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Free-ride Problem

April 23, 2012

The other day I interviewed a potential new member.  During the conversation it became clear that his expectation was to be able to take home a paycheck right away.  He wanted me to call him when we were ready to do that.  This is the way employees think.  Entrepreneurs do not.  Entrepreneurs understand that to be able to take something out, somebody must also put something in.

While the goal of worker cooperatives is to be able to send home that weekly paycheck, getting to that is a long and hard struggle.  The burden often falls on a few founders who work for free.  Nobody should have to work for free, not even for themselves.

So, how do you avoid this free-ride problem?

Well, here are some options:

1.  Accept that this is just the way it is and get on with it.

2.  keep track of the time it takes to set it up and have others pay you for your time when they join or have them contribute a similar number of hours without compensation.

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One Comment
  1. First, do no harm permalink

    There are more nuanced ways to approach #2 – either through formal “sweat equity” accounting, or through defining a founders’ bonus which is paid out of available surplus in the future. New members shouldn’t necessarily be expected to put in the same number of hours as the original founders before they have equal rights – requiring the equivalent of the founder’s commitment will create a significant barrier to entry unrelated to the issue of free-riding. A reasonable equity rate should be determined, and the rest of the contributed value by founders should be considered long term debt, or a different form of equity such as non-voting stock.

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