Not All Team Players Pulling Their Weight?

pulling their weight.jpgAre all your team members equally pulling their weight? It comes up all the time — I’ve had the issue myself — and it was common enough for a few startup CEOs to throw together an ad hoc session at BarCampDC2 last weekend. Of course, it never starts out that way — but then, the road to hell is paved with good intentions. How to make sure things stay balanced, and equitable?

Things change along the way, some in our control, some not. But the best way to ensure that things won’t go well is to start off unfairly. And it starts at the top –Venture Hacks contributors noted in their Quick and Dirty Guide to Starting Up, ‘Co-founders are the biggest failure mode for startups.’ Presuming you’ve gotten past that, have a good, complementary founding team, what’s the right ‘comp plan’ for the first few people you add?

It depends.

Paying them, as it turns out, is really the only true mode of control. If their only compensation is stock (or stock options), you might as well resign yourself to the fact that whoever is paying them — their day job, or contracting work — is their master. (If they’re married, I’m pretty sure that’s what their spouse would say.)

So how do you get them to do your bidding?

That’s the problem. The startup is your dream, not theirs. (If it were, they’d be founders, too.) Do you find that talk about how rich everyone will become just doesn’t seem to resonate? Uh-huh.

Here are some observations and suggestions:

1. Start off fair. At least then, you’ve got a fighting chance. To me, this means, err on the generous side with stock. (Since it will vest, if things don’t work out exactly as planned, the downside isn’t horrible.) Discussions go on all day long at Hacker News about the topic, but until cash compensation comes into the picture, the first few team members (after founders) are ‘near-founders,’ and need to receive upwards of 10% ownership. (If there are two founders, consider 33% each for the two founders, then 33% for the ‘near-founders’ as a group. For some of you — especially first-time founders — this will be blasphemy. “My idea, my company, my 100% commitment, blah, blah, blah.” Remember these words, wee hopper:

Optimize for success, not ownership.

2. Strive for transparency. At the CEO [gripe] session at BarCamp, one of the conversations that transpired surrounded the amount of money that some startup CEOs are able to walk away with as part of an acquisition. Resentment for founders being enriched is not uncommon — and often unpreventable. But I’ve found that employees are far less upset if relative ownership is explained early on — the earlier the better. Exact numbers aren’t needed. But the relative stakes of founders, officers, and everyone down to the admins (I believe all employees should be stockholders) should be something that’s talked about (unless you really haven’t been equitable). I have always taken the time to sit down with each new employee and walk through a reasonable scenario, which goes something like: “If we execute, then in three to five years we could be acquired for $100M (hey, dream big!), at which time your 50,000 shares would be worth around $250,000 . . . and that’s just for this first grant; you should expect to get additional grants.” (Now see #3.)

3. Remember what the motivators are. Among the things I found when I moved to the area from the West Coast, equity was often nowhere to be found (except with the founders). Most notable to me was Mario Morino himself, advocate of entrepreneurship, founder of the Potomac Knowledgeway, and great giver-back to the community. Don’t get me wrong, his philanthropy has been exceptional, and he’s been a role model for many in the area. I was just surprised to learn that employees of Legent Corporation, which he created in the late ’80s by merging his firm with another then sold to Computer Associates (now CA) in 1995 for nearly $2B, never received options. I remember hearing from former employees, “It wasn’t unusual for the area. It’s fine. Mario paid really well, and had great benefits.”

M’kay. Again, money talks. Especially these days. Still, I was surprised to learn from the CEO of a local startup that’s able to pay all his employees that he doesn’t give stock either. “They don’t seem interested in it.” (I think they might regret that, if the company were acquired.)

To me, although the main thing is that people feel they’re treated fairly, ownership in the company is still important. If you’re successful, the day will come when they’ll realize the value of their stock . . . and what you did for them. (Still, see #4.)

4. DC ain’t Silicon Valley. Unfortunately, the cultural differences are working against us. Folks here are just more conservative. As Scott Rothrock, CTO at The HealthCentral Network pointed out to me in the course of trying (vainly) to recruit a programmer from a big company: “People here seem desperately afraid of joining a startup that might fail; in SF, they wear their failures as a badge of honor.” And the irony is, THCN is probably the most solidly-backed ‘startup’ in the area.

5. Programmers and Engineers have a particular motivation. Never underestimate the attraction of working on cool things with cool people. I found out a long time ago that no amount of options will get technical people as excited as working on the bleeding edge. The fact is, the kind of people you want in your startup would never work at Initech in a 9-5 job (unless it was to support their off-hours startup dream). Any programmer worth his/her salt knows that you can lose your ‘chops’ — get stale — quickly if you’re not pushing yourself to learn and grow. Location-aware mobile applications? 3D gaming? Where do I sign up? And, they want to work alongside people who are smarter than them. If your venture doesn’t have some kind of sizzle, some real technical challenges, maybe offshore is a better way to get it built.

6. Hold regular meetings and reviews. In any event, never forget that things need to be monitored — regularly. You’ve gotten your team, they’re pretty pumped up, and off and running. Initial progress looks great. But over time, enthusiasm wanes, knotty problems come up, and all you need are a few demotivators — changing features, which means re-work, is a killer — and pretty soon productivity is way down. While you can’t avoid all the pitfalls, regular meetings (as in, every other Monday, if not weekly) can help keep things on track . . . and will also provide insight into who’s still emotionally engaged. That guy who’s missed the last two meetings — not engaged.

7. Hold 1:1s with your team. Distinctly different from group meetings. You need to know each person’s perspective and situation — especially if you’re not paying them. There may be personal issues that they wouldn’t bring up in a group. The point is, if you start holding regular 1:1 meetings, you find out about things before they implode. If you haven’t done it yet, start now. Maybe employee #3 and #5 just can’t work together. Chemistry, or something. You’re the CEO, and you’ll have to do something about it. But first, you need to find out about it, and find out early. Otherwise, you’ll find yourself changing jockeys two weeks before launch.

8. Celebrate — even little successes. Finally, more than one attendee at the BarCamp session made the point: even minor motivators (pizza and beer, a movie premiere, shirts/hats) can make a difference. They work a heck of a lot better than punitive measures (“Your stock option will be decreased by 100 shares for every day past the deadline”).

And for God’s sake, throw a party at launch!

Editorial Update: Specifics regarding a conversation at BarCamp DC were removed as potentially inaccurate and detrimental.

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Monetize . . . or Die?

What we say to dogs.jpgA few months ago, my pitch to Virginia’s Center for Innovative Technology (CIT) for their GAP funding program was turned down. I actually thought I had a fighting chance, having worked with the good folks there before and produced a plan that set the stage for their first $100k GAP disbursement. But my app-in-progress CHALLENJ was turned down, for, among other things, “We are unsure about your ability to monetize the site.” Gee, I thought — I had scoped out several alternatives . . . one of them should surely yield.

What I said was, “The revenue is, of course, dependent on my ability to acquire millions of users.” And what they heard was “I don’t really care about revenue.” Like the classic cartoon, listening, understanding — and in the case of investors, believing — are often completely different things.

I had built a financial model — I love building models — that suggested revenue somewhere between $10M and $20M was achievable in Year 3. (Maybe I should have given them an interactive model or web toolkit, that would let them dial in their own scenario.)

But truth be told, my focus was primarily on getting users. I was willing to bet on our ability to do so, and that’s fine for founders . . . but for CIT (and others), the risk was too high — certainly to place a $100,000 bet.

(Incidentally, I still recommend applying for GAP funding — it’s a relatively easy application, and structured as a convertible note, avoids issues surrounding valuation, which can be very touchy these days.)

The conclusion I soon reached — months before the economy flip-flopped — was to build and launch before resuming the quest for investment. (Now pretty much a fait accompli for any web start-up.)

Launchbox Digital co-founder (and most recently, Thummit co-founder) Sean Greene suggested an alternative at BarCampDC2 last week: sustainability with small numbers: “VCs need things to be big — you don’t. You might be perfectly happy with 10,000 paying customers. And if so, you don’t need a VC.”

Point well taken. For that matter, maybe you don’t even need angel financing.

In a recent BusinessWeek story, New York Angels chairman David Rose — and several others — remarked they’d like to see self-sufficiency on the initial investment. Jeez Louise, how many businesses can get to self-sufficiency on a couple hundred thousand bucks?

Maybe it’s my upbringing. My first venture-funded company was in the computer-chip business. Talk about a leap-of-faith investment — money comes in, and a year or two later, you hope to have a working product, a receptive customer base, and good market conditions. In that world, there are only two qualifications for investment: 1) the pedigree of the team; and 2) the gut of the VC.

Google was a gut investment; the founders were super-smart, but still in school. Twitter had a mix of both — the founders had proven their smarts and ability to execute with Blogger, which was acquired by Google in 2003; but well before the meme had proven itself with the masses (some say it has yet a ways to go) a few VCs — notably Union Square Ventures‘ Fred Wilson and Spark Capital‘s Bijan Sabet, were also trusting their instincts that Twitter was not destined to be another PointCast. They believed instead they were on the very brink of a phenomenon . . . even without a revenue model.

Recently, a bit of tempest in a teapot brewed around a comment USV’s Wilson made about Twitter, as reported in a Wired blog:

“œIt’s like the stupidest question in the world: How’s Twitter going to make money?,” said Union Square Ventures’ Fred Wilson, another investor. “It’s like ‘How was Google going to make money?’

Wilson subsequently apologized for being snippy, but I knew what he meant. Throughout my startup career, I rarely worried about revenue models — the hardware companies of course made products to be sold, so the only concern there was could we sell thingies for more than it cost us to build them. But even in the software and Internet companies, there was a general belief in the notion that if we produce something people use, we’ll figure out a way to make money.

It may all be moot, because most of you are probably thinking more about sustainable revenue models than ever before.

Call me crazy . . . but I’m still a fan of go big, or go home.

In any case, we believe in our ideas, exuberant (if not irrational) as ever. And we remind ourselves that, as David Hornik, of August Capital has said: “One VC’s next Google is another’s wasted hour.”

Which is why I continue talking to VCs. And in fulfilling my personal mission to improve the VC-entrepreneur dialog, I’ve organized my first OpenCoffee, where we’ll have two local VCs in attendance. Join us, if you can, for some stimulating discussion!

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BarCamp Miami 2008

Durante la conferencia FOWA 2008 en Miami se llevó a cabo también el BarCamp Miami 2008.

BarCamp es un concepto de conferencia muy interesante… es en realidad una desconferencia a donde asisten los que quieran y las presentaciones dependen de los asistentes, por lo cual la conferencia se va desarrollando dinámicamente sin agenda previa. Este año, más de 300 personas asisitieron a la segunda edición de BarCamp Miami, organizada por Alex de Carvalho, Brian Breslin, Chris Saylor y Nick Dominguez.

En BarCamp los asistentes que deseen realizar alguna presentación (algún producto, concepto, idea, servicio, etc) se anotan en una cartelera y las presentaciones proceden de acuerdo a ese orden. Esta vez las presentaciones ocurrieron durante toda la tarde en más de cinco salones.

Entre las presentaciones podemos destacar:

El nombre BarCamp tiene una historia interesante. Existe una conferencia llamada FooCamp, organizada por la editorial O’Reilly Media y llamada asi por las siglas de “Friends of O’Reilly” (Amigos de O’Reilly). El concepto de FooCamp es que la agenda de la conferencia es dictada por sus invitados. En programación se utiliza mucho el término “foobar” para designar una variable temporalmente. Por lo general, si utilizamos una variable llamada “foo” también usaremos una variable “bar.” (Cosas de hackers… ¿qué les puedo decir?)

Y ya que existía FooCamp, pues ¿por qué no BarCamp?

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