Sweat Equity – Using you’re own time as your equity

If you want you could sign an employment agreement with your company and work for free. Work for free? Are you stoned? No:).

I am talking about the famous two words called “sweat equity”. Sweat equity essentially means, you work and get paid in ownership or in bonuses etc. Not in salary. You get paid for performance.

In this post I am aiming at getting shares in return for working X years, months or whatever time frame you feel OK with, for free.

In order to put a value on the time you put in, you either set an hourly rate or preferably a monthly salary you would normally have got in the work position you are about to enter. For example, if you are to function as a project manager and you are a newbie in this area, then a newbie project manager salary would be OK to ask for.

Then the next question will be, how many hours or months are you willing to work for free (or for stock ownership)? Say you get $3000 every month as the project manager and you are willing to work for free for 1 year. Then your equity stake is worth $3000 X 12 months = $36,000.

In this case, you should get the shares in advance. Many investors will tell you: Work for stock options. Ask for shares and then keep your promise of working for free for 12 months (or whatever promise you have made). You could always write a clause in the employment agreement saying that you will lose certain amount of shares if you do not keep your promise. Say, if you work for 6 months and you then quit, then you will lose 50% of the already given shares. Hence losing equity worth $18,000.

This way of getting some equity piece, if you are completely broke, is one sure way to get some ownership rather inexpensively.

So next time someone tells you: “It takes money to start a business”. Tell them “Yes, it does. But it does not mean per automatic that it has to be your money”.

Partner up with your existing customers

It amazes me how many companies, especially startups, that do not use their existing customer base to refer more business to them.

It is much cheaper to have your existing customers refer more buying customers (their friends and family).

If you can figure out an incentive for existing customers to refer say 5-10 more buying customers each, then you would have increased your customer base many times over. With less risk and less hassle.

Example:

You have an opt-in mailing list of, say, 100 customers. You email these customers and say to them “If you refer 10 buying customers to us (our company) then we will give you a coupon check worth $100 for you to use in our stores/ on our website.

In this case the incentive is $100 worth of merchandise for just refering 10 buying customers.

Do you see why this method is much cheaper and risk free than it would be going out and advertising in newspapers, trade magazines and or TV/radio?

Loss Leader – the way to go with new customers

If you start a new company from scratch, then obviously you have no customers at first.

If you start a company from scratch you don’t have any reputation or credit whatsoever either.

So what to do? A Loss Leader is the answer. A Loss Leader is an item or service you sell at a break even price or even at a loss in order to attract new customers to your customer database.

Why do this? There are mainly two good reasons for this:

1) You build trust this way (let people test you and see if you are what you say you are).

2) You build a customer database when these people get your Loss Leader (you ask for their permission to email more product/service offers in return for the free Loss Leader). That is, you’re aim should be too collect names, adresses, email adresses etc so that you can contact them in the future about product/service launches. This way you market to a crowd that have already said yes to having contact with you and you also save a lot of money on marketing, because if you do an email campaign to your opt-in list of customers, then you pay nothing at all to sell new stuff to these people (and as they say, there is no cheaper or more effective marketing than when you sell to existing customers). So it is really a win-win for both sides. Even if you may lose out in the beginning.

You have to look at it this way – Life Time Customer Value. That is, what is your customers worth during the time you do business with them? Let’s take an example:

In case number 1 you sell one item at $100 to one customer. That customer never return after that first sale. Mainly because you wanted to sell once and never bothered too collect contact information to sell again and again.

In case number 2 you more or less give away an item in order to collect contact information from each customer and then you can sell again and again to those customers. Making it a better value giver to your company both income wise and expense wise.

In case one you may only make $100 per customer, in case 2 you may just as well sell 10 more items in back-end sales for $100 a pop and there by making that one customer worth not $100, but $100 X 10 = $1000. And the back end sales would cost you nothing at all if you did an email marketing campaign aimed at you’re own list of opted-in customers.

Kind of a great thing don’t you think?