Exploring a structure for an open source business

Hiya…

I’m in the midst of co-creating an industrial theatre company that does interactive role-play as a solution-generation tool, using Augusto Boal’s Forum Theatre as the core tool.

Our business model is to charge corporates for our interventions, and do all community service interventions free. Being in the collective requires a commitment to being available to do free interventions.

We’re still hammering out our ideas, but I thought I’d ‘open source’ one of our documents for comment.

It’s a proposed company structure, which gives equal ownership to people in the company, and makes provision for the fact that certain people will do more work than others, and will need compensation for that.

I’ve synthesised Marc Allen’s THE TEN PERCENT SOLUTION and the thinking behind UK ad agency, ST LUKE, as written up by Andy Law in CREATIVE COMPANY: How St Luke’s Became ‘The Ad Agency To End All Ad Agencies’.

I’d reallllllllllly love input from open-sourcers.

There is a password on the writeboard. It is ‘guest’ (without the inverted commas). The document is reproduced here:

Open Source Company Structure

THE BOAL-IN-HILLBROW COLLECTIVE:
A DRAFT DOCUMENT OUTLINING
A POSSIBLE BUSINESS STRUCTURE

drafted by:
Roy Blumenthal
082 659 3165
schmucknews@gmail.com

date: Wednesday 9 March 2006
version: 1
writeboard URL: http://writeboard.com/41e71855551792047
snipurl of same: http://snipurl.com/OpenSourceStructure
writeboard password: guest

OPERATING PRINCIPLES

1. This collective is a business, aimed at making money for the people
working in it.

2. The collective is co-owned by every individual who works in it.
Each co-owner owns on equal share of a fund called the Shareholders’
Fund. If there are ten individuals employed by the collective, there
will be ten equal shares.

3. Salaries are all equal. No person gets more or less salary than any
other person working in the collective.

4. Those who participate in projects get shares in a trust fund,
called the Participation Fund. This trust fund is funded by a
percentage of profits from projects. Shares are allocated according to
participation.

5. People get one share per discreet unit of participation. For
instance, if the project calls for two actors, a facilitator, a
director, and a driver, there will be five shares allocated to the
project. If one of the actors is also the driver, that person will get
two shares. Or if two people share the driving responsibility, those
two people will each get half a share. In other words, shares are
based on functional roles. (These are yet to be determined.)

6. Projects are costed to cover running and operational costs, as well
as profits.

7. Profit participation happens only after costs are covered. Costs
include salaries.

8. Profit participation is split as follows:
—x% gets reinvested in the business. (Eg: 20%)
—y% gets paid to the dealmaker, the person or people who put the
particular deal into place. (Eg: 20%)
—z% gets paid into the Participation Fund. (Eg: 30%)
—p% gets paid into the Shareholders’ Fund. (Eg: 30%)

9. Participation in particular projects is earned, not granted.

10. Individuals may keep their shares, or may sell their shares,
according to a formula to be determined.

11. If an individual underperforms according to criteria to be
determined, that individual will be asked to leave the collective. On
leaving, that individual will sell all of his or her shares in the
Participation Fund and in the Shareholders’ Fund back to the
collective, and will be paid out at the full value of the shares.

AN EXAMPLE OF HOW IT WORKS

This is how it might work…
PROJECT 1: ACME CORPORATION

Let’s say we have ten people in the collective. This means our
Shareholders’ Fund, which starts off at R0.00, has ten shares in it,
each owned by one of the ten people.

We get a project with Acme Corporation. Lindy does the deal, and sells
our services for R100 000. Our costs and overhead come to R60 000,
including salaries of staff.

This leaves R40 000 in the pot as profit.

Now the split happens.

o 20% gets reinvested in the business: R8 000.

o A further 20% gets paid to the dealmaker, in this case Lindy. She gets R8 000.

o 30% gets paid into the Shareholders’ Fund, a figure of R12 000.

o And finally, 30% gets paid into the Participation Fund, a figure of R12 000.

Let’s take a snapshot of where the money is…

The business has paid for overheads and salaries by using R60 000 of
the original R100 000.

Lindy has earned herself a neat commission of R8 000 for her good work
in creating the deal.

The Shareholders’ Fund has swelled from R0.00 to R12 000, with each of
the ten shareholders now having a share worth R1 200. This is a real
value, attached to actual money in an actual trust fund. Regardless of
who participates further in the project, this split holds.

Now we look at the Participation Fund, which now has R12 000 in it.
This fund is independent of the Shareholders’ Fund. They have nothing
to do with one another.

Let’s say that six roles are required for the project… (1)
Production Manager, (2) Director, (3) Actor, (4) Actor, (5) Actor, (6)
Actor.

This means that the Participation Fund has six shares in it, one for
each role. This means that with a value of R12 000, each share is
worth R2 000.

In this example, let’s assume that Lindy wasn’t involved in
participating in the project, and that noone doubled up roles. That
means that six of the individuals who belong to the collective each
have shares in the participation fund valued at R2 000.

However, Neal was one of the actors. This means that his shareholding
in the collective, at the end of project 1, is the following:
NEAL

Shareholders’s Fund: R1 200
Participation Fund: R2 000
TOTAL: R3 200.

Lindy’s shareholding in the collective is:
LINDY

Shareholders’ Fund: R1 200
Participation Fund: R0
TOTAL: R1 200.

Which leads us to…
PROJECT 2: BIGBUCKS INCORPORATED

Now let’s see what happens when we get another project, for the same
value, with the same profit margin (just for simplicity).

This means that after running expenses and all that, another R8 000
goes into the business.

Neal gets R8 000 for closing the deal. The dealmaker’s portion is a
cash payout from the profits, NOT a share allocation.

A further R12 000 goes into the Shareholders’ Fund, doubling its value
to R24 000. There are still just ten shareholders, making the value of
each share R2 400 now. This means that each of the ten shareholders
owns shares in the Shareholders’ Fund worth R2 400.

Some of them also own shares in the Particpation Fund, which we’ll get to now.

With the Bigbucks Incorporated intervention, only three roles are
required. It’s a relatively simple one, requiring three facilitators.
Neal is one of them. Lindy is another. Ben is a third.

Because we’re allocating shares per role, this means that the
Participation Fund now gets a further three shares added to the
original total of six, for a new total of nine shares.

The value added to the Participation Fund is R12 000, bringing the
total value of the fund up to R24 000. This means that each share is
now worth R24 000 divided by 9, which comes to R2 667 per share. (The
individual share value has risen from R2 000 to R2 667.)

Let’s look at Neal’s shareholding now.

He has the following shares:
NEAL

Shareholders’ Fund: R2 400
Participation Fund: 2 shares (one from before, and one from now) @ R2
667 per share, that is, R5 333.
TOTAL: R7 733.

Lindy, who participated in this production, but not in the last, has
the following:
LINDY

Shareholders’ Fund: R2 400
Participation Fund: R2 667
TOTAL: R5 067.

Joe and John and Jane, who haven’t participated at all, are each worth
R2 400, because they are shareholders. But if they participate,
they’ll add share value to their portfolio.

WHAT WE’RE TRYING TO ACHIEVE WITH THIS

We’re looking for a fair and equitable workplace, in which every
individual has the ability to become wealthy, and is part of a
framework that makes his or her colleagues wealthy too.

With salaries covered by the day-to-day operational income of the
projects, the profit split into a trust fund provides actual
wealth-building, NOT cash-generation. It’s important to understand the
difference between a cash payout and wealth generation.

Here’s an example. The Participation Fund at the end of project 2 is
worth R24 000. If the participants wanted to, they could ‘cash out’
their shares, and take home money to the tune of R2 667 per share.

But let’s say nobody cashes out. And the trust fund invests that money
in some sound investment that returns 50% per year. In a year,
assuming that NOTHING has been added to the fund, the value will have
gone up from R24 000 to R36 000, because of the interest.

Now, each share is worth R36 000 divided by 9 shares, for a figure of R4 000.

I’m being overly idealistic about the 50% growth of that investment,
but I’m doing it to illustrate graphically the benefit of leaving the
money in the trust fund, and actually investing it. (An example of a
good way to invest the money in the fund would be to purchase
commercial real estate, such as a small shopping centre or a block of
flats with stable tenants. Returns on such investments are in the
region of 30 to 50%.)

The more people participate in projects, the greater their
Participation Fund shareholding gets, and the more their net worth
increases. Because their share is backed by real assets (cash, or
investments), their share is useful as surety for a bank loan and so
on. It is a real asset. It contributes to net worth.

Also, because people get more net worth by participating, it means
that people in the collective are incentivesed to get involved in
projects. The more the merrier. And because it’s merit-based, meaning
that we’ve got to audition to get in, we stay on our toes, and we
ensure that we’re always upskilling. This system ensures that only
motivated individuals take part in the collective, and it keeps us
working hard to grow EACH OTHER and ourselves.

ROY BLUMENTHAL
Independent Filmmaker, Screenwriter,
Voice-Over, & Artist-at-Large

Mobile: +27 82 659 3165
Email: schmucknews@gmail.com
Blog: http://schmucknews.blogspot.com
Home: http://royblumenthal.com
Sketches: http://www.flickr.com/photos/56788416@N00/
Voice: http://www.voicebank.co.za/artistlink/artistid912.asp
Voice: http://mysite.mweb.co.za/residents/rb000004/voice.html

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