Equity on Demand

One CEO gives away equity to foster brand loyalty.

By Martha E. Mangelsdorf | 
 

start-up focus

Giving up equity is a dreadful thought for many company founders -- but not for Andrew Martin. He's busy giving away stock in his company to anyone who asks. Odder still, giving away stock is central to his growth strategy.

Martin is one of the founders of Good Idea Foods, a start-up snack-food marketer based in Chelsea, Mass. He was also a cofounder of Smartfoods, a successful cheese-popcorn company that was sold to Frito-Lay. Now Martin is trying to repeat that success, with a new line of snack foods to be distributed primarily in New England. And he thinks giving away stock will help build a loyal following for his products. So he's set aside 10% of the company, or 400,000 shares, for the public.

Key to Martin's strategy was some legal advice. His lawyer concluded that while federal and state securities laws place onerous reporting burdens on companies that sell stock to the public, such rules don't apply to those that truly give it away. As a result, bags of some Good Idea products now trumpet an unusual offer: "Free Share of Stock . . . See Details on Back." For a limited time, anyone can send up to 10 self-addressed, stamped envelopes to the address listed and receive a free share of stock for each envelope.

Will a consumer who owns even one share of stock in a company prove loyal to its products? Martin hopes so. "We may have invented a marketing advantage that would be specifically tailored" to start-up companies, he says. "It's just a completely radical concept in business."

Radical, yes -- and risky. Whether or not stockholders buy Good Idea products, the company is saddled with the cost of keeping track of as many as 400,000 of them. But Martin believes he can keep costs low by, for example, mailing only an inexpensive brochure as an annual report. He hopes that shareholders will become loyal consumers, building a $1.3-million company in the first year. If so, he'll have combined database marketing with what he terms "economic democracy." And if not -- well, he'll have an awful lot of shareholders to explain things to.

-- Martha E. Mangelsdorf

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