I’m a big sci-fi buff and I’ve always been fascinated with robotics, teleportation, space and time travel. I’ve always believed teleportation would be possible in my lifetime, just not for people. I think it will be possible for “things” though. I think it will be the ultimate delivery disruptor, everyone having a teleportation device in their home. It replaces physical mail. Order something from Nordstrom. It is teleported into your house instantly.
This might be years away but I can imagine some sort of startup play around hardware and software in terms of a fax machine (some type of teleportation device) and a 3D printer. Obviously you want a carbon copy of whatever it is you are teleporting, without having to have the materials in your teleportation device.
I wonder if anyone is working on anything like this. Please send anything my way - will beta test :)
I read Mark Suster’s What is the Definition of a Seed Round or an A Round? this past week and one piece of the post made me think.
Obsessing about the wrong things in starting a company says something about one’s priorities even though this is subtle and hard to define.
I really like that sentence. I feel it too. I went through it. Earlier on in my career, I spent days, weeks, months focusing on all the wrong things. In Mark’s post the obsession is about calling a funding round a Seed vs. a Series A. I’ve seen founders obsess over all sort of things ranging from business cards to negotiations of nominal amounts (I’m talking $50).
Now, while one thing might not seem important to one person and seem very important to another - there are some general things not to obsess over in startup land. I think the most agreed upon “wrong thing” are organization “titles.” At an early stage it really doesn’t matter who is called what, what matters is executing on your business.
What have you obsessed over or have seen other founders obsess over that is such a waste of time?
Bubble, bubble, bubble. That’s all anyone can talk about. I’m not a public markets guy so I don’t really have anything to say about that. I do, however, see a major bubble in the technology world, but it is not about valuations, it is about ESOP. We are in an ESOP Bubble.
So, what is ESOP?
ESOP stands for Employee Stock Option Plan. At most startups, you join the ESOP program when you start by getting options in the company. Usually it is a four-year vesting period with a one-year cliff (means your stock option offering states that you aren’t “granted” any options in the company until you stay at the company at least one year - the cliff. You then vest 25% overnight, for that first year, and your stock accelerates in terms of earning on a monthly basis until you fully vest in four years). This doesn’t cost any money up-front and can be worth a lot of money if the company takes off. It is a big selling point when founders recruit.
So how can we be in an ESOP Bubble?
It is very easy. Most stock options are worthless but yet they are coveted. Founders recruit by selling the dream of their startup. They tell the prospective employees about how they will be the next big thing. The catch is, if you want to join them you need to take an under-market salary. Oh, but don’t worry, you’ll have it made up with stock options. And those stock options are going to be worth 10 to 30 times its current value. You know the girl that joined Whatsapp around the same time in their growth and in a similar role made $10M when they sold to Facebook. It is a sexy sell. Startups are very hot right now, pointing to successful outcomes are very easy, so there is a ESOP Bubble brewing and it is destined to pop.
But what about the Googles and Facebooks of the world?
Yes, if you join Facebook, Google, Twitter, Pinterest, Whatsapp, Snapchat, Uber before a certain point your stock will be worth something meaningful. For some, it might be enough that you never have to work again. Even if the company sells for $100M or more you may be able to not have to worry about money for a few years. But you probably have better odds buying a lottery ticket every day than joining a startup at a stage that you can earn enough money to have the option of never working again.
What’s the most common scenario with stock options?
While stock options are a sexy recruiting tactic, there are a few likely scenarios of what happens to your stock:
a) You decide to make a job move to that hot startup that raised their Series A from Sequoia. Flash-forward and you’ve been at the company for more than 1 year (hit your cliff) and you decide to leave the company for one reason or another. You now have 90 days to BUY your stock options. Oh, you thought they were free? Nope. You need to buy them.
Now, If you buy them, it is like making an investment. If you are granted 80,000 shares at a strike price of 25 cents, and you’ve only been there for two years (you can only buy 40,000 of them), you will have to buy them for $10,000 (40,000 * 25 cents).
That’s pretty expensive for someone that just took an under market job for the past two years!
If the company ends up going under, you most likely will lose your $10,000.
Oh, also, you need to pay AMT income tax if the value of options increase (if the company is successful, this will happen). So you are out money and need to pay taxes on money you actually don’t have. Fun times.
If you don’t exercise your stock, it just goes back to the company.
b) Another scenario is that you stay at a startup for the full four years of vesting, but you are stuck at a job that maybe you don’t enjoy or aren’t learning much anymore because you can’t afford to buy your options and pay taxes on them at this time. If the options are worthwhile, there might be a public market for it (like SecondMarket) or sometimes there are firms that lend you money to purchase them, but they take a piece and there is still a risk.
c) The last scenario is that the startup goes out of business. Your stock is worthless.
So why even join a startup?
When thinking on whether to join a startup or not, making money from your stock options should be the farthest thing from your mind. You should think about how much you can learn, who you will be working with, and if you are excited about the company product/offering/mission. Many people join a startup to learn how it is done and then go off to start their own. Be wary of folks joining a startup to “make a lot of money.”
So what about this ESOP Bubble? When will it pop?
Who knows. But I know that the time of founders owning 70% of a company and the employees owning 10 bips is going to end soon. I’m not sure what it even looks like after, but things cannot continue this way if the startup world expects to build big companies with a high density of talent.
What do you think? Are we in an ESOP Bubble?
Lastly- ESOP clearly needs to be “disrupted” - any ideas?
The biggest mistake I see startups make regarding public announcements is that they assume that just because they exist or that they want to announce something that the press will cover it.
Newsflash: Your news is not interesting.
No one is going to carbon copy your press release or blog post.
You need to make them care.
You need to take time to carve out an interesting story for anyone to care.
An interesting story is not that different from a pitch or storytelling to customers or investors. You need to pique the interest of the reporter and get them excited about whatever it is you are announcing.
But don’t forget what your company goals are for the press. It could be to announce yourself for the first time, it could be to get inbound customers, investors, talent or something else entirely. Whatever the reason behind wanting to get press (you always have to have a main reason) it will dictate where you should be pitching your story. There are different outlets for different goals. This will also help with making your news interesting.
Just make sure you don’t mistake seeing a lot of startups and announcements covered in the press as it being easy. The companies (or their PR agency), most of the time, found an interesting-enough-story to cover. For a startup new to getting press, doing it right is very hard.
So, in summary, your news is not interesting and no one cares. Once you accept that simple fact you need to take the time and carve out a story to make your announcement interesting and to get reporters to care about (and subsequently cover) you.
I’ve always been internally conflicted about one aspect of partnerships. That conflict is around whether to selectively partner or try to partner with whomever wants to partner with my company.
In the past, I’ve mostly worked on product partnerships (i.e. an API). With product partnerships you typically want any and every company to integrate your API. I’ve used the Launch Partner Strategy (i.e. launching a new product or feature with multiple companies and use cases) many times with success (and also with failure). But now that I’m running SocialRank, which is more of sales than it is BD, selectively partnering is much more attractive.
I’ve thought a lot about the difference and here is what I think the pros and cons are of each approach.
- The right big-name partners can change the game for you overnight
- Get to focus more, less trying to manage multiple partners
- Creates intrigue and demand by being selective
- Less use cases to point to when trying to get more companies onboard
- Miss out on small-looking companies that can be really big
Partnering With Everyone
- Tons of use cases to show off
- Finding a partner that can only be described as a diamond in the rough (happened time and time again at Aviary)
- Optics look good (lots of interest)
- It is a quantity over quality play
- Usually (but not always) takes longer to close bigger deals
- Lots and lots of work
There is no “right” way to approach selectively partnering vs. partnering with everyone. It is very situational. I think if you have a decent sized BD team and have an API (as I did at Aviary and Dwolla) you can go big and small (partnering with everyone). But now that my partnerships team is small at SocialRank, being selective is the way to go.
What do you think about this topic?
There has been a ton of hoopla about startups and the problem with cash flow and burn. Many big investors are sounding the alarm that late-stage companies are spending too much money. The idea is that if they continue to spend as they have and growth isn’t where it should be, they could disappear overnight. This will have a trickle-down effect on earlier-stage startups.
I think this is fair. But I also think this is always the case. Mismanaging time and money will vaporize any startup. Maybe the reason for the noise at this time is because investors think this is more likely to happen now which is completely reasonable.
So what does this mean for your early-stage startup?
I think this means a few things but the most importantly to make sure you manage your monthly spend and company focus (i.e. time). Build a roadmap, hit self-imposed deadlines, don’t have any dead-weight on the team, are things you should always be doing but even more so when money becomes tight.
If Winter is truly coming, stay sharp, focused, and good luck.
Startup progress is a funny thing. Sometimes progress is in form of an outward-facing product. Sometimes its in form of raising money to give your business more oxygen. Other times it is in form of putting time into fixing your infrastructure to scale to millions, something that is not so public facing in terms of the progress (as your product is expected to “just work”). I’ve thought a lot about the concept around progress at startups and what a good balance to have is.
Public and private progress is tantamount to startup success. Having a well-oiled machine and churning out product improvements (whether it be adjustments to an existing product or fully new product offerings), revenue or user progress, and more is key for public perception (which is reality). At the same time making non-public advancements at your startup are great and needed. The problem usually arises when you focus too long on one over the other (public vs. private).
For example, if a company focuses all their attention on advancements that are press-related (big partnership, new funding, new product, etc) they may get all this inbound and excitement around them while the non-public things get pushed to the side (the biggest one I see is product infrastructure). So while you have all this hoopla, you are building a house of cards that will ultimately collapse.
On the flip side, if you focus all your attention on private advancements that the public will never see and never know about you may go a long time without the public caring about you. “Public” could mean new and existing users (if you are a consumer-facing company) or new and existing clients (if you are B2B or B2B2C). Both scenarios are not good - striking a balance of public and private is important.
From my experience (and I’ve seen companies do both) - public progress should be seen at minimum once a month or once every six weeks. This could be in the form of a new product, funding announcement, partnership announcing, new key hire or even just a some small feature updates on your existing product. At the same time you should be getting all the private advancements in order in order to get to bigger public progress.
How do you handle public vs. private progress at your startup?
I’ve been interested in the dynamics around press and startups since joining Aviary back in 2010. One of the co-founders took me under his wing, teaching me some of the ins and outs of putting together a story, pitching, and generally getting someone covering tech to be interested in covering a product launch. I’ve taken the knowledge I’ve learned there and applied it to all my endeavors as well as with helping other companies get out there publicly.
I’ve been involved with announcements on everything from fundraising and product releases to partnerships and new hires. Sometimes it is an exclusive and other times it is embargo’d with a bunch of outlets covering. One thing I haven’t tried yet is slow dripping news. What I mean by that is having enough news or content that even if someone gets an exclusive, there is still so much “stuff” that is interesting and exciting that the shelf life is long and there is a lot more opportunity for coverage. We (@SocialRank) have some things coming out before the end of the year and I think one of them really fits this criteria, so I’m excited to try it out.
Have you ever had news you could slow drip? How’d it work out? Hit me up here or on email (Ataub24@gmail.com)
There are a ton of qualities you look for when recruiting for your startup. Everything from problem-solving and previous experience to creativeness and getting previous work recommendations. They are all important. But I think, for startups particularly, there is a #1 quality and it is the ability to self-start.
Startups are fairly hectic, with improvisation happening often. Once plans are laid out you want your team to ask themselves one question: “What do I need to do to make this successful?” Then to go out and execute.
Having the ability to self-start and not always needing to ask what to do next adds value to the team. At an early stage the last thing you want on your team is someone weighing it down because they aren’t using their mind to figure out what needs to get done.
This goes both ways. The management team needs to be able to express what is coming and outline the roadmap for the employees to be able to self-start.
So what do you think? Is this the #1 quality? What other qualities should you look for in a prospective employee?
On the heels of the last two posts, one of the big things we did at the offsite was set ourselves up to build out a roadmap. It is an easy task to build a roadmap when you are a small company; it is not an easy task to stick to it. The reason being that things change so much at early-stage companies that what might have made sense three months ago now has changed.
So what we are doing, instead of building a proper roadmap and sticking to it, is listing out all the things we want to do as a company and perform a Bang/Buck analysis on it. This allows us to figure out the level of impact it will have on our business (Bang) and what it will cost us in time (Buck). We listed out 20+ things we want to do and are now figuring out in what order we will do them.
While we generally know what is next, doing this exercise helps us clarify. I think it might help you too if you are in a similar situation.
This past week Michael and I had our first SocialRank offsite. We did it two nights last week (Wednesday and Thursday from 6pm-9pm) with one of our company advisors acting as the moderator/facilitator.
We discussed everything from what we want to be when we grow up to what roles we need to fill to be successful. It was really necessary and I highly recommend that any company should take 4-6 hours, go out of office, and do some game-planning with your co-founder.
It is hard to take a step back during the busy-ness of work. But, I think, if you don’t do this every 6 months or so your startup will hurt long term.
So, have you taken a company offsite recently? If so, how do you feel about it?
"How can I break into the VC world" is the second most asked question I get after "How can I break into the startup world."
To most, VC is sexy. VC, especially at the seed and A round, is really sexy. But there are very few VC jobs. Like next to zero. The chance of you getting a VC job is not as difficult as winning the lottery but there is very little supply and a huge amount of demand.
So how do you get a VC job? And just to clarify, I’m talking entry-level VC, not becoming a partner or above — that’s a whole other ballgame.
Well the truth is that it is simple to understand but not easy by any means.
The answer is — source as many good deals as possible. If you send high-quality deals to investors that they end up investing in, you will be looked at as a vital source of deal flow. There are only two things that every VC needs and that is a) $$$$$ to invest and b) access to the best deals. If you aren’t going to give $$$, your best bet is to be a point of access to the best deals.
This seems simple, and conceptually it is, but it is definitely not easy. At this point I’ve sourced a handful of deals to a variety of funds and it takes a few tries to get the right company/team to the right investor. I’ve found that the best way to help investors is to get a follow-up email from a company you meet (something like—- Hey Alex, it was great sitting down last week. Here is what we do…….. Let me know if you think anyone would be interested in talking to us….) Then I forward this along to a handful of people I think might be good fits.
There are some hits and some misses but it shows investors that I’m seeing companies before they are. This is key in the seed stage. It’s reached a point where some investors even want to know about high-quality potential founders when they are still at a company or in school so they can meet them BEFORE they even venture out. At a certain point if you are good at sourcing deals the VC firms you send deals to will want exclusive access to your deal-flow. This means they want you to join their team.
So if you are interested in getting into the VC game, what do you do? Well you go find great companies and get them in front of investors before the investors even know they exist. The companies can be childhood friends, some girl that your college friend is dating, some guy that you met on line at Whole Foods, etc. You need to keep your eyes open and ears to the ground. This is one of the only surefire ways to break into VC.
I’ve been thinking about the concept of “tracking growth” recently. In the startup world, there is a difference between gaining traction and growth. Traction can be having interest from the right people (customers, investors, etc.) Growth is a number you track every hour, day, week, month, year. Growth is the lifeblood of startups. If you are growing quickly, you can do anything in startup-land. But when should you begin tracking growth?
The easy answer is “from day one.” But I also strongly believe that the data you get from tracking growth from day one, if not looked at through the right lens, can be detrimental to your company. I think you really start making decisions based on the growth information when you have the right product that is ready to grow. This seems obvious but many companies track growth early and get too crazed about growing month over month before they really should be. The problem with the above is when you don’t have the right product ready to grow, the numbers you will be tracking will (at best) most likely disappoint you, or at worst cause you to do stupid things or gray area stuff to hit the numbers you want to be hitting.
I think a good middle ground is, at the early stage, to track things with the knowledge of bettering decision-making but not for “growth” purposes and then once you have the product ready to grow, then track the hell out of everything related to things you want to grow (usually users, activity, and $$).
What do you think about tracking growth at startups?
The New York Tech industry is awesome. Mature enough to have some great companies, but still early enough to make a name for yourself in the scene.
Tonight, Michael and I are presenting SocialRank at the NY Tech Meetup. If you aren’t coming, you should. I remember going to my first NY Tech Meetup (I just looked it up and I joined the NY Tech Meetup on August 4th 2009). It was at FIT, and Hunch, Blip.tv, and Comixology presented. It was an eye-opening night and cemented my desire to enter the startup world.
I’ve been on the stage before while at Aviary presenting the Web API, but never to present my own thing. Michael actually presented MVF back in 2012 (as “Hack of the Month”), but I was in SF for work so I couldn’t be there. So I’m really excited about getting on stage tonight.
Another thing I’d like to share here is a new newsletter called NYC Built. It is curated by a small group at RRE Ventures. NYC Built highlights the launches, new products, and funding of startups in NYC and Brooklyn. You should follow them on Twitter and subscribe to the newsletter. I received the first one and it is pretty great.
We launched SocialRank 2.0 yesterday and a lot of planning went into it. There are obvious outlets to get the word out about a new product or company, namely press from tech blogs and mainstream press. But there are other product launch strategies worth noting. Here are three:
1) Pre-seeding the product to friends and industry professionals
This is one effective strategy used when pre-releasing before launching a company, product, or new feature. We did it with SocialRank 2.0 earlier this week. On Monday, Tuesday and Wednesday morning before launch, we hit up friends and people with medium and large followings on Twitter and turned on the new features for them before our 11am announcement. This, a) Let them play around with the features before other people, giving them a chance to evaluate it properly and praise the product if warranted, and b) Let them access the tool before the system was clogged up with announcement/press traffic.
2) Product Hunt
I recently wrote about Product Hunt and how it can be massive. Things have only become better for Product Hunt since. Posting your company or product on Product Hunt is a surefire way that players in the tech world will see it. You’ll also get great feedback. At a minimum, you’ll get a bunch of users interested in seeing and playing with new products.
3) Emailing existing user base
Once you’ve put your product out there, you need to let your existing user base know about it. What we’ve done at SocialRank in the past is send out an email to our user base the following morning after any big product launch. This allows us to continue the inbound of usage once the press day is over. I like the format of having three stories in the email newsletter. I like the lead story on top (in our case this month was SocialRank 2.0) and then two other stories below, one on the left and one on the right side. The subject line should be related to the new release (and should be catchy if possible, Quora does a great job around this). Remember this strategy is only for companies that are releasing a new product or feature as you already have a user base.
What other launch strategies do you use at your startup?