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Naval

Take Accountability to Earn Equity

Naval

Naval Ravikant

Business, Technology

4.82.4K Ratings

🗓️ 13 April 2019

⏱️ 5 minutes

🧾️ Download transcript

Summary

If you have high accountability, you're less replaceable and you can get a piece of the business.

• Accountability is how you're going to get equity 0:00

• Taking accountability is like taking equity in all your work 0:29

• The downside of accountability is not that large 2:11

• Accountability is reputational skin in the game 4:30

Transcript: http://nav.al/accountability-equity  

Transcript

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0:00.0

Accountability is important because that's how you're going to get leverage. That's how you're going to get credibility

0:04.7

It's also how you're going to get equity you're gonna get a piece of the business when you're negotiating with other people

0:10.7

Ultimately if someone else is making a decision about how to compensate you that decision will be based on how

0:18.0

Replaceable you are and if you have high accountability that makes you less replaceable and then they have to give you equity

0:24.3

Which is a piece of the upside but equity itself is a good example because equity is also a risk-based

0:30.0

Instrument equity means you get paid everything after all the people who need guaranteed money are paid back

0:37.0

So if you look at the hierarchy of capital in a company the employees get paid first

0:41.8

They get to pay the salary first like in the legal proceedings, you know the salaries are

0:47.1

Sacrissant if you are a board member and the company spends too much money and has back salaries to pay the government will go after you

0:54.2

Personally to pay back the salaries so the employees get the most security

0:59.2

But in exchange for that security they don't have as much upside then next in line would be the debt holders who are maybe the bankers

1:07.8

Who lent money to the company for operations and they need to make their fixed coupon every month or every year

1:13.3

But they don't get much more upside beyond that now they might be making 5 10 15 20 25% a year

1:19.4

But that's where their upside is limited to and then finally are the equity holders and these people are actually going to get most of the upside

1:26.4

So once the debt holders are paid off and the salaries are paid off whatever remains goes to them

1:31.3

But if there isn't enough money to pay off the salaries in the debt holders or if there's just enough to pay off the salary in the debt holders

1:37.7

Which is what happens with most businesses most of the times the equity holders get nothing

1:42.2

So the equity holders take on greater risk

1:44.4

But then they take on in exchange they get nearly on the middle upside and you can do the same with all of your work

1:50.7

So essentially taking accountability for your actions is the same as taking an equity position in all of your work

1:58.1

You're essentially taking greater downside risk and greater upside risk

2:02.2

But realize that in modern society the downside risk is not that large

...

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