Is Gig Economy, Open Source, Open Innovation the future for successful Startup?

Trends & challenges

by Piush Vaish

Three things required to create a successful startup are as following:

  • Good People
  • Product/service consumer actually want
  • Spend as little as possible

One way all these three things are done in Startups is equity/stock option. It is a cost-effective way to reward and encourage key staff. In this model the person who has the idea can find co-founders or hire staff by offering stock options or equity to help him bring his idea to reality by getting tasks done that he is unable to do.  The benefits include monetary incentive to staff, who receives stock at a great discount. Although holding stock makes sense for the founders, they can expect a serious commitment from employees to make the company successful as the relationship is mutually beneficial.

Exercising an option only leads to money on paper for an employee. To be able to get some money, employee has to sell the shares.  In Ireland, within 30 days of exercising a share option, employees are liable to pay income tax, USC and PRSI. 33% rate of capital gains tax has to be paid to the gains made between the exercise price and market value of shares at the date of exercise(McLoughlin, 2015).

However, the outcome desired by both, the start-up founder and staff is very different. Founder hopes that the value of stock given away is recouped by getting best effort from the staff for a long time. Employee hopes that the start-up becomes the next big organisation such as Facebook or go public so that he can get paid for their effort and sacrifices in the formative years. Hence, if the share value grows, employee stands to make profit .Else all their hard work leads to no financial incentive.

Consequently, is there a better way for start-up to achieve success? How about sharing economy,open source or open innovation to hire people with spending as little capital as possible and having an innovative idea really wanted by the customer?

For founders, Gig economy promises lowest amount of money spent for best possible result.  Also, the administrative time spent on the staff hired is minimal as they let the founders get on with running their business .Founders can keep all the equity and compensate in real time based on the contribution and not on the time spent in the company.  Staff working in gig economy has the advantage of flexible working hours and from anywhere. Gig economy’s trend can be verified by census conducted in Ireland in early 2014 which shows self-employment (without employees) is at 230,000(back at boom level) while self-employment with employees is down from 125,000 in 2007 to 87,000(Hennigan, 2014).

Open source provide start-ups a way to get the most by spending capital solely on requirement basis. There are no licence fees or long term contracts. The money spent can be on support, maintenance and security .Software generally runs on cheaper hardware.

Open innovation in its current form provide an excellent way to share risk and profit a company .It can reward the community with innovative products and services. It fulfils a gap between academia, business, public through creativity and profitability. Also, business model can play an important part in deciding what a company wants to innovate or not.

Therefore, both open source and open innovation can empower founder with bootstrapping capital and boundless originality through freelancers using sharing economy to produce a product/service suitable for the market.

Does it mean that Equity/stock options model can be replaced by gig economy? How about using gig economy by founder and staff to be beneficial to each other’s motives? Can open innovation and open source provide the quickest route to market?

It will be interesting to hear your views and comments.

References

HENNIGAN, M. 2014. Declining regular work; Rising low-paid freelancing in Ireland & elsewhere – Part 1 [Online]. finfacts.ie. Available: http://www.finfacts.ie/irishfinancenews/Irish_Economy/article_1027792_printer.shtml [Accessed 01/11 2015].

MCLOUGHLIN, G. 2015. Enterprise Ireland chairman hits out at tax on stock options [Online]. Independent.ie. Available: http://www.independent.ie/business/irish/enterprise-ireland-chairman-hits-out-at-tax-on-stock-options-31334992.html [Accessed 01/11 2015].

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