005 - 10 Reasons to Avoid Equity when Hiring your CTO


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By Torben Anderson, Torben Anderson: Tech strategy, and CTO. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

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.

For more on what to look for in a CTO, head over to last week’s blog post.

The key thing to remember is your CTO must share your vision and be able to put it into action. You are serious about growth, scaling up and 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 equity can often see your business thrive and scale faster because you are not locked in with your CTO.

Here are 10 reasons why I think you should avoid equity when hiring your CTO

  1. Giving equity to a CTO is agreeing to a business marriage

If you offer equity and combine it with your vision, you’re getting married to your CTO!

It’s important to remember this. Offering equity is a bit like getting married - is your CTO someone you want to get married to? Think about how you spend 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!

  1. Your strategy needs to evolve to scale

A clear strategic plan on what technology you need is essential, as so is selecting the best person to action this. Work out how your CTO can scale with your plan.

If your needs change as the business grows, can the person that you initially thought would grow with you do so? They may not have the understanding to take your business forward. If you are tied into an equity stake this can be problematic.

  1. 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 a true CTO or if they hold that title for ease. A co-founder can be in love with your dream, whilst a CTO is unbiased. Differentiation of roles is key to success and growth.

  1. Is your CTO scalable?

Think about the business marriage again. If you marry your CTO, is that person definitely right to scale, grow and turn your vision into reality? You must consider whether you’ve spent enough time with your CTO to understand whether they are right for the business to scale successfully.

  1. 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 answer, think outside the box. A developer could be hired 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.

  1. 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 is one useful option. Every business is unique. Consider whether you really need this, or something more tailored for you.

Head over to my podcast on ‘What is a Chief Technology Officer’ for more on this click here.

  1. Equity costs businesses more

Giving a CTO an equity stake is often much more expensive that hiring a part-time CTO. This is a good 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. This could be a better outcome. This is a good way to start dating!

  1. An equity stake can cloud business judgment

An equity CTO is married to your dream. You may think that without equity, your CTO wouldn’t be interested in the business. The simple answer is they may not be, but that’s a good thing.

Without equity, a CTO can be unbiased and offer alternative views. They could tell you they don’t think something will work and back it up with honest reasons. The truth hurts but it could be just what you need. Remember that equity doesn’t always mean that you get the right outcome.

  1. 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 I’ve said before, rather than tie the knot with an equity CTO, find a way to date first and avoid a messy divorce later!

  1. 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 your outcomes and terms. They need to understand business and technology, but also the people and processes, not only in the beginning, but also throughout.

This article isn’t to put you off offering equity, but to open your mind to the reasons why it may not be right for you at this time. If you decide to give equity to your CTO, do it once you’ve had a chance to date and work with them fully!

For more information on this topic click here.

I really look forward to comments. Please head over to the Facebook page and let me know what you think. I’m live each week.

If you’d like to see talking about this in more detail on my video, please watch my video below and head over to this link to subscribe to my podcast

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