. It is very tough to pull off an employee-owned company over the long term. 1. How do you handle it when someone leaves? How do you handle a new employee when they come in? There are many ways to do it, but I don’t think I’ve seen an implementable way that keeps incentives aligned. 2. What happens when the company is extremely successful? In many examples I have seen, the employee-owners give themselves substantial raises and/or distributions, become way better off than they ever expected, then they aren’t really motivated to do the hard things that make a business work over the long run. Source: A friend of the family who buys up employee-owned SMBs, gets them back on track, and then sells them. Note that often times the “employee buyout” is a founder/owner who can’t sell at a price that they like, so they basically sell it to less sophisticated buyers (their employees).
• rdtsc 2y ago
  > Why does no one run a completely employee owned tech company. What is the disincentive for modeling your company as employee-owned and operated. It seems that would be the best path to an efficient company and a focused company that’s not angled to be taken over by outside aggressive for profit interest and dismantling. I worked for a company like that. It was a start-up size company that was in business for 20 years or so. It stayed small and had not external VC breathing on their neck and such. So it does exist and it has it benefits and downside. For one, just because it's employee owned doesn't mean that the few founding employees won't screw anyone over and it does't mean everyone gets an equal amount of shares. Initial founders may still keep 99% of the shares, and maybe dole out a crumb here, and a bit there.
• throwway120385 2y ago
  Well another reason is that as soon as VC enter the space they provide capital for companies that you could otherwise beat to do really inefficient things like give equipment away for free or "leases" that you can't compete with without taking VC funding. In my experience it's been yet another variation on "worse is better."
• marcell 2y ago
  > Why does no one run a completely employee owned tech company? I thought about setting up Fetchfox this way, and in some ways we are an employee run company. Everyone including me gets the same crypto token as our stake in the company's success. I get a higher stake as the founder/ceo, but some offers give the employee 0.5 for every 1 of my allocations, which I think is pretty fair. Long term, it would be nice if I had <50% stake in the project, and it self-managed somehow, similar to crypto projects like Ethereum. That said, the phrase "employee owned" has some bad connotations. It has an implication that you are not trying very hard to grow, or that you are somehow less committed to company, or that you are some sort of co-op. For these reasons I don't like use that phrase.
  • nomercy400 2y ago
    Why do you need crypto for that? Why not just 'a share of the company'?
    • marcell 2y ago
      It's similar but slightly different: 1) It's not a security, so it's not a share of the company. In order to be compliant with US law, we can only offer a utlity token 2) Crypto is a 10x better underlying data structure and architecture for the financial system: https://ortutay.substack.com/p/the-computer-science-case-for-web3 https://ortutay.substack.com/p/the-computer-science-case-for...
  • righthand 2y ago
    Interesting setup for Fetchfox. I’m not sure avoiding specific phrases because the general populace has stigmas is helpful however. I don’t view employee-owned or coops in those ways at all. For example, your growth rate should be attributed to the quality of the product. The product quality should be attributed to people’s interest in their work. Good compensation/benefits such as ownership should be the incentive of a quality product.
• s1artibartfast 2y ago
  Cooperatives are great, but collective governance is a big challenge. There is also a major issue with realizing equity because employees generally don't buy in or sell out when they leave. This means that equity is essentially locked away from the employees. The model works well for stable businesses with regular profit that can be split up, and not so well for growth companies. Employee labor investment in capital growth never gets paid out because there is no exit.
• closeparen 2y ago
  You typically need to pay salaries before you have money coming in the door. Some founders cover this out of personal savings, and some businesses make more than the cost of an employee before they need one, but generally you need outside capital. So you'll need to provide something of commensurate value in exchange for it, which is either debt or equity. A business with a chance of success in the 90s might be able to get a bank loan. As an early stage tech company, the capital available to you is venture capital.
  • righthand 2y ago
    An early stage tech company can get a loan. The key is not hiring anyone until you can write a business strategy and plan that supports repaying the loan.
• jamie_ca 2y ago
  Test Double is a consultancy that's now employee-owned https://testdouble.com/news-and-awards/software-consultancy-now-employee-owned https://testdouble.com/news-and-awards/software-consultancy-... But yeah that was a situation of a privately held company opting to make that transition, I'm not sure they had any investors to complicate things. And they're definitely an outlier.
• deleted 2y ago
  [deleted]
• rachofsunshine 2y ago
  I'm a founder who is pretty sympathetic to the idea of cooperatives. The simple answer is that I am not savvy enough with financial instruments to be confident that I can structure something that can't be preyed upon if it's successful. I know I care about making sure my employees are well-treated - you shouldn't believe me when I say that, but I believe me, and that means that in terms of my own ethics there's not much reason not to maintain control and depend on my own judgment. If I want to divide 70% of the profits up among my employees, nothing is going to stop me from doing that, so why not keep my options open?