How to motivate a team when you have nothing to offer but equity?

Question

I recently got into the whole startup scene, and I was hired as CTO for an early-stage startup. I've got a fair bit of engineering experience, but when it comes to management, I'd definitely be in the junior range...

I think I understand the essentials when it comes to managing people:

• Align user stories with their personal aspirations
• Give them independence
• Do not criticise in public
• Set an example
• Sell the whole thing as an opportunity to gain new skills fast
• etc

I'm doing all those thing, and yet... the output I'm getting is minimal.

I should clarify that we hire people on a part-time basis (10 - 20 hours a week), and we offer good equity (and no actual pay). New joiners always have an enthusiastic disposition, and they can get loads done in their first couple of weeks. Then they stop appearing online on Slack; they stop responding to my messages; and, eventually, they stop posting the weekly standup messages. The people that do contribute only offer the bare minimum -- not even 10 hours worth of work weekly.

I'm really at a bit of a loss here. I shared my vision, and received no pushback from anyone. I can only assume that we're aligned and everyone agrees with the vision. This begs the question: if I can't offer money, how can I possibly motivate my engineers?

Answer 1

I liked Todd A. Jacobs', Tiago Martins Peres' and some others' answers, but I wanted to add to them. While this isn't a complete answer I think it is too much to place in the comments, so perhaps consider this a supplement to the other answers.

Startups, especially unfunded startups, are not the same as established businesses.

Equity, especially in such an early stage startup, is not the same as a salary.

Many management techniques readers might be familiar with assume certain basic things, i.e. that employees are getting paid and can see that the company is unlikely to disappear overnight.

It's not enough to 'assume that we're aligned and everyone agrees with the vision' - evidence should make you question that basic assumption, and you should try to check this assumption with current and past employees. But even if you are right, is alignment and agreement enough, given the situation?

When it comes to the situation you are in, it seems to me that before ALL other considerations, employee enthusiasm must come first, not just when they join but on a constant basis.

Even if your workers can afford to put the unpaid time in (which is not certain), when you take salaries partially or completely out of the equation then the intangibles become much more important, and some equity that quite possibly will never pay out won't outweigh people's doubts or unhappiness.

In addition, the fact that your team is loosely connected, spread across time zones and locations, means that they have little inherent commitment to the project (it's easy to walk away) and little positive reinforcement from their co-workers and management.

Aside from the obvious and textbook things, there are a lot of intangibles involved in employee enthusiasm in such a situation. For example:

1. Do the employees believe (for whatever reasons) that this will work and they will get money down the road? This can encompass leadership charisma/skills, the idea, a lack of realism (in the idea, in management, financially, in company systems, in planning, in the product specification, or a host of other places), the management and planning, any practical results produced or not produced, comments or doubts or 'vibes' from other workers, lack of trust that the company will keep their promises, 'gut feeling', and more. It boils down to a basic 'sniff test' of 'Is this going to work / Can they make this work?' and 'Will they keep their promises to me if it does?'
2. Are the management inadvertently doing any of the classic management or project management mistakes? Is there timeline or scope creep (which affects the amount of work to do for the percentage promised), failing to break the project down into reasonable tasks, poor choice of programming language or accumulating technical debt, failure to listen to programmers' objections, etc. Google 'Common IT project mistakes' and there are plenty of lists, or read a bunch of Dilbert. People will overlook this when well paid, but not when it directly affects their theoretical eventual pay day.
3. Is it a 'virtuous' project or an 'evil' one? Charities can get very committed work for little or no money, especially if they have one or more charismatic leaders, as can world changing concepts; conversely projects that skate the edges of morality (or cross them) carry a burden of reluctance and guilt for most employees from the very first day of work.
4. Are there any unpleasant or bad managers or employees demotivating the others (and sorry, but you have to ask if that possibly includes you)? Is there any unfairness (eg salaries being paid to founders but not employees, seriously unbalanced and unreasonable differences in employee equity percentages, etc.)
5. There are plenty more considerations, e.g. working conditions and frustrations, costs incurred by the unpaid employees, tools available, the tasks attempted, money being available but not spent on salaries (and what else it is being spent on), the way employees that leave are treated and talked about (if management disparages them then it's obvious to the current employees that the same will happen to them, and worse that the company could damage their CV or give poor recommendations), management instability (regular changes, or strange behaviour by managers), political or religious or other discrimination or bullying, doubts about employees' future ability to move up in the company, any doubts about the country where the company is based, etc.

Bluntly, the fact that this keeps happening mandates that you look long and hard at this, and if I were you I'd ask the employees who are disappearing, without punishment or prejudice, why they did so and what prompted that change from their initial enthusiastic approach. Dig deep, if you can, and try to really understand what went wrong from their point of view. Then try not only to work out from that what you could have done differently, but ask them that too.

Once you have done that, if I were you, I'd wonder if you should ALSO reevaluate your situation in the light of what you find. After all you are apparently currently working for no salary on a company that is failing to gain traction or move forward, is unable to solve its fundamental issues, and is unable or unwilling to raise funding; if that continues then your equity is worthless too.

It's also notable that you, an inexperienced CTO with little experience in managing people (especially in this situation) have pretty much been dumped with an impossible task, and there seems to be little or no engagement on such a crucial issue by the CEO or other management, which does not bode well for the company's eventual success - the CEO should be all over this problem, and using their experience and whatever charisma and vision they have to turn it around and help you solve it, while moving heaven and earth to find funding to pay your people, so why aren't they?

As a side note to all the above, you should also consider where you are getting your employees, how you are evaluating and filtering them (if at all, you might be working on a 'beggars can't be choosers' principle), and whether that is contributing to the problem. You may well not be getting the best and the brightest, or the most committed. It's worth noting that people who cannot afford to work for no income are unlikely to stay for long, but people with good income or savings are also unlikely to commit easily as they have plenty of other options, and might not mind jumping ship quickly as they can absorb the loss of a few days or weeks of work without salary.

Then talk to your CEO - 5 or 10 paid part or full time employees who really commit (preferably local to you, working together in the same office) will be worth 50-100 employees who trail off and quit, and those 5 might well be the core team that leads to the progress and structure that enthuses the rest, leading to an overall improvement and reduced drop out rate - and it's your CEO's job to make that happen.

Answer 2

If you aren't paying people, you really shouldn't expect them to stay around. If you want to give someone equity in exchange for payment; it should be a large amount of equity, and it should be spelled out in a contract, that stipulates the vesting period (if they aren't getting any money it should be an accelerated vesting period tied to milestones), but let's face it, equity is a lottery ticket. How often have you worked 40+ hours a week for a lottery ticket? How can you expect others to? A lottery ticket won't feed their family or pay their rent.

More basically, however, I invite you to take a step back and to figure out why you come to work, and why anyone should care about the work you're doing. If I were you I'd raise money and pay these people. If you can't get investors to give you money then it may not be the type of idea you can hire people for yet. But, even more basically then that, I'd figure out my "Why".

Answer 3

Lots of good answers already, but one thing I think may be missing is customer feedback.

Developers will initially be enthusiastic at solving technical problems, but to sustain their enthusiasm they need to feel what they are doing is worthwhile. The best way to give them that feeling is to ship your product to real customers and to get regular feedback.

Are you able to ship your product? Or perhaps have a small group of beta testers that you can ship early versions of the product to? You will find this will not only help your developers to fell motivated, but it will also help you to build a better product.

Answer 4

Equity only?

Well, you haven't made it clear just how "good" (your word) the equity is, but yes, likely the lack of anything tangible in terms of compensation is one of the factors involved here. But it's probably not the only one.

It also sounds like you are running a virtual team, so it makes it easier for the individuals to fade into obscurity because you can't talk to them in person, which makes it more difficult to use the principles of performance management to address productivity concerns.

Almost certainly communication is the heart of the matter here. Slack and weekly standup messages are not enough. You need to foster more of a sense of commitment by meeting directly with these individuals as often as it takes. If you can't meet in person then use Skype. Video turned on is mandatory.

Answer 5

First of all i really enjoyed your question Sergey Yakovlev to the point of giving an upvote.

It appears to me what you really try to understand is

How are people motivated to do their work at work?

I assume if you found out money is really a game changer, you would do all the possible efforts to get that into the hands of your workers. From that point of view, George Stocker's answer is good (can't stop but to think of cases where money doesn't work).

To answer the question im gonna use the article from the enterprise architect Tom Graves named The motivation dilemma as base, which i think addresses well the topic.

In that article Tom refers to Dan Pink's book, Drive. In his book, Dan Pink refers the real drivers that matter most in business are autonomy, mastery and purpose. By definition,

• Autonomy is about choosing our path through the work, being self-directed.

• Mastery is about developing and using our skills, pushing ourselves to create ever-better work.

• Purpose is about work that is meaningful in some way, that creates a sense of achieving or contributing towards some distinct aim or goal.

If Dan Pink is correct, even though you don't have money to pay your workers or if money doesn't work to motivate them, there's still hope for you!

We can boost autonomy by ensuring that at least some of the work is self-directed and/or self-paced, or in teams that are self-directed. (And we can reduce the risk of further demotivation by expunging micromanagement and similar problems from the context.)

We can boost mastery by ensuring that the work includes personal challenge and/or personal skills-development. (And we can reduce the risk of further demotivation by carefully contextualising any Taylorist-style ‘business process reengineering’ and the like.)

We can boost purpose by ensuring clear linkage between personal goals and collective goals – creating emotive reasons for personal commitment towards those shared aims. (And we can reduce the risk of further demotivation, by refocussing organisational attention on the shared-enterprise rather than on the divergent goals of shareholders and other ‘non-enterprise’ stakeholders.)

Yet note the effective mathematics of this: the more that any one of those drivers slumps down, the more we’ll need to lift the others up, just to keep the same level of effective motivation – let alone anything better than that. If the context can’t allow anything more than a near-zero autonomy, we can perhaps compensate if we boost either mastery or purpose far enough to become an intense personal driver – ‘strong enough to get someone out of bed on Monday morning’, as the old phrase goes. And if the motivation goes too far down on more than one strand, there’s no way that we boost the remaining driver high enough to make it work.

Answer 6

Frankly, I don't see how it can be done.

Specifically, I don't see what you could do, considering the constraints you have (and some of them are assumptions):

• No real-world contact to your and between your (co-)workers.
• The software you're developing is probably given, you can't just do something completely different all of a sudden.
• No money.

I see three prime ways to motivate people:

• Money.
• "Content" - i.e., what you are doing.
• Real-world contact.

As an example; larger business probably motivate mainly through money, and marginally through content and real-world-contact. Small family-type business motivate through money and real-world-contact, and hopefully content. Pure open-source projects motivate through content only; i.e., they gather people who actually simply want to get the software done, nothing else.

Your problem is that you have no money, and no real-world contact. And without knowing what it is you are actually producing, the "sex appeal" of your content may be questionable - I've worked in plenty of really awesome business areas where the actual software produced would make most people yawn, because it's, well, business software that's no use to them individually, but makes businesses run.

I see two ways to proceed:

• Provide money.
• Live with the facts; restructure such that your business model works if people are motivated and sticking around for a few weeks each. Maybe get a very small core team (1-2 very good and motivated people) on-location, so that you keep a core team existing...

Answer 7

TL;DR

Questions about team composition and team effectiveness are on topic here. However, questions about business plans and startup funding are out of scope for a site about the practice and profession of project management.

With that in mind, I will address myself solely to the project management perspective here. I'll cover why you need the project management perspective, and highlight the boundaries of your responsibilities within that perspective.

The X in your X/Y problem is that you apparently have responsibility for delivering a product and building a team, but lack the resources (and likely the authority) to do it effectively. Responsibility without authority or resources is a no-op. You will likely need to reframe your role, and involve the rest of the founders in addressing your various resource shortages.

Understanding Why You Need a PM Perspective

As a gross oversimplification, the CTO role in a startup wears many hats, some of which fall within the realms of project and product management. These often include:

• Providing a product vision.
• Providing a roadmap for realizing the vision.
• Hands-on product development work.
• Building a technical organization to develop and support the product.

A Venn diagram of CTO vs. PM in smaller organizations will have a lot of overlap, especially in the following roles:

1. Product Owner
2. Project Manager or Scrum Master
3. Business Analyst
4. Product Developer
5. Quality Assurance
6. Line Manager
7. The list goes on...

Functionally, an early-stage CTO needs to be focused on getting a product to market. The project management perspective is all about how you plan to turn the product vision into a salable product through controlled development and delivery. The project plan should strive to deliver a predictable development cadence that provides confidence that development milestones and delivery targets can be met.

Capitalizing a Project: Out of Scope for PM

You need skills, materials, and other resources to deliver on your project plan. That generally means hiring people as employees or outsourcing work, and building the tool chain and infrastructure you need to build your prototype, proof of concept, or initial product.

From a project management perspective, it is the job of senior management to ensure that the project is properly funded. The role of project manager sometimes comes with budgetary authority (although more often it comes with responsibility without authority). However, you will not find fundraising or "getting people to work for free" in the PMBOK. Lining up investment dollars is outside the role of project management, so in your project management role your responsibility is to notify the rest of the C-suite of budget or resource constraints.

Team Building

From a project management perspective, trying to build a product to a predictable schedule with zero budget is kind of like pushing a pea up Mount Vesuvius with your nose. You simply can't reliably deliver without dedicated (pronounced "paid") resources.

Volunteers (and unpaid "employees" with unvested stock are essentially volunteers) can't be counted on individually over the long haul. Even open-source projects with a critical mass of volunteers don't usually target fixed release cycles based on anything other than time-boxing. From a project management perspective, your job is to determine what work needs to be done, and then make that information visible to the project sponsor so it can be properly funded. Getting blood from a stone may be an expectation in your organization, but it is not how successful project management works.

Investing in a company—and make no mistake, equity-only plays or fully-deferred compensation are investments rather than employment arrangements—are things that founders or business owners do, but employees (by definition) do not. If you're asking how to build a team of investors, that's out of scope for this site. If you want to build a development team, though, you need to have a budget greater than zero, and then build the best cross-functional team you can within that budget.

If you lack the budget or effective incentives to build the team you need, then the C-suite collectively owns the problem. Tell the CEO and CFO what you need to build the product (including essential people and skills), and propose a realistic budget for it. If the business plan doesn't currently address the capital and operating costs needed to get to market, or at least your company's next round of funding, then it's your job to raise the issue. It's then the C-suite's job to make operational decisions based on that information.

Who Owns the Problem?

The C-suite owns the strategic plan and full operational authority. To the extent that you are considered a member of the C-suite, you share that responsibility with your peers. However, you don't own it alone, and you definitely don't own it from a project management perspective.

The project management perspective is that you are responsible for planning and controlling the budget, scope, and schedule of the project. Anything outside your span of control must be hoisted up the organizational flagpole to see who salutes.

Ultimately, the CEO and (if you have one) the Board of Directors own the business plan, the budget, and the success or failure of the venture. Either get them engaged with the problem, or come to terms with the fact that you've "invested" in a company without a viable business plan and act accordingly.

Answer 8

I do not think that the problem here is motivation. It is the lack of perspectives.

Unpaid work is ok if it is only for some months and you know it will end (like an internship) or that you will get a paid job afterwards.

It is not ok if you work without salary for weeks and months and you do not know how long this will take.

Your employees are motivated at first, but all they get is shares. And month after month they hear that there is still not enough money to pay them. They have no perspective, no idea when this will end. The startup is still not profitable enough to pay them any salary, perhaps it never will. If it is not profitable, sooner or later it will fail and they won't even get some money for their shares. Why should they stay with you and take even more shares?

If you want people to stay, you have to give them a perspective. Give them shares for the first 6 months and pay them afterwards. If you can't, you should think about the whole business.

Are you paid yourself? Do your bosses / other colleagues get any money? If yes, why should others work for you without payment?

If you do not get any money yourself: How long are you willing to stay there if this goes on? Months? Years?

No matter what some management gurus tell you: Motivation and a vision are great, but the main reason why people go to work is that they have to earn some money to pay the bills. If they are not paid, they will go elsewhere where they do get some money for the same work.

Answer 9

I think what a lot of people are missing here is based on your question - you have no clue on what you are doing. Almost in every conceivable way.

You are giving people equity like you are dolling out candy at the end of class. You have no promise of payment for past work or what their equity might be worth. Either you are really clueless on how a startup works or you are conning people out of working for free.

Depending on the equity class someone may get, their percentage of holding may be greatly dilluted based on raising capital in the future. Meaning if you gave me 5% equity, then had several rounds of raising capital it is super conceivable that I would hold less than 1%. It could be .05%. My point is you are conning people even if you aren't meaning to. These people have nothing to cash out on.

If you give someone .5% of a company worth 5 million that is probably (not always) convertible to something close to cash value - 25k here. The fact is your company is really worth nothing in the open market unless you have investors that have offered you money (or would easily offer you money) for a percentage share.

So in this employee's case they cannot sell the shares - they are unsellable - and your company is not making any sort of profit... so no sharing in revenue. And when you go to raise capital I am gathering you are the far majority owner who can outvote anyone (and everyone) and just allow their shares to be diluted out of control. Also most investors will scheme (not a scheme it is smart) to limit the ownership other than you.

So if your company amounts to nothing they worked for free. If your company if successful in the future whatever percentage you promised is most certainly a lie.

It is odd that you spent time learning how to motivate employees and never thought about paying them or how to raise money to pay them.

All of the above is really best case scenario. I have seen many business start like yours and con people into working for "equity". About 60% of them never turned a profit and nobody ever got paid. The other 40% the "owner" declared failure or bankruptcy and then started a similar business soon - which I am guessing they used resources created by employees in the past - and yes you can sue but anyone who is working for free probably doesn't have 20k to pay a lawyer to get their 2% of this new business which the owner can close down at any time.

Answer 10

Become non-profit.

Yes, I realize how shockingly absurd such an idea may be at first glance. And, indeed, for your organization, it might be impossible or, at least, unrealistic.

However, I propose that we consider a couple of things before outright totally dismissing this idea.

First of all, there are non-profits who frequently get people to work for them without pay. Such people often contribute even without any sort of promise of equity. Such people are often called volunteers.

Now, working with volunteers can provide a host of challenges, such as some people being unmotivated to do much. However, many organizations benefit from tapping a volunteer base, enough to outweigh the required effort to manage such challenges. The amount of benefit can certainly vary based on how successful the efforts are. As an example, I know that churches typically like to have volunteers handling lots of tasks, but some manage to get a lot more volunteer efforts than others.

This begs the question: if I can't offer money, how can I possibly motivate my engineers?

Find a different benefit, such as the sense of purpose that people feel when performing humanitarian work.

A quick story: my best friend's mother brilliantly invented a job for herself. Her official position was volunteer coordinator. The reason this seems so brilliant is that there were no volunteers when she pitched this position. She pitched the idea to the city's Park & Recreation department, and invented projects that would utilize volunteers that she would manage to find. Once she succeeded, her employer found themselves paying her, a single person's salary, and getting the positive results of numerous people.

Now, you might not be involved with a church or a government program. However, you mentioned your "vision" (and later, "the vision"), and are trying to not take the typical path of paying staff. The question didn't really provide details that such an approach doesn't apply. So, I pitched this as being worth some possible consideration.

This also doesn't have to be an all-or-nothing decision. Even if you can't implement the idea totally (turning your whole organization into non-profit), is there a portion of tasks that are humanitarian in nature, or which entertaining, or which may appeal to people for some completely other reason? Maybe instead of trying to convert your entire existing staff, you may want to try tapping different resource pools to get different volunteers who join up for different reasons. Even if such ideas don't totally, completely solve your dilemma, partial benefit might be obtainable (to at least reduce your problems, or their severity).

I've got a fair bit of engineering experience, but when it comes to management

Remember, a key skill for your role is continual adaptability. Don't expect everything to go well. Constantly evaluate, and constantly endeavor to figure out what changes might be helpful and are worth trying. It's not like engineering where one ideal and perfect solution just needs to be found and implemented. The strategies you mention about managing people may work better for some people than others. Also, what works at one time (for many people, or an individual) might not be the best solution for another time. So, plan to keep adapting.

I'm really at a bit of a loss here. I shared my vision, and received no pushback from anyone. I can only assume that we're aligned and everyone agrees with the vision.

Ooh... assuming. That can often work out... not so well. Try communicating. Ask questions from those who are largely unresponsive. Ask questions for those who are still in their first couple of weeks. Check after one week to see if they become... a bit less aligned.

Even if you can't manage to re-align someone, perhaps you can learn more about why they aren't aligned (which may be useful when recruiting and/or seeking to retain others).

Answer 11

Ok, so instead of offering money you are trying to offer the members some value in the form of equity.

The developers that are working for equity are actually the same people who could invest into your startup, but instead of money they invest their skills and time.

The first question is - why don't you try to sell some equity and pay developers instead?

If the answer is "because it won't be valued high", then you have the answer - you are trying to pay your developers with a low value asset. If you try to sell the equity - you will have a wider range of interested people as it won't be limited to developers. If there is low interest from non devs, then why do you expect developers to be interested?

Answer 12

Empathy

Empathy is the best way to motivate a team, when equity is the only material return the leader can offer.

Empathy works both ways. The team members will also show empathy to the condition of the leader, if they have the evidence of the leader showing empathy to team members.