8 ms·

How Open Should a Startup CEO be with Staff?

124 points by _pius 13y ago

droopyEyelids 13y ago
Without getting into the utility or truth of this post, it's this kind of mealy, on the edge of misleading double-talk that makes me feel cynical and burned-out at a company. It's paternalistic, and a way of talking down to people who can't handle the truth. But damn it, looking at this from the author's perspective, if you're going to build a large company, everyone won't be realistic, and many people probably do need paternal looking-after. It strikes me as probably-necessary if you don't really know everyonen you're working with, or in cultures like the bay area where people have weird expectations.
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jrkelly 13y ago
This author's posts on marketing and PR are great. For some reason his management posts always rub me the wrong way. Agree that it's tough to share everything and avoid confusion/distraction (his M&A point) -- but the real footing of this post is that you shouldn't share certain things (runway & valuation) b/c employees can't handle them. CEO as superhuman grosses me out.
- yesimahuman 13y ago
  Yea, CEO's with that attitude just plain suck to work for. It's one strategy that I think works in some cases but probably drives away the best people. In my experience I felt like I was being babied. No thanks.
- judk 13y ago
  marketing advice is how to manipulate the customer. PR advice is how to manipulate the public. Management advice is how to manipulate the staff. Maybe you should revisit your reaction to these three cases. What is the difference? Answer: only in the third case are you on the other side of the table.
stretchwithme 13y ago
However open an CEO decides to be, he should be consistently open. There's nothing more disturbing than openness about finances and runway than a CEO that suddenly clams up. Or maybe that is actually very informative.
- seanmcdirmid 13y ago
  What is not said is often more important than what is said. A good employee will learn how to read their CEO that way even if they aren't very transparent.
crygin 13y ago
As a minor counterpoint, if I'm helping someone build a company and I ever find out that they lied to me, I'm walking away. I suppose that's why I'm not in the startup scene anymore, though...
aaronbrethorst 13y ago
I personally prefer not to own a home in these circumstances but if you really want to buy a home I’ll happily help you by writing a letter. A couple reactions: 1. The employee in an early stage startup should know better, but: 2. You, as their CEO, someone they hopefully trust and respect, shouldn't be doing anything to encourage them getting into a financially untenable position. edit: I want to mention another scenario. Let's say you have six weeks of cash left, and prospects for a bridge round are shrinking by the day. For whatever reason you've decided not to tell your employees what's up. What do you do then? Still tell this poor bastard, "if you really want to buy a home I’ll happily help you by writing a letter"? That's incredibly risky at best and morally repugnant at worst. Maybe things work out and you get more cash. Maybe you don't, but he's able to get another job within days. Maybe you don't, he can't, and he loses his house. That's a serious gamble you're taking not with your own life and livelihood but with someone else who has placed their trust in you. What's your reaction? 'Them's the breaks with working at a startup,' perhaps? I know Mark lives in L.A., but I've seen similar behavior occur in both Seattle and SF companies, and I find it abhorrent. Here's another part that bugs me: If you find employees building spreadsheets and spending time on exit scenarios and what their take would be then you know your company has “optionitis.” Or they're about to figure out that it doesn't matter if the company exits when they own 0.75% or 0.49%, because their percentage is going to net them exactly dick either way.
- deleted 13y ago
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- brudgers 13y ago
  The cultural memory of stock options revolves around the Microsoft IPO, where in a pre-internet age, secretaries (which indicates how long ago it was) became millionaires via tiny slices of equity. The Google chef brought the misconception into the internet age. Even at a billion dollar exit, 1% is borderline fuck you money after taxes.
  - aaronbrethorst 13y ago
    Absolutely right, but, as I'm fond of pointing out to friends who join startups: you are not joining Google, Facebook, or Microsoft. The odds of you even joining Zillow or Yelp are so remote as to be a rounding error to a rounding error.
azov 13y ago
>Of course as a founder & CEO you know that your 18% of the company at an $80 million is worth more than 26% of a $30 million valuation but I promise you that this is a nuance that even really smart & educated employees struggle with. Oh, really?.. Your smart employees suddenly stop comprehending basic math when it comes to their future compensation? Or maybe - just a guess - when the CEO was recruiting engineers (who, perhaps, don't have much experience with the business side of startups) he told them they would have 0.75% of the company but forgot to mention dilution?.. Could that be the "nuance" employees struggle with?
- michaelochurch 13y ago
  I think there's a different situation altogether. It's not dilution that pisses the engineers off; it's the general fact that what they get (equity-wise and career-wise) is so inferior to what the startup mythology promises. Dilution itself just becomes a touch-point, because all that other crap they look back on and realize they "should have expected". Most startup engineers think the equity is a signing bonus, almost like a gift-- say, a teaser-- and that they're going to get an order of magnitude more as long as they perform. The fact that it vests over 4 years (with cliff!) and that initial employee allotments are almost never improved is glossed over until they actually join the company.
  - timr 13y ago
    "It's not dilution that pisses the engineers off; it's the general fact that what they get (equity-wise and career-wise) is so inferior to what the startup mythology promises." Oh, please. You're overselling your hand. Programmers aren't victorian textile workers -- they have their pick of jobs, all with fantastic perks, great working conditions and greener grass just around the corner. Nobody is holding a gun to your head and telling you to work at a startup. If you don't think a particular job is a fair deal, then go do something else. Unlike most people, you have lots of great choices. There are many real problems with software as an industry (e.g. age and gender discrimination), but if your worst complaint is that you're not getting as rich as you thought you might from your day job thinking hard thoughts and typing, then you need a perspective adjustment.
justin66 13y ago
Another reason why a startup employee shouldn't take stock options and their value seriously at all when considering a job: > I hate when companies publish too much information about the total stock option allocations, the company valuations, the dilution faced in every round, etc. The startup employee cannot take their options seriously at all in a situation where this attitude prevails. To her credit the author seems to understand this: > if money comes through options at the end of our journey that’s icing on the cake A perfectly reasonable attitude for people to take, although it means the startup is going to have to compete for employees with cold, hard cash.
bri3d 13y ago
Follow these easy steps to get a company full of naive people (probably new to startups) and pull the wool over their eyes so you can exploit them to work for below-market compensation! The closing speech even confirms it. I thought work-for-resume went out of style in the tech world along with unpaid internships. I guess not.
- michaelochurch 13y ago
  I thought work-for-resume went out of style in the tech world along with unpaid internships. American-style corporate capitalism is an original sin culture. You're worthless until validated ("saved") by an abstract phallic symbol called a corporation. The work-for-resume culture isn't going to fade out for a long time.
  - judk 13y ago
    That isn't what "phallic" means.
    - akjetma 13y ago
      I don't know--in my experience, corporations can be pretty dick-shaped.
michaelochurch 13y ago
First, let me hit this: It is because when you share too much of this information with staff you develop an “options culture” the I find unhealthy. If you find employees building spreadsheets and spending time on exit scenarios and what their take would be then you know your company has “optionitis.” Well, that's largely because employee equity offerings are pathetic. People who make these calculations do one of two things: (1) realize that even at-valuation-- and it's an open question whether their personal valuation should be equal to that, or several times lower, than the VC's-- they are getting shafted. Most often, the startup equity grant for an engineer is an insult. I think there's an uncanny valley effect: low equity, from a startup, pisses me off more than zero. (2) realize that they'll need to become executives to get real slices, and start playing the same political games for which startups are "supposed" to be an antidote. Often, the founders will stoke this competitive culture but shaft everyone; even the winner gets a pathetic prize-- maybe twice that shitty equity slice but in a high-burnout-risk role. Join our company because we’re doing exciting things. Join because you’re going to get more responsibility at a young age than you would a bigger company. Join because we’re a meritocracy and promote success not tenure. Join because every year at the end of the year you can say that your resume is significantly better than it was the year before. Join because as we continue our successes we will have more resources to reward you with and reward we will. Most startups are not doing exciting things, are not meritocracies, and while they may inflate titles, don't have the leeway or slack in the schedule for anyone to do anything interesting, so there's actually a lot more grunt work than in a typical BigCo job. Also, most of them don't do shit for a person's resume; the exceptions are also the few where the options end up worth more than toilet paper. If the startup ends up being good for your resume, that's because you rolled a natural 18/00 and have no need of a resume from here on out. Now, onto the meat of the matter... I tend to agree with Mark that full transparency will terrify and upset the employees. VC-funded startups are disgustingly secretive about things that matter (e.g. cap table) but there are a lot of things that companies, as abstractions, provide a service by hiding. To get to why most people can't handle the miseries (esp. fundraising) that startup CEOs have to deal with, read into the Gervais Principle. Venkatesh Rao's series on it starts here: http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-or-the-office-according-to-the-office/ http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-o... . Mine starts here: http://michaelochurch.wordpress.com/2013/02/19/gervais-principle-questioned-macleods-hierarchy-the-technocrat-and-vc-startups/ http://michaelochurch.wordpress.com/2013/02/19/gervais-princ... Here's a summary (of a much bigger topic): the MacLeod pyramid of an organization has a Sociopath tier at the top, a Clueless middle, and a Loser base. Losers are subordinate and strategic (they know what's worth working on) but not dedicated; they know they're getting a raw deal in a zero-sum game but accept it for the risk reduction and easy life. Clueless (typically, destined for middle management but unable to rise above it) are subordinate and dedicated but not strategic; they have no insight into what is worth working on. Sociopaths tend to be dedicated and strategic, but not subordinate. The Sociopath-Loser trade is a risk transfer. Losers get easy jobs that are hard to lose, and steady paychecks worth less than their average value to the company. (Loser is non-pejorative; it doesn't mean you're bad at what you do or socially unsuccessful. It just refers to the losing bargain of lifelong non-owning employment.) Sociopaths are the risk-seekers who tend to be founders. Most people, if they could handle all the risks of entrepreneurship, would want to be founders themselves. One way in which VC-istan goes rotten is that it attempts to prevent the healthy and inevitable slide of the put-upon, unappreciated Clueless into (rationally disengaged, more healthful) Loser patterns. "Lean startup" is code for "no Losers"; everyone must work 70 hours per week. VC-istan startups are all-Clueless enterprises; the Sociopaths are the real executives, the VCs and king-making press factors. However, Mark is fundamentally right on the insight that full transparency would fly in the face of the Loser/Sociopath risk transfer on which companies are typically founded.
jonnathanson 13y ago
Some of this is really good advice. But there's a fine line between shielding employees from the emotional burden of the full truth and creating an emotional burden by hiding some of the truth. Generally speaking, smart people are pretty good at reading a situation. But they're also pretty good at inventing narratives to fill in the gaps in whatever information you've given them. If there's a particularly glaring gap or inconsistency in your story, you're going to create a culture of uncertainty and resentment. Money is the toughest topic of all. Who's getting what, how much of it is left, how much is considered a good exit, and who gets what in that exit -- all of these things are going to be subject to open and not-so-open speculation. Accept as much, and avoid inadvertently creating sketchy or conflicting narratives by telling different things to different employees. When it comes to the financial direction and health of the company, how much you've raised is increasingly becoming a matter of public knowledge. How many employees you have is public knowledge (at least within the company). Your monthly burn rate is not public knowledge, but a smart person can arrive at a halfway decent guess. No need to get into the weeds on these topics, but be honest at the high level. I like your idea of minimizing the into-the-weeds discussions about options. Employees should be there because they believe in the company, and they should hope for the best when the company succeeds. To whatever extent possible, don't hire mercenaries -- people who are just there for the payout. Hire people who want to be there, can handle the risk, and will be more than happy when the company wins big and everyone benefits. But give them enough options so that they will win when the company wins, and so that their incentives are aligned with yours. I don't believe it's the startup CEO's job to educate her employees on the finer points of dilution, financing, liquidation preferences, etc. Any employee joining an early-stage startup should be doing that sort of homework in the first place. But it is the CEO's job to give her employees a reasonably fair deal, and to explain her long-term goals and expectations. And the CEO should not use her superior financial knowledge or position to take unfair advantage of employees who might not have as much information or financial savvy.
- droopyEyelids 13y ago
  > there's a fine line between shielding employees from the emotional burden of the full truth and creating an emotional burden by hiding some of the truth. And when you take it upon yourself to mediate the truth, you're put in a position of unlimited temptation with fewer people around to keep you balanced.
alrs 13y ago
I have some knowledge of the startup that angled for the $75M exit. Transparency is why the engineers stuck around as long as they did. Options for the engineers were 0.05%, but the CEO managed to get them doubled to 0.10%, a tenth of a percent. The engineers stayed in the hope that an aqui-hire would keep the team together. No one thought that an exit had any monetary value to anyone except the VCs and the founders.
- omegant 13y ago
  How large was the team?
  - alrs 13y ago
    Engineering was six before the unpopular e-commerce pivot. Two left soon after pivot, one left a bit after. Three remaining stuck around through the period where the CEO was shopping the company hoping that they could keep working together and with the well-regarded product manager. It was a high functioning team. Heartbreaking to see it cast to the wind.
    - PeterisP 13y ago
      .. so, even after the increase the total whole engineering team equity was 0.6% ? Disregarding everything else, this fact alone doesn't seem particularly ok.
      - jacquesm 13y ago
        That depends on a lot of factors, for instance how much money the tech team invested and how much money the other shareholders invested as well as on the moment when they joined and what what other compensation there was. Hard to make a judgment about any of this without knowing all the particulars. It is very well possible those guys were being exploited but it is also very well possible that this was done by the book.
        13y ago
aosmith 13y ago
I've worked as a handful of [very] startups in roles ranging from developer to CTO/Cofounder. My main reason for leaving has generally been a total lack of transparency. If times are tough the team needs to know and understand that; it will ultimately help motivate them. If there's a chance pay could be late people should be warned well in advance. Honesty and the value of a persons word are very important is small/tight knit environments.
andyl 13y ago
I've heard many startup CEO's lie and evade. None of their companies succeeded. Lying CEO is like a klaxon going off, not a confidence builder. Yes, absorb stress and be positive. But don't lie and don't withhold the truth. IMHO this article gives bad advice.
- judk 13y ago
  Zynga and Groupon, the quintessential examples of startups with deceptive and borderline sociopathic CEOs, suuceeded quite well for the CEOs, if not the employees.
- enscr 13y ago
  Aren't you confusing TMI with lying & deception.
judk 13y ago
"Optionitis" is like "salaryitis". Is the author offended when employees make a spreadsheet to see if they can afford a house? Is the author offended when VCs or CEOs make spreadsheets to understand their equity stakes? Of the author was honest, the message would be "options are a Market for Lemons", so just pay a cash to people who you can't bear to share the risk AND responsibility AND rights of an equity stake.
- namenotrequired 13y ago
  That's very different. Salary is one's daily bread, options are a gamble with a very tiny chance at making one rich.
dm8 13y ago
Why just "CEO"? Why not startup founder? Isn't it applicable to all the founders too?
velik_m 13y ago
Honesty is far more important than openness. Workers don't need to know every gritty little details, but they should trust in what they do know.
jacquesm 13y ago
I've always been extremely open about everything. External relations, financials, shareholder affairs, issues cropping up in the product and so on. This had one huge benefit: no matter how smart you are when there are 10 brains working on the same problem you get a lot more input and this will lead to making better decisions. You're going to have to adopt a clear mechanism for soliciting that input and for publishing the decisions so people don't get stuck in the past. One additional benefit: there is no rumour mill. This has worked wonders for me, I'm not sure how well it would adapt to non media b2c start-ups.
- rdtsc 13y ago
  That is very mature, I wish most companies ran like that. Rumor mills get started very quickly. A first whiff of something being hidden or suspicion of "owners talking to so and so. Is that an investor? Are we in trouble? Will I be here next month?". That really kills the morale. What starts to kill it is perhaps irrational thoughts and filling in the blanks when there is a perceived deception or hidden things going on. Whether those things are happening or not, the rumors already started to take effect.
  - jacquesm 13y ago
    The hard part is to keep this attitude going when a crisis hits (and they always do in a start-up, it's just a matter of time), but that is also when it has maximum value.
- shrikant 13y ago
  Anecdotally, when I worked at a 'startup' and we were about 50 people, the CEO and other founders were always very open and forthcoming about all the details of the organisation. Once we grew to over a 100, IMHO, a combination of factors inhibited their ability to be that open: 1. we moved to a larger office with multiple stories, which put a little extra cost into simply walking across and asking questions. 2. it was a different sort of challenge communicating a common message across to that many people and they couldn't figure out how to 'scale' the openness. Eventually I noticed that rumours about salaries and customer nonpayments and layoffs and revenues and profits started up. It was still entirely possible to simply ask the founders about a rumour, but not everyone believed/knew this was possible (especially newer hires) and so untruths would circulate for longer than was healthy.
gedrap 13y ago
A bit off-topic, I posted the same link 4 hours before the OP and it got only 1 upvote. Oh the unpredictability of HN!
dfraser992 13y ago
I was hired to build a website for someone, as a contractor, and somehow it turned into building --all-- the systems for a enterprise B2B company handling schedule processing for the shipping industry. It was my fault for getting caught up in the work, but I finally left when the realities hit me in the face: - the CEO negotiated in bad faith with a customer, lying about the nature of the product they were sold. The customer finally got around to suing. - I was constantly told there were cash flow problems, and thus my invoices were always being paid late, why more contractors couldn't be hired, etc. Like I said, I was caught up in the work and trying to keep things running. I finally demanded some of my invoices be paid, and the client breached my contract, point blank telling me to ^&$($ off It turns out the founders were paying off the loans their other companies had "made" to the startup before paying any of the salesguys, IT staff, etc which is why all the contractors hired to help me kept disappearing and not answering my emails. All the while, the CEO's wife was whining how he hadn't been making any salary... Startups are not part time hobbies. That's the moral of the story, I guess, along with "don't work with sociopaths". People who play "chicken" with their entire IT staff are idiots. I didn't have a problem with having no equity, as that hardly ever pans out, but being manipulated like that was intolerable. So any engineer with a startup should be familiar with the sales process, the basic cash flow, the contracts being signed, etc. Keeping the blinders on like I did is a fatal mistake - there is too much money involved in IT nowadays and all the less than honest people are being drawn to it like flies. As that famous idiot once said "trust, but verify".
- MaysonL 13y ago
  Reminds me of my first job, when my paycheck bounced [after which the owner kept paying me from his wife's checking account]. Only reason I kept working (as the last programmer standing) was a feeling of some responsiblilty to the client, and a need to finish the job. I believe he ended up with about a million dollar overdraft from City Bank (this was back in the late '60s, so I'm not quite sure what the name of the entity that has metastasized into Citigroup was back then).
avty 13y ago
Depends on how open the staffs want the CEO to be.
TimothyE 13y ago
One of the important points here is right at the start, around the inner circle. I've operated in a very similar way to what Mark has suggested, a team of senior leader who act as a proxy for the group overall. When you join up, if you're clear about stating what this group does and give employees a way to approach and resolve problems through these people then, at least in my experience, it's worked. When a newstart comes onboard they're hired for cultural and role fit but other roles in the organization need to be explained so that communications channels are introduced: we have a regular Friday at 5 meeting where everyone sits down with beers and we recap and talk through issues) or; members of that inner circle integrate themselves with each of the teams It requires permission and empathy to execute but that's what you need in a leadership role. What people want to hear is: we'll take care of the 80% behind the scenes because we're the ones with domain knowledge in that area, if there's something that you feel storngly about, speak up and we'll listen. If it's big and everyone deserves a say then we'll lay it out for you and you can tell us what you think. Ultimately the people with the most at stake, be those the founders or the VC's or the other capital partners, they're the ones who get the say because they're the ones with their money at risk. I agree with Mark that a lot of this stuff is just a distraction. You've come to work for us because you are good at what you do and you fit our culture, the company needs to open upfront about what they want to do (are we aiming for an aquihire or for leveraged growth). If that goal changes then the company needs to have had that discussion with employees so they cna reconfirm in or out but if you sign up then you've got to trust the people making decisions to be working towards what you've all agreed on.

124 points by _pius 13y ago

Without getting into the utility or truth of this post, it's this kind of mealy, on the edge of misleading double-talk that makes me feel cynical and burned-out at a company. It's paternalistic, and a way of talking down to people who can't handle the truth. But damn it, looking at this from the author's perspective, if you're going to build a large company, everyone won't be realistic, and many people probably do need paternal looking-after. It strikes me as probably-necessary if you don't really know everyonen you're working with, or in cultures like the bay area where people have weird expectations.

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jrkelly 13y ago

This author's posts on marketing and PR are great. For some reason his management posts always rub me the wrong way. Agree that it's tough to share everything and avoid confusion/distraction (his M&A point) -- but the real footing of this post is that you shouldn't share certain things (runway & valuation) b/c employees can't handle them. CEO as superhuman grosses me out.

yesimahuman 13y ago
Yea, CEO's with that attitude just plain suck to work for. It's one strategy that I think works in some cases but probably drives away the best people. In my experience I felt like I was being babied. No thanks.
judk 13y ago
marketing advice is how to manipulate the customer. PR advice is how to manipulate the public. Management advice is how to manipulate the staff. Maybe you should revisit your reaction to these three cases. What is the difference? Answer: only in the third case are you on the other side of the table.

stretchwithme 13y ago

However open an CEO decides to be, he should be consistently open. There's nothing more disturbing than openness about finances and runway than a CEO that suddenly clams up. Or maybe that is actually very informative.

seanmcdirmid 13y ago
What is not said is often more important than what is said. A good employee will learn how to read their CEO that way even if they aren't very transparent.

crygin 13y ago

As a minor counterpoint, if I'm helping someone build a company and I ever find out that they lied to me, I'm walking away. I suppose that's why I'm not in the startup scene anymore, though...

aaronbrethorst 13y ago

I personally prefer not to own a home in these circumstances but if you really want to buy a home I’ll happily help you by writing a letter. A couple reactions: 1. The employee in an early stage startup should know better, but: 2. You, as their CEO, someone they hopefully trust and respect, shouldn't be doing anything to encourage them getting into a financially untenable position. edit: I want to mention another scenario. Let's say you have six weeks of cash left, and prospects for a bridge round are shrinking by the day. For whatever reason you've decided not to tell your employees what's up. What do you do then? Still tell this poor bastard, "if you really want to buy a home I’ll happily help you by writing a letter"? That's incredibly risky at best and morally repugnant at worst. Maybe things work out and you get more cash. Maybe you don't, but he's able to get another job within days. Maybe you don't, he can't, and he loses his house. That's a serious gamble you're taking not with your own life and livelihood but with someone else who has placed their trust in you. What's your reaction? 'Them's the breaks with working at a startup,' perhaps? I know Mark lives in L.A., but I've seen similar behavior occur in both Seattle and SF companies, and I find it abhorrent. Here's another part that bugs me: If you find employees building spreadsheets and spending time on exit scenarios and what their take would be then you know your company has “optionitis.” Or they're about to figure out that it doesn't matter if the company exits when they own 0.75% or 0.49%, because their percentage is going to net them exactly dick either way.

deleted 13y ago
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brudgers 13y ago
The cultural memory of stock options revolves around the Microsoft IPO, where in a pre-internet age, secretaries (which indicates how long ago it was) became millionaires via tiny slices of equity. The Google chef brought the misconception into the internet age. Even at a billion dollar exit, 1% is borderline fuck you money after taxes.
- aaronbrethorst 13y ago
  Absolutely right, but, as I'm fond of pointing out to friends who join startups: you are not joining Google, Facebook, or Microsoft. The odds of you even joining Zillow or Yelp are so remote as to be a rounding error to a rounding error.

azov 13y ago

>Of course as a founder & CEO you know that your 18% of the company at an $80 million is worth more than 26% of a $30 million valuation but I promise you that this is a nuance that even really smart & educated employees struggle with. Oh, really?.. Your smart employees suddenly stop comprehending basic math when it comes to their future compensation? Or maybe - just a guess - when the CEO was recruiting engineers (who, perhaps, don't have much experience with the business side of startups) he told them they would have 0.75% of the company but forgot to mention dilution?.. Could that be the "nuance" employees struggle with?

michaelochurch 13y ago
I think there's a different situation altogether. It's not dilution that pisses the engineers off; it's the general fact that what they get (equity-wise and career-wise) is so inferior to what the startup mythology promises. Dilution itself just becomes a touch-point, because all that other crap they look back on and realize they "should have expected". Most startup engineers think the equity is a signing bonus, almost like a gift-- say, a teaser-- and that they're going to get an order of magnitude more as long as they perform. The fact that it vests over 4 years (with cliff!) and that initial employee allotments are almost never improved is glossed over until they actually join the company.
- timr 13y ago
  "It's not dilution that pisses the engineers off; it's the general fact that what they get (equity-wise and career-wise) is so inferior to what the startup mythology promises." Oh, please. You're overselling your hand. Programmers aren't victorian textile workers -- they have their pick of jobs, all with fantastic perks, great working conditions and greener grass just around the corner. Nobody is holding a gun to your head and telling you to work at a startup. If you don't think a particular job is a fair deal, then go do something else. Unlike most people, you have lots of great choices. There are many real problems with software as an industry (e.g. age and gender discrimination), but if your worst complaint is that you're not getting as rich as you thought you might from your day job thinking hard thoughts and typing, then you need a perspective adjustment.

justin66 13y ago

Another reason why a startup employee shouldn't take stock options and their value seriously at all when considering a job: > I hate when companies publish too much information about the total stock option allocations, the company valuations, the dilution faced in every round, etc. The startup employee cannot take their options seriously at all in a situation where this attitude prevails. To her credit the author seems to understand this: > if money comes through options at the end of our journey that’s icing on the cake A perfectly reasonable attitude for people to take, although it means the startup is going to have to compete for employees with cold, hard cash.

bri3d 13y ago

Follow these easy steps to get a company full of naive people (probably new to startups) and pull the wool over their eyes so you can exploit them to work for below-market compensation! The closing speech even confirms it. I thought work-for-resume went out of style in the tech world along with unpaid internships. I guess not.

michaelochurch 13y ago
I thought work-for-resume went out of style in the tech world along with unpaid internships. American-style corporate capitalism is an original sin culture. You're worthless until validated ("saved") by an abstract phallic symbol called a corporation. The work-for-resume culture isn't going to fade out for a long time.
- judk 13y ago
  That isn't what "phallic" means.
  - akjetma 13y ago
    I don't know--in my experience, corporations can be pretty dick-shaped.

michaelochurch 13y ago

First, let me hit this: It is because when you share too much of this information with staff you develop an “options culture” the I find unhealthy. If you find employees building spreadsheets and spending time on exit scenarios and what their take would be then you know your company has “optionitis.” Well, that's largely because employee equity offerings are pathetic. People who make these calculations do one of two things: (1) realize that even at-valuation-- and it's an open question whether their personal valuation should be equal to that, or several times lower, than the VC's-- they are getting shafted. Most often, the startup equity grant for an engineer is an insult. I think there's an uncanny valley effect: low equity, from a startup, pisses me off more than zero. (2) realize that they'll need to become executives to get real slices, and start playing the same political games for which startups are "supposed" to be an antidote. Often, the founders will stoke this competitive culture but shaft everyone; even the winner gets a pathetic prize-- maybe twice that shitty equity slice but in a high-burnout-risk role. Join our company because we’re doing exciting things. Join because you’re going to get more responsibility at a young age than you would a bigger company. Join because we’re a meritocracy and promote success not tenure. Join because every year at the end of the year you can say that your resume is significantly better than it was the year before. Join because as we continue our successes we will have more resources to reward you with and reward we will. Most startups are not doing exciting things, are not meritocracies, and while they may inflate titles, don't have the leeway or slack in the schedule for anyone to do anything interesting, so there's actually a lot more grunt work than in a typical BigCo job. Also, most of them don't do shit for a person's resume; the exceptions are also the few where the options end up worth more than toilet paper. If the startup ends up being good for your resume, that's because you rolled a natural 18/00 and have no need of a resume from here on out. Now, onto the meat of the matter... I tend to agree with Mark that full transparency will terrify and upset the employees. VC-funded startups are disgustingly secretive about things that matter (e.g. cap table) but there are a lot of things that companies, as abstractions, provide a service by hiding. To get to why most people can't handle the miseries (esp. fundraising) that startup CEOs have to deal with, read into the Gervais Principle. Venkatesh Rao's series on it starts here: http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-or-the-office-according-to-the-office/ http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-o... . Mine starts here: http://michaelochurch.wordpress.com/2013/02/19/gervais-principle-questioned-macleods-hierarchy-the-technocrat-and-vc-startups/ http://michaelochurch.wordpress.com/2013/02/19/gervais-princ... Here's a summary (of a much bigger topic): the MacLeod pyramid of an organization has a Sociopath tier at the top, a Clueless middle, and a Loser base. Losers are subordinate and strategic (they know what's worth working on) but not dedicated; they know they're getting a raw deal in a zero-sum game but accept it for the risk reduction and easy life. Clueless (typically, destined for middle management but unable to rise above it) are subordinate and dedicated but not strategic; they have no insight into what is worth working on. Sociopaths tend to be dedicated and strategic, but not subordinate. The Sociopath-Loser trade is a risk transfer. Losers get easy jobs that are hard to lose, and steady paychecks worth less than their average value to the company. (Loser is non-pejorative; it doesn't mean you're bad at what you do or socially unsuccessful. It just refers to the losing bargain of lifelong non-owning employment.) Sociopaths are the risk-seekers who tend to be founders. Most people, if they could handle all the risks of entrepreneurship, would want to be founders themselves. One way in which VC-istan goes rotten is that it attempts to prevent the healthy and inevitable slide of the put-upon, unappreciated Clueless into (rationally disengaged, more healthful) Loser patterns. "Lean startup" is code for "no Losers"; everyone must work 70 hours per week. VC-istan startups are all-Clueless enterprises; the Sociopaths are the real executives, the VCs and king-making press factors. However, Mark is fundamentally right on the insight that full transparency would fly in the face of the Loser/Sociopath risk transfer on which companies are typically founded.

jonnathanson 13y ago

Some of this is really good advice. But there's a fine line between shielding employees from the emotional burden of the full truth and creating an emotional burden by hiding some of the truth. Generally speaking, smart people are pretty good at reading a situation. But they're also pretty good at inventing narratives to fill in the gaps in whatever information you've given them. If there's a particularly glaring gap or inconsistency in your story, you're going to create a culture of uncertainty and resentment. Money is the toughest topic of all. Who's getting what, how much of it is left, how much is considered a good exit, and who gets what in that exit -- all of these things are going to be subject to open and not-so-open speculation. Accept as much, and avoid inadvertently creating sketchy or conflicting narratives by telling different things to different employees. When it comes to the financial direction and health of the company, how much you've raised is increasingly becoming a matter of public knowledge. How many employees you have is public knowledge (at least within the company). Your monthly burn rate is not public knowledge, but a smart person can arrive at a halfway decent guess. No need to get into the weeds on these topics, but be honest at the high level. I like your idea of minimizing the into-the-weeds discussions about options. Employees should be there because they believe in the company, and they should hope for the best when the company succeeds. To whatever extent possible, don't hire mercenaries -- people who are just there for the payout. Hire people who want to be there, can handle the risk, and will be more than happy when the company wins big and everyone benefits. But give them enough options so that they will win when the company wins, and so that their incentives are aligned with yours. I don't believe it's the startup CEO's job to educate her employees on the finer points of dilution, financing, liquidation preferences, etc. Any employee joining an early-stage startup should be doing that sort of homework in the first place. But it is the CEO's job to give her employees a reasonably fair deal, and to explain her long-term goals and expectations. And the CEO should not use her superior financial knowledge or position to take unfair advantage of employees who might not have as much information or financial savvy.

droopyEyelids 13y ago
> there's a fine line between shielding employees from the emotional burden of the full truth and creating an emotional burden by hiding some of the truth. And when you take it upon yourself to mediate the truth, you're put in a position of unlimited temptation with fewer people around to keep you balanced.

alrs 13y ago

I have some knowledge of the startup that angled for the $75M exit. Transparency is why the engineers stuck around as long as they did. Options for the engineers were 0.05%, but the CEO managed to get them doubled to 0.10%, a tenth of a percent. The engineers stayed in the hope that an aqui-hire would keep the team together. No one thought that an exit had any monetary value to anyone except the VCs and the founders.

omegant 13y ago
How large was the team?
- alrs 13y ago
  Engineering was six before the unpopular e-commerce pivot. Two left soon after pivot, one left a bit after. Three remaining stuck around through the period where the CEO was shopping the company hoping that they could keep working together and with the well-regarded product manager. It was a high functioning team. Heartbreaking to see it cast to the wind.
  - PeterisP 13y ago
    .. so, even after the increase the total whole engineering team equity was 0.6% ? Disregarding everything else, this fact alone doesn't seem particularly ok.
    - jacquesm 13y ago
      That depends on a lot of factors, for instance how much money the tech team invested and how much money the other shareholders invested as well as on the moment when they joined and what what other compensation there was. Hard to make a judgment about any of this without knowing all the particulars. It is very well possible those guys were being exploited but it is also very well possible that this was done by the book.
      - 13y ago

aosmith 13y ago

I've worked as a handful of [very] startups in roles ranging from developer to CTO/Cofounder. My main reason for leaving has generally been a total lack of transparency. If times are tough the team needs to know and understand that; it will ultimately help motivate them. If there's a chance pay could be late people should be warned well in advance. Honesty and the value of a persons word are very important is small/tight knit environments.

andyl 13y ago

I've heard many startup CEO's lie and evade. None of their companies succeeded. Lying CEO is like a klaxon going off, not a confidence builder. Yes, absorb stress and be positive. But don't lie and don't withhold the truth. IMHO this article gives bad advice.

judk 13y ago
Zynga and Groupon, the quintessential examples of startups with deceptive and borderline sociopathic CEOs, suuceeded quite well for the CEOs, if not the employees.
enscr 13y ago
Aren't you confusing TMI with lying & deception.

judk 13y ago

"Optionitis" is like "salaryitis". Is the author offended when employees make a spreadsheet to see if they can afford a house? Is the author offended when VCs or CEOs make spreadsheets to understand their equity stakes? Of the author was honest, the message would be "options are a Market for Lemons", so just pay a cash to people who you can't bear to share the risk AND responsibility AND rights of an equity stake.

namenotrequired 13y ago
That's very different. Salary is one's daily bread, options are a gamble with a very tiny chance at making one rich.

dm8 13y ago

Why just "CEO"? Why not startup founder? Isn't it applicable to all the founders too?

velik_m 13y ago

Honesty is far more important than openness. Workers don't need to know every gritty little details, but they should trust in what they do know.

jacquesm 13y ago

I've always been extremely open about everything. External relations, financials, shareholder affairs, issues cropping up in the product and so on. This had one huge benefit: no matter how smart you are when there are 10 brains working on the same problem you get a lot more input and this will lead to making better decisions. You're going to have to adopt a clear mechanism for soliciting that input and for publishing the decisions so people don't get stuck in the past. One additional benefit: there is no rumour mill. This has worked wonders for me, I'm not sure how well it would adapt to non media b2c start-ups.

rdtsc 13y ago
That is very mature, I wish most companies ran like that. Rumor mills get started very quickly. A first whiff of something being hidden or suspicion of "owners talking to so and so. Is that an investor? Are we in trouble? Will I be here next month?". That really kills the morale. What starts to kill it is perhaps irrational thoughts and filling in the blanks when there is a perceived deception or hidden things going on. Whether those things are happening or not, the rumors already started to take effect.
- jacquesm 13y ago
  The hard part is to keep this attitude going when a crisis hits (and they always do in a start-up, it's just a matter of time), but that is also when it has maximum value.
shrikant 13y ago
Anecdotally, when I worked at a 'startup' and we were about 50 people, the CEO and other founders were always very open and forthcoming about all the details of the organisation. Once we grew to over a 100, IMHO, a combination of factors inhibited their ability to be that open: 1. we moved to a larger office with multiple stories, which put a little extra cost into simply walking across and asking questions. 2. it was a different sort of challenge communicating a common message across to that many people and they couldn't figure out how to 'scale' the openness. Eventually I noticed that rumours about salaries and customer nonpayments and layoffs and revenues and profits started up. It was still entirely possible to simply ask the founders about a rumour, but not everyone believed/knew this was possible (especially newer hires) and so untruths would circulate for longer than was healthy.

gedrap 13y ago

A bit off-topic, I posted the same link 4 hours before the OP and it got only 1 upvote. Oh the unpredictability of HN!

dfraser992 13y ago

I was hired to build a website for someone, as a contractor, and somehow it turned into building --all-- the systems for a enterprise B2B company handling schedule processing for the shipping industry. It was my fault for getting caught up in the work, but I finally left when the realities hit me in the face: - the CEO negotiated in bad faith with a customer, lying about the nature of the product they were sold. The customer finally got around to suing. - I was constantly told there were cash flow problems, and thus my invoices were always being paid late, why more contractors couldn't be hired, etc. Like I said, I was caught up in the work and trying to keep things running. I finally demanded some of my invoices be paid, and the client breached my contract, point blank telling me to ^&$($ off It turns out the founders were paying off the loans their other companies had "made" to the startup before paying any of the salesguys, IT staff, etc which is why all the contractors hired to help me kept disappearing and not answering my emails. All the while, the CEO's wife was whining how he hadn't been making any salary... Startups are not part time hobbies. That's the moral of the story, I guess, along with "don't work with sociopaths". People who play "chicken" with their entire IT staff are idiots. I didn't have a problem with having no equity, as that hardly ever pans out, but being manipulated like that was intolerable. So any engineer with a startup should be familiar with the sales process, the basic cash flow, the contracts being signed, etc. Keeping the blinders on like I did is a fatal mistake - there is too much money involved in IT nowadays and all the less than honest people are being drawn to it like flies. As that famous idiot once said "trust, but verify".

MaysonL 13y ago
Reminds me of my first job, when my paycheck bounced [after which the owner kept paying me from his wife's checking account]. Only reason I kept working (as the last programmer standing) was a feeling of some responsiblilty to the client, and a need to finish the job. I believe he ended up with about a million dollar overdraft from City Bank (this was back in the late '60s, so I'm not quite sure what the name of the entity that has metastasized into Citigroup was back then).

avty 13y ago

Depends on how open the staffs want the CEO to be.

TimothyE 13y ago

One of the important points here is right at the start, around the inner circle. I've operated in a very similar way to what Mark has suggested, a team of senior leader who act as a proxy for the group overall. When you join up, if you're clear about stating what this group does and give employees a way to approach and resolve problems through these people then, at least in my experience, it's worked. When a newstart comes onboard they're hired for cultural and role fit but other roles in the organization need to be explained so that communications channels are introduced: we have a regular Friday at 5 meeting where everyone sits down with beers and we recap and talk through issues) or; members of that inner circle integrate themselves with each of the teams It requires permission and empathy to execute but that's what you need in a leadership role. What people want to hear is: we'll take care of the 80% behind the scenes because we're the ones with domain knowledge in that area, if there's something that you feel storngly about, speak up and we'll listen. If it's big and everyone deserves a say then we'll lay it out for you and you can tell us what you think. Ultimately the people with the most at stake, be those the founders or the VC's or the other capital partners, they're the ones who get the say because they're the ones with their money at risk. I agree with Mark that a lot of this stuff is just a distraction. You've come to work for us because you are good at what you do and you fit our culture, the company needs to open upfront about what they want to do (are we aiming for an aquihire or for leveraged growth). If that goal changes then the company needs to have had that discussion with employees so they cna reconfirm in or out but if you sign up then you've got to trust the people making decisions to be working towards what you've all agreed on.