Category Archives: Manpower

Why ESOPs must be doled out very carefully?

In the very initial days at any start-up, when the funds are in short supply and challenges are too many, the new entrepreneurs may generously dole out partnerships just like Ranbir Kapoor in the Bollywood film Rocket Singh – Salesman Of The Year. In the film, he makes the peon, the receptionist and the technician equal partners of his new venture.

The film does not portray the post-sellout disputes which arise in many start-ups due to unclear ownership terms in the beginning. Sometimes, such disputes get ugly and spread in the public media. The ESOP dispute after the famous sell out of RedBus.in, founded by (Phanindra Sama and friends) to ibibo.com is one such recent example. Phanindra Sama had to face a lot of public embarrassment about ESOPs given to some employees, even after not doing anything wrong apparently. It is unfortunate but true.

Start-ups are generally started by people with similar passion and vision but with complementary skills. Gradually, some more people come on board. These people vary in terms of skills and risk appetite. Many of them come with an expectation of a stable, regular paying job. They don’t wish to risk their security for a potentially high risk ownership proposition because they are not sure of the future of the company’s prospects. It is a personal choice which people make based on their own life stage and priorities. So, they consider the offer of ESOPs as an additional bonus which may or may not materialize because of their own uncertainty about continuing with the company or because of the company folding prematurely.

But, as soon as the company gets listed or sold and ESOPs become saleable, greed takes over. Now everybody wants the share. Ironically, if the founder would have lost money, none of them would have wanted to chip in to share a part of the loss.

So, while deciding about ESOP, one should be very clear and objective without getting emotional. ESOPs should not be given to all and sundry who don’t believe in the company or who don’t share the passion that drives the founders. Hiring some people purely on payroll may be expensive in the short run, but it should be considered in the long run if we believe in our own venture’s value generation potential. One should consider this as some more risk in addition to the risk already factored in.

Entrepreneurs must remember that everybody wants to own the success but failure is an orphan. Nobody wants to own it. We should be selective in choosing our drivers and peons who will suddenly develop aspirations to be millionaires without doing any extra bit for the company. During the regular days, they may have thrown all the tantrums and may have tried to avoid work as much as possible, but when the D-day comes, when the promoters decide to sell out, they suddenly woke up to the realization that “WE founded and nurtured this company with OUR blood and sweat.”

Sensibility should override sensitivity. Ensure that you don’t have to pass through the miserable and humiliating situation like Phanindra Sama had to for no fault of yours. Don’t give ESOPs people who don’t deserve it. Let commitment and merit get rewarded.

Can you take responsibility of people’s dreams?

Every living human being has dreams. The size, scale, color, texture and details of these dreams vary. People have dreams of their career, lifestyle, relationships, family, wealth, health, quality of life, hobbies, retirement etc. Some dreams are driven by passion, some by fashion, by comparisons and others by an aspiration to belong to some group. Many dreams provide people pathways to make their life meaningful and give them a direction. Also, people strive to realize those dreams. People go to greater lengths in pursuit of their dreams. Dreams are a very powerful source of energy.

Entrepreneurs also have dreams. Mostly, their dreams are bigger than most other individuals. They paint their dreams on a larger canvas of life. Ordinary individuals play on their own strengths while dreaming and working for their realizations. Entrepreneurs don’t limit their dreams to their own strengths alone. They count on their ability to gather many people’s strengths and build upon them.

Entrepreneurs can realize his/her bigger dreams, if they can help others (with smaller dreams compared to entrepreneurs’ dreams) to realize their dreams.

For everybody, their dream is the most precious one. People hang on to places and people who can help them realize their dreams. If we want them to hang on to our company and contribute towards its progress for a long time, we must reassure them that their dreams are part of our larger dreams. If we can be the vaults where they can deposit their dreams, they will love to remain with us.

To ensure true participation from our people, we must take responsibility of their dreams. If we short-change our employees, they treat our organization as a parking zone and move out as soon as they find greener pastures where their dreams get nurturing and nourishment to bloom. No bargaining works in the marketplace of dreams.

What helps the most in the future success of our business?

At platform no. 2 of Malad station, there is a book stall. The employee there is since 23 years…!

At our home, the same person delivers newspaper since last 11 years. He knows which papers we like, so whenever there is some scheme or some new paper is coming, he always informs.

The helper at the grocery shop from where my wife buys our provision, helps her remember things when she goes to place monthly order. He knows which things are regularly used by us, because he has grown up in that store and he knows buying patterns of all regular customers. My wife feels pride by the special attention that he extends.

The computer maintenance company that repairs our home PC, has one supervisor engineer since more than two decades. He knows entire history of all the various generations’ PCs that came to my home. He understands my problem quickly and sends the engineer accordingly.

The common thing in all the above examples is some employee who has been with the firm since more than a decade. Their presence makes the customer’s experience much more comfortable. Everybody prefers to deal with a known face. A customer’s comfort decides his satisfaction levels. A comfortable, happy, satisfied customer is a profitable proposition for any business. An old (experienced) employee is a very valuable asset to the company, because not only a customer but also vendors or any other party repeatedly dealing with the business finds it comfortable to deal with a known person, rather than dealing with a different person every time.

We all may have encountered the frustration of talking to different, ‘faceless’ persons every time at the call centers of Mobile, Cable, Telephone, Bank, Credit Cards etc. companies. If, for solving a single problem, we need to call that call center more than once, undoubtedly we will be faced with repeating the same thing again to different people. A customer is not happy or comfortable passing through such experiences.

The current health of our business is reflected in the financial statements listing the assets, liabilities, sales, profit, margins or growth rates. It can also be gauged by the market share and the brand equity held by the brands.

But, how can we judge the future sustainability of the growth of a business? Of course, good products, sound financial health, large customer base, good market share, reputation and positive brand equity promise a good future ahead. But, in addition to all this, one vital element plays the most significant role in the building of strong foundation of the company. And that vital element is the number of veterans or senior employees in the company, who have spent many years in the company.

If we look at the successful companies, we can’t miss the significant role played by these ‘veterans’ in consistently shaping the future. An old employee knows the business, its environment, competitors, challenges, its promises and its people. And that knowledge cannot be replaced by replacing that person. When an old employee leaves, this knowledge also leaves along with him. This is a huge loss to the company. The new person may learn and understand the processes, but the experience and knowledge of the old person will never be retrieved. Without the long term availability of good employees, a company just can’t build strong foundation, and hence can’t go much ahead.

An experienced investment banker once shared this with me. “In evaluating any company, we always try to find out how many people at various important positions are with the company since more than five, ten or fifteen years. That tells us about the depth of the experience of the management and the quality of company’s long-term relationship building practices. The newcomers, however highly qualified, can’t be expected to take the company ahead sooner. That company will have to wait longer to really take off. And that waiting may be unaffordable. Moreover, an employee is the first hand witness of what is going on in the company. Every employee has his/her own dreams. They stay with the company as long as they have hope of fulfilling their dreams by working with the company. When a person gets disillusioned, she leaves. So, the tenure of important employees is one very significant indicator of the stability of the company and its future. For us, a company with more veterans is undoubtedly on a strong footing.”

An employee-employer relationship is an important relationship from the business perspective. Maintaining any relationship is a challenging task. It requires give-and-take from both the parties. If the company respects the employee and gives opportunities to express his abilities and realize his dreams, the person will stay with the company for a long time. But, if the company has short-sighted ‘hire-and-fire’ approach, the disgruntled employees will leave, carrying bitterness and spreading bad reputation outside. Those continuing inside also live in a persistent state of fear and will fly away at the earliest opportunity. Those who remain are the sour apples, who don’t find employment elsewhere. Such excessive churn causes a chaos in the company and quality, customers, sales, productivity and profitability suffer because of the persistent instability and uncertainty.

We have to accept this fact that the strength of the foundation of a business depends mainly upon the employees who are with the business since a long time. We must try to keep such employees. We must maintain good relations with them. We must invest in them and help them to upgrade, grow and fulfill their dreams. If they stay and grow, they will help us grow and fulfill our bigger dreams. If we can’t build strong relationships with our employees, how can we expect them to build strong relationships with our customers? To increase the chances of future success, we need to increase the number of long-term employees in the company. It is very simple. We must notice and act on this simple fact.

Otherwise Aaya-ram and Gaya-ram can make our company a guest house, where people come to spend some time in between two good jobs. No wise entrepreneur would like to turn his company into a transit camp or a career parking lot.