A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

People never cease to amaze me even though I know that what you see isn’t always what you get.

“Pete” is a great example of that.

Pete is an entrepreneur and a friend of mine works for his company.

My friend raves about the great culture. He says it is merit-based, treats everyone fairly and has very little of the politics and favoritism he has seen at other companies. He likes the values and Pete’s attitude to giving back to the community.

The company isn’t new, but it is still private, so when my friend heard that Pete was thinking of issuing stock he sent a link to Option Sanity and introduced me.

Long story short, we had an extensive conversation; Pete talked about his belief in the importance of fairness and merit and giving back and I explained how Option Sanity™ would strengthen his culture and work to ensure the fairness that seemed so important to him.

And because Pete was so emphatic about the importance of giving back I told him about 1% of Nothing, started by Shervin Pishevar and Matt Galligan, with the goal of getting startups to donate 1% of their equity to a charity of their choice.

Pete ended our conversation saying he wanted to think about it and work with the Option Sanity demo.

I just received an email and I thought it ironic that it came on Thanksgiving.

Although he dressed up his response in complimentary language, the upshot of what he said was that both Option Sanity™ and 1% of Nothing were naïve ideas.

He said that he wanted to have complete freedom when awarding incentive stock as opposed to committing to a methodology, even though he structured it. Some employees were relatives or good friends and he wanted the ability to give them more. He wasn’t worried about performance, because he could always rescind the grant or fire them.

With regards to 1% of Nothing, although he planned to give to some of the proceeds of an eventual sale to charity there was a good chance that certain products in development would substantially increase the value of the company.

He had a specific dollar amount in mind for charity and saw no reason to possibly exceed that by giving the 1%.

I was totally floored.

Option Sanity™ is authentic

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.

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.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Today is not another rehash of the Zynga fiasco or CEO Mark Pincus’ follow-up email to the troops.

What I found fascinating is that the entire problem could have been averted by using Option Sanity™.

Seriously.

Yes; I know; every founder believes his or her product is the perfect solution in its nitch, but rarely are we gifted with such a high profile, real-life demonstration.

Rather than simply firing under-performing employees and handing unvested options over to the replacement, Pincus often likes to find another position within Zynga where the employee might still be able to contribute. But because that new position was often lower down the corporate totem poll, Pincus basically wanted to cut the person’s compensation by reducing his or her number of unvested options (vested options were not touched).

Some say bad hires just shouldn’t happen, while others accept them as a normal part of business and believe fast hire/fast fire is the right approach.

I believe Pincus’ approach to a miss-hire is valid; in the heat of a high growth hiring frenzy managers do hire good people for the wrong positions, oft times because candidates oversell their experience and/or managers are desperate to fill their openings.

Think of it as a people pivot—repositioning talent for the good of the company.

The problem is that any unexpected changes made after the fact, no matter how valid, breach the social contract and, in doing so, break trust.

The hiring errors and the associated stock grants should have been corrected as soon as they were identified. Waiting until just before the IPO significantly exacerbates the damage to both Zynga’s and Pincus’ street rep and puts employee morale in the toilet.

It’s a different result when incentive stock grants are based on a transparent, fair, structured methodology that everyone understands, especially when it’s rooted in the company’s stated values/culture.

A methodology that

• assigns positions to levels based on its ability to influence the company’s success as opposed to urgency or charm and history of the candidate;
• assigns an ISO baseline to each level that dictates both the initial hiring grant and
• the Annual Stock Bonus, so that a significant portion of each person’s stock rewards are based on the actual success of the company over time, as measured against quantified annual goals approved by the Board;
• allocates based on the current risk level as defined by set milestones; and
• spells out what happens for both promotions and demotions

It’s easiest to put that structure in place at the very beginning when it’s just the founders.

That’s why we provide Option Sanity™ free for six months to any startup with fewer than four people.

(Feel free to email me or call 866.265.7267 for more information or if you are just curious.)

Option Sanity™ prevents Zyngavitis

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.

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.

Image credit: hikingartist.com

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Do clichés annoy you? There’s a good reason some of the tired, old clichés stay around—namely, they work. They say what needs to be said in a way that isn’t left open to interpretation, like ‘walk your talk’ as opposed to ‘authenticity’.

I was reminded of this after listening recently to an entrepreneur.

Here are the salient points of the conversation,

• he had built a culture based on fairness, trust and authenticity;
• he worked hard to hire the smartest people available;
• salary and stock options were based on necessity, i.e., he did what he had to do to land the best candidates.

I asked him what would happen when people learned of the discrepancies between their package and a peer’s; that the approach seemed to fly in the face of his “fairness, trust and authenticity” statements.

He replied that

• people trusted him to do what was best for the company;
• he was fair to each person based on their individual expectations;
• any effort to implement a uniform compensation (salary and/or stock) policy would hobble his ability to hire stars; and
• it was a non-event because nobody knew anyone else’s package.

I have to admit, the naiveté of his final point cracked me up (I managed to control my hilarity).

Basically, he seems to believe that fairness, trust and authenticity have flexible meanings and that expediency trumps them all.

What do you believe?

Option Sanity™ ensures stock grants walk your talk.

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.

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.

Image credit: kevinspencer

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Influence isn’t about your online ranking or the strength of your brand, although they contribute.

Influence is about effect.

The effect your words or actions have on those exposed to them.

Yesterday I linked to an article in which Penelope Trunk said that it’s a bad idea for founders to be of different genders and because of her influence dozens of founders are probably rethinking their startup plans.

There is a common arrogance among influencers to generalize their opinion and present it as a fact applicable to all and the more successful the influencer the greater the arrogance.

But from day one every founder has influence, before success and beyond the expected, so even a casual word can cause trouble.

A founder CEO I know, whose original education years before was engineering, had a habit of occasionally strolling through engineering to see what was going on. One day he commented that he wouldn’t do a design the way the team was doing it. It was a casual, throw-away comment, one he had forgotten five minutes later, but it devastated the design team. The CEO had no clue to the havoc he wrought and it took the vp of engineering, who was co-founder, hours to settle them down. He then told the CEO not to talk to the team and banned him from the department.

What those on the receiving end of influencers need to realize is that no matter how brilliant or experienced someone is they are still voicing an opinion. And as valuable as the opinion may be, it should never be swallowed whole, because opinions are subjective.

They are the product of that individual’s MAP, which itself is a product of upbringing and experience. Even someone else having exactly the same background and experience would not have identical MAP because each person processes differently and has different inherent characteristics.

Influence comes with responsibilities—how well do you handle yours?

Option Sanity™ reflects your influence.

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.

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.

Image credit: kevinspencer

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

You may run a startup, but that doesn’t negate the value of a new study (includes link to the full study) by Unum and Monster.com that says culture is more important than compensation.

Number one on candidates’ list was a company “that truly cares about the well-being of its employees.”

The next three are

1.  A challenging and fulfilling position, which 84 percent of respondents identified as very important.

For the person attracted to the startup world this is a given, but it requires good interviewing skills to ensure that the attraction is real and not a product of media-driven startup fever.

2.  Job security, rated very important by 82 percent.

Many denizens of the startup world will scoff and stop reading at the words “job security,” but there is such a thing in startups. Startup job security is a function of a clear vision backed by knowledge of the target market; good business planning as opposed to shooting from the hip; strong financial controls from the beginning; good hiring practices, instead of “try it and dump if you don’t like it.”

3.  An attractive benefits package, which 74 percent of those surveyed rated very important.

Benefits are different strokes for different folks; for those in the startup world ‘benefits’ translates most frequently to equity, but that doesn’t eliminate the value and need for health insurance; people engage more fully when they aren’t worried about their families.

And salary seems to still be in fifth place just as it was 30 years ago.

• An attractive benefits package and an ethical, transparent culture were more likely to be viewed as very important in attracting and retaining staff than were a high starting salary and job security.
• Being a company that cares about the well-being of its staff was twice as likely to be viewed as very important in attracting and retaining staff as providing a high base salary.

Like it of not, benefits of any kind are concrete proof of caring and how those benefits are distributed is a reflection of an ethical, transparent culture—or not.

Option Sanity™ is integral to an ethical, transparent culture.

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.
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.

Image credit: Bun in a Can Productions

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.

Warning.

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

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Do you do whatever it takes to hire, including a “ready, fire, aim” stock allocation methodology?

Can you slip on Joe, Jean or Pat’s shoes?

• From the minute Kristy walked through the door Joe wanted her on his executive team. Her energy was as high as his own. She was smart, articulate, with a keen sense of humor; she understood the commitment required by a startup and her family supported her. While salary wasn’t an issue, Kristy said another startup had offered her a lot more stock than Joe mentioned. She wasn’t as strong in some areas as he would have liked, but it would be so great working with her… So Joe offered Kristy 5% more stock than the other company and more than any other member of his team.
• If Jean didn’t find a good UI designer she would be forced to use a contractor or fall behind schedule, so when she interviewed Richard, she was ecstatic. Richard’s technical skills were excellent, but he demanded an additional 25,000 shares above what comparable team members had received. Afraid to continue looking and unwilling to consider a contractor Jean convinced her boss to make the deal.
• Pat hated hiring, seeing it as a necessary evil that took time away from his real job of building the company. When he found a candidate who could fill a role he did whatever it took to land the person quickly. His actions typically involved substantial extra stock, since he had limited cash and perks to offer.

Is this lazy or just the inexperienced use of a sophisticated tool (stock)?

Founders and bosses that consider a ready, fire, aim methodology an acceptable way to award stock are doomed.

Is buying candidates with stock a short-term solution guaranteed to tear the team apart as word spreads (more on that subject later in the series) and people feel betrayed or a viable way to solve your staffing needs?

Is buying candidates with stock actually shorthand for bad culture?

For more information see Insanely Stupid Hiring.

Option Sanity™ short-circuits ready-hire-aim actions.

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.

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

Last week “Ben” wrote me in response to my answer on Quora.

Hi Miki,

I saw your post (on quora) and was wondering if you can help me out. I’m starting an online business and I’m working with a great developer but is requesting a large potion of future earnings (profit). Let me be honest, he is the heart of the project and it was not easy to find him… (so i’m happy).

We are still at the beginning - so no profits are coming in yet but we can see that the business has potential to really make it.

He is barely charging me for the work he is doing now but i still would like to work on a smart package that will keep him in the game for a long time.

We emailed a bit and then started chatting (he is overseas) and, with Ben’s permission, I want to share our last two conversations, because they illustrate why it is so important to do culture from the start.

The first part of our conversation addressed the importance of finding out exactly what the developer meant by “earnings.” I warned Ben that there are many ways of figuring earnings, which means that the number can be easily manipulated, so it was crucial that they jointly decide on exactly what was meant.

Then I asked about culture, because compensation, especially equity, should reflect and support the values and culture of the company. Here is a shortened version of the conversation.

Miki: Have you thought about the culture you want in the company?

Ben: what do you mean?

Miki: Every company has a culture, “the ay things are done here” and the culture usually reflects the values of the founder. For example, everyone talks about having a ‘fair’ company, but if you don’t craft your policies to reflect/enforce that then it ends up as nothing more than talk.

Ben: ok, im not really sure then how im to “craft” it. i think im kinda lost. im really just trying to pick up this cool idea that i have and i KNOW will work (im sure you have heard that before.) i didnt thin i was going to run into these issues right now

Miki: Does the guy you are working with ‘fit’ you? Does he have the same beliefs about the kind of place he wants to work?

Ben: what do you mean “in the kind of place?”

Miki: mood, attitude, how you are treated. Remember your old bosses? You don’t want to hire someone later who thinks like one of them, do you?

Ben: no! im not just saying this about myself, im very fair! i dont think he knows that about me yet. i think he is a good person and we have a good connection and i like him as a person. he has good values

Miki: Good!

Ben: but i guess we still need to work on trust right now

Miki: Trust is a value. By looking at his values and your values you will start to see what you want in your culture; and you should make a list.

Ben: im starting to understand what yr talking about

Miki: You can also use your culture to screen new hires, because you don’t want to hire people with opposite values

Miki: I’ve known managers who sow distrust, it’s the way they manage, and some who talk fair, but play favorites. The neat part is that you can build your policies, such as compensation, to reflect and support the values you want and then talk about them when interviewing and people who don’t “fit” won’t join

Ben: i get it

Miki: I thought you would. Build your infrastructure from the start and it’s easy.

Ben: but in my case even if i give him a high % its not going to give him power in the company

Miki: Don’t think that way. From what you say he has power, he can leave or threaten to leave. You don’t want to run your company by power, you want a culture that draws employees in and focuses them on the company’s success and you want to have fun at work or why would you work that hard?

Ben: agreed

Miki: The ‘experts’ have finally caught up with workers and are saying that “culture trumps strategy” and “culture is why company’s succeed” etc. There is a saying that people quit bosses, not companies.

Ben: how true

Miki: Even in a company with a great culture a jerk can create a lousy one below himself. Another thing, money won’t hold someone if they are unhappy and those who join you just for money will leave for more money, because they aren’t invested in the company.

Ben: i know! :)

Miki: So part of holding your guy is creating a place he LOVES and to do that you need to know what he loves.

Ben: ok… so i should be talking to him for a second tonight but i will brush him off and meet with him on Sunday because i dont want to do it over the phone

Miki: Don’t brush him off! Tell him you are working on a fair way to handle the equity and one that will affect the future. Tell him enough to know what you are doing (research, thinking, etc.), so you can build trust; the more transparent your are the better. Just take it slow and give you both time to think, offer thoughts and discuss. That helps build trust on both sides.

Ben: sounds better your way

(End of first conversation)

Ben: we could not meet at the end so we v-chatted on skype and talked a little. we both felt that we will get to an understanding and we are wasting time… he started working on the platform and we are going to meet as soon as we can.

Ben: i red the other stuff [links to various posts about culture] you gave me …

Miki: Was it helpful?

Ben: yes!

Miki: I’m glad

Ben: its getting me talking in a diff way

Miki: GOOD! Something to remember is that it’s easier to do it right at the beginning than fix it later

Ben: yes… i kinda feel ok that he has started on it. i really think we will work things out

Miki: Be sure to ask him to make a list of his most important attitudes/values to have at work, stuff like fairness, merit, etc.

Ben: i know, but that sounds like a test and when the guy is about my age its going to come off the wrong way…

Miki: No, not if you have examples to show him and explain that you want to build a good culture and to do that you need to identify the most important values, prioritize them and then create a culture that fosters them with a small amount of policy and process that enforces them. For example: It’s great to say “we treat our people fairly” but if the equity is handed out based on charm or prejudice or whim it’s not fair. So what you ask him is what values does he want to see built into the company culture, what is important to him. You don’t just ask for a list:) You create a conversation so he understands what you are working to do and that you want him to be involved in it. One of the least transparent things that managers do is ask for information without explaining why they want it. Does that make more sense?

Ben: yes, send more links

Any of you, or your friends, who are doing a startup should follow Ben’s lead and work on your culture from the beginning. If you would like the list of links I sent Ben, just let me know, either in comments or drop me an email.

I’ll keep you posted on how this goes.

Be sure to join us tomorrow on If the Shoe Fits for a look at Matt Weeks view of the social contract, an integral part of any culture.

Stock.xchng image credit: arkitekt

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Whether you are a startup entrepreneur, work in a startup, invest in startups or just find the whole topic interesting this series is intended to shed some light on the dark mysteries surrounding stock and options and they way they’re handled (or abused).

In general, the way startups choose to give out incentive stock options (ISO) reflects the founders’ attitudes towards fairness and merit; and it sends some signals about whether these values are authentic or just platitudes.

I’m also delighted to introduce Matt Weeks who, in addition to being on the RampUp Solutions board, is President of Actio and deeply involved in the startup world, as well as having held marketing positions in corporate America. Matt will be contributing his knowledge and experience detailing the ins and outs of startup MAP, even though he may not think of it like that.

Here’s a sneak peak of some of the ideas we’ll be discussing.

• Risk mitigation
• Why managers who don’t have a plan are condemned to becoming part of someone else’s—such as the candidate’s
• Good vs. Great
  1. Leading by bullying (lack of transparency and authenticity) can (possibly) make a company “good”
  2. Leading by authenticity can dependably make a company great (because the team is driven by common goals, outlook and honesty)
  3. Why when push comes to shove #1 falls apart (sounds obvious, but there is more subtly here than you might think), while #2 holds together and fights through.

There’s lots more, so plan on joining us every Friday as we explore these and other topics.

One last note. This series offers value even if you have no intention of being and entrepreneur or getting within a hundred feet of a startup. When all is said and done, entrepreneurs are people; people have MAP and the more you learn to recognize MAP characteristics the better off you will be, because MAP drives culture in every organization, large or small.

Option Sanity™ reflects and supports your company’s values and culture

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.
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

I doubt there are any Wall Street bankers who don’t consider themselves leaders and they exist in a world where innovation never stops.

Now, those wily, innovative leaders have come up with a new product to avoid new regulations.

Investment bankers in the US have begun using equity derivatives to convert restricted shares paid as bonuses into cash, side-stepping new guidelines on remuneration which were designed to prevent bankers cashing out for at least three years, according to a headhunter.

Popular wisdom wants us to believe that leaders ‘do the right thing’, but when it comes to those on Wall Street it’s strictly the right thing for themselves.

Image credit: HikingArtist on flickr