I hope that your philosophy of compensation is well understood by your employees. I would hate to be an employee who goes over and above work wise in such a setup.
Pay in bonuses rather than salary, then. It's fairly common for top performers in both finance and big-tech for performance bonuses to equal or surpass one's base salary. That connects compensation to results, and makes it clear that you're being paid because you went over and above rather than because your employer doesn't know what market rate is.
The problem with bonuses is people just concentrate on whatever earns the bonus, not on what is best for the business. Bonuses work well when the metrics are able to be measured accurately, but if not they can create a lot of unproductive behaviour (like sucking up to the boss).
But isn't that a symptom of not being able to correctly identify what those metrics should be?
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 :)
I recommend Measuring and Managing Performance in Organizations to anyone who decides to start tinkering with bonus schemes.
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.
Yes identifying the right metrics is certainly hard, but managing the conflict between them is even harder. As you rightly point out as soon as you have a few different metrics how do you decide their relative importance and how much time and effort on each one?
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.
That's the "boss"'s or owner's problem (or prerogative). They saw something that they perceived was valuable to their business, and rewarded it accordingly. Whether that was through something fickle like "sucking up" or through valuable metrics. Again, it's up to the boss/owner to figure that out.
I fully agree with what you said above.
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.
Why? It would only be bad if your effort was not recognised by me and compensated accordingly. This would be bad management.
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.
There is a subtle issue that comes into play here
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.
This is exactly what I suggested - overpay, but not by too much.
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.
The one thing I have learnt is it is never too early to fire. The only exception is if you haven’t been clear with your expectations.
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.
Is the link supposed to be to a specific post? I just see a list of posts so I'm not sure where to read more about what you mean to share.
On mobile you only see the menu, the responsive layout hides the actual article.
A good way to gauge a founder's (first-time founder) likelihood of success is to see how receptive they are to this list of advice. As a contract developer, I find that many many founders consider themselves the exception to the points listed in the original article which is a huge red flag. The biggest exception is probably listening to customers - I find a lot of founders insist they have to 'educate' customers which basically never works. I wrote about it at length here: https://www.turbo360.co/blog/startup-red-flags-syzdan
Interns are great for practicing how to manage, but I agree, as anything beyond that, don’t expect much.
I think internships should be about both giving and taking. Not just simply objects to practice on. If a startup doesn't have the time and money to invest in interns no matter what the payoff is, they probably shouldn't as it is wasting time on both sides.
I want to echo the advice about interns from David Wind. I have hired a few interns. While relatively cheap, which is attractive at an early stage, they took up a lot of my time and most of their work couldn't be used in the end. The latter was probably my fault, but the reality is that I didn't have the time to properly train/mentor them. It is better to go without interns at least in the early stages in my experience.
Aesthetics really matter in the early stage. Spend time and/or money early on nailing a cool logo and beautiful slide template. It really matters. Even copying other beautiful stuff is fine.
For getting our first 3/10/100 clients, the fact that we looked and sounded totally pro meant a lot. We seemed like a larger more innovative company because of it.
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.
Each investor is different, but I personally think the ideal pitch is a big vision combined with a pragmatic plan for the first couple of years. If the vision is not that big, then that won't excite most (Silicon Valley) investors.
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.
Did you make enough money as a regular sw engineer to put into seed investing or did you get your investing capital from somewhere else?
You need to be accredited to angel invest in the US, which means $200k in annual solo income, $300k in joint income, or $1m in net worth. The net worth number is hard to hit, but the income levels are attainable if you work at a bigger company (Google, FB, etc).
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?
TLDR: if you aim for 100x and achieve a 3x, that won't affect my fund much financially but I'll be very happy for you and your team. But if you initially aim for a 3x then I can't invest in the first place based on my portfolio model.
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.
Thanks for the detailed reply. Really clear.
I’m not lpolovets but I do angel invest and my take is the math really does only make sense if you get a few big hits... which would imply the only rational angel/VC strategy is only invest in ones with big potential (and diversify). And that’s what I try and do.
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.
Thanks, that really helps.
The reason for this is a lot of investors are looking for unicorns, not businesses with a high(ish) probability of success.
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).
Hi there. That quote was from me. Thanks for finding it interesting. Thanks for asking lpolovets to weigh in. He is incredibly smart and thoughtful. Turns out... he’s one of the investors that responded well to our “pragmatic” pitch. A few angels did. It’s not that it doesn’t appeal to anyone or that it’s the wrong choice. But, if you’re pitching to a VC where success is measured in # of homeruns—not win rate or even IRR—you should talk about being a homerun, not a sure thing.
Venture investors want to hear crazy ideas, not pragmatic plans. When I first pitched investors, I was talking about how we would add customers slowly at first, because that’s how enterprise SaaS works. Honesty is always a good policy. But those pitches did not go well.
I'd love to hear investors' thoughts on this one. lpolovets, are you around?
My wife also added to the list the need to make love with her more often ;)
There is a lot of really good advice in there... perhaps almost too much in the sense that it's easy to skip the ones you should pay attention to, and nod along to the ones that reinforce your existing idea of what advice you need. Putting myself in my wife's shoes for a moment, I'm pretty sure she'd say I need to listen to the advice on getting more sleep (I'm typing this at 1am in the UK). In fact, thinking about it, I am going to call it a night now!
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...
> As a great entepreneur you also need to be excellent in mindfulness, not being that manifests in poor private life quality (women, kids, friends)
Women can be great entrepreneurs as well.
Women can also be great friends.
Women can also be great scientists.
> I thought I should be like Elon Musk and tried working 100h a week and sleeping under my desk. I learned that in fact I’m not Elon Musk and found myself on the brink of a burnout a couple times.
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.
(I wrote that answer)
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
What do you mean by 'always include an ask'? Is that to keep them engaged by having some information out of them?
You should always think about how your investors can help you, and ask them for it.
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.
We at GitLab frequently ask for help with hiring referrals and potential customer introductions.
Mostly a lot communication vs little to no communication.
A. The importance of good communication with potential and existing investors. Done effectively it significantly increases your chances of keeping the company funded, and therefore of success. Done terribly it makes you borderline un-fundable.
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?
My only advice to anyone founding a company
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.
> Why is the failure rate for startups so high?
- product market fit
- founder conflicts
- better funded competition
- bad management
You forgot a very important factor many people fail to account for: a major inflection point or what Bill Gates characterizes as "eventually, the market will turn left".
While reading the article on the back of my mind I'm thinking that 99% of founders that read & follow those advices will still fail. But why? Why is the failure rate for startups so high?
and why is the failure rate for starting a bootstrapped revenue generating business much lower?
How is that supposed to help team morale?
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.
If you're firing quick and firing often, yeah you're going to have bad morale. If you're firing quickly, learning from the experience, and then making sure you never have to fire again, the morale won't be an issue.
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.
Not firing quickly means you fire slow. Which means the person who should be let go continues to stick around and potentially cause problems for the rest of the people. This can be just as sad, if not more so, for the other employees who are impacted by what the person who should be fired continues to do.
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.
Oh well, in that case it kinds of makes sense, as long as you are also transparent during the hiring process that this is the state of affairs in your company.
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 you are concerned about the impact of firing an employee with other financial responsibilities (not sure why specifically having young children factors into it anymore than any other responsibility), that is solved with a severance package, which is often still cheaper than keeping an underperforming or toxic employee around.
As TFA states, firing quickly fails when you abruptly fire people seemingly for no cause, and works when you set clear measurement goals with deadlines and show that the person being fired isn't meeting the standard. In short, that being fired quickly should never be a surprise to anyone involved, and should be a relief.
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.
18 months of severance? Like, their monthly wage x 18, to let them go? What startup could possibly afford that?
Agreed! 18 months isn’t feasible. Even well funded Fortune 500 would refuse that.
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.
So I haven't had to fire that many people yet.. but you think someone that worked for me for 3 months should get 3 months severance?
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.
> you think someone that worked for me for 3 months should get 3 months severance?
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.
have you ever run a startup with a limited bank account?
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.
Sure, if you can find talent that’s willing to do that.
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.
My well funded Fortune 500 would pay out 1 month per year worked (above 2 years), so you could get to 18 months eventually.
I guess that technically means you could retire 4 years early if you had been working there all your life.
Any company that waits months or years to fire bad hires and unproductive employees could afford to pay it, by definition.
Being overly generous on the severance can create more problems than it solves as employees looking to move on can milk it. It is pretty easy for a smart person to get themselves fired if they want to without totally trashing their reputation.
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.
I've seen the argument that you offer someone enough on exit so that
* 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.
I think giving a large payment (bribe to go quietly) sends all the wrong signals. It shows you are weak (can't handle conflict) and it destroys morale by showing that those that leave are valued more than those that stay.
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.
Fire quickly but take responsibility!
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.
I liked the advice by Garros Li – Edusight (IK12)
> 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.
> [...] we thought paying more to get experienced people wasn’t worth it.
> 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 also nice when the compliment you :)
I am sure you meant when "they" compliment you ;)
>A cofounder who compliments you was a saving grace for me.
I am sure he meant "complements you"
It is very uncommon in US to have trial periods. Alternate interpretation: since in most states employment is at-will and the company can fire you anytime for any or no reason, basically your entire employment can be considered a trial period.
Many founders talking about hiring or firing employees. I'm not from US, so I wanna ask How long trial period do startups offer? Do they pay severance package during/after trial and how much?
From the article: "The biggest responsibility of a founder is making the right decisions."
That will never happen on hacker news, certainly.
Founders learning from other founders isn't hype.
Ping pong tables, follow your dreams, all that? The article is not about it at all.
It's about managerial advice, which is not only suitable for startups but for any resource-constrained company under pressure.
Wonder when we'll stop hyping the stupid startup culture
Thanks! Some great advice in there.
Bookface, very clever ;)