Outseta's Choose Your Own Adventure Compensation Model

I’ve written before about Outseta’s organizational design and compensation model, but this topic continues to be the aspect of our company that’s often most interesting to people. As such, I wanted to take the time to discuss it in greater detail; where it came from, why it’s worked well for us, and what the challenges are too.

I will say very directly—I view this as one of our biggest competitive advantages.

My intent in sharing this is not to convince you to adopt this model, but rather to encourage more founders to consider non-traditional ways of working. You can build your company on your own terms more than you likely think, and defaulting to the belief that the “traditional” path is the best fit for your business feels like a major assumption to me.

I have come to describe our model as a “choose your own adventure” compensation model. The idea is to give every member of our team the flexibility to choose the mixture of cash compensation, equity, and time commitment that best works for them.

Our model is built around three pillars:

• A full-time salary at Outseta is $210,000 per year—for everyone.
• Everyone can choose to work anywhere from 1 to 5 days per week.
• Everyone can elect to work as much or as little as they like earning equity in the business on the same terms as our founders.

I'll start by looking at each of these pillars individually, then we'll dig into the backstory that led us to adopt this model.

A full-time salary is $210,000—for everyone

The standardized pay rate is the aspect of our model people typically have the most questions about—why? And how did we land on $210,000 specifically? After all, surely not everyone delivers equal value to the company...

That’s absolutely true!

In short, there’s no magic formula behind the $210,000 number—it’s simply a pay rate that we think is healthy and in-line with hiring excellent people. 

Without question, some members of our team could make more than this on the open market—whereas for others, this pay rate is a bit of a stretch. That’s OK—the key point is that by making our pay rate known, people can select-in or select-out.

The software engineer who wants to maximize their earnings and make $500,000 per year at Meta can certainly go do so—they’re probably not going to be a great fit at Outseta anyways. Our senior engineers could all do so, but they value the flexibility and method of working that we offer as well as the profit sharing and equity components of our model.

Everyone can work anywhere from 1 to 5 days per week

The second pillar of the model is even more simple—everyone at Outseta can choose to work anywhere from 1 to 5 days per week. 

The primary motivation is we believe that entrepreneurial people will thrive at Outseta—and that top talent tends to value flexibility (they have options). In allowing people to work part-time, we give our team the freedom to work on other projects to the extent that they’d like to.

Based on our standardized salary, that gives employees the option to work:

• 1 day per week = $42,000 salary
• 2 days per week = $84,000 salary
• 3 days per week = $126,000 salary
• 4 days per week = $168,000 salary
• 5 days per week = $210,000 salary

While we certainly want team members that stick around long term, if we’re able to provide someone with some income stability while they work on their own projects that’s a pretty cool thing to be able to do. But even moreso, I just believe in the power of fractional talent.

I’ve had the privilege of working with some amazing people throughout my career—if I can get someone truly exceptional to work with us two days per week, I’ve seen it proven time and time again that they can often out-perform a full-time hire. 

We provide the flexibility to work on Outseta anywhere from 1 to 5 days per week because we want to attract the best people that we possibly can—in whatever capacity we can get them. 

Everyone earns equity on the same terms as our founders

Last but not least, everybody has the opportunity to work as much or as little as they’d like to earn equity in our business—earning that equity at the same rate and on the same terms as our founders (and everybody else).

The model here is very simple—we track how many days all employees choose to work for equity. Let’s say that across all employees, all-time a total of 100 days have been worked for equity. If I’ve worked 15 of them, I own 15% of the business. Yes, it’s that simple.

Many people think this is nuts, but it comes from two beliefs:

• First, equity in a business is only worth something if you build something of value. I believe the odds of building something of value go up significantly when you get the right people on the team.
• Second, we want to spread the wealth around when we succeed.

Don’t get me wrong—I hope Outseta makes me very wealthy. One of the major reasons I've already devoted 7+ years of my life to Outseta is the financial upside. But generally speaking, when tech companies succeed I see the spoils go to too few. Unfortunately it’s all too common that the founders and some early investors might make out well, while the rest of the team doesn’t reap much in the way of the rewards.

Our model of distributing equity gives people the ability to build a significant equity stake in a business at a dramatically accelerated rate—and I think that’s a good thing.

There are two examples that I like to share from our business that illustrate this model in action—James and Bernard. James is our design lead and started working with us in a very part-time capacity back in 2018; something like 20 hours per month. With little revenue, we paid James in equity for about 10 of those hours each month. Over the course of a few years, James built up an equity stake in Outseta of 4% and then started working with us in a larger capacity for cash compensation as our revenue permitted.

Bernard followed a different path. He’s at a different stage in his career, and started working with us full-time almost entirely for equity. As a result he built up a large equity stake in Outseta— currently about 14%—in just a few years. While many people would take exception to someone earning such a sizable ownership stake so quickly, they're failing to assess the benefits of this structure to an early stage business. We were able to start working with a hugely talented CTO with 25+ years of experience building software years before we would have otherwise been able to afford him. Our product is light years ahead of where it would otherwise be as a result.

If you compare either James or Bernard's stories with "normal" equity grants in tech companies, the difference is profound. In my own experience in various VP level roles, I was typically granted equity stakes of .3% to .5%—with that equity only realized after a 4-year vesting period. Outseta's "investors" are talented team members who have chosen to invest their time in Outseta in exchange for equity rather than an external entity financing the business.

More than anything, this model is overtly fair—your ownership in Outseta represents the amount of your time that you’ve chosen to invest our business relative to all other team members.

The backstory—where did this model come from?

I met my Co-founder Dimitris at Buildium, another SaaS company he Co-founded. Buildium followed more of a traditional path for a SaaS start-up, in the sense that the company bootstrapped its way past $5M in revenue and then raised several rounds of funding to accelerate growth. The org chart at Buildium looked like most other SaaS companies.

The company was both a smashing success and a great place to work—but as we looked back after the exit, one realization was very much top of mind:

“We had a lot more fun as a company of 20 than we did as a company of 200.”

Everything about Outseta’s model today is a downstream effect of this realization. We started asking ourselves, “How do we build a successful company that stays intentionally small?”

A few conclusions came quite quickly:

• We’d need to hire senior, experienced people—and let them focus on work instead of “management.”
• We’d need these people to act like owners—there wouldn’t be other people to pass the work off to. The team would need to consistently look for creative ways to do more with less.

Around this time Dimitris had read Frederic Laloux’s book Reinventing Organizations. He’d become a bit enamored with many of the book’s ideas and shared it with me; the concepts resonated with me, too. The book advocates for an organizational design called “self-management.” This has been popularized as being a “flat” organizational design—one where a business operates without bosses or hierarchy. While that’s true, its real aim is to empower autonomous decision making—something that we felt would be a key attribute of a workplace that empowered people to act like owners.

Armed with this information, a few additional conclusions came easily:

• We’d have to pay well to attract excellent people.
• If you want someone to act like an owner, why not make them an owner?
• Self-management would create an environment that a lot of motivated and self-directed people would thrive in—instead of direction coming from a boss, we’d look to hire the best people possible and set them free to contribute to Outseta wherever they’re most interested and able.

That’s the general backstory of how these ideas were born, but as we started to work through the specifics we realized further benefits to this approach.

• It’s well documented that the primary way to build wealth is to hold significant equity in a business—we saw an opportunity to allow more people to participate meaningfully in the ownership of Outseta. That felt good.
• We realized that issues with pay inequality would fly out the window with this model. 

Finally, we recognized that in selling a low price point product to an audience with a high churn rate (small businesses), we’d need to make some sacrifices in how we run the business. As a result, we started looking at the inefficiencies we saw in other tech companies looking for areas where we could purposely “trim the fat.” Sales and support represented obvious opportunities. These teams often get built out with sizable headcount; but we wanted to remain small.

In support, it’s common that junior employees are hired to act as “front-line support.” Yes, they respond to incoming questions but all too often they aren’t empowered to fix the underlying issues—as a result, much of their work is escalating issues to the people who can solve them.

And in sales, all-to-often additional headcount does drive additional revenue growth—but it comes at the cost of a lot of efficiency in the business. This is the norm when following the typical VC-track playbook as a SaaS business.

With these realizations in hand we decided we’d operate without a sales team, choosing efficiency over growth at all costs. And the entirety of our team would contribute to customer support—the idea being the person answering your questions is the person who can actually solve your problems.

The advantages of this model

While all of this may sound radical or overly rosy, there are both pros and cons to our model. In terms of advantages, there are two major ones I feel the need to mention.

Start-ups can grow into this model

I talk to a lot of founders who love the idea of this model but then say something like, “Yeah, but I’m nowhere near being able to pay my team members $210,000 per year.” That’s a reasonable sentiment, but the real beauty of this model is that you can step into it as your revenue permits.

Without question the objective of this model is to give all members of our team the ability choose the mixture of cash, equity, and time commitment that best fits their personal needs. But the growth of the business still dictates what you can offer in terms of cash compensation for new hires—and that's fine! This structure gives you the flexibility to say, "We can afford to pay you two days per week, and you can work as much for equity as you like on top of that."

For example, neither myself, Dimitris, or Dave paid ourselves anything in Outseta’s early years—we only started paying ourselves as our revenue grew—and this continues to be true today, too. Everybody on our team has worked for a mix of cash compensation and equity, and we've increased the cash compensation component for our team members as we’ve able to. The generous equity structure is an effective tool in recruiting talented people early on, before you can fully ramp up their salary.

In practice, this means that we meet quarterly and assess how much we’re able to increase salaries—or make new hires—based on the performance of the company. We factor in things like tenure, personal need, the date of your last pay increase, and the needs of the business when prioritizing pay increases for our team.

This model is perfectly suited for early stage start-ups, as it defines a clear path for everyone in terms of how things “scale up” based on the performance of the business. 

It’s a hugely effective inbound recruiting tool

I only say this so directly because it’s true—this is the most effective recruiting tool I’ve come across in my career. Since I first published anything about this model, it became clear that this structure struck a nerve with a lot of people in a very positive way. In short, we have an inbound recruiting funnel like I’ve never seen at any other company.

I maintain a spreadsheet today with a list of insanely talented people across all possible disciplines, who have reached out proactively because they want to work with us. We’ll never have to do any outbound recruiting again unless we choose to—I am completely overwhelmed by the amount of talented people who want to work with Outseta in some capacity.

Honestly, it’s frustrating that we won’t be able to hire the vast majority of them!

The challenges of this model

This model is not without its downsides. Here are a few of the common objections and aspects of the model we’ve actually struggled with.

Giving away equity so freely is dangerous

I’m aware that movies like The Social Network have conditioned most founders to hold on to every last scrap of equity in their companies as if it were their last dying wish. In all seriousness, I get it—you do need to be mindful about who you’re giving equity to and without a vesting period, our model is inherently riskier than most. 

I’ll also admit that while I can wax poetic about the team being a huge component of our ability to build something of value, I’m also a realist. If an exit event occurs, it's pretty likely that the financial windfall for our founders will be smaller than it would be if we didn't grant equity to the team this liberally.

In either case, my perspective on this challenge is just that it requires that we hire slowly. We need to have a very high degree of confidence in every person we bring on to the team. Because of this, we typically work with most people that we hire on a contract basis first. Ultimately hiring slowly isn’t a bad thing, especially when you intend to remain small.

Additionally, a strength of our model is that it’s self-correcting to an extent. The size of our “equity pool” is a moving target—it grows as people continue to work for equity in our business. So if someone didn’t work out and left the company, their equity stake would generally erode over time as other employees continued to contribute days for equity. That would happen pretty slowly at this point, but the point is their percentage of ownership isn’t permanently fixed.

In this scenario we also provide an “escape hatch” of sorts in our operating agreement. Anyone can choose to cash out their equity if they leave the company—in this scenario we determine the value of the equity that they hold to be 2x Outseta’s annual revenues.

Rewarding top performers

When everyone’s paid the same, what’s the motivation for doing a great job? I think this is a very valid concern. We don’t really have the same flexibility to just throw money at top performers as a means of rewarding them.

While a definite downside, we have both a profit sharing component (50% of company profits are distributed to the team) and our equity arrangement that I think combat this to a large extent. There is more financial upside to be had aside from just the standardized salary, and everyone on the team has a very direct ability to influence the performance of the company.

We can’t hire junior employees

Sometimes you just need to hire for a lower level position—and this model doesn’t really accommodate that well. Without question, it’s the drawback we’ve wrestled with most. 

We had a pretty serious conversation a few years back about introducing a two-tiered structure—the idea being that we’d have an additional compensation tier with say a $105,000 annual salary that would operate similarly but would be used for less experienced hires.

Ultimately we decided against this, as we thought it would create a two-tiered system with a very large divide. It would have put a lot of pressure on decisions like when someone moved from the $105,000 tier to the $210,000 tier, and why—especially when someone was “promoted” and someone else wasn’t. 

In retrospect, I’m very happy we stuck with our more simple structure. It’s up to our team to find creative ways to solve problems and everyone needs to contribute to areas that otherwise might be served by more junior employees. We’ve also grown accustomed to working with contractors in these areas as opposed to adding headcount to our internal team.

The equity opportunity favors those who don’t need it

A final aspect of this model that I don’t love is that the equity structure favors people who already have financial freedom—when in many ways our hope is that this structure enables people to reach financial freedom.

Simply put, if you’re financially secure you’d be able to work a high percentage of your time for equity if you wanted to. If you still need a paycheck to cover your bills, you don’t have the same ability to prioritize growing your equity stake. While our equity structure is designed to be as fair as humanly possible, we haven’t found a great way to solve for this.

Looking ahead

That’s probably a lot more context than you were looking for on this topic, but I field so many questions on this structure that I wanted to get it all out and on paper.

To me, there are two big takeaways having explored and worked this way over the last 7+ years. First, there’s so much talk about innovation in tech but so little innovation in how we build our companies—dare to do something different! I know that doing so has helped our company.

Second, this model may not be for you—and that’s fine! The major takeaway here is that people opt-in and opt-out of things that work or don’t work for them. By taking a stance and making it public, you naturally attract people who want to work in the same way that you do.

Does this model scale? Will we use it forever? The verdict is still out, but I’d also point out that this model doesn’t need to scale—exactly because we want to keep the company intentionally small. There’s nothing to say we can’t change our way of working in the future, but this model has worked really well for us so far. I expect we’ll be operating this way well into the future.