The Four Elements of Equity
Control, risk, profit, and sale — you can grant or contract each one separately
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 3
- Confidence
- 88%
When compensating a key non-software hire, Hormozi decomposes 'equity' into four separable elements: Control (who calls the shots), Risk (who's liable if it goes wrong), Profit (who gets distributions), and Sale/Enterprise Value (who participates in an exit). You don't have to grant literal shares — you can contract around any of these, and most hires only actually want profit and upside, not risk or control.
Origin
Offered as the practical alternative to handing out stock when recruiting senior talent into a non-software company, most of whose founders 'won't get into the legal' but need the mental model.
Core principles
- 01Equity is not one thing; it is four separable rights.
- 02Most senior hires want profit and sale upside, not risk or control.
- 03Each element can be contracted independently, so you can offer upside without giving away the company.
How to run it
- 1
Separate the four elements
Before negotiating, split the offer into control, risk, profit, and sale participation.
- 2
Ask what they actually want
Use 'what would it take?' to learn which elements the person values; usually it's profit and a slice of an eventual sale.
Pro tip The question assumes yes and lets them price themselves.
- 3
Contract around it
Structure the deal to grant only the elements that matter to them, keeping control and risk where they belong.
Watch out Get legal help on structure — the point here is the decomposition, not the paperwork.
In the wild
Rather than issue stock, Hormozi notes you can contract profit distributions and sale participation to a leader while retaining control and shielding them from risk.
→ The hire gets the upside they care about; the founder keeps the levers that matter.
Common mistakes
Treating equity as all-or-nothing shares
Defaulting to a stock grant gives away control and dilutes ownership when the person only wanted profit and exit upside.
Is it for you?
Best for
Founders of non-software businesses recruiting senior talent who ask for 'equity'.
Not ideal for
Standard VC-backed software cap tables where option grants are the expected instrument.
From the transcript
“there are four elements within equity... you have control, you have risk, you have profits, and then basically sale or Enterprise Value”
From the episode
The Man That Makes Millionaires: Turn $100 to $10k With This Step By Step Formula & Build An Audience From 0 Followers! Alex Hormozi
Alex Hormozi