Today we take Step 2: Classifying the employees. I hope you have at least guessed at the numbers for Step 1 (see yesterday's blog). Guessing is what serial entrepreneurs do. Then they modify their initial estimates. That is how they build their plans. It is like shaping a lump of clay into a beautiful statute.
Step 2: Classify Your Employees
- Pick layers of employees. For instance: CEO, Vice President, Director and Employee. Each layer is often named a classification.
- Add the layers to your forecast model. Use Excel or equivalent spreadsheet.
- Forecast the number of employees for each layer. Do it for each of the first 24 months and each year thereafter, up to the day you plan to go IPO.
Now you have your company's employee forecast. Congratulations, you are already ahead of 95 percent of the rest of the startup CEOs who are competing against you for venture capital. You will look very professional when compared to them. The investors might even think you know what you are doing!
Note that with this classification it is easy to begin to add wages to your financial forecast. That will account for 60 to 80 percent of your costs. More detail gives you a higher quality forecast. And you look even sharper to investors. You will find this easy to do with a financial model such as QuickUp.
BOTTOM LINE: These few words and a bit of extra work with get you farther than most of your competitors in planning a good stock option plan. With the wages and options pre-calculated, you will have the best insight for negotiating the cash and shares you need to build your unfair advantage. Tomorrow, Step 3, Price the stock option per employee.