In the bustling world of startups, the concept of “sweat equity” often buzzes in the background, unrecognized yet vital. Founders pour their time, expertise and relentless energy into building their ventures from the ground up. While financial investments are typically acknowledged and rewarded, the non-financial contributions — or sweat equity — of these entrepreneurs are just as crucial for success but often go unnoticed.

The recent surge in tech layoffs and its impact on the startup ecosystem is a testament to sweat equity. In 2024, the tech industry has experienced a significant wave of layoffs, with 60,000 job cuts across 254 companies, including major players like Tesla, Amazon and Google. This development highlights the precarious nature of tech and startup employment, underscoring the importance of acknowledging and valuing the non-financial investments that founders make in their startups.

Additionally, Microsoft’s recent initiatives, such as the Startups Founders Hub, demonstrate a growing recognition of the challenges founders face and the support they require. This program provides up to $150,000 in Azure credits to help founders develop their startups without heavy initial investments, emphasizing the value of supporting the non-financial contributions that drive innovation.

Related: How Startups Can Boost Team Morale and Drive Success Through Recognition

Understanding (and recognizing) sweat equity

Sweat equity is not just about the number of hours logged; it encompasses all the non-financial investments founders make in their startups. This includes the late nights, the strategic decisions made in the wee hours of the morning, the continuous learning and adapting, and the personal sacrifices. According to a study by the Kauffman Foundation, over 80% of startups are bootstrapped, which means founders are both chief executives and chief investors of their time and skills.

Recognizing the immense value of sweat equity is a strategic move. A survey conducted by Gallup and Workhuman found that companies with high employee recognition levels are 20 times more likely to be engaged as employees who receive poor recognition. When founders feel valued for their non-financial contributions, it boosts their morale and loyalty, directly influencing their enthusiasm and commitment to the venture. Recognizing these efforts fosters an environment where the intrinsic rewards of entrepreneurship are celebrated alongside the financial gains.

Creating a recognition program for founders should not be a one-size-fits-all approach. It should be as unique as the startup itself, reflecting its culture and growth stage. For instance, a tech company might recognize breakthrough innovations with annual corporate awards, while a social enterprise might highlight efforts toward social impact. Buffer, a social media management tool well-known for its transparency, extends this value into recognizing its founders by openly sharing the challenges and successes in their monthly blogs, which not only recognizes the founders’ efforts but also engages the community in their journey.

Related: From Launch to Succession: Tips for Building a Thriving Business

How to pump up your recognition efforts

By integrating a few detailed action steps and leveraging insights from successful companies, you can create a robust recognition program that acknowledges the hard work of founders while driving your startup toward greater success and cohesion. Consider the following:

1. Assess current recognition practices:

Before crafting a new recognition program, conduct a thorough assessment of existing practices within your startup. According to a Gallup study, only one in three workers in the U.S. strongly agree that they received recognition or praise for doing good work in the past seven days. This highlights a significant gap in recognition at many organizations. Start by surveying founders and key stakeholders to understand what is currently working and what isn’t. This initial feedback will serve as a baseline for developing a more impactful recognition strategy.

2. Develop personalized programs aligned with values:

Personalization is key in recognition programs. A study by Deloitte found that organizations with high-performing recognition practices are 12 times more likely to have strong business outcomes. Take inspiration from companies like Zappos, which tailors recognition strategies to match its corporate values and unique culture. For instance, Zappos offers “Co-Worker Bonus Programs” where employees can award each other monetary bonuses for going above and beyond. Aligning the program with your startup’s values ensures it resonates well with the founders and reinforces the behaviors that are critical to your startup’s success.

3. Foster peer recognition and celebrate achievements:

Peer recognition can significantly enhance workplace morale and productivity. A report from SHRM/Globoforce found that peer-to-peer recognition is 35.7% more likely to have a positive impact on financial results than manager-only recognition. Encourage a culture where founders and team members frequently acknowledge each other’s efforts. This can be facilitated through platforms like Bonusly, where employees can give each other micro-bonuses that add up to meaningful rewards. Celebrating achievements, big and small, ensures ongoing motivation and engagement.

4. Continuously evaluate and adapt recognition efforts:

Effective recognition programs require ongoing evaluation to stay relevant and impactful. Regularly gather feedback through surveys, focus groups and one-on-one interviews to understand the effectiveness of your recognition efforts. Companies like Salesforce exemplify this approach through their “V2MOM” (Vision, Values, Methods, Obstacles, and Measures) process, which involves continuous feedback and goal alignment across the company. This method ensures that all team members, including founders, are aligned and can contribute to the evolution of recognition efforts. By maintaining a dynamic feedback loop, you can make data-driven adjustments to the program, ensuring it evolves with your startup’s needs and continues to motivate and inspire your team.

Related: The Psychological Impact of Recognition on Employee Motivation and Engagement — 3 Key Insights for Leaders

By using such a dynamic and inclusive approach, startups can ensure their recognition programs remain effective and responsive to the needs of their founders and team members.

Developing a founders’ recognition program is about nurturing a culture that values each drop of sweat that goes into a startup. Such a culture accelerates growth and cements a foundation of loyalty and mutual respect that can endure the challenges typical of the startup world. As startups continue to evolve, the recognition of every contribution, financial or otherwise, will remain a cornerstone of sustainable success.