> Why does no one run a completely employee owned tech company

I think this might be selection bias or something along those lines. There are probably more companies than you'd expect that are techy bootstrapped companies, but they don't make the news because they don't have the funding round type of announcements. These companies also tend to do something not centered around AI or socials, so again, they fly below radar. I've worked at more than one

Sure and I guess that I shouldn’t expect to read about them here necessarily.

No, I'd expect people posting here are doing specifically in a hope to get a VC to come knocking.

How do you take outside investment if all ownership is with the employees?

Even a self funded company has a different problem, the person/people who started it did a lot of the heavy lifting and took on massive risk, they want to be compensated for that risk, and are loath to share it all with others but in some sense, many self funded startups are 100% employee owned… just by a small subset of the employees.

You do it as a partnership where new employees buy into the company when they get hired.

No one is doing that. Reality is employees want the upside without the downside risk.

It happens with partnerships sometimes. But it's generally a pretty risky move for a would-be partner to make unless there's already a money-making engine.

But VC backed companies have way more risk for average employees. How can that be true if you might never get a non-diluted share or any compensation when sold off?

Employees are always at great risk.

> You do it as a partnership where new employees buy into the company when they get hired.

Practically speaking, this does not work in most businesses.

But maybe you have an idea that I haven’t seen.

What would some numbers look like for a company and what would the buy in be for a new employee?

There is a base package of employee shares you get upon being hired. The investment portion would be separate from the base package as part of adding the investor-employee to the company.

> There is a base package of employee shares you get upon being hired.

Where do these shares come from? Do you dilute the pool? Will people who are no longer part of the company (but are still partial owners) want their ownership pool diluted? If so, how fast can you grow before they start saying no?

> The investment portion would be separate from the base package as part of adding the investor-employee to the company.

Where does that money come from? Employee stock ownership plans where money is taken from their salary?

How much has to be invested before they feel like owners?

And again, where do these shares come from? Is there a market? Is the share pool diluted? If dilution occurs, what’s the mechanism for this?

> Where do these shares come from?

This is obviously decided by the employees. One option is that the company reserves a pool of shares for hiring, another is to dilute. Again voted and agreed on by the people that work there.

> The investment portion… > Where does that money come from?

“The investment portion” is the portion of the package you’re giving your investor in exchange for the money being invested. That part of the package could include: more shares, a later lump sum payment, etc.

I imagine the share dilution or split or whatever would be tied the continued success of the business, requiring everyone to understand how adding a person would financially change their risk/ownership pool.

The ideas you’ve laid out sound really good while theorycrafting over some drinks.

The reality that I’ve seen is that it rarely works out like you are suggesting.

Real examples that I’ve seen twice in detail is that senior management (and later retired management) ends up with a lot of shares. Upper management prefers disbursements/dividends, while lower-paid folks prefer pay increases. Sometimes neither of these are optimal — better to re-invest.

The senior management and retirees do everything that they can to minimize share dilution, and they are very aware of where their share of voting shares stands versus the labor shares, and the management is much more savvy about this knowledge and process.

Bitterness on both sides ensues, and the company turns to shit via in-fighting.

As for getting new folks to invest their own money into shares, there has to be a very clear path for ROI for these folks, as often there is no dynamic market for shares.

Other examples I’ve heard stories about (but haven’t seen numbers) have similar tensions.

Maybe I’m biased, because I mostly hear about failed employee buyouts. That said, the number of success stories I’ve heard of are few — bobs red mill (still newish) and Publix… I’m sure there are a few more.

Force people to sell when retiring and cap share ownership. I’m not suggesting a blanket single approach to each and every out lying problem you may encounter but I am saying the general idea of employee ownership could work out better than risking everything on a potential VC success story.

When creating an employee owned company these are great things to consider when drafting the agreement but I didn’t read anything from your anecdotes that suggests it wouldn’t be a successful model.

My comment was never about the employee base package requiring investment from the hired employee. I was commenting on offering the base and an additional package for bringing on an investor employee.

It would be very hard to find talent willing to do that

Actually, some of the Big4 has a partner model where you can buy in if you are promoted to partner level

I doubt it if everyone is leaving mega tech corps at 30-40 years old nearly ready to retire.

That is basically the 1% equity founding engineer model! You "buy in" with free labor, the delta between your compensation and market rate. Some of the problems are:

* You can only "invest" in one company at a time this way, so the risk profile is much worse for you than for a VC with a lot of different portfolio companies.

* It's rare for a 100-person company to be valuable enough that a 1% equity stake is competitive with the levels.fyi payscale.

You typically need to pay salaries before you have money coming in the door. Some founders cover this out of personal savings, and some businesses make more than the cost of an employee before they need one, but generally you need outside capital. So you'll need to provide something of commensurate value in exchange for it, which is either debt or equity.

A business with a chance of success in the 90s might be able to get a bank loan. As an early stage tech company, the capital available to you is venture capital.

An early stage tech company can get a loan. The key is not hiring anyone until you can write a business strategy and plan that supports repaying the loan.

Investors want ownership, so to be completely employee owned means completely employee funded.

So unless you have 5-10 employees willing to work for free until profitability PLUS paying infrastructure costs in the meantime, you are constrained to activities that can be profitable from day one.

This is why you can see employee owned consulting and services companies but not major development projects.

> Why does no one run a completely employee owned tech company?

I thought about setting up Fetchfox this way, and in some ways we are an employee run company. Everyone including me gets the same crypto token as our stake in the company's success. I get a higher stake as the founder/ceo, but some offers give the employee 0.5 for every 1 of my allocations, which I think is pretty fair.

Long term, it would be nice if I had <50% stake in the project, and it self-managed somehow, similar to crypto projects like Ethereum.

That said, the phrase "employee owned" has some bad connotations. It has an implication that you are not trying very hard to grow, or that you are somehow less committed to company, or that you are some sort of co-op. For these reasons I don't like use that phrase.

Interesting setup for Fetchfox.

I’m not sure avoiding specific phrases because the general populace has stigmas is helpful however. I don’t view employee-owned or coops in those ways at all. For example, your growth rate should be attributed to the quality of the product. The product quality should be attributed to people’s interest in their work. Good compensation/benefits such as ownership should be the incentive of a quality product.

Why do you need crypto for that? Why not just 'a share of the company'?

It's similar but slightly different:

1) It's not a security, so it's not a share of the company. In order to be compliant with US law, we can only offer a utlity token 2) Crypto is a 10x better underlying data structure and architecture for the financial system: https://ortutay.substack.com/p/the-computer-science-case-for...

> Why does no one run a completely employee owned tech company. What is the disincentive for modeling your company as employee-owned and operated. It seems that would be the best path to an efficient company and a focused company that’s not angled to be taken over by outside aggressive for profit interest and dismantling.

I worked for a company like that. It was a start-up size company that was in business for 20 years or so. It stayed small and had not external VC breathing on their neck and such.

So it does exist and it has it benefits and downside. For one, just because it's employee owned doesn't mean that the few founding employees won't screw anyone over and it does't mean everyone gets an equal amount of shares. Initial founders may still keep 99% of the shares, and maybe dole out a crumb here, and a bit there.

Because you won't find anyone competent to take on the terrible shit-shoveling gig that is being the CEO for an equal share in the business.

I think in an employee owned model the CEO is less visible and a different role, that role is then incentivized to actually drive the business instead of creating hype in the market to ensure valuation for investors/stock markets.

The value of an employee owned business is that you can vote the CEO out if they’re not working in the best interests.

With all due respect, I don't think you know what a CEO does day to day. Investor relations and PR is ~5% of the job at an early stage startup.

Frankly what the CEO actually does day-to-day doesn’t matter relative to a startup or a publicly traded tech company, or anything in between in the scope of ownership and organized employee value.

I’ve watched a company in deep debt spiral out of control because the CEO didn’t understand the business and let bottom up management be how the company runs. The board that also didn’t understand the business just let 3 rounds of layoffs occur before forcing the CEO out. When layoffs come, if it is going to be the employees who pay the price, they should have a mechanism to push the pilot out of the seat before it costs them.

The only reason to sell any of your company is to raise money. If you can raise all the money you need from your employees, then you can be employee-owned.

I run a bootstrapped cheminformatics company that’s been gaining traction, and I currently own it outright. I’m genuinely interested in a model like you’re describing—something that aligns everyone’s incentives and keeps them at the top of their game, not just waiting to vest or check out once they do.

In my experience, equity alone can become more of a distraction than a motivator. It sometimes encourages people to mark time rather than consistently push the envelope. I’m wondering if a profit-sharing model, possibly combined with some consulting-group best practices, might be more effective at sustaining high performance over the long haul.

If you know of a proven employee-owned approach that doesn’t dilute accountability—and actually ensures teams stay fully engaged—I’d love to explore it. My goal is to bring in the best talent, focus everyone on building the best product, and reward them in a way that keeps us all hungry for continued success.

I don’t have a model specifically but companies like “Bob’s Red Mill” and “King Arthur” are employee owned and rather succesful. Though those are not tech companies I can’t imagine the base model being drastically different when adapted.

Theres at least two sporting good store is employee run and for some reason my brain can't remember the name (it insists its DEI)

But https://www.nceo.org/research/employee-ownership-100

There's a lot. I didn't know brookshires was a cooperative

> Theres at least two sporting good store is employee run and for some reason my brain can't remember the name (it insists its DEI)

It's REI, and it's actually a consumer co-op owned by its members, not employee-owned.

oh, off by a bit, then. Thanks.

Here's a potential starting point: https://tech-coops.xyz/

Fairly often you see service-focused small companies (i.e. agencies) being run as coops, e.g. my friend's NZ .NET shop http://iontech.nz/

Well another reason is that as soon as VC enter the space they provide capital for companies that you could otherwise beat to do really inefficient things like give equipment away for free or "leases" that you can't compete with without taking VC funding. In my experience it's been yet another variation on "worse is better."

If the company is employee owned, how do you propose that an investor even could back it? Investment results in an ownership stake.

You give them shares like every employee has. Employee-owned just means that you need most of the company to agree with it. As long as there is a fair playground where your on boarding investor doesn’t end up eating all the shares then it could work. Ideally your investor would come on as an employee validating their stake instead of an outside pressure.

Probably because most companies aren't able to make profit on the first day, and most employees aren't willing to invest significant capital to get the company to the profitability line?

There are niche examples of 'bootstrapped' companies that are employee/founder owned...

> Why does no one run a completely employee owned tech company. What is the disincentive for modeling your company as employee-owned and operated. It seems that would be the best path to an efficient company and a focused company that’s not angled to be taken over by outside aggressive for profit interest and dismantling.

It is very tough to pull off an employee-owned company over the long term.

1. How do you handle it when someone leaves? How do you handle a new employee when they come in? There are many ways to do it, but I don’t think I’ve seen an implementable way that keeps incentives aligned.

2. What happens when the company is extremely successful? In many examples I have seen, the employee-owners give themselves substantial raises and/or distributions, become way better off than they ever expected, then they aren’t really motivated to do the hard things that make a business work over the long run.

Source: A friend of the family who buys up employee-owned SMBs, gets them back on track, and then sells them.

Note that often times the “employee buyout” is a founder/owner who can’t sell at a price that they like, so they basically sell it to less sophisticated buyers (their employees).

I think it’s that last part, we expect hyper growth in tech forever or it’s considered a failure.

You guessed it. I know some totally employee-owned tech cos, and they can work, but the one thing they can't do is raise money like founder-centric startups.

I would think as long as the company is happy then investors wouldn’t matter. Then your goal would be for example, to pull in a wealthy person who could invest in the company and work (law? Accounting? Cto?). Then sell their shares when they help it grow in value and would like to exit. That at least would allow investment growth without selling the farm.

Test Double is a consultancy that's now employee-owned https://testdouble.com/news-and-awards/software-consultancy-...

But yeah that was a situation of a privately held company opting to make that transition, I'm not sure they had any investors to complicate things. And they're definitely an outlier.

Cooperatives are great, but collective governance is a big challenge.

There is also a major issue with realizing equity because employees generally don't buy in or sell out when they leave. This means that equity is essentially locked away from the employees.

The model works well for stable businesses with regular profit that can be split up, and not so well for growth companies. Employee labor investment in capital growth never gets paid out because there is no exit.

The typical answer is finance. As a socialist myself, I think all finance should be done through loans instead of selling off parts of the company. That way it stays employee owned.

No one is going to make a loan for such high risk to get a 5% return.

Suppose instead of loaning to a single company, you loan to many different companies to balance out the risk and return. Just a thought. Additionally, it would make sense to randomly give out larger loans for the sake of potential innovation.

You can't make loans at a loss and make up the difference with volume.

VCs target 10X (1000%) exit because the average startup is a loss at 5% return on interest.

Imagine funding 10 companies, 9 bankrupt, and the remaining one only pays back 5% more than you loaned it.

You assume loans need to be profitable. In a situation where the government is issuing loans, it also reaps the rewards of increased tax revenues from high performing businesses. The objective of the loan is to stimulate the economy, not to turn a profit.

I don't think the economy needs or benefits from that type of stimulus. It just sounds like burning taxpayer money to me.

If you don't think the economy benefits from investment, why do people do it?

I dont think it benefits from failed investments.

Your original premise here was that 90% of these investments fail. You need to invest in the ones that fail to get the good ones. You can appreciate this dynamic when the funds are privately managed.

One method of return is equity ownership, the other is taxes or low interest rates. I don't think the latter is nearly as viable to recoup the investment.

Look at the numbers. We're talking about going from 1000+% to 5%.

Additionally, I don't think the government could manage an investment fund without complete corruption. Would you trust the president or Congress to invest your money?

VCs make money when they invest their money in winners. Politicians make money when they invest your money in their own pocket.

There is a thing called "electing", which in democratic countries allows you to put trustworthy people in positions of power. Additionally, there is no real reason for a head of state to be personally managing a national bank, and within such an institution there may well be rewards for productive uses of funds. Again, the government doesn't need to recoup the money it loans out through interest because a government will always have sufficient funds through taxes to cover the deficit. Those taxes will, of course, be levied on the precipitants of said loans and raised through the increase in productivity derived from the loans. The government is not a person, it is all people. The objective of government lending is not to extract money from society and transfer it to the government, the objective is to increase productivity within society and thus make things better for those living in it. The issuance of loans and investments is not a practice of profit making, but one of management—deciding which projects are undertaken and by whom. The positive effect of this is to improve society, and the fact that investors profit is a negative outcome of the whole arrangement, as was pointed out earlier. For someone so concerned about government corruption, you seem to have no issue with private corruption. Investors are the people we task with managing our economies, yet their wages are massive. They extract huge quantities of funds from the enterprises they manage. The payment they receive is far greater than the actual value of their work in a free market, but they avoid such pressures by maintaining a monopoly on their wealth. The position of "shareholder" is not one for which there are job applications. The skilled workers actually managing money are paid far less for their work than the shareholder expects to make dividends. If you remove the shareholder, but maintain the person managing investments, you drastically streamline the entire system.

I don't think government is up for that task. I do not trust it to be free of corruption, and I do not think it will result in net positive productivity.

I do not trust the democratic electoral process to keep politicians honest and effective. The idea seems almost laughable, all I have to do is look out my window or read a headline to disprove the idea.

Similarly I don't trust the electorate. I think they aren't much better than the politicians. I think it has no problem destroying lives and robbing a minority blind if a majority thinks it can get away with it.

The only thing keeping it in check is slowly eroding limitations on government power.

It isn't that I trust private investment more than the government, but at least I can say no to one and not the other.

What do you think would stop politicians from giving all the loans to their friends for fake companies, and just taxing everyone else more to make up for it? It would just be PPP loans, but permanent.

The same thing that stops them from doing whatever they want to the interest rate. The people managing the economy would not be politicians. Not every activity of the government is undertaken by politicians directly. In fact it would be entirely impossible to elect enough politicians to handle money at that scale. The matter of issuing loans would obviously have nothing to with politicians.

I always find it a little stupid when people claim the government is too powerful. The governments of most countries are massively beholden to business interests. It is to the degree that people cannot separate the ideas of government and corruption. "The democratic electoral process" is not a real thing. Every country that claims to be democratic has a different way of going about this, with differing results. The system in America is one where politics is driven by whoever has the most money. If you gave government the power to subjugate private wealth, you might have an actual democracy.

You seem to treat corruption as a fact of life, but it clearly isn't. You can make laws banning it.

>The system in America is one where politics is driven by whoever has the most money. If you gave government the power to subjugate private wealth, you might have an actual democracy.

I don't understand how you can make those statements about corporate capture of politics in parallel with advocating for a politically appointed body to hand out free government money. Why do you have no trust in the politicians, but do trust their agents?

You seem to agree it is corrupt, but think giving more power to the corrupt will fix it. Do we need a dictator to drain the swamp?

No, you just need to vote for the corruption to stop. This has worked in many places before.

I've done that, but there is still corruption, so there's obviously more to it.

This gets to the point that you are describing a hypothetical. If thing A were true, then this would be possible.

If we all had identical values, perfect information, and unlimited time to review it, then yes many things would be possible.

I don't think it is possible for the electorate to provide any more than the most superficial oversight and direction in the US Federal governmental system. It is far too big, and far too distant. And that's even if people agreed on what they wanted. 99% of people are ignorant of 99% of the activities of their elected representatives. My state has more than 5,000 bills proposed per year. Even the full time representatives don't read most of them.

You say it is as simple as voting for the corruption to stop, as if that is even possible. Collective action problems are hard, as information problems. You can't just hand wave them away.

I think you are missing a few components. An absentee owner can still take a loan and hire employees with no equity stake.

Are you asking why startups need investors? Seriously?

Yeah, if a company is profitable from day one, there is no reason to take investors money. However that happens rarely. And while some people are happy to work without salary in the beginning if they get equity, for others with different risk preferences or life situation it is a big no-go, therefore also different shares of equity and different compensation...

No I’m not asking that.

Your insinuation is that a startup that can barely support 1 employee would need 10 employees day 1 instead of growing as it goes. VC money isn’t the only way to expand your business. If you’re not racing to market then there’s really no need to be successful 10+ employee company on day 1.

I'm a founder who is pretty sympathetic to the idea of cooperatives.

The simple answer is that I am not savvy enough with financial instruments to be confident that I can structure something that can't be preyed upon if it's successful. I know I care about making sure my employees are well-treated - you shouldn't believe me when I say that, but I believe me, and that means that in terms of my own ethics there's not much reason not to maintain control and depend on my own judgment. If I want to divide 70% of the profits up among my employees, nothing is going to stop me from doing that, so why not keep my options open?