Stuart James, MM&K

If you are bringing in someone senior to run your business, it is either because you need to for your personal circumstances, or because your business needs a different management approach to take it to the next stage of growth. Be very clear at the beginning of the process about why you need to make this change, and what will happen to the business if you don’t.

This can be difficult and you need to make sure that you are comfortable with this from the outset. As the founder of the business you may well have been prepared to work for very little money for many years, or even for nothing at all in the early days, but a career Managing Director or CEO will not have the same attachment to the business that you have and therefore will need to be paid the market rate. In this area, you get what you pay for.

Senior hires into a business will usually expect to be given a share of the upside in return for their hard work, and the risk they are taking by joining your business. But this doesn’t mean you have to give away value that you yourself have already created – you can structure the deal to only give them a share of the future pie that they personally help to create, by setting performance requirements for them. For example you can create a second class of shares in your business called growth shares, which only have a value if future growth targets are met. Enterprise Management Incentive (EMI) options can do the same thing (for qualifying companies).

As the business grows it will require more structure. That can be really troublesome for an entrepreneur because most of them are not naturally structure driven. They like the freedom and flexibility of the entrepreneurial spirit. But as the business grows it will need a more formal framework to enable it to develop further.

There are two distinct types of people you can hire at a senior level – people who are motivated by security and people who are motivated by gain. If you want a steady pair of hands who will deliver consistently year on year, the salary will be more important to them than share options. If you hire someone who is quite entrepreneurial themselves, however, they will have a bigger appetite for risk and so will be more focused on the potential for upside through their share options. The key is to decide what type of person you need for your business, and to have this conversation before you hire them, otherwise one year in you may realise that you have hired the wrong type of person.