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0 pointsparpfish1y ago0 comments

how does equity in privately held companies work? I get that some share provide voting rights, but that's not generally what to employees.

when the people in the article cash out their ESOP shares to buy a house... who's on the other end of that deal to buy those shares? is it some other employee? Wouldn't that mean that money is just switching hands between your employees rather than helping all your employees get rich?

related: i exercised some options for a startup that i used to work at a few years ago. they're now >10 years old and financially healthy, but no IPO in sight. what's the point of those shares if there's never an exit?

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bognition1y ago· 2 in thread

The vast majority of small businesses have no "exit" in sight. Instead they want to rely on solid business fundamentals. Sell a product/service for a profit. Typically the owners of the business get access to the profits proportional to their ownership stake.

By enabling employees to be owners you grant them access to those profits and to participate in discussions around how to spend/re-invest profits.

parpfishOP1y ago

In small businesses like that, how often do profits actually appear? It seems like big public companies often decide to increase spending to chase growth that would increase revenue and be profit-neutral. Do smaller companies think about it in the same way?

bruce5111y ago

Obviously I can't speak for all small businesses.

We spend our profits in different ways. Some of it goes to future planning (bigger stock piles, larger cash reserves, growing headcount etc). Technically all our working capital, all our assets, all our stock, has been funded by "retained income".

That said we also pay bonuses (13th check) in profitable years , and we issue dividends to owners. The dividends can be significant. Or 0. Or less than 0 (salary deferred in bad years.)

We want long-term sustainability , but also returns for being owners (otherwise we might as well go get a job somewhere. )

Organic growth is fine, sales going up is good, but we're not looking for hyper growth.

There us no "exit" (for the business) on the cards. An IPO is out of the question, and having seen the destruction caused by corporate acquisitions that's not a route we like either.

It's not glamorous being a small business churning out regular profits. But it pays well.

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