In our fledgling company we’ve assembled a fantastic all-star team. And since we had no other choice, we’ve found and motivated our team members with sweat equity as the compensation component.

“Sweat Equity” pays people with stock which hopefully will be worth alot of money in the future, but nothing today. Given good people always have opportunities – spending more time with family, at the day job, on hobbies – it feels like one of those sublime moments in your business’ journey when that special person says “Yes!”

Here’s why our team members said Yes!

“I just like you, believe in you, want to see you succeed. If by helping a friend I get to see and do some interesting stuff, learn something, generate good karma, may be even see some return on time invested, that’s all gravy.“

I’ll list them…
- great choice of technologies
- stable, well-defined requirements
- expectation of becoming a billionaire and taking over the world (not quite)

The opportunity to be early in a startup with a good idea and a growing market. A potential cash out option in the future.

I believe in the mobile revolution that is currently taking place. New generations cannot live, or will die, without their cell phones. FanMinder is responding and positioned to capitalize on this revolution by using the smart phone as a marketing and business communications tool.

These quotes are my daily bread. Mmmmmm…..

Seriously, Tracy and I feel so blessed and so thankful for our team members’ good wishes – and good judgment It makes me feel great that people dream like we do, see what we see, and feel a fervor to be a part of our mission. It also places a big burden on me because I know at the root of all of it, is trust in me. Not some big corporation or it’s “brand”, not some cash compensation or the fact we’re paying benefits. Me. Tracy. Our mission. A team member makes a decision to believe that what I see and what I say has depth, truth, commitment and confidence behind it.

I need to hit the “pause” button and reflect on that, that’s powerful stuff.

But getting to yes can be tough. People and their priorities change and your idea changes, so team members sometimes say yes, sometimes say no, and sometimes, move on for good reason. And yet to get to a release that you’re proud of and one that investors might want to invest in and customers will use and love, depends upon rallying that group of folks to get the business through critical milestones.

Last week we brought on two new team members and met with many others. So it’s a good time to take our learnings and write a few tips on building your team:

1. Which kinds of people should you ask to help? Start your search by scouring your rolodex. But look for certain traits as I’ve seen more “yeses” from folks that fit one or more of the following profile:

• Motivated by a big dream, gets behind projects where they work, drives them to completion
• Independent-minded
• Have some time on their hands – perhaps they are experiencing a slow down in their day job or  have been let go in the economic downturn
• Someone who likes you, is friends with you, who wants to see you succeed
• Helpful people – we all know this type of person in our lives

2. Kiss lots of frogs… By not paying cash to a contractor, recognize you’re trading time-to-market for preserving cash because you can only secure part-time assistance when you use sweat equity. It’s also harder to find folks willing to work for sweat equity and a dream than $75-$100/hour. But if you don’t have the cash, you have no choice. And if so, be prepared to kiss lots of “frogs.”

These days I have the best success from opening up my contact list and sending plain ol’ emails and calling frogs I know. Then they have friends they know, and so on and so on. I’ve also found amazing success with LinkedIn, FaceBook, and Twitter. With no more than 1-2 status updates taking a few second, I’ve found at least several people in my network responding with people they know. Often, I wouldn’t have thought to ask these colleagues, so these new tools are bringing in relationships from the edges of my network with just a simple sentence.

You’ll wind up going to lots of lunches (we learned to be cheap – do coffee instead) and make lots of calls, and pitch alot. You can shorten this by filtering folks based on #2 and #3 before you sign up for a date.

Eventually though, you’ll find some frogs want to kiss you back and then the next question is…

3. Are they Missionaries or Mercenaries? Passion for your mission is at least one thing that gets a person through their workload. After a 40, 50, or 60 hour work week with their day job, what’s going to motivate folks to spend their remaining precious hours working not just hard, but smartly, on your business? Passion.

You may need to carefully listen to hear it – or not. I asked one recruit to separate out their interest in the business from the offer, and tell me about their interest. What I heard was 10 minutes of the risks of not getting funding or competitors entering our space. That sealed it – this person was not interested and we weren’t about to bring this passion-less person into a team that believes in our mission.

4. Structuring the Offer When we first started, we were fortunate to be able to speak with advisors to understand what sweat equity %s are good rules of thumb. Each situation is going to be different and due to the public nature of this post I probably shouldn’t reveal too much. Write up a question on TheFunded.com, since is was a great resource for asking questions like this one.

There are at least four components that can make up your offer:

• Don’t ignore the “soft benefits” – People take part-time assignments for a range of reasons, not just equity – I often think equity is the least of the benefits. Taking a role to keep busy, being affiliated with something hot and new, brushing up on new skills, having an inside track on new jobs once funded, or even just being kind are some of these benefits. So you need to identify early on what’s in it for them so you can meet their needs.
• Common shares out of the employee pool Typically, you’ll offer a small percentage, or fraction of a percent, of the total shares outstanding.
• You’re hiring contractors, not employees Keeping the status of a team member as a contractor helps you and the team member avoid all kinds of overhead, legal, and tax issues you don’t want at this early stage. Write this down in the agreement.
• Contractor’s obligations In return for equity and other benefits, you’re asking a team member to deliver something that meets a milestone on a certain timeframe. In our case it’s the launch of our product. But it could just as easily be “a marketing plan”, “project managing a beta program” or “visual identity.” Get crystal clear what it is to avoid downstream issues.

When you have the basic agreement in place, write it down in an email and get acceptance back. You can use this email to ensure clear expectations prior to writing up the formal Stock Option Grant.

And one more thing: How you communicate the offer is important to getting its acceptance. In one case, a recruit told us “no” and when we found out he was using a super high dilution ratio, we went back and said his assumptions were off, helping demonstrate a higher value to our offer. So we learned to help recruits a bit more, by helping them see some key assumptions that could better project what their equity stake could be worth – After all, they’re going to do this with or without you, so wouldn’t you rather be a part of the conversation? Go through customer growth, revenues, breakeven, burn rate and potential exit scenarios, all with an eye towards valuing their ownership stake.

5. All ready? Good, now take it s-l-o-w Finalize everything before introducing new members to the team. In one case, we introduced a new team member only to have that contractor say “errr, sorry but I’m declining the offer.” Well, sh-t happens. But your chances for it happening lessen if you take a moment to get your paperwork together, write it up, and ensure you’re on the same page as your contractor BEFORE introducing him/her to the team. The key documents needed:

• Stock Options Agreement for this contractor
• Stock Plan
• IP transfer agreement with NDA