A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here
Don’t mix inexperience with bad judgment.
It’s okay to be a first time entrepreneur or company advisor. You know the domain, you know the market, and you know your customers.
You’re there as an entrepreneur to invent the company and drive it to success or as an advisor or board member to help the team succeed.
But growing a business from small to large, with all of the nuances of growing the team, financing and operations is another matter. It’s hard work and there are known pot-holes. It’s just hard to see them while running at 120 MPH.
Sometimes first-time startup folks cut the wrong corners.
In the process of having urgency, working with very little (if any) cash, and wishing to keep the “attention” of startup colleagues, sometimes those stinky “admin” details like stock plans get left for later “when we get our first real investment.” Read: “when my investor or lawyer says I have to do it.”
“Lean” startup is a great mantra, but some “process” and steps are needed to ensure that the company and the team are headed for success. And here’s why stock is so important.
Good judgment says “use stock to get the best people.” This is tempting when cash is tight (or non-existent) and for good reason. This is a great instinct and is fully aligned with the start-up entrepreneur’s mindset of “stock is important” and “my company is valuable, and will be even more valuable in the future.” You want to enroll early employees in this story.
Using gut instinct, ad-hoc grants and haphazard allocations however, is not a good idea, and can sabotage a team’s ability to grow and survive rough times. And for all those first-time entrepreneurs—there will be rough times.
Belief in the mutual commitment of team members, and belief that the company will survive and thrive after those tough times (even perhaps leading to the epiphany and “pivot”) is what holds a team together.
Inexperience is normal and can be managed through passion, being coachable, and by building a great team.
Bad judgment cannot. Stock is not some abstract thing that can be picked from a tree, used as needed, and re-grown. It is precious and has both positive and negative impact on workers. It is the most common source of “drama” in the founding team. There’s enough drama in a startup.
It is just plain bad judgment to avoid putting a coherent and thoughtful stock option allocation process into place at the beginning. No entrepreneur would put-off creating a budget and cash-flow management plan. It’s just as important.
Having a clear plan and system ensures that both the early co-founders and all key team members that follow them (from office assistant to big-hitter sales pro) understand and buy-into the company’s philosophy and process around fair stock allocation.
A good allocation plan and philosophy eliminates drama, is unemotional, transparent and authentic. There will be no whining, and no hurt feelings. When things get tough, there will be no resentments about who has more stock. The result is that there will be a better chance of survival through the predictable (an unpredictable) storms. Sure, there may still be some drama, but it will be more manageable.
In thinking about what is needed and what is not needed in your “Lean Startup” think about the difference between inexperience and judgment. Passion ignites the rest. Don’t let bad judgment sink the ship.
Good Judgment = essential.
Direct Experience = helpful but not essential.
Passion = essential.
Fair and transparent stock allocation process = priceless.
Option Sanity™ counteracts naiveté
Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process. It’s so easy a CEO can do it.
Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.” Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.
Flickr image credit: Kevin Spencer