Employees and Equity
Look, like a lot of bright kids I read Ayn Rand in my late teens. I apologize for that. For some reason though, I just couldn’t embrace that sort of philosophy. When I have been able to influence equity structures for businesses I have been involved in, I’ve always tried for a more inclusive model that would have caused Rand to roll over in her grave.
In some ways, though, these businesses have perhaps gone too far the other way. There’s nothing like a non-technical, non-sales, non-finance passive-aggressive administrative support employee with golden handcuffs that hates startup culture but can’t leave because the dividend means making 30% over market every year. That was painful.
It’s a scenario that taught me that not everyone is cut out to be an entrepreneur. But, this is a post about employees and equity. If you decide that you are going to model your business on that premise, there’s a really interesting article on Medium that has a grain of absolute brilliance.
The article, complete with a google spreadsheet, has one innocuous statement that resonates completely with me:
"Companies should minimize the impact of the inevitable information asymmetry between prospective hires and founders and management."
It’s a very clever way of saying that everyone should sort of understand what it all means, not just management.
When companies hire people and options or equity are part of the compensation equation, it’s really easy to put the onus on the employee to understand what they are signing. That’s not really fair.
As a partner and founder I have had access to legal and financial advice (thanks to the company coffers) that employees really didn’t. I mean, I guess they could go pay thousands of dollars to understand these things, but we’re talking about young professionals quite often. It’s not realistic.
Oh, that equity we gave you? You’re responsible for the taxes. Yes, I know, you didn’t get any money but you owe the IRS $27,392.82. By December 31. Yea, I know that’s in three weeks.
Or those options? Sure, it’s time to exercise them at the strike price. You have $16,432.71 in liquid assets right now? No? Well, go to the bank and get a quick loan. You have 96 hours.
Putting employees in these situations makes some people feel powerful (“I know this, they should know this”), but often it’s just that as founder we simply had more access than the typical techie off the street.
It can create resentments and hurt morale. Better to spend a little time with employees explaining likely outcomes and helping them to understand what compensation model works for them.
I’ve found that the best way to handle this is to bring in a financial advisor (ideally, the firm that is handling the companies finances and structured the model in the first place) and have them meet with the entire team. This allows for an open Q&A.
Then, take the most common questions and answers and make this available to prospective employees.
I see issues around presenting multiple compensation models (you’re risk averse, you chose salary versus she’s giving up immediate salary for equity) but I wonder if that’s a model we’ll see in angel/series A funded startups someday.
Engineers and Strategists
I remember in the 90’s job titles started changing and “engineer” became appended to them. Something like when a construction company needs people to clean up a job site. They hire “material relocation engineers”.
Obviously I’m using this example to be funny, but there’s been a trend in software (specifically for the internet) and marketing that takes this in new directions.
I’m not sure that it’s a good idea. You’re not a “mobile developer”, you’re a “software developer” that is experienced in mobile. You’re a visual designer, not a “ui designer”.
It’s the same now with “strategist”. One way I gain insight on what’s going on within a firm is to look at what types of roles they are hiring (and to a lesser degree, how many people they appear to be hiring). A trend I’ve seen lately is Digital Strategist.
Now, this sounds like a high-level, experienced role, doesn’t it? However, as you read the job requirements invariably you need a couple years of experience with Google Analytics and Twitter.
So, while I acknowledge that titles are “cheap” and it’s a perk you can give away, the world would be better place if titles made a little more sense. Don’t post and hire a “digital strategist”, hire a “social media producer”. Hire a “digital copywriter” not a “content marketing strategist”. Unless, in fact, strategy is a huge piece of the role.
A “business strategist” does not do collections or create invoices. Business strategy is the forming and execution of goals based on the available resources and internal/external market factors.
I’m not here to tell youngsters to “get off my lawn” but in a era where productivity is becoming harder to measure in material terms, having ambiguity around your role and function is not good for the employee or the employer.
Do it because you love it.
Toronto is a funny town. There are so many people from the financial sector that want to get in to technology and the startup scene because of the potential for reward and the perceived prestige. I’m not sure when failure became prestigious. Most of the ideas I’ve tried to commercialize have failed. One idea (which many people contributed to) has generated close to $10 million dollars to date. Four other ideas failed to get off the ground. This is not amazing success, and certainly not crazy financial success for roughly 20 years of effort.
Don’t join or create a startup because of the prestige or the reward. Those companies don’t ever seem to really succeed.
The success that I have seen (primarily in others) is after they have spent 6 years on average persevering towards their vision because it is something they actually believed in.
Do it because you love it.
"If builders built buildings the way programmers wrote programs, then the first woodpecker that came along would destroy civilization."
Weinberg’s Second Law
So the US blew through their 65,000 H1-B visa’s in one week?
According to Techcrunch, that’s what happened.
I’ve always felt that I could acquire and train all but the most unique of technical skills (security, hardware/systems scalability engineers) but that in fact, leadership and experience is what is lacking.
Don’t get me wrong, there is serious demand for technical talent. What is, more seriously, lacking are people with technical skill, experience and management chops.
What we have is a bunch of MBA’s being taught management techniques from the 50’s and engineers that aren’t taught much about business. We’re simply not getting efficiency because the systems are flawed. We don’t know how to manage, train, motivate and inspire the talent we have because we don’t know how to measure their productivity. Since we can’t measure actual productivity we measure time in the office, hours and whatever metrics we have at our disposal using outdated, factory model criteria.
I know dozens of people who can put their shoulders into company and move it. I know hundreds of people who can show up everyday and wait for management to lead them, while doing just enough to make sure everyone keeps their jobs.
Do we have a technical problem, or a cultural one?