

Is it Time for You to Earn or to Learn? - sgman
http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for-you-to-earn-or-to-learn/

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mrchess
The problem is the way company structures are currently set up, where founders
get the majority of ownership, and employees just get the pool.

What does this mean? To me it means that the way a company structures itself
needs to change. More ownership needs to be given to employees, and founders
need to get less.

That how I want to start my next company. Double the options pool, and lower
the founder equity. Just because your employee #1 and it was my idea doesn't
mean I get to dilute your share of the company but that big of a margin. We'll
all be doing a ton of work.

That being said, can someone tell me why this might be a bad idea? :)

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joshmlewis
A lot of peoples eyes glaze over when they go into startups because they hear
all the success stories. It can definitely happen in this field, but most
people don't realize what it takes. I hate that starting a company is becoming
almost trendy now and everyone is trying it.

Edit: and I guess on one hand innovation and providing jobs is good but for
everyone to want to do it now is a little crazy.

~~~
samsolomon
>> I hate that starting a company is becoming almost trendy now and everyone
is trying it.

I think it is fantastic that people want to create companies. After all
entrepreneurs take risks to create jobs, value and wealth.

~~~
mbetter
I created my company to buy office supplies.

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michaelochurch
I already brought some Indignation Sauce to this topic:
[http://michaelochurch.wordpress.com/2012/07/08/dont-waste-
yo...](http://michaelochurch.wordpress.com/2012/07/08/dont-waste-your-time-in-
crappy-startup-jobs/)

Mark Suster is right about the financials. You won't get rich.

I will go further. The VC-istan startup promise is empty. You probably won't
get investor contact unless you negotiate for it. Why would they help you get
the connections needed to be a founder, when the alternative is that you not
get those and never be a competitive threat?

Many of these VC-istan firms develop horrible cultures as the engineers
realize they won't get the leadership opportunities they were promised,
because those are going to go out to entice new hires. You get a lot of ill-
advised code throw-outs that exist only because someone was promised, in
hiring, that he'd have that authority... so he uses it on the first day
without even knowing what's being tossed.

I don't think you should use "learning" as justification for taking a bad
deal. Not if you don't know the people, because how do you know if you're
going to learn anything?

In general, higher pay tends to lead to higher-quality projects, not for the
obvious reasons, but for this: your salary is how much it costs your boss to
waste your damn time.

If you're a founder or a key hire and you trust the people involved, it's
different but, in general, don't use "these are my learning years" to justify
an awful deal.

~~~
dasil003
I really enjoyed your article. It clearly contains a lot more wisdom than
Suster's. Still, I think you underestimate how little one can learn in a big
company. It all depends what team you land on and who your manager is, and it
can be a huge crapshoot. At least at a startup you have a guarantee that the
company needs to focus on fundamentals and you will never be chastised for
thinking about the business case for what you are doing (obviously this is not
strictly true, but those kinds of startups tend to die fast). At a big company
you may be assigned to a team doing something irrelevant that exists purely
for political reasons. Your boss is as likely as not to be [Gervais Principle]
clueless and the only thing you learn is corporate politics. That might help
your earning potential down the road, but it won't make you a better engineer.
Sure if you get on the AWS team at Amazon or work at Google or Facebook you
get an opportunity to work with tech that a startup could never lay their
hands on, but those jobs are hardly the corporate average.

You're right that it's no justification for taking a poor package at a
startup, but I think the median startup job is much better than the median
corporate job in terms of engineering education.

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dgreensp
It goes without saying that you won't get personally rich from any contract or
investment _without running the numbers_.

However, many employees consider it pretty enriching to work in a start-up
environment for $200k+/year of salary and stock options, where the stock
option portion is generally going up.

If you actually join early enough to get 0.25% of a company, like immediately
post VC raise, usually the "success" scenario you talk about is not selling
for 3x the current valuation. (I wonder how many companies that sell for that
are actually "failures" but with well-connected VCs that can make a sale.)

And can we stop talking about "success" like a lottery? There are many Bay
Area companies with actual business models making good revenue and growing it
steadily into the multiple millions. I'm sure the early employees will make
out just fine. I'm sure the founders would be interested in applying this
"you're basically rolling the dice" model of business to their companies.

~~~
michaelochurch
Startup jobs at $200k are fairly rare, and not really accessible unless you're
an executive implant. At least in New York, very few startup boards will sign
off on an engineer salary at that level.

0.25 percent of a post-A company is pretty weak sauce. You should value equity
at a fraction of what investors do. First, investors are diversified. You're
not. Second, their stake gets the VCs control and an excuse to hand out
executive positions to their underachieving, middle-aged friends. Yours
doesn't. Third, your equity comes with a cliff and I can name a couple
startups that are notorious for firing people days before cliff.

~~~
dgreensp
To clarify, I meant $200k including the current value of the stock options
that vest in a year.

I'm also writing with engineers in mind rather than executives, and based on
Bay Area salaries.

~~~
michaelochurch
I don't think that's a meaningful number. As I said, investors have plenty of
reasons to value the equity at a higher level than an employee.

If you "cliff out" an investor, you go to jail. If you do that to an employee,
that's fair game.

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wheaties
I'm learning at my current job and it just keeps coming. I hate to admit it
but the amount you need to learn just to get an idea of what you didn't know
before you knew it is staggering. If you're young enough, I say learn as much
as you can. Don't waste those few years at companies that won't develop you as
a person. You can only push so many cogs before you get jaded.

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jwwest
Everything seems to come back to that good ol' fashioned advice:

"Do what you love and the money will follow"

It's pretty cliche, but the point is that you need to actually enjoy what
you're doing and worry less about the money (unless you're in love with money,
in which case go get a job on Wall Street). Sure, the chance to cash out big
is a huge plus, but as Mark pointed out unless you're a founder it's very
unlikely.

This is most likely a contributing factor to the talent crunch in the Bay
Area. No one wants to take the chance on being the #1 or #2 engineering
employee since the odds are weighed heavily against you. I imagine most sane
people would look at it like this:

C-level / Founder: Risky, less salary now but larger option grants. Lots of
hours.

Early employee: Riskiest. Less salary and less options. More hours.

Later employee: Least risky. Salary approaching market rate. No significant
options. Hours that approach a normal work week (~40).

------
graycat
As usual, Mark tells a good story by leaving out a lot.

So, he has "(0.5%) eventually sell for $150 million or more".

Okay, so what? Is his argument that the chances of an entrepreneur are just a
lottery draw with winning odds of 0.5%? If so, then that's misleading.

Why? Because it shouldn't be a lottery draw. Instead, the entrepreneur should
know more than just a lottery draw. The entrepreneur should have done some
good, careful, solid, and quite likely effective planning so that when, based
on the additional information he has and the planning he has done, he goes for
the $150 million or more, his chances are quite good, hopefully well over 50%.
If he can't plan that well, then he needs to learn how or get into another
game.

VCs, including Mark, won't teach how to do such planning, won't help with the
planning, won't evaluate the planning, and, instead, will just report the
figure of 0.5% from just looking in simple terms at all the e-mail they
receive or some such.

Although the odds may have looked like 0.5% from 50,000 feet up, it is quite
possible that for the winners down on the ground the odds looked and were much
better than that.

Net, it is quite possible to see a large need, think of a good solution, find
a way to provide that solution, and plan a business to deliver that solution,
even with some new, advanced technology, all with quite high probability --
all over our economy, all around the world, in many industries, people do such
planning and execution with quite high probability.

E.g., when Intel decides to move from line width of some x nanometers to 0.66
x nanometers and build a $2 billion plant to manufacture at 0.66 x nanometers,
do you believe that the project is high risk with only 0.5% chance of success?
BS. Intel has taken many such steps in their history, and so far they may have
had some delays and some kinks to iron out but never really had an actual
failure.

E.g., recently movie director James Cameron got in a specially designed 'boat'
and took a little side trip to the bottom of the Mariana Trench, about six
miles down or some such. No one, not even all the world together, has a lot of
experience building 'boats' to go six miles down. So, what he did was
essentially for the first time. Thus, he needed a lot of quite good planning.
And he came up alive. Lesson: Planning to attack the unknown for the first
time is possible.

The great old lesson was the Wright Brothers. Langley had just fallen into the
Potomac River. But the Wright Brothers took a train from Ohio to Kitty Hawk
and flew apparently with little or no doubt. Why? Good planning. How? They
built the first quite good wind tunnel and, thus, had some good data (although
they missed Reynolds number) on wing lift and drag. They also knew horsepower
and thrust of their propellers. They had the weight of their plane and
passenger. They understood the crucial role of three axis control and had a
good enough solution. A little arithmetic, and it was clear that they should
be successful. And they were. First time.

Planning is doable. Sorry, Mark.

Let's put it this way, drawing from Mark's post: He did point out correctly
that a house in the area will set one back about $2 million. Well, if making
that much money is as difficult as Mark suggests, then house prices should
fall!

Are we learning yet, e.g., how to earn?

A good, old lesson, especially in business, is "Always look for the hidden
agenda.". So, VCs are in the business of buying parts of young companies. So,
as a buyer, they want more inventory to select from. So, Mark can tell CxOs
that their slot is for just chump change and that they need to be CEO and get
some VC funding. And if they were a real man, they'd d be paying cash for a $2
million house, and for that they'd need to be a CEO with VC funding. For more,
a buyer wants to tell the seller that their product isn't very good, e.g., has
only 0.5% chance of being worth $150+ million. So, maybe such is part of
Mark's agenda.

Then telling entrepreneurs how actually to plan a $150+ million exit, with
some significant probability, is not part of the agenda.

~~~
dasil003
This is at best true for the entrepreneur (and even then you strike me as
someone who has never founded a startup, because it never goes smoothly
according to plan). A prospective employee has no better chance than a VC at
picking winners.

~~~
graycat
The "chances", that is, the probability, is close to irrelevant. Instead what
is just crucial is the conditional probability conditioned on the information
one has. Even if the probability is low, with suitable extra information the
conditional probability can be quite high.

You understand: You saw the move 'Wall Street', right? So, what was the
probability of a big move up of the PA steel company? Low, right? "A dog with
fleas". But the conditional probability given that the takeover guy's plane
was flying to PA was quite high. Got it now?

Again, yet again, to repeat just for you, from my three examples in my post,
it's possible to plan effectively, even for advanced projects, and then
perform according to plan with relatively low risk.

On picking winners, VCs don't try very hard to evaluate projects. E.g.,
recently a VC told me that he sees a lot of projects that currently have $2000
a month in revenue. Thus he missed the point: No doubt at one time each of
Apple, Microsoft, Google, and Facebook had about $2000 a month in revenue.
What is just crucial in picking "winners" is essentially to f'get about the
$2000 a month and look closely at the project. VCs don't like to do that.
Moreover, in recent years in information technology projects, VCs just don't
want to believe that there could be any advanced, solid, unique, powerful,
valuable technology difficult to duplicate or equal to be evaluated.
Evaluating technology and projects just isn't how their business model works.

On my startup experience, you were guessing and guessed incorrectly.

Are you writing for Mark?

~~~
dasil003
Yeah, I "get it". Sheesh, no need to be so fucking condescending. If it's so
easy to pick winners why aren't you doing more angel investing instead of
complaining about hot air from VCs?

~~~
graycat
Here is an explanation of some of the 'difficulty in picking winners': A lot
of entrepreneurs try projects, and, right, maybe only 0.5% get an exit 150+
million. But a point is that, how many of those efforts were actually well
planned? Not very many. Of the well planned projects, the chances should be
much higher. Again, to pick good projects, have to use a lot of information,
more than can use when just playing a lottery which, in effect, the 0.5%
number assumes.

More generally, the goal is something exceptional. Can't get much insight into
that looking at what was not exceptional. But there are some good guidelines
for being exceptional. Yes, there are not many examples among the famous IT
successes. From this you can conclude either that the path to being
exceptional doesn't work or that there are good opportunities.

Whatever the entrepreneurs are, it's easy enough to identify the several dozen
well known venture partners. Sadly, for the well known path to being
exceptional, they are not and, really, don't have the backgrounds to do the
evaluations. E.g., they are not much like the problem sponsors at NSF, NIH, or
DARPA or leaders of significant, advanced projects at major labs or
businesses.

So, again, the VC business model is not following all the promising paths to
success.

For me, this isn't about me.

------
joonix
Sounds about right, but then who is buying all of those overpriced $2M
cottages in Palo Alto in cash?

~~~
beachstartup
it takes relatively few sales to define pricing in a real estate market.

------
kahawe
> _If you really want to earn you need to be in the top 3-4 in the company.
> Best to be a founder. Very few people can do this. It’s a rare skill. Be
> realistic about your skills, background and ideas._

As an addendum to this: be realistic what this means in terms of work-life
balance or whatever you want to call it. Any executive position that lets you
EARN will not only take up large chunks of your life but it will basically
become your life. You will have to be available almost 24/7, you will be
having phone conferences on the weekends, you will be checking your smartphone
constantly, getting ready for meetings, you will be going through tons of
paper, you will be having a LOT of unpleasant conversations with all sorts of
people for all sorts of reasons. And you will have to put up with the
particular kind of people these positions of power typically attract. And
remember, the further at the top, the lonelier it gets and especially in large
organizations you will have to protect yourself from all sorts of politics and
other shenanigans. There is a reason burn-out, heart attack and psychological
issues are so extremely prevalent amongst managers.

So before you do make that decision to EARN, you should talk to friends or
other people in similar positions and get a feel for what their whole life is
like - then decide if that's for you. Money is one thing but what is that nice
little place in an exotic country worth when you die from a heart attack at
age 50 or 60?

(source: my best friend's partner holds an executive position for an S&P500
company; another friend took over the successful family business)

~~~
nopassrecover
Sounds exactly like consulting, or the experience of friends who have worked
as startup employees (all the work with few of the perks).

