Posts from entrepreneurship
I feel like we are in this zone where everyone is doing a startup. Of course that is a great thing. Getting people out of dead end jobs and into their creative zone seems like a good thing no matter what the outcome. There is a flood of angel and seed capital flowing through the economy and it is easier than ever to do the thing you’ve always wanted to do.
Another thing that is driving this startup phase is the plethora of information on how to do it. It started with blogs, like this one, but has moved to podcasts, videos, and books. It is so easy to share what you’ve learned these days that more and more people are doing exactly that.
Two friends of mine have recently published books that are excellent and quick reads for entrepreneurs.
Randy Hunt is the Creative Director at Etsy. He built and leads Etsy’s team of designers who help create Etsy’s web and mobile applications. He has taken everything he’s learned in that role over the past five years and put it down on paper. The book is called Product Design For The Web, but it is highly relevant for designing mobile applications as well. The great thing about Randy’s book is you don’t need to be deeply technical to get value out of it. In fact, I think it might be most useful to someone who is just getting into designing interactive applications.
But knowing how to design and build something is not the only thing you need to know. Maybe most importantly you need to know what to build.
My friend Frank Rimalovski has been a VC since the late 90s. He currently runs the NYU Entrepreneurial Institute and the NYU Innovation Venture Fund. He explains in this blog post that in the 16 years he’s been working with entrepreneurs, he has seen countless numbers of them build something first and only then seek customer feedback. Frank believes that seeking feedback after you’ve built the product is tough because by then you are so invested in your product that you don’t hear the negatives well enough. And so he and another friend, and sometimes commenter at AVC, Giff Constable, have written Talking To Humans, a book that explains how to do the customer development interviews in a way that will get you the most accurate and actionable feedback.
Reading these two books in tandem will help you figure out exactly what to build and how to design it in a way that users will love it. And that is a recipe for success in the startup world.
Every so often Paul Graham will email me something and say “can you read this before I post it?”. He did that last week. It was a talk he was going to deliver in Sam Altman‘s startup class. It was great. I told him I wouldn’t change a thing. I am not sure if he changed it before he delivered it, but what I do know is he posted it yesterday. And here it is.
I just went back to my emails with him and pulled these quotes out for all of you. These are some nuggets that I particularly liked.
On Investors – “our function is to tell founders things they will ignore”
On Selecting Investors, Co-Founders, Etc – “If you’re thinking about getting involved with someone– as a cofounder, an employee, an investor, or an acquirer– and you have misgivings about them, trust your gut. If someone seems slippery, or bogus, or a jerk, don’t ignore it.”
On Knowing About Business Before Doing A Startup – “The way to succeed in a startup is not to be an expert on startups, but to be an expert on your users.”
On Success – “Y Combinator has now funded several companies that can be called big successes, and in every single case the founders say the same thing. It never gets any easier. The nature of the problems change. You’re worrying about construction delays at your London office instead of the broken air conditioner in your studio apartment. But the total volume of worry never decreases; if anything it increases.”
On Finding The Next Big Thing – “If you think of technology as something that’s spreading like a sort of fractal stain, almost every point on the edge represents an interesting problem.”
Those are the quotes I called out in my emails back to Paul. They all resonate hugely with me. But the whole post is great. Give it a read.
Most people are familiar with the Gartner Hype Cycle. It is a great framework for looking at the development of important technological innovations:
It is interesting to look at the price chart of Bitcoin in this context:
It sure feels like we’ve been through the technology trigger phase, the inflated expectations phase, and are now well into the trough of disillusionment phase.
What’s more interesting is the question of what will lead us onto the slope of enlightenment? I am thinking that we will start to see native applications of Bitcoin. These would be things that simply could not exist without this technology. Donating money to charity with Bitcoin is awesome, and I do it regularly, but it is not a native application of Bitcoin.
I plan to write more about these native applications because I think they are the key to getting to the next phase in the Bitcoin adoption cycle.
There are two guest posts that are essentially tied for the most popular guest post ever on AVC. They are both in the top ten of all posts on AVC since I put Google Analytics on this blog at the start of 2007. They each have seen about 125,000 page views since they were published.
The second is this post below from Fake Grimlock.
Both are great, but I felt like putting some dino magic on the blog today.
MINIMUM VIABLE PERSONALITY
MOST IMPORTANT STEP FOR BUILD PRODUCT IS BUILD PRODUCT.
SECOND MOST IMPORTANT IS BUILD PERSONALITY FOR PRODUCT.
NO HAVE PERSONALITY? PRODUCT BORING, NO ONE WANT.
PERSONALITY BETTER THAN MARKETING
WHEN CHOOSE PRODUCT, HUMANS ONLY CARE ABOUT DOES WORK, AND IS INTERESTING.
WORLD ALREADY FULL OF THINGS DO WORK. MOST BORING.
PERSONALITY = INTERESTING. INTERESTING = CARE. CARE = TALK.
EVERYONE CARE AND TALK ABOUT PRODUCT? YOU WIN.
SELL TO FRIENDS, NOT STRANGERS
PERSONALITY MAKE PRODUCT FRIEND. YOU HELP FRIEND. YOU FORGIVE WHEN FRIEND NOT PERFECT. YOU WANT FRIEND WIN.
BORING STRANGER?… YOU NOT.
PERSONALITY IS API FOR LOYALTY. NO ONE CARE WHICH BORING STRANGER IS NEXT. BUT ALWAYS WANT FRIEND NEXT.
PERSONALITY MAKE MEANING
CAN PET ROCK. PET DOG BETTER. PET DOG HAVE MEANING.
BORING PRODUCT IS ROCK. NO HAVE MEANING. INTERACT WITH PERSONALITY DIFFERENT. HAVE MEANING.
INTERESTING PRODUCT THAT GIVE FRIENDS MEANING = MOST WIN OF ALL.
HOW NOT BE BORING
HAVE PERSONALITY EASY. ANSWER THREE QUESTIONS:
1. HOW YOU CHANGE CUSTOMER’S LIFE?
2. WHAT YOU STAND FOR?
3. WHO OR WHAT YOU HATE?
NOW HAVE MISSION, VALUES, ENEMY. THAT ENOUGH FOR MINIMUM VIABLE PERSONALITY.
KEEP IN BRAIN WHEN WRITE, TALK, BLOG, TWEET. ITERATE. IMPROVE WHAT WORK. DELETE WHAT NOT. PERSONALITY GROW.
NO BE CHICKEN
CHICKEN LIVE IN CAGE. NO CAN HAVE PERSONALITY INSIDE CAGE.
LAST STEP IS SMASH CAGE, LIGHT BARN ON FIRE.
DO THAT, YOU WIN.
This may be the most popular AVC post of all time based on the amount of traffic it gets month after month after month. I think I may rewrite it at some point because while I still believe the basic ideas here are correct, some of the math has changed due to market pressures and it deserves a rewrite. With that caveat, here it is.
The most common comment in the long and complicated MBA Mondays series on Employee Equity is the question of how much equity should you grant when you make a hire. I am going to try to address that question in this post.
First, a caveat. For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula. Getting someone to join your dream before it is much of anything is an art not a science. And the amount of equity you need to grant to accomplish these hires is also an art and most certainly not a science. However, a rule of thumb for those first few hires is that you will be granting them in terms of points of equity (ie 1%, 2%, 5%, 10%). To be clear, these are hires we are talking about, not co-founders. Co-founders are an entirely different discussion and I am not talking about them in this post.
Once you have assembled a core team that is operating the business, you need to move from art to science in terms of granting employee equity. And most importantly you need to move away from points of equity to the dollar value of equity. Giving out equity in terms of points is very expensive and you need to move away from it as soon as it is reasonable to do so.
We have developed a formula that we like to use for this purpose. I got this formula from a big compensation consulting firm. We hired them to advise a company I was on the board of that was going public a long time ago. I’ve modified it in a few places to simplify it. But it is based on a common practive in compensation consulting. And it is based on the dollar value of equity.
The first thing you do is you figure out how valuable your company is (we call this “best value”). This is NOT your 409a valuation (we call that “fair value”). This “best value” can be the valuation on the last round of financing. Or it can be a recent offer to buy your company that you turned down. Or it can be the discounted value of future cash flows. Or it can be a public market comp analysis. Whatever approach you use, it should be the value of your company that you would sell or finance your business at right now. Let’s say the number is $25mm. This is an important data point for this effort. The other important data point is the number of fully diluted shares. Let’s say that is 10mm shares outstanding.
The second thing you do is break up your org chart into brackets. There is no bracket for the CEO and COO. Grants for CEOs and COOs should and will be made by the Board. The first bracket is the senior management team; the CFO, Chief Revenue Officer/VP Sales, Chief Marketing Officer/VP Marketing, Chief Product Officer/VP Product, CTO, VP Eng, Chief People Officer/VP HR, General Counsel, and anyone else on the senior team. The second bracket is Director level managers and key people (engineering and design superstars for sure). The third bracket are employees who are in the key functions like engineering, product, marketing, etc. And the fourth bracket are employees who are not in key functions. This could include reception, clerical employees, etc.
When you have the brackets set up, you put a multiplier next to them. There are no hard and fast rules on multipliers. You can also have many more brackets than four. I am sticking with four brackets to make this post simple. Here are our default brackets:
Senior Team: 0.5x
Director Level: 0.25x
Key Functions: 0.1x
All Others: 0.05x
Then you multiply the employee’s base salary by the multiplier to get to a dollar value of equity. Let’s say your VP Product is making $175k per year. Then the dollar value of equity you offer them is 0.5 x $175k, which is equal to $87.5k. Let’s say a director level product person is making $125k. Then the dollar value of equity you offer them is 0.25 x $125k which is equal to $31.25k.
Then you divide the dollar value of equity by the “best value” of your business and multiply the result by the number of fully diluted shares outstanding to get the grant amount. We said that the business was worth $25mm and there are 10mm shares outstanding. So the VP Product gets an equity grant of ((87.5k/25mm) * 10mm) which is 35k shares. And the the director level product person gets an equity grant of ((31.25k/25mm) *10mm) which is 12.5k shares.
Another, possibly simpler, way to do this is to use the current share price. You get that by dividing the best value of your company ($25mm) by the fully diluted shares outstanding (10mm). In this case, it would be $2.50 per share. Then you simply divide the dollar value of equity by the current share price. You’ll get the same numbers and it is easier to explain and understand.
The key thing is to communicate the equity grant in dollar values, not in percentage of the company. Startups should be able to dramatically increase the value of their equity over the four years a stock grant vests. We expect our companies to be able to increase in value three to five times over a four year period. So a grant with a value of $125k could be worth $400k to $600k over the time period it vests. And of course, there is always the possiblilty of a breakout that increases 10x over that time. Talking about grants in dollar values emphasizes that equity aligns interests around increasing the value of the company and makes it tangible to the employees.
When you are doing retention grants, I like to use the same formula but divide the dollar value of the retention grant by two to reflect that they are being made every two years. That means the the unvested equity at the time of the retention grant should be roughly equal to the dollar value of unvested equity at the time of the initial grant.
We have a very sophisticated spreadsheet that Andrew Parker built that lays all of this out for current employees and future hires. We share it with our portfolio companies but I do not want to post it here because it is very complicated and requires someone to hand hold the users. And this blog doesn’t come with end user support.
I hope this methodology makes sense to all of you and helps answer the question of “how much?”. Issuing equity to employees does not have to be an art form, particularly once the company has grown into a real business and is scaling up. Using a methodology, whether it is this one or some other one, is a good practice to promote fairness and rigor in a very important part of the compensation scheme.
We’ve talked a lot here at AVC about Net Neutrality. I hate that term because it’s got so much baggage now that it is essentially meaningless to me. What I want to see is a framework that everyone agrees to (application developers, bandwidth providers, last mile access providers, and the regulators) that says you can’t prioritize one bit over another in the last mile access network and you can’t charge application developers to deliver their bits to the end user.
This issue is coming to a head at the FCC as the comment period is ending and some sort of decision will be made this fall. So next Wednesday, September 10th, is the Internet’s opportunity to stand up and be heard.
If you are with me on this issue, please consider joining the Internet Slowdown campaign next Wednesday. There are all sorts of ways you can do this. You can change your avatars on your social media profiles, you can send push notifications if you operate a mobile app, you can put a slow loading graphic on your blog or website (there are WordPress widgets if you are on WordPress like I am).
And if you still aren’t convinced, please read Chad Dickerson’s piece in Wired this week on why this issue is important to businesses and everyone who uses the Internet to reach their customers and/or audience.
For the past four years, The Gotham Gal and her friend Nancy Hechinger have been running a conference called The Women’s Entrepreneur Festival. The goal of the conference is to showcase successful women entrepreneurs to other women. As Marian Wright Edelman famously said, “You Can’t Be What You Can’t See.”
But even as The Women’s Entrepreneur Festival gets bigger and bigger each year, it can never scale to reach all women who might want to be an entrepreneur and it certainly can’t reach young girls who might be inspired to become entrepreneurs.
So that’s why I backed Dream, Girl this morning after seeing this Gotham Gal tweet:
Let’s redefine what it means to be a boss & teach girls to dream big by donating to Dream, Girl http://t.co/dUQo6z5884
— joanne wilson (@thegothamgal) August 25, 2014
Here’s the Kickstarter video:
I hope you’ll be inclined to back this project as well after reading this blog post.
Yesterday Firebase announced a hosted version of their product so you don’t have to use it alongside S3 or some other host.
I wandered by Hacker News to see what the developer crowd thought about Firebase and the new hosting service and was pleasantly surprised to see one of the most positive threads on Hacker News that I have seen in a long time.
The top voted comment describes the power of Firebase really well:
I’ve been using Firebase for a couple of months now for an iOS app I’m building for a client, and it has been a fantastic experience.
“What about merge conflicts?” was my first question, but luckily it has transactions on an individual node (and its subtree) that perform an “optimistic-concurrency transactional update” which basically means a compare-and-swap where you review the current value in a callback and decide whether to try to commit that value (or a new value, say, for a counter) or give up. For most other writes, you’re usually just saving status updates where there is little or no danger of being rejected or encountering merge conflicts. If in doubt, it’s possible to get a callback with the final value.
So when it’s all said and done, I can totally see writing a full-featured app using it without a single line of server-side code. I used their hosting while it was in development to store images (like a CDN) and it’s very simple to use from the console, so if you have a build script, it could push to production with a single call. After an exhausting ordeal battling iCloud for a different project, Firebase is so profoundly better that I will never go back.
That’s the kind of unsolicited customer testimonial that most companies would die for. It’s a real tribute to the Firebase team that they have built something that developers love. We have been involved with a few companies that make products developers love (Stack, Twilio, Mongo for example) and these have all been fantastic investments for us. Looks like its time to add Firebase to that list.
A few months ago, I posted about a student coding contest called Dream It Code It Win It. I attended the awards contest last night at The Great Hall at Cooper Union. I love that space. You feel the history when you walk into the room.
The majority of the event was a panel event which in my opinion was a waste of time. I wanted to see the students present their projects. Which sadly did not happen. But the students were invited up onto the stage to collect their awards.
In the high school category, almost half of the participants were women. That is a fantastic stat and hopefully a sign of things to come with women and coding.
I was super excited to see a team from The Academy For Software Engineering win one of the awards. That is a great accomplishment for a school that hasn’t yet completed its second year. Here is the team from AFSE getting its award.
It was also really fantastic that The Young Women’s Leadership Academy (an all girls high school in NYC) fielded a winning team. I’ve heard great things about that school.
Not surprisingly Stuyvesant High School had three winning teams. The Stuyvesant CS program has been around for almost twenty years and its leader Mike Zamansky is one of the unsung heroes of the NYC tech scene.
Mike sent me videos last night after the event for the three winning teams from Stuy. One of them is so good, I think it would easily get funded on AngelList. It’s called Cartwheels (great name) and here’s the video.
These kids eat at food carts every day, they dreamed of a better way, they built it, and they won it. That’s awesome.