When you negotiate your share of Joint Venture profits with your colleagues, you are in effect collectively agreeing how valuable your contributions are, relative to everyone else’s contributions.
The relative amount of control that you have over the Joint Venture should also be the same as your relative contribution. That means it’s also the same as your relative profit share, since contribution and profit share should be the same too.
And finally, if the business doesn’t succeed, you stand to lose whatever you have contributed.
So therefore your relative contribution, relative profit share, and relative risk in case of business failure should all be the same.
If everyone’s share of profit and risk is equal to their contribution, then there will be no leftover amounts that could go towards giving anyone a fixed salary or wage.
And this makes sense.
Being self employed means having control over your business, and bearing all the reward and risks that come from it.
In the same way then, contributing to a Self Employment Joint Venture should mean that you have control over the Joint Venture, and have a portion of it’s risks and rewards, exactly to the extent that it is yours; the extent to which it exists because of your contributions.
Fixed prices should be for your customers, not your colleagues. You should share the fortunes of the business together.
Another big advantage of keeping things proportional is Goal Congruence. Goal congruence means everyone on the team having the same objective - they want the same thing and are motivated to work for the same goal, and the team performs better as a result.
It’s a performance enhancing competitive advantage.
Goal Congruence is most likely to occur when the incentives for each team member are the same - which is exactly what you get when risk, reward, and control are proportional.
Written by John on 14th September 2020 and last updated 4th October 2020