How To Pay Employees & Management in Micro Cap Companies During The Start-up Phase

The problem when you are a start-up venture is that you need people to make money but you have no money to pay people.  What do you do?  Do you go into debt to hire people to make your idea a reality?  That probably is not a good idea since your business plan has not been proven yet.  See “Shark Tank’s Mark Cuban talk Stock Buybacks and says “If You’re Starting a Business and Take Out a Loan…You’re a Moron!“

So how can you attract and compensate people during the start-up phase?  Here are a few ways:

Offer Equity (Stock Options)
If your idea is big enough, and potential employees or investors see a liquidity event in the future, you may be able to entice them with Stock Options.  Giving “the help” equity doesn’t cost you anything, but be wary of the tax consequences this may cause, reporting regulations and legal parameters.  Also understand that once stock is given, it can;t be taken back.

Find Workers Whom Don’t Need to Work
Retirees and well-off people don’t really need to work.  Generally they have enough to live comfortably and can spend their time doing things that do not product capital.  Whether you can find someone to work as a favor or another future form of compensation, people with money in their pocket can be less expensive then someone looking for a full-time job.  Hiring stay-at-home moms and dads also falls into this category.

Interns, Interns, Interns
I once walked into a Venture Capital Firm and their was one principal (the boss) and 10 interns.  That’s it!  This is a genius way to get free work.  Note that your employees will not stay unless they can be compensated later on, but this is possible if the work they are performing is moving the company to positive cash flow.

Future Compensation
If you have a proven business model, you can offer future compensation, based on pre-agreed benchmarks.  This is almost like taking out a loan so be cautious and only use future compensation promises when you know the work being done will produce enough money to pay the employee and make a profit.

Hire Contract Employees
If you do have some cash, do not think about hiring full time employees, instead consider hiring people on an as-needed basis or per project.  Today, outsourcing workers has come a long way with websites like FreeLancer.com and Fiverr.com offering people from around the world that can accomplish tasks for pennies on the dollar.

Tire Salary To Sales Benchmarks
If you know that for every sale you make you generate $10,000, you can base the salary of an employee on how many sales they make.  If you target a $200,000 benchmark you can easily pay an employee some percentage of this sales benchmark.

Make More Money
Duh!  The best way to be able to compensate your employees is to pay them and the best way to pay them is to make more money.  Any resources during the initial phase of the business should be spent to generate sales or indications of interest in sales.  Sales solves the money issue which in turn solves the issue of how you can pay employees in the start-up phase.

If you have other ways you have compensated employees in start-up companies, micro cap companies or penny stocks, comment below and let us know…