What’s the deal with sweat equity?

I was listening to my favourite podcast of the moment How I built this and Seth Goldman, creator of Honest Tea mentioned that in the early days of the company, employees were paid in ‘sweat equity’. These employees are now millionaires due to the shares they were given in return for their hard work.

When asked, Seth didn’t know how many millionaires he had made from Honest Tea, but he thought ‘a lot’.
It struck me that this seemed to be a common theme across the Entrepreneurs I have listened to on the series; a manufacturer that agreed to be paid only when the profits starting coming in, a team that were paid in Spaghetti Bolognese (this was Dermalogica!), or a designer that worked after their day job to help out. All taking a chance for people they didn’t necesserily know, and being paid in ‘sweat equity’.
The term dates back to the 1950’s in America, referring to helping migrant farmers in California to build their own homes and is still found in the property industry today helping families, who otherwise couldn’t afford their own home, to pay for it through their labour – http://habitat.org.au is a great example of it done well.
So it’s almost common place in start-ups and definitely encouraged in not-for-profit, but does sweat equity have a place in global business? We see it to some extent in almost every sector of the economy, in the form of employee-owned businesses.
Of course the model is slightly different in that these employees are paid in capital and given shares in the company, but the ethos is the same; people will reap the rewards to putting in the hard work, by contributing to the company’s success. They also have a voice in how the company is run and empowerment will, more often than not, lead to motivation.
According to John Lewis ,one of the most well-know UK-based businesses with this model, the employee-owned sector deliver 4% of the UK GDP annually and this is growing.
An interesting concept and although I’m not suggesting sweat equity should be the way of the future, I do think the employee-owned business model makes sense and is a great way to keep the workforce engaged, loyal and motivated towards success.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s