
The Quest for the ideal CEO-type Co-Founder - julien_c
https://medium.com/on-startups/564d3cecb110
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Killah911
Please excuse my ignorance if I should know this already, but nowhere in the
article does it explain what makes the author an authority on this particular
topic. Perhaps a couple of previous experiences with different types of CEOs,
some of which worked vs some of which didn't?

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wololo_
The biggest mistake you can make is to find someone as passionate about your
idea and making sure he stays on the top. Become CEO yourself, it's not hard
and you don't need to know "business".

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julien_c
I'd argue that it's really hard for a single founder to creating a "scaling"
startup. Evidence suggests the same (there are exceptions).

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secos
What about leadership ability? You describe a number of absolutely necessary
talents, but without the ability to lead your team on the task of executing
the vision, those talents don't matter for long.

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pefavre
Interesting point. By the way, have you found your match yet?

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julien_c
Good question! I might have, time will tell.

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michaelochurch
The most important thing for a CEO to do is make sure that Bullshit never
intrudes on the technical work. That usually means he or she not only needs to
be a "10x" hustler, but also requires coming with the resources to get started
on real work already in hand.

That's something we struggle with, as technical people. We want to believe
that "what makes a good CEO" is meritocratic, but it's largely about contacts.
Can this guy get us to full salary on an idea alone, so we can build
something? Same for college presidents; they aren't hired for the work they
can do, but for the contacts they can bring in to the university.

See, part of being a CEO is bridging the gap between the meritocracy we wish
to create (because we won't be able to compete if people are already playing
political games at <10 people) and the connections-based non-meritocracy of
Bullshitland outside. Freedom (or meritocracy, in our case) turns out not to
be free, and the CEO's job is to make it happen because most talented people
come from the working and middle classes (this isn't a dig against higher
classes; it's just that the lower classes are much larger) and have zero in
the way of such resources.

That requires an extremely rare combination:

1\. Comes with the resources (i.e. funding, contacts) already in hand.

2\. Not arrogant about it. The problem is that people who have such resources
are usually such dicks about it that they become sources of Bullshit, rather
than being able to protect others against it.

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greghinch
> Can this guy get us to full salary on an idea alone

I'd like to pick this point out, I think it's worth discussing. No one should
get to "full salary" on an idea. Investment money (which presumably is all
you'll get on an idea) is to build the business, not pay you a cushy salary,
if you're a founder with significant equity. You get a nice salary from the
business when it can be taken out of profit. Until then, you should be on
"minimum to not be preoccupied with personal finances".

That last point is why I would be cautious going into business with someone
who has significant personal outstanding debt.

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michaelochurch
_No one should get to "full salary" on an idea. Investment money (which
presumably is all you'll get on an idea) is to build the business, not pay you
a cushy salary, if you're a founder with significant equity._

Full salary == market compensation, not "cushy salary". Considering that
you're working 5x as hard as a typical checked-out corporate worker, you're
actually taking an 80% haircut already.

I don't think a mid-career software engineer should take $750,000 per year out
of his startup, because even though their work is arguably worth that-- of
course, this is an expected value calculus because the realized value is zero
or $10+ millions-- VCs wouldn't be able to make any money if founders demanded
that.

I do think that it's not unreasonable for a decent idea to merit full salary.
Again, "full salary" to me means a market salary, not "cushy"; it's not the
half-million or more that a decent software engineer is arguably worth. It's
the $100-150k that he'd be able to get on the market right now.

The difference would be that the entrepreneur is working 5-10x harder than
anyone in a corporate job and only getting 1x what corporate denizens get.
That's a hell of an improvement over 0x or 0.5x.

If you can't already tell, I fucking hate the VCs who earn $500,000+ per year
and take absolutely no professional risk but get sanctimonious about "skin in
the game" when a software engineer (intending to work 60-80+ hours per week)
asks for the 125-150k he'd command on the market. That boils my fucking blood.

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greghinch
It has nothing to do with the amount of work you do, or your value as an
employee in the market. If you're one of the founders, it's your business to
make or break. Particularly early in the game, you're going to need to
maximize your runway. So if you take typical first seed round, and then pay
yourself $150k of that because "that's market rate", you're significantly
impairing your business' potential for success. You should be able to go _at
least_ a year on your first seed funding, which for argument's sake let's peg
at the $100k you get from YC. Presuming you have 2-3 founders, _and_ a number
of expenses, you can see that your own take is minimal. It's conceivable that
in the first few years even, some employees may have higher salaries than the
founders. But the founders should have enough equity that the payoff at the
end is worth it.

If you're not going to operate that way, don't try and run your business as a
startup that takes funding. You'll be doing everyone involved a disservice,
including yourself.

~~~
michaelochurch
Ok, you clearly just don't get it. People shouldn't have to work below market
rate (or for free, as they often do) to implement their own ideas.

Because they actually care about their work, they'll be 5-20x more productive,
and that's what the value of the equity (shared between them and investors)
comes from. I argue that they should be paid _at_ market rate for more typical
work. Why should they have to _pay_ me to work for me when they're already
signing up to work 5-20x harder than typical corporate employees?

Yet sanctimonious VCs still talk as if they're performing a charity rather
than investing. It should be a symbiotic relationship (a transfer of control
over capital from those who have it to those who know what best to do with it)
rather than this "I've got the money, so lick my balls" arrangement that
currently exists.

My argument is that valuations should be higher in order to include a fair
salary for the founders. In fact, given the monstrous amount of bullshit
involved in raising money, I'd argue that an even higher salary is in order.

By the way, the reason VC is losing money is not that they valuate companies
too high or that founders take too much out in salary. It's that they have a
herd mentality and they suck at picking companies. Have you _seen_ some of the
assholes they fund? I could do a better job than 99% of those gatekeepers, and
I don't even have an MBA. I'm just a far better judge of talent than they are.
(I'm not a great judge of character, which is why I've worked for some
horrible companies; I'd need to hire a partner for that. Judging talent and
character are opposite skill sets. But I'm one of the best judges of talent
out there, and almost certainly in the top 100-- at judging talent, not in
having it-- in the world today.)

VCs are trying to put founders into a race to the bottom, not only on
valuation/salary but more dangerously on terms (e.g. liquidation preferences)
and autonomy; those are far more severe because they create an adverse
selection where the best people avoid you outright. I'd do it very
differently. I'd give very generous terms-- I would actually make it a
fireable offense for any associate even to suggest participating preferred or
multiple liquidation preferences-- but make a lot more money than any of them
by not falling into the traps (mostly, social obligations to fund undeserving
morons to return favors) that cause other VCs to fund idiots.

~~~
greghinch
> People shouldn't have to work below market rate (or for free, as they often
> do) to implement their own ideas.

I think this is the crux of what you are struggling with. A VC investing in
_your business_ is not hiring you as an employee. If you have an idea you want
to implement as a business, _that's on you_. The VC is offering money in
return for equity in hopes of generating capital for the fund's investors. The
person managing that investment for the fund is paid a salary based on their
ability to do that.

Conversely, you as a founder of a business are compensated based on your own
success. _Taking investment is not an indicator of success_. Investment money
is to grow the business faster than it could on its own. Revenue, and more
importantly profit, are where you see your own success. The large exit for
many funded startups is also more commonly heard about success indiactor,
because solid monthly margins aren't a) usually reported for private companies
and b) don't make very interesting news, where as a big sale usually is/does.

Starting and owning a business is an entirely different world from being an
employee, and never should you apply the principles of one to the other.

~~~
michaelochurch
VC-istan is no longer real entrepreneurship. VC's have set themselves up as
between-companies executives who get to dip their fingers in tens of pies. If
you don't accept their term sheets, they can't fire you per se, so they'll
just fund your competitors and put you out of business.

~~~
greghinch
This has not been my experience in recently helping build a startup and
seeking VC money (that they are overly exploitive), but perhaps we had more
realistic expectations going in. Anecdotal surveying amongst prior founders
that came in as mentors during our recent accelerator stay suggested that at a
typical $20-50mil exit (an average "successful" tech company sale), "unproven"
founders should each expect to have 3-5% in equity remaining. That's after 1-2
seed rounds, and at least A and B rounds.

Terms significantly improve for "proven" founders.

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michaelochurch
3-5%? After Series B? Dude, you got fucking robbed. That's all I'm going to
say.

~~~
greghinch
I'm not there yet. I'm saying that's a typical number I got from founders who
exited at that point.

Out of curiosity, have you ever gone through the process of building a funded
company yourself?

