Comment by perfmode
11 hours ago
I established a limited liability company (LLC) for a business venture initiated with friends. My objective was to ensure that all contributors received a fair share of the equity while maintaining a simplified structure for tax purposes. Additionally, I wanted to ensure that equity shares did not confer voting rights, functioning instead as profit-sharing interests. Legal counsel assisted in structuring the entity as a single-member LLC, where I am the sole owner, with profit-sharing units allocated to other contributors. This arrangement entitles contributors to a defined percentage of the company’s profits and proceeds from events such as a sale of the company.
My only regret is that I spent a lot of money on legal fees and the company ended up not being profitable so a lot of the work went to waste. But now I can re-use the structure again if I wish to create a new venture.
I wish more people know about profit sharing interests.
I was a part of a startup that offered profit sharing interests. When I joined the profit was X and left it was Y. I received a check for my percentage of the growth in profit. It felt pretty fair.
There was a relatively direct incentive to impact the company bottom line and I didn’t have to wait for the company to exit to get compensated.
Specifically, annual profit not valuation? So if the company had not become more profitable, you get nothing?
That's interesting, but I was thinking something possibly even farther. That the members of the co-op are the people that pay for the SaaS itself. Essentially the yearly fee is "dues" towards the organization.
Perhaps this is closer to Vanguard's ownership model, i.e. that Vanguard is an investment management company that is owned by its funds' shareholders?
I definitely think there is a way to make this viable at small scale in a tech/SaaS context. But to survive and grow to larger scale, I think you basically have to ensure your business following this model is not "too profitable" or else someone will want to crush and replace you, and hoard the profits for themselves.
It's kind of forgotten about now, but it's a bit of a minor miracle that Vanguard's unusual structure survived the early days, then grew to become an investing behemoth. I suppose the reason nobody tried to kill Vanguard to steal their customers is because the business model was pretty boring and profits were unsexy enough that others just let them do their thing (I mean, low cost index funds, and the boring type of customers attracted to them? Talk about a ceiling on profits, compared to what a more adventurous fund manager could make elsewhere selling a typical 2-and-20 deal to greedier customers...).
So you mean a customer? Why do you want them to own it? Just open source it if you want to share without building a business.
Customer owned co-operatives are an established business model. First one was founded in Rochdale, England, in 1844, and is still operating today as a convenience chain called simply "Co-op", across the UK.
The main advantage to this is that it gives customers incentive to support the business financially, not just take the assets. You can still have cashflows in way that don't exist in open source models, and around products that can't be open sourced (like loafs of bread, pints of milk, as per the Co-op model).
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Open source just gives away the code, without setting up resources for the people who work on it. If I charge for the service, which is owned by the members, I could presumably pay upkeep (hosting, dedicated workers...etc).
As far as I know this is how places like REI or some groceries work. They are essentially customer owned. I'm not an expert in this, which is why I was asking for advice.
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Technically this is a consumer cooperative rather than a worker cooperative model.
But what you described truly is the most direct way to align the interests of stakeholders/users with the direction of the company/product. A downside I think in this case is that it becomes even more imperative to know who your “customers” are, as pivoting will be quite difficult.