everybody. This is still a hefty and this is heating truck into Dan. This hardship will talk a little bit about revenue share and profit share models for startups like talking about more than your sales and market. We just want a bullshit and chat about business and life. And hopefully, while we're doing that, provide along value todo for people trying to get way. Don't want to give you feedback. That's bullshit. You want you to do your best so you are running a startup. Let's say in this case it's more likely that it is a self funded start up. You know, it's not very common in the kind of the sea world to raise venture capital and then to do revenue share with your voice, especially not in the released. So you were self funded. You get to some level of success, and then you see this pop up more and more that you know,

employees of these well growing companies that are doing really well are at some point probably asking themselves Okay, so I'm part of this sought up, but I'm not getting equity. We're not raising money, so we're not gonna aipo anything like that. So how do I participate in the success The continues success and growth off this startup beyond maybe my salary or something? And so I see more more start ups come out and share their the profit sharing models or revenue sharing models. But I still feel like it's a new thing, especially in the start of world. It's not kind of, ah dot a super set. It's not as common. And there's not as many best practices for this as for handing out equity, you know, building and setting up option pools and all that kind of stuff. So I just wanted to tap into that who we advised to do this.

How should people think about it? When is the right time when his journey? When is it too late? And what are some successful models that out there are some ways to think about. This was a mistake. Stoke.

Yeah, I think one model I've heard of they might be the base camp pokes. It might be somebody else was that basically it's a profit sharing based on the growth in profit, and so then because a lot of a lot of things like this when you're sharing revenue, whether it's commission for salespeople or, you know, sharing profit, like in this it would be like the owner, so it would be owners of the company who have the majority of the shares are the majority of the equity in the company and then the business, which is basically the thing that we're all working begun on, and then the team members. And so if you do it so that no matter what, everybody gets profit, regardless of whether the company grew or not, I think it can really lead to some really weird incentives and incentives where, like the team was honestly incentivized to grow it in the way they would be. Is their profit sharing waas based on actually growing the business.

We would even impact the owners in that way, because if you go out like three or four years of companies flat and there's profit sharing happening, everyone's getting money. But they're not getting money because they're making a business better. They're just getting money because the business is still there. Yeah, right, which is different in the business, getting better. So when I think about this, I don't think about revenue share. I think about profit sharing, and I do think about making it based on growing the business. So even if the business grew 5% and there was more profit, that's great, right?

And now think about it. Even if the business And if you really making about profit, then you could not grow revenue but grow profit bond. That would still be okay, because then the team gets incentivize around. Let's make more profit. Let's not worry about revenue. As much as we worry about

profit off it, what's

it gonna take to help us make more profit? And there's two ways, right? You you are more profitable from a percentage basis, margin things like that or you grow the business.

I love that. I love the model of using both because the profit share anything has always struck me as curious because of these very reasons I'm like If startup does profit sharing in a in a face where the company is still trying to grow really fast, isn't this focusing everybody on, like increasing profit margins versus increasing growth? Is it also that it might be just It might have been better for the business to use the prophet to build out, you know, maybe a cache Christian or some do some of the investments in the business. And now, instead of doing that, were just instantly paying out a huge chunk of profits that are there because we, it would incentivize. The one are like pocket all these everybody that works in the business, versus if there's some kind of a bonus structure based on revenue growth, then that's much more like I love the combination of things. That, too. What about phase like,

what is the? Is there a phase where this is too early? And I think I would tell people when they're just starting out and probably not a good idea to build an elaborate revenue profit sharing model if you don't have revenue or profits. But what what deputy would you advise? When is a good time for found or

subtlety? Worry a lot. My opinion is when you believe that the company is stable, Man has in a repeatable ability to make money, even if it's not initially growing yet. It's a repeatable way to make money, and there's actually enough profit there to go around. So you could say It's like when there's, like, 100 K a year profit or when there's like 250 K or your profit. But when there's a significant enough amount of profit that there's enough to go around, that would be my take.

I love that, Yeah, Any other things that you've seen? Like we're talking about self funded socks, right? And so one of the big tools that and maybe they decide to still do this. But a lot of self underside of they're not as heavy on the equity side of things and option pools and all that as the V C 500 side of it doesn't

make sense. It doesn't necessarily

make it does make Yeah, some money, yes, so So if you take off the equity as it is a form of compensation off the table, then you know obviously their salary. There's quality of life. There's maybe other benefits that you're paying, but you know, profits and revenue or, you know, cash flow profits. Maybe that's more abundantly available than an eventual funded start up is so that's obviously a pull to get to. Have you seen any other models of like things that self funded sobs due to kind of incentivize the employees to. You know, basically, there's

a classic. There's a class sick like bonuses. It's classic, right? I don't hear enough about that, but you can give up pretty healthy bonuses based on certain metrics about the business. What's wrong with that? Nothing, right, Like that's like a cash basis. You could base it on performance of the business. You could base it on revenue, not profit, and make sure people have a healthy bonus. I think like the reason I like something where it's profit share in type thing is because you can imagine someone who's making like 100 k 120 k 80 k whatever a year end up, making an extra 10 2030 even 50 k on top because of the success that the business of hat and that actually increases like retention with folks and things like that, because like at some point there's no other way that they can make that kind of money, especially the business continues to grow and they're contributing part of it. I think there is a story. There's actually a book on basically some of this stuff. I forgot the name of the book,

So I'm sorry

you have to dig around for it. I don't know they, but yeah, it talks about a tire company that basically has a pretty solid, like way of thinking about profit sharing and all that and how I believe some folks in the company became millionaires because the Prophet Terry I could be wrong. But the folks who are kind of incentivize appropriately in the company in that way end up getting a huge benefit. And so giving team members that benefit, I think, is another kind of thing and part of it. And also there's like a system of the longer you're there, the more of it you get and things like that. So there's a system and it could work. It's just a matter of being really thoughtful about it and stepping up a little bit. I do think that the base camp folks have a model that's based on a percentage of growth in terms of profit, but I could be wrong, Um, and there they are,

actually pretty good starting for this. If you're thinking about doing this and then, um, I know there's other examples, but I actually studied this a little while ago, and I felt like they had the most top thoughtful model. It looks thought out model around doing this, especially because, like, they are a highly profitable business that, uh, has had to figure this out.

Love it. All right, So I think that if you're self funded, start up. It might make sense to look into this. You probably don't want to do this too early when you're still, you know, trying to figure out to quiet your best 100 paying customers. Putting given elaborate revenue or profit sharing model might feel like meaningful work, but it might most likely is just a waste of your time and everybody else's time to focus on these things. But once you have a point where you have repeatable revenue years, some predictability in terms of your growth we have a real business quote unquote right. That is not just an idea. It's not just a a wild project, but it's like a thing that is thriving and growing and generating cash holds and profits and revenues. It might make sense to start spending some time and think about this and putting some thing in place to, you know,

really empower everybody that's investing in contributing to the growth of the success of the business, to participate in that growth in some meaningful way. If you have any great examples, great books of Try things and failed with them or succeed with him, we always love to hear from you. Just shoot us an email. Stelly Clothes are common, each in charge at gmail dot com until next time will be here soon.