If you’re a business owner and you’re serious about scaling your business, don’t give away equity too easily.
A Chief Technology Officer (CTO) who is going to turn your vision into your strategy needs to understand you, your business, and where you want to go. Critically your CTO must share your vision and be able to put it into action.
You are serious about growth, scaling up, and you want to take your business to the next level, but how?
Equity and CTO’s often come hand in hand, but it isn’t always the best path to take. Avoiding giving away ownership can often see your business thrive and scale faster because your CTO is not wedded to your company.
Here are 10 reasons why we think you should avoid equity when hiring your CTO.
1. Don’t’ marry your CTO. If you offer equity and combine it with your vision, you’re getting married to your CTO! It’s important to remember this. Think about spending time with that person before you commit to an equity stake and start a business marriage. Work out a way to date your CTO first, before you give any equity away!
2. Your strategy needs to evolve to scale. A clear strategic plan on what technology you need is essential, and so is selecting the best person to action this. Work out how your CTO can scale in line with your product roadmap. If your needs change as the business grows, can the person that you initially thought, grow with you? They may not have the understanding to take your business forward. If you are tied into an equity stake, this could be problematic.
3. Falling into the ‘title’ trap. If you have a technical co-founder, a significant equity stake is common because they’re trying to develop your business, and they already understand the technology behind it. Ask yourself if they are the right CTO or if they hold that title for ease. A co-founder can be in love with your dream, while a CTO is unbiased. Differentiation of roles is the key to success and growth.
4. Is your CTO scalable? Think about the business marriage again. If you marry your CTO, is that person right to scale, grow, and turn your vision into reality? You must consider whether they spent enough time with your CTO to understand whether they are right for the business to scale successfully.
5. Technical input doesn’t have to be full-time. If you need to deliver technology, giving equity to a CTO is not the only way. Think carefully about getting technology input for the right price and crucially, from the right person. Instead of assuming a full-time CTO is the only answer, think outside the box. A developer could be employed for a specific project, or the business could partner with a supplier. Another option would be to take on a CTO part-time. Consider the wealth of ways to get technology advice without compromising an upfront commitment that could be difficult to move on from further down the line.
6. Rockstar CTO’s are not always the answer. Most rockstar CTO’s are in high demand and can also be very expensive. Approaching them for a part-time role could be the answer, however, they may already have a lot of work on their plate, so test their availability. Every business is unique. Consider whether you need this, or something more tailored for you.
7. Equity costs businesses more. Giving a CTO an equity stake is often much more expensive than hiring a part-time CTO. Employing a flexible CTO could be an excellent option to consider when being creative about your scalability. A CTO who can come in for a few days a week or month can provide you with a short, sharp piece of work to help you understand things better. It’s also an excellent way to start dating, your CTO!
8. An equity stake can cloud business judgment. You may think that without equity, your CTO wouldn’t be interested in the business. Without ownership, a CTO can be free, unbiased and offer alternative views. They could tell you they don’t think something will work and back it up with legitimate reasons. The truth hurts, but it could be just what you need to hear, as you scale. Remember that equity doesn’t always mean that you get the right outcome in any case.
9. Not tied in. If you tie yourself in through offering equity, you’re in a marriage. If your business takes a different direction or you change technology, this could make things difficult moving forward, as your CTO, has to grow with you in both technical understanding and in seniority. This is not an issue for some CTO’s but its not always the case.
10. You retain control. If you set the plan and outcomes, you can continually take the business forward from your perspective. If you decide on a part-time rockstar CTO, agree with your results and terms. They need to understand business and technology, but also the people and processes, not only in the beginning but also as your business scales and thrives.
This article isn’t to put you off offering equity, but to open your thoughts up to the reasons why it may not be right for you at this time. If you decide to give ownership to your CTO, do it once you’ve had a chance to date and work with them fully! We often need different staff at different stages of business growth, as we scale-up.