The one counterintuitive piece of advice is don’t overpay (I made this mistake in version 1 of my company). Pay above the average the employee could earn elsewhere, but not too much over.
You want to pay enough that no one leaves to get a pay rise, but not so much that they can’t get a similar salary elsewhere. A smart unhappy employee that feels they can’t leave can cause a lot of damage in ways that are hard to identify and fix.
Edit. I think I was unclear about what I meant by average pay - it is not the average for the job title, but the average the employee could earn in the industry. These two numbers are close most of the time, but with high performers they will be significantly different.
I imagine that even actions that are somewhat indirectly associated with benefitting the entire business should be enumerable in some way and prioritized.
I'm not saying it's easy (how do you prioritize community engagement vs new product development vs how those impact the business short and long term).
But at the end of the day, you'll know best how you value those for your org, and how you want to rank them (along with the employee's actual execution of said goal), but sorting by a percentage of income instead of fixed amounts is probably the best course.
Of course, my armchair quarterbacking is a lot easier than actually doing it :)
It's a short, sharp, quite readable explanation of why tying reward & punishment to metrics of difficult-to-observe work tends to quickly become destructive.
Managing is a very difficult skill to master. I most certainly would not consider myself any more than a little above average and only because the average manager is so bad.
Please also note that I did not criticize the compensation philosophy, I just wished that it was transparent to the employees. If the deal is well understood by both parties the likelihood of heartburn goes down dramatically.
Your pay should be determined by what you can earn elsewhere and if you are an employee that performs above average then you will likely be paid more than the average employee elsewhere.
Being able to reward high performance is one of the great things about having a smaller business. In big companies or the public sector this is often not possible, but if I want to pay someone more I can.
a. High performance employee who works at employer A has already given ample evidence of going over and above usual metrics of efficiency.
b. High performance employee decides to go into the market and shop around but other prospective employers have to largely take the employee on their word and their portfolio about their performance. Since these prospective employers have not yet witnessed the said over achievements, rationally speaking they would apply a slight discount.
c. Given the above, the existing employer can use the information asymmetry wrt to other employers to their advantage. They can as a pricing strategy apply the same discount to the employees compensation that other prospective employers would.
What do you think about the idea about slightly overpaying for your high performance employees. This way when they go and look around they realise that they are valued.
If you pay too much more than they can earn elsewhere then they become effectively handcuffed to you and feel they can’t leave even if they want to because they can’t find an equivalent paying job elsewhere.
Great advice all round but the above really spoke to me. Most advice talks about failing fast, getting to market asap etc. It's just as important to make sure what you DO ship / put out there is polished.
I'd love to hear investors' thoughts on this one. lpolovets, are you around?
However, "big vision" is not the same as "crazy vision." A big vision could be "we're going to replace an old incumbent in a $5b industry." A crazy vision could be "we're going to build an amazing piece of technology that very few people think is possible." The crazy vision only works if you have a lot of credibility. One of the only personal examples I have of backing a crazy vision is with Rigetti Quantum Computing (a YC company). The founder, Chad Rigetti, set out to build a quantum computer from the ground up. This is an extremely ambitious goal, but when I spoke to a few Caltech quantum physicists, they said that Chad was one of the 2-3 best people in the world for building a QC. That was a very strong testimonial.
On the planning side, I prefer pragmatic plans and start rolling my eyes if someone's plans sound completely unrealistic. I've seen so many pitch decks with a predicted revenue ramp up that looks like: "$500k sales this year, $4m next year, and $50m in year 3." I've been investing for five years and I've never personally seen a company ramp up that quickly.
What I do want to see though is that if customer acquisition is slow/deliberate, then there's a good reason for that.
Example of a good reason: "I'm working with 3 pilot customers for the next 6 months and focusing on learning and iteration and understanding exactly where their biggest pain points are. I'm intentionally not focused on getting new customers."
Example of a poor reason: "I'm not good at sales but don't want to hire anyone because I think salespeople are overrated. I expect to get 3 pilot customers by myself in the next 6 months, and I think that should be enough to make investors happy."
On an unrelated note, I'm happy to answer any other questions folks have. My background is that I was a sw engineer for 10 years, then moved to seed stage investing about 5 years ago.
In my case, I got very lucky at my first job out of college by joining LinkedIn when it was ~15 people. That eventually gave me some capital to angel invest. But to start the seed fund I currently work at, I partnered up with several people who had venture investing experience and we ended up raising money from outside investors. FWIW, fundraising for (unknown/first-time) VCs is as much of a slog as for founders. If I recall correctly, it took us about 10 months to raise our fund, and we talked to 100s of investors in the process.
In the world of massive, multi 100 million exits where does a more 'humble' single digit Million exit's it with you and investors?
For a good VC fund, a typical portfolio might look something like 30 investments -> 11 fail, 10 return 1x, 6 return 5x, 2 return 15x, and 1 returns 50x. That's a 4x return overall, but most of that return is concentrated in the top 10% of companies. So the investing model only works if a VC fund keeps swinging for the 50x return and occasionally succeeds.
The way I would frame exits from my perspective is that I need to keep investing in companies with 50x potential so that hopefully at least one will reach that level during a fund's lifecycle. But along that path, a lot of companies will predictably exit for 5x or 1x or 0x. Those exits don't have a huge impact on my fund's financial returns, but the companies are still run by people who I like and believe in, and the ideas those people worked on are ones that we (and their employees) believed in. So if a company exits for 0x everyone is bummed on behalf of the founders and their team who went all-in. But if the founders aimed at 50x and came out with 2x I am very happy for them personally. I don't get upset at all that not every exit is a 50x because that would be like always betting on 17 in roulette and being upset every time a different number pops up. That's not how the statistical distribution works. What would bum me out is if someone is clearly on track for a 10x or 50x outcome, but then sells at 2x or 4x because that's good enough for them.
That said, I have seen that a lot of small seed funds and new angel investors (most are new!) like to say that they’re happy with lots of small wins. I dunno if it’s just their way to show how they “think different” from the conventional wisdom (of “go big or go home”), or it’s just to seem more down to earth and approachable to not turn off potential deal flow, or just because they are really new and haven’t actually done the math (or are more risk-adverse than they probably should be in this line of work).
But then, when push comes to shove, I haven’t seen any ACTUALLY invest when they honestly don’t believe it could be a $100M+ exit.
Well managed, slower growing businesses have a vastly larger chance of success (good for the founders), but a lower NPV. As a founder you will/should be biased towards success over NPV because of your risk concentration, but an investor can spread their risk over as many startups as they like and so only care about NPV.
The only thing worse that taking investors money is going bankrupt. If you can bootstrap then bootstrap - the pain is only worse in the beginning (most of the time).
I'm a first-time founder, and lucky enough that our company (Overleaf ) has been going for five years now. If you haven't had enough of the advice for one evening, you can read my take on it here: https://clutter.errantscience.com/2017/07/31/reflecting-on-t...
Not even Elon Musk is Elon Musk. He is doing a lot of things right, very few entrepreneurs in the world are as good as him.
However, checking and writing emails at all times while playing with your kids and doing things in parallel isn't smart.
As a great entepreneur you also need to be excellent in mindfulness, not being that manifests in poor private life quality (women, kids, friends), not to mention exercise. Musk mentioned himself that he doesn't know much about these things.
I wonder what he came
up with if became an expert in these things.
> Learning how to create FOMO is the most important negotiating dynamic you can learn. FOMO = fear of missing out.
Needs to be added that you need traction or big social proof to create fomo, otherwise you'll see founders running around trying to create fomo with a few hundred users, no term sheets, no revenue.
Women can be great entrepreneurs as well.
I learned it through being lashed by PG.
It helped by creating an open dialogue between our investors and us, and drove our focus and prioritization on the right things at the right time.
What does good communication look like? How about bad communication?
A few principles that may be useful:
- have a regular cadence of communicating, usually monthly, usually he last day of the month
- have a standard format and stick to it
- numbers are better than words
- preview the updates where you uncover scary stuff over the phone / in person before sending an update
- always include an ask
It's about engagement, sure. But it's also about realizing that you need to better leverage your network and supporters. Investors can't help you if they don't know what you need.
Learn from the mistakes of others. Your startup won't live long enough to make them all.
and why is the failure rate for starting a bootstrapped revenue generating business much lower?
The best vote for your ideas is the one paid in dollars by a customers.
- product market fit
- founder conflicts
- better funded competition
- bad management
Don't spend months torturing an employee that you know is very unlikely to work out. Fire them quickly and compensate them for the situation you find yourselves in.
New hires should be be given 3 months of severance. Old hires should be given 6-18 months, depending on how long they've worked at the company.
Take all that time, energy, and money you were going to spend on the Performance Improvement Plan and hand it to the employee on their way out. They will thank you for it.
It's not just a gentler and kinder way to behave, it's also saves money and improves productivity.
Perhaps it's just me talking, but I like my work. I like my co-workers. I have no kids nor debt, and I would be pretty sad working at a place that says that they want to fire quickly.
The hiring process sucks, and employees are human beings. Perhaps you mean to say that you should be fully transparent when someone underperforms? If that's the case, I would agree with you. No need to beat around the bushes, just be honest.
Firing quickly doesn't mean fire someone for their first offense, it means as soon as you realize the person will never be a good employee, don't waste time trying to fix the unfixable.
Firing quickly doesn't mean not to offer regular feedback, or not letting people improve, or not setting expectations well, or not being transparent. It means that it's better to rip the bandaid off instead of picking at it weeks or month ignoring the employee with the hope that things will turn around.
I guess I jumped to conclusions too quickly, but I can see how firing fast could maybe work paired with regular feedback to avoid surprises. I don't think it could work for everyone (particularly parents with young children), but under certain circumstances what you say probably makes sense.
If founders are quickly firing employees who are popular then the founders are doing something wrong, and hopefully have inculcated the kind of culture that allows them to hear negative feedback on the firing. If founders continue to fire rashly then it's a bad sign for the company in general.
In my experience it is best to fire as soon as you are starting to think about it (people can’t change even if they want), but don’t be a dick. If you have been a good manager and your expectations have been clear then an employee will understand why they are being fired.
If you want to be generous be generous with the hiring bonus. This way everyone is rewarded, not just the bad performers.
* the leaving person doesn't raise a stink that hurts morale,
* you signal the labor market that it's worth taking a risk on your startup (low pain if things don't work out),
* you signal other employees and managers that decisiveness is a core value,
* the opportunity cost of misapplied talent is so large that you'll pay a bounty for people to "fire" themselves from a role or their job and make room for a better-fitting person.
If you want to take out the risk of joining a startup then give a large hiring bonus instead. This rewards everyone and shifts the risk onto the managers rather than the employees.
At the end of the day you have to think of this as an employee benefit to convince people to jump ship from their current employers.
I personally think 3 months + 1 month for every year they’ve worked for you is attractive enough.
You can make exceptions if you’re trying to poach some high level exec.
I think something like 2 weeks is "fair", and unemployment would kick in past that.
In any case, firing stinks and is super hard. Agree it's important to get it done sooner rather than later though. Interviews are imperfect.
Remember that they may have turned down another offer to take yours -- and then the other position may have been filled too. I've seen this kind of thing happen once, though I wasn't directly involved and don't recall the details. Okay, maybe three months is more than necessary, but I don't think I'd make it less than six weeks.
If so, did you pay 6 weeks of runway for a brand new hire that didn't work out?
This is not to say that if you have not been in the shoes you have no valid thought.. but as someone in those shoes right now I cannot imagine operating that way. Happy to be up front when I hire someone, if this isn't working then it is best we part ways quickly...
Obvious US vs Euro expectations are very different in regards to job security.
But trying to convince someone who has a cushy day job at a more developed company is going to be way harder without great severence packages.
I guess that technically means you could retire 4 years early if you had been working there all your life.
> 1. If you plan on having cofounders, you need to determine how decisions will be made before starting a company together. Titles and vague “roles/responsibilities” won’t be enough. Play out scenarios to hash out decisions and set the right expectations, ask tough questions, and don’t let ego get in the way.
It got me thinking of something like the 'Co-founder compatibility test'
I wonder if anyone already has a good set of example scenarios and questions to reveal this compatibility/incompatibility between people in decision making / expectations / virtues. Many questions could come from challenging moments with co-founders and teammates in one's own experience. I can think of a few already.
If we compiled a list of these types of questions and scenarios, could they be used as a good test of compatibility, useful to at least some initial degree to assess potential partnerships in real life and over the internet.
I am sure he meant "complements you"
> we thought because we knew how to code that we didn’t need senior
> engineers [...] Shouldn’t we just be able to teach ourselves?
> The answer was maybe, but with a lot of wasted time along the way.
A lot of startups make this mistake from what I can see
It's about managerial advice, which is not only suitable for startups but for any resource-constrained company under pressure.