Atomic Object is, in many ways, a traditional professional service agency. We thrive on billing hours to client project work the way an accounting or law firm does. Like many of those firms, Atomic is set up as a pass-through legal entity with employee owners who can own shares in our private business entity.
While the ownership structure of companies like ours is well-understood in the legal, accounting, consulting, and medical practice spaces, I have found that tech workers as a group are less aware of the dynamics of this ownership structure. Tech workers are less clear on the pros and cons of owning a private, profitable service firm compared with (for example) a startup. Here, I’ll outline some key differences as I see them, and share related information about Atomic. I hope this can be helpful to people in the tech industry who are considering what type of company to join.
Equity Partner in a Small Professional Services Agency
For this post, I’ll refer to ownership in a small agency as an “equity partner.” This is in line with Atomic’s employee shareholders, who have real ownership and voting rights defined by our operating agreement.
Stability and Risk Exposure
Pro: Generally stable revenue streams from ongoing client relationships.
Con: Limited potential for rapid growth compared to startups.
Atomic has a 23-year track record and a diversified client base — both are important to prospective owners. We distribute profit quarterly, so our employee-shareholders participate in the firm’s profitability. However, the potential for huge, rapid growth is limited compared to most tech start-ups.
Control and Decision-Making
Pro: Possibility of significant influence over business decisions and strategic direction. No outside investor or board control.
Con: Potential for conflicts among partners over decisions; potential for outsized personal risk.
At a smaller firm, becoming a larger stakeholder will give you more influence. Conversely, startups require outside capital. The providers of that capital will expect a seat at the decision-making table. They’ll also expect a return on their investment (exit) within some short to medium-term time horizon. When ownership exists outside of the company, decisions are made that are less in line with employee wishes. This same dynamic exists for large, publicly traded companies. Private companies that do not take outside investment (like a profitable professional services agency) can usually think longer term and make decisions more in line with their employee wishes.
Profit Sharing and Compensation
Pro: Direct share in profits and dividends from the agency’s operations.
Con: Income is variable based and on profitability, so dividends may fluctuate.
At a company like Atomic, profits are distributed regularly and create a strong cash flow for shareholders. That is not the case with typical growth stage companies and certainly not the plan for startups accepting outside investment to grow the business (not distribute to owners as cash).
Exit Strategy and Liquidity
Pro: Potential for steady, long-term growth and establishment in the industry.
Con: Limited scalability compared to tech startups. Growth may be constrained by industry norms and client base.
A smaller company’s management may not have a goal of exiting, but other options for selling shares could exist. Our company is not looking to be acquired, but we have created an internal share buyback program for shareholders who leave the company. If their shares have vested, they will receive the capital gain. If not, they at least get back their cost basis and have enjoyed the dividends throughout the time they owned the shares.
Employee with Stock Options in a Startup
Another option for a tech worker wanting to join a small company is the startup route. More risky than joining an agency like Atomic, but risk exists on both the downside (total loss potential), and the upside (huge exit, buy an island, very unlikely).
Growth Potential and Risk/Reward
Pro: High growth potential with possibility of significant equity value appreciation.
Con: Possibility of total loss if the startup fails.
The vast majority of startups either run out of funding runway and fail or have exit outcomes ranging from “fire sale” (employee options worthless), to mediocre. The last money invested will almost always have priority. They get paid first in an exit. That means in the bad-to-mediocre case, there isn’t anything left for individual employees who hold options. On the other hand, there is a remote chance to make a lot of money if the company has a huge exit.
Employee Benefits and Perks
Pro: Potential for additional perks such as flexible work arrangements, stock option incentives.
Con: Benefits can vary widely depending on the startup’s financial health and policies.
Well-funded startups tend to pay extremely well and offer a lot of fun perks. On the other hand, their expectations for commitment to the mission and cultural norms around working hours and (lack of) work-life balance may not be for everyone.
Vibes and Culture
Pro: Opportunity to work in a dynamic, entrepreneurial environment.
Con: Cultural fit and alignment with company goals can affect job satisfaction and long-term commitment.
I always encourage people to think about the type of company they want to work for when conducting a job search. Opportunities for ownership should be a part of that consideration. There are many aspects I didn’t touch on here, including things like taxes, the types of shares/options offered, company track record, etc. Ultimately, personal circumstance and preferences should play a major role in any job decisions as well. I’d love to hear any other perspectives you have on the ownership side of a job, especially comparing small service companies with small startups.