Archive | November 2014

Legal and Accounting Basics for Startups

Kirsty Nathoo and Carolynn Levy discuss the important legal and accounting basics for startups. They cover topics such as keeping the legal structure simple and standard, staying organized with paperwork, being fair and forward-looking about equity, vesting, stock, financing terms, hiring, firing, and to overall following the rules and taking things seriously.

Notes

  • 38s – Founders don’t need to know the mechanics of starting a startup… in detail. There are basics that are important to know, though
  • 1m16s – Knowing basics can help you avoid a lot of pain
  • startup as a legal entity, protecting assets, hiring employees, etc.
  • 2m50s – What kind of entity?
  • Delaware corporation; keep it simple
  • fax docs to become corp in Delaware or at least shell of company
  • 5m41s – Be organized: future due diligence requirements; humdrum reality of running a startup
  • titles of CEO, president, and secretary required
  • documents to assign inventions, IP
  • think: am I doing this as an individual or as agent of co.
  • YC often uses clerky.com to set up Delaware corp
  • Keep your paperwork organized
  • 8m16s – Equity: Allocation, Purchasing, Vesting
  • 8m25s – Allocation: Execution > Idea (ideas = 0); how much for each founder?; look forward not back
  • Ideas are important but they have zero value; no one has ever paid $1 Billion for an idea
  • YC prefers founders be equal or nearly equal. Large variance among founders is red flag- lots of unanswered questions
  • Look forward: are all founders in it 100% and for the long haul; whole team is necesarry for execution
  • Among YC ultra successful companies, 0 of them had 1 founder with disproportionatly high share allocation
  • 11m18s – Purchasing: paperwork alert; 2-sided transaction
  • You as an individual buy shares from the company; shares in exchange for cash, ip, code to the company
  • Restricted stock: vests over time; 83B election crucial – no way to undo mistakes with this
  • 13m48s – Vesting: vesting is earning the right to permanent ownership of the shares over time
  • Vesting = restricted stock = shares that are subject to forfeiture
  • In Silicon Valley, standard vesting period is 4 years with 1 year cliff
  • 1 year cliff means founder owns 25% after 1 year (0% before 1 year); then stock vests monthly up to 100% to 4 years
  • If founder leaves early they get their vested shares and company buys back unvested shares at same price founder purchased
  • Vesting: why have vesting?
  • Reason for vesting: protect other founders if a founder leaves; skin in the game, startups are hard
  • Single founder should have vesting too; because of skin in the game, investors like seeing it; and set example for employees
  • Vesting aligns incentives among founders; investors don’t want to put money into company where founders can walk away at any time and still have a big ownership stake in company
  • 18m00s – Fundraising: Logistics, Investor Requests; Company Expenses
  • 18m40s – Logistics: priced v. non-priced rounds; paperwork alert!; potential dilution
  • priced means valuation has been set
  • seed round – price not set; any other round (series A, B, etc) means price has been set
  • not setting price most straight forward, fast way to get money
  • convertible notes or safes: note says investor is paying $X now and in return has right to receive stock at a future date when price is set by investor in a priced round; at the time that paper work is set, that investor is not a shareholder
  • seed stage investors typically will have valuation cap on company, which will mean their investment will be able to buy more shares in a future priced round than someone investing at that stage
  • 21m40s – downsides of taking investor cash:
  • if you raise $2 million on safes with a valuation cap of $6 million, then those investors will own about 25% of company; add to that 20% that incoming investors will want and that leaves founders with 55% – maybe good or bad deal depending on what you need and can get
  • investors should be sophisticated (i.e. accredited); have money to invest and they understand risks
  • keep it simple; raise money using standard documents (clearky); sophisticated investors; understand future dilution
  • 24m25s – Investor Requests: board seat; pro rata rights; advisors; information rights
  • board seat: most cases want to say no
  • advisors: (lots of people want to give advice; very few actually give good advice); investors should want to help company without requiring additional shares (handouts); advisor is not “paid” title
  • 27m01s – Pro rata rights: right to maintain percentage ownership in a company by buying more shares in the future; way to avoid dilution
  • as founder, you need to know how pro rata rights work because pro rata rights might mean they face greater dilution
  • 28m17s – information rights: monthly status reports good and encourages; monthly budget or weekly updates not ok
  • in addition to type and amount of financing, there are additional details that need to be negotiated and agreed upon
  • 29m08s – Company Expenses: what is a business expense?; keeping track of expenses
  • spending invesor money: should be able to justify every expense to investors as legitimate business related expense
  • keep receipts in safe place for accountants
  • don’t go to Vegas on investor’s money
  • 32m34s – Doing Business: founder employment; hiring and firing; legitimacy
  • Founder Employment: founders are employees of the company and must be paid wages/ salary; founder breakups
  • setup payroll service; minimum wage
  • avoid problems: pay payroll taxes; pay yourself; pay your co-founders
  • 35m24s – Hiring Employees: paperwork alert!; consultant vs. employee; equity for employee
  • Contractor v. employees: in both cases they will assign IP to company; but form is different and method of payment; distinction is important for IRS.
  • Contractor: sets own hours; determins how to accomplish goals; employer does not withhold taxes but will provide form 1099 at end of tax year
  • Employee: company pays salary and will withhold taxes; end of year they get W2 for taxes
  • Even when paying employee with stock, must still at least pay minimum wage
  • When have employees need to have workers compensation insurance
  • need to see proof that employee is allowed to work in USA
  • must use payroll service provider (like zenpayroll) and understand basics of employment
  • 40m22s – Firing Employees: fire quickly, communicate effectively; pay wages/salary/accrued vacation up to point of termination
  • do what is best for company, quickly; make clear statements, face-to-face with 3rd party present
  • Eliminate physical and digital access; repurchase unvested stock
  • 42m33s – Legitimacy: know your key metrics; balance sheet & income statements; tax returns
  • 43m00s – Biggest Take-Aways: keep it simple, use standard, stay organized; be fair and forward-looking about equity, have vesting; stock doesn’t buy itself, do the paperwork; be savvy about financing instruments, terms, investor requests; founders need to get paid; employees must sign documents to assign IP to the company
  • key metrics: cash position, burn rate, when cash will run out, be able to talk to investors
  • be legitimate corporation: follow rules and taking it seriously
  • 44m30s – Q&A
  • How do you find an accountant and when do you need one?
  • Bookkeepers categorize and record income / expenses; CPAs will prepare taxes; do need CPA withing 1st year to handle taxes. Finding one is tough–recommendations for professionals used to dealing with startups
  • 46m10s – How to incorporate and when need to hire a lawyer?
  • Can incorporate for few hundred online (clerky); when to hire lawyer depends on type of business: HIPAA, privacy, investers, etc. Clerky can help with standard documents
  • 47m30s – What are your comments about raising funds with crypto-currency?
  • very product specific no general advice; banks will struggle with newness

Additional Reading

Series

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How to Design Hardware Products

Hosain Rahman, founder of Jawbone, talks about Jawbone’s process for developing products, combining hardware, software, and data insights.

This talk was very specific to one company’s process for operating. It shows the level of detail and expertise that goes into the whole process of developing a product.


Hosain Rahman – @hosain

Notes

  • Overview
  • 33s – Beauty and Engineering in service of a better life
  • Jawbone Products: wireless headset, wireless speaker, wearable health tracker
  • Internet of Things: everything has sensors, connected, but not organized
  • think about where things are going
  • need organizing principles; less about things and more about actual user
  • world is moving to user at center of internet of things with wearables
  • complete platform requires: hardware, software & services, and data
  • 6m32s – Everything is a system: hardware, sensors, algorithms, applications, service, science and data insight, api partners and signals
  • 7m18s – How we create: exploration, early validation, concept, planning, development, continued innovation
  • guiding principles: vision, brand, strategy
  • Exploration: dreaming, futuristic, science project-y
  • Early Validation: like proving your thesis
  • Concept: big human-centric concepts
  • Planning: no turning back, sobering, tradeoffs
  • Development: laser focus, craftsmanship
  • Initial Launch
  • Continued innovation: learn from users, evaluate, start over
  • 10m10s: Exploration
  • building and tinkering; driven by personal passions; use tools of hackathons and data and insights
  • involves R&D, Engineering, Product Experience, Product management
  • staff acts as a sounding board
  • required to move to next phase: meets $50,0000 investment test
  • 11m28s – Early Validation
  • checking for concept robustness, dev leadership meetings drive it; use scientific method, data and insights
  • Hypothesized “whys”: why are we doing this, why does this need to exist, etc
  • involves R&D; staff prioritizes concepts and approve budget
  • require to move to next phase: fits vision; feasible to make now; business viability; early experience
  • 13m05s – Concept
  • Defining the “whys”; driven by R&D concepts
  • use storyboards, interaction models; user research; pitch videos
  • involved: LEAD: product experience; engineering; project management business case
  • required from staff: imagine what’s possible, determin if an idea has merit
  • required to move to next phase: highly resolve whys and differentiation; strategy (from competitors, other products in family); prodocut roadmap
  • 15m19s – Planning
  • making a plan, validating feasibility
  • driven by quarterly forecasting
  • tools: early prototypes, functional briefs, data and insights
  • involvement: LEAD product management; engineering; product experience; sales and marketing; finance: capital
  • required from staff: make key trade-off decisions; sign off on plan to move forward
  • required to move to next phase: prioritized features, functionality, and minimum bar; business plan and product roadmap
  • 16m27s – Development
  • making a plan; quarterly forecasting, early prototypes; LEAD: PM, users making key decisions around trade-offs
  • required to move to next phase: design sign-off; engineering (hardware & software) sign-off; hosain sign-off
  • 16m39s – Continued innovation
  • deepening and broadening engagement, creating more value for users
  • driven by retail calendar, sprint cycles
  • tools: feature briefs, UI screenshots, data and insights
  • LEAD: product management, product experience team, engineering, sales and marketing
  • staff: provide guidence on goals and strategies; be the final approver for Jawbone worthy output
  • 18m11s – the framework: creating rich, continuous & signature experiences
  • whys, themes, pods, hero/sidekick experiences, features
  • 18m55s – Why’s
  • ask questions then use as guidepost, do we meet it
  • what is user problem that once we solve users can’t live without?
  • Jawbone Jambox product cycle: bluetooth speaker
  • state now, future, going forward
  • Jawbone is experience company: how pieces come together
  • Experience framework becames guide post for team to follow and validate decisions
  • Research, insight, concept, design and build
  • Whys: a list of consumer problems to solve
  • Principles: the Jawbone approach to solving those problems
  • Hows: Proposed solutions to the problems presented as experience scenarios
  • Whats: Requirements that have to be included in the product to execute the solutions
  • User interviews: don’t ask would you buy this/ use that; instead ask about current behaviors and how they live
  • Up24 product example
  • 24/7 engagement; understand & act in moment; actionable insights; progressive & contextual tagging
  • track + understand + act
  • Users we design for: profile, percentage of total, big needs
  • Hero Experience: real time understanding + smart actions
  • 32m43s – Q&A
  • How do you consider features and tradeoffs?
  • Have to think across entire experience not just product silo; with big companies have to force communication
  • 35m33s – How does system think work?
  • Think about how all the pieces fit together across the entire system.
  • 36m30s – What goes into different versions of same product?
  • There is grand unified vision and everything fits together or will
  • 38m11s – What goes into graphic design?
  • Wanted to convey certain theme and feeling; all part of same process
  • 38m58s – How does thinking and process change after launch?
  • Take new information and data after release and take back to exploration face as new set of problems, challenges, opportunities; but sometimes don’t always need to go all the way back, but just back to planning or development and skip over steps
  • 41m30s – How does process change as number of employees change?
  • 500 employees now, very distributed, get to talent; always work at getting better at communication; up3 has daily 2.5 hour call
  • 43m25s – How did you decide to expand?
  • Expanded product line, geography; some deliberate plan, some opportunistic based on specific case
  • 44m50s – Why don’t make headphones?
  • Desire to enter space with product order of magnitude better than existing; sometimes market not ready; sometimes technology not ready
  • 45m30s – Are you running Jawbone as software or hardware company how is different?
  • Very new, no model to base it on; try to best of everything and put it together

Additional Reading

Series

How to Run a User Interview

Emmett Shear, Founder and CEO of Twitch talks about the importance of interviewing users to find out what they want and what features you need to build.

This talk covers important topics regarding getting user feedback through face-to-face interviews. The talk becomes more relevant if you realize their first startup faltered because they built a product in a competitive space without talking to users and then went on to build a product for themselves with Justin.tv that, after talking to users, pivoted to Twitch.tv, which was sold to Amazon for $970 million.


Emmett Shear – @eshear

Notes

  • First startup was Kiko calendar with Justin Kan out of college
  • didn’t listen to users, weren’t calendar users; built nice product but eneded up selling company on ebay
  • 1m10s – 2nd startup: Justin.tv; they were own user; reality tv show around Justin Kan’s life
  • building startup for 1 user only works if that user representative of large group
  • Justin.tv was good for very specific use case; didn’t have expertise to broaden appeal
  • pivot: mobile and gaming
  • for gaming went to users and talked to gamers and broadcasting
  • ran large number of user interviews and used data for next 3 years
  • built division to talk to users continually
  • determined broadcasters were most important people
  • who you talk to as imporant as what you ask and what you pull away from it
  • 5m56s – interactive portion: who would you talk to for these startup ideas?
  • notetaking app (college students with different majors; college IT administrators; parents)
  • get familiar with people important to success of startup not just the most obvious users
  • 12m21s – User interview with student
  • 16m20s – review: not asking about features or user workflows; drill down to get sense of real problem
  • talk to extremes of people; 6 or 7 similar people will probably run out of new material
  • if building new product to replace existing solution what would be one thing to add to improve it
  • class example: what one feature would you add to google docs?
  • merge; postit notes in google docs
  • if can build quickly and validate then do that, otherwise draw workflow and show to ask
  • just asking about a new feature or product isn’t enough; they will say yes but might not buy
  • hack together bare minimum to test; browser extension; find way to cheat
  • find people who will pay and that validates it; money test
  • 25m40s – Twitch feedback
  • talking to existing users can be tricky because these are people already using product and willing to put up with shortcomings
  • compare groups of people
  • Twitch talked to broadcasters on competitor products
  • Listened to broadcasters on competitor solutions because these were people with problems big enough not to use justin.tv
  • 30m03s – talked to non-broadcasters: why people not using any solution; to expand market
  • combine interviews and sort through feature requests into goals
  • In past with Justin.tv spent lots of time looking at raw data and analytics; good but without talking to someone doesn’t tell you precisely where to go/ what to do
  • 34m55s – Q&A
  • 35m01s – # What is most common mistake?
  • Don’t show them your product and put things in their head. Instead ask what they need. Asking specifically about pet feature. “Would you pay for feature x?” Talking to who’s available rather than finding right people, even if it’s hard.
  • 36m32s – # How hard is it to get buy in by company?
  • Get interview and then back up your position. Actually showing interviews. Video record so don’t interrupt with notetaking and you can play recording for rest of company.
  • 37m34s – # Do you recommend face-to-face over email or text only interviews?
  • Want to avoid non-interactive feedback. Skype or in-person better to get better feedback.
  • 38m40s – # What about user interviews in international markets?
  • Hard problem. Twitch works better in English speaking countries as a result.
  • 39m46s – # What channels do you use to reach people to interview and do you ever compensate them?
  • Onsite messaging when on another website and invite them to skype call. Get to know people at events. Tend not to compensate. Never had trouble getting people to talk.
  • 40m57s – # Do you use onsite user feedback tools?
  • Getting feedback online for existing products/features very useful to iron out kinks but doesn’t tell you what to build in first place.
  • 42m06s – # Did you focus on a particular type of user to interview?
  • Yes, focused on people using competing products. Those people aready used a service so goal was to find out what would get them to switch. Easier than trying to create new behavior. Needed quick win.
  • 43m10s – # What about game publishers and industry?
  • Game publishers or established players typically won’t talk to you as a small startup. As Twitch grew, game publishers more willing to talk and more important to talk to now. Pool of people you talk to will change. Keep talking to new people.
  • 45m11s – # How do you give good user feedback as a user?
  • Get user to ramble and talk about their life to get a picture of who they are and why they want what they want.

Additional Reading

Series

How to Manage

Ben Horowitz, Founder of Andreessen Horowitz and Founder of Opsware discusses the management technique of considering perspective of employees and all stakeholders in decision making.

The talk covers a single management topic, which allows him to go into more detail. He uses the example of Toussant L’Overture, leader of the Haitian slave rebellion and his unorthodox leadership style.


Ben Horowitz – @bhorowitz

Notes

  • 2m46s – Agenda: Demotions, Raises, We evaluate a Sam Altman blog post, History’s greatest practitioner
  • 3m15s – Do you Demote or Fire?
  • Scenario: executive working hard, well liked, good culture, but not world class at his function
  • Options: fire or demote (or?)
  • Players: you, exec, every other employee
  • need to understand what it means to fail; what is required to maintain your equity
  • 8m35s – An Excellent Employee Asks You for a Raise
  • Your Perspective: want to retain them; good work so “fair”; they will like you
  • Employee’s Perspective: happy
  • Every Other Employees’ Perspective: Unfair that I didn’t get; I did better work; Maybe I should quit
  • Cultural Conclusion: every employee has a fiduciary responsibility to their family to ask for a raise
  • Right Answer: evaluation process; all the right inputs; run as needed; no raises outside process
  • 15m53s – Evaluate a Sam Altman Blog Post – vested options 90 day window to purchase
  • for example, 10 million in options may require $2 million to purchase
  • Quick History: up until APB opinion No. 25 stock option counting
  • Your Perspective: want to be fair; don’t want employees locked in; want to reward people who are staying
  • Perspective of Employee who Leaves: I worked for shares and should get; did you tell me truth when you hired me; if fired, got screwed 2nd time
  • Perspective of Employee Who Stays: is it smarter for me to stay or leave; are my colleagues being treated fairly; does my loyalty matter?
  • Situation Analysis: employee turnover in Silicon Valley around 10%; SV companies dilute at 6-8% per year when private for employee comp; if employee doesn’t exercise it goes back into pool
  • Two Alternative Cultural Statements: we value strait-forwardness and fairness; we value growing the company
  • 26m40s – History’s Greatest Practitioner: Toussaint L’Overture
  • Toussaint’s vision was end slavery and make Haiti first class
  • What to do with defeated enemy forces? Incorporate generals into slave army.
  • What to do with defeated slave owners? End slavery, slave owners keep land but pay salaries, lower taxes on plantation owners.
  • Conclusion: It’s not your perspective or the perspective of the person that you are talking to at the moment that matters. You must consider the people who are not in the room. They are the company. They are the culture.
  • 37m40s – How do you go about firing executive and notifying company?
  • It was failure at some level, you have to be honest. Number 1 cause is made hiring mistake in matching employee to company or role. Preserve their dignity when talking to rest of company.
  • 40m15s – How to deal with stress of CEO?
  • Keep your focus on what you can do not what happened to you or could happen.
  • 41m51s – How did Toussaint get generals to work for him?
  • Generals were shocked they weren’t killed and changed allegiance. Toussaint learned from Julius Ceasar.
  • 43m22s – How do you get people who were against you on your side?
  • Show them a better way. Mission has to be elevated. Have to be better.
  • 44m25s – How your VC firm built culture differentiated from other VCs?
  • Founder/inventor is special so we will build company and help founder/inventor into role of CEO. Partner’s are former founder/CEOs; build network that experienced CEO would have.
  • 46m47s – How to put yourself in other people’s shoes?
  • You have to pause yourself to think it over, not just answer off the cuff to avoid even little mistakes. “Kimchi prolbem”: the deeper you bury it the hotter it gets.

Additional Reading

Series

How to Operate

Keith Rabois, Partner at Khosla Ventures and former executive at PayPal, LinkedIn, and others talks about how to forge a company, which in many ways is more difficult than forging a product.

The talk is full of great advice and probably the most densly packed of this series so far, which will explain the quantity of notes below. One drawback is not being able to cover the nuances of the advice. The answer to the final question at 44m52s demonstrates how the seemingly contradictaroy advice of Insist on Focus and Details Matter is resolved. I found the analogy of barrels and ammunition at 14m11s to be very vivid and an important concept.


Keith Rabois – @rabois

Notes

  • 0m18s – forging a company more difficult than forging a product becaues people are irrational
  • start with cleanly aritechtected engine but reality is messy and full of hacks in the beginning
  • ultimately an effecient well organized and self-running organization is the goal
  • build a company that idiots could run because eventually they will
  • 1m38s – manager’s output = Maximize output of organization and organizations around you
  • recommended book: High Output Management by Andy Grove
  • motion is not same as progress
  • 2m43s – # Triaging: in beginning every day there is a new problem
  • something is low priority; others look low priority but could be potentially fatal
  • 3m19s – # Editing: an editor is best metaphor for job of CEO (as opposed to writing)
  • first thing an editor does is take out red pen and eliminate things; clarify and simplify for empoloyees
  • don’t accept excuse of complexity; you can change the world in 140 characters
  • “think different”, “1000 songs in your pocket”, etc.
  • simplify every marketing initiative, product, everything you do
  • 5m14s – # Clarify: find ambiguity and ask questions to clear up understanding
  • when you can eliminate unnecesary steps, you can improve performance 30 – 50%
  • 6m20s – # Allocate resources: can be top down or bottom up
  • people who work with you should come up with their own initiatives
  • goal overtime is to use less ink over time
  • 7m41s – # Ensure Consistent Voice: any product communication should feel like it was written by the same person
  • initially it is ok for founder to be that voice, but overtime you don’t want to be the one doing all the voice editing yourself
  • 9m04s – # Delegate: you shouldn’t be doing most of the work, but you are still responsible for everything
  • Abdicate v. micromanagement – both sins
  • 9m55s – Task-relevant Maturity – low v. high
  • your management style needs to be dictated by your employee
  • 11m15s – 2×2 decision grid: level of conviction (high v low); Consequence of Decision (low v. high)
  • low, low = Delegate fully; high, high = step in. decide. overrule.
  • high, low or low, high = ?
  • important to try to explain the why of your decisions
  • 14m11s – # Edit the team
  • Barrels and ammunition – most people, even great people are ammunition; what you need in your company is barrels to increase performance, velocity, firepower. you can only shoot through the number of unique barrels you have.
  • Add barrels, then stock them with ammunition
  • Barrels are incredibly difficult to find; when you do, give them lots of equity, promote them, take them to dinner every week; they’re virtually irreplaceable
  • Barrels are very culturally specific (barrel at one company might not be a barrel at another)
  • 16m01s – How do you figure out who is a barrel and who isn’t?
  • start with a small task as a test; smoothie test; expand scope of responsibilities until it breaks; keep pushing the envelope
  • watch who goes up to other people’s desk, particularly people they don’t report to; if you see that consistently, those are your barrels; they are building network to get things done
  • 18m12s – # Scaling: when do you hire someone above somebody; when do you mentor somebody?
  • every company has it’s own growth rate; every individual has they’re own growth rate
  • LinkedIn was slow (20 to 50 employees after 2yrs); Square was faster (20 to 300 after 2yrs); if employee’s learning rate steeper than companies growth rate then you can keep them in that role, else need to hire above
  • 19m17s – # Insist on Focus: where you point those barrels
  • Peter Thiel would insist on focus of individual; focus on one thing until you conquer it
  • A+ problems are hard and people procrastinate and instead solve B+ and lower problems; adds value and growth but not as much as if everyone were working on A+ problems 100%
  • 21m07s – # Metrics and Transparency: can’t make all decisions yourself so need ways to measure and track; dashboard
  • you as CEO need to draw out what metrics of success are; key metric of success is what percentage of employees use that dashboard
  • transparency – metrics first step, board decks review with employees (less compensation ok); every meeting with 2 or more people summarized in notes and sent to notes email alias so everyone could track what was going on; every conference room at square has glass walls; stripe give entire company access to all emails; compensation transparency (experiment)
  • 24m51s – # Gathering and Simplifying Information: goal is to predict output to enable you to adjust; measure output not activity; pairing indicators – measure effect and counter effect (e.g. fraud rate v. false positive rate to force innovation)
  • want to look for anamolies; paypal found ebay power users asking to be paid with paypal; at LinkedIn found high click rate of own profile tied to emotional vanity, helped clarify what users wanted;
  • 28m30s – # Details Matter: don’t focus on building billion dollar business, etc; that is by-product of getting all the details right
  • Bill Walsh took 49ers from worst to 3 superbowls over 10 years by starting with teaching receptionist how to answer the phone in 3 page memo
  • Details matter; debate is on items that don’t face the user
  • Example of Steve Jobs’ insitence of perfection of Mac curcuit board even though it couldn’t be open
  • Example serving bad food results in gossip and complaining instead of working, collaborating, brain storming
  • task rabbit leader: take distractions away and give people tools to be successful
  • you need to look for office space yourself; where people work everyday dictates culture and many other factors, how hard people work
  • effort: need a lot of effort to build a company and you need to lead by example
  • 32m32s – # Q&A
  • # How do you implement transparent compensation?
  • Few ways; one is with bands or tiers such as low experience ($85K) and high experience ($130)
  • 32m27s – # What kind of details do people care about?
  • Nice laptops, best possible tools, how do can you make people more successful
  • 34m15s – # How do you manage for best tools when have scare resources as start up?
  • Start with having your own office for company (not shared with other company) to create “cult”-like experience; figure out what’s most important; office very important
  • Can tell a lot about a company by their office space; how hard they working; how distracted they are
  • 35m55s – # What is best way to to gain street cred for a new manager?
  • Being excellent at something, then being promoted by merit; PayPal didn’t hire general managers, instead promoted best of each department to not demoralize other employees; can teach them to manage but hard to transition for individual contributor to manager (hardest is time allocation); get a mentor to focus on you
  • 38m03s – # How to have single voice?
  • Look at every piece of copy in every department; recruiting website; customer support (treat customer support like a product); cross-train different high-level executives (hires from Apple v. Google)
  • 39m12s – # What are some tactics of how do you manage people?
  • Have one-on-one roughly every week or two; only have 5 to 7 direct reports; agenda should be crafted by employee not manager, benefit is for employee; for strong competent employee could push to once every two weeks but never less frequently than monthly
  • 40m28s – # When do you compromise and hire more ammunition rather than a barrel?
  • You will hire more ammunition than barrels, question is ratio; engineering 1 barrel to 10-20 ammunitions; designers little different
  • avoid empire building philosophy in manager/barrel making hires by gauging performance as output divided by direct reports and be explicit; effect is number of direct reports will not grow until absolutely necessary
  • 41m56s – # How often do VC meet with company?
  • When leading a series, generally meet with founders every 2 weeks; and on ad-hoc basis for good and bad news
  • Meeting: tell me your problems; then have you tried this/ that; have you talked to this person; etc
  • 43m19s – # How do you prioritize recruiting?
  • Depends but if #1 priority then about 25%;
  • calendar audit for CEOs: ask them to rank priorities, then look at calendar; never matches
  • 44m52s – # How do you harmonize details matter with only focus on single A+ objective?
  • there is some tension; underlying philosophy of getting details right important to install in very beginning then new hires have and grow so that CEO is never the one doing it; culture is like that; culture is framework for making decisions

Additional Reading

Series

How to be a Great Founder

Reid Hoffman, Partner at Greylock Ventures and Founder of LinkedIn discusses how to be a great founder. He talks about creating an investment thesis and then using that as a guiding framework for navigating difficult decisions.

The talk starts off somewhat academic at first and every anwser seems to be, “it depends” but by the end of the lecture after many examples and metaphors the key concepts become more apparent.

Reid Hoffman – @reidhoffman

Notes

  • Perception: founder as superperson able to do all things, well rounded, diverse
  • 2m – Reality: founder deals with variety of problems; no one is good at everything
  • 2m37s – difficult to tell difference between madness and genius
  • 3m20s – skills important to founders
  • 3m53s – # How should I think about my founding team?
  • two or three founders to cover diversity of problems
  • 5m41s – # Where should I locate my startup?
  • where ever network effects are greatest for industry/ type of business
  • 9m55s – # Should I be contrarian?
  • contrarian is relative to an audience
  • think about how smart people disagree and what do you know that works out to be true
  • 13m35s – # When should I do the work versus delegate?
  • need to do both; sometimes one at 100% sometimes other, sometimes both
  • 14m17s – # Should I be flexible or persistent?
  • both and know when to do one or other
  • investment thesis: why you think this is a good idea, including why it might be contrarian
  • is confidence increasing (stay on track) or decreasing (pivot)
  • 16m – # Should I be confident or cautious?
  • hold belief but be smart enough to listen to feedback
  • 16m43s – # Should I focus internally or externally?
  • answer is both; part of what makes great founder is be confident across this both cases and know how to decide
  • 17m29s – # Should I work by vision or data
  • data only exists within framework of vision and influence each other
  • PayPal vision and evolution of vision
  • 19m17s – # Should I take risks or minimize risks?
  • have to be risk taker, on the other hand, how to take focused intelligent risk; minimize other risks
  • PayPal palmpilot payments pivoted to pay by email
  • 22m57s – # Should I focus on the short term or long term?
  • both; jump between them
  • planning and executing: product, product distribution, financing
  • 24m45s – # How do I know if I may be a great founder?
  • should have some super powers, technical capability, leadership bringing good people in,
  • most important: be able to recognize if on track or not, belief and paranoia
  • 25m29s – # How do I evaluate myself as a founder
  • 25m53s – founders can be very diverse of characteristics and background (gender, age, race, etc)
  • 26m30s – not one skill set; ability to learn and adapt; balance vision with taking feedback and input; creating networks around you
  • crossing uneven ground through fog
  • 27m13s – Q&A
  • How did you identify early adopters to target for linkedIn?
  • product distribution is key; in 2003 internet was boring; sent invitations; now challenge is harder
  • 28m50s – How to know if someone is a good founder or not?
  • only meets with someone through a reference; network is key
  • 30m13s – What is key to founder, insight?
  • being able to articulate what you are trying to say with focus and clarity; analyze problem good way or have good instinct
  • 31m24s – Why did you keep persisting with LinkedIn?
  • investment thesis as a mechanism; founder believed that ultimately the way the world needed to be was with public professional profiles online and they were the closest.
  • 32m58s – What is it that can make you get it wrong when evaluating a founder?
  • looking for founder sticking to convictions but at the same time listening and adapting to concerns; look for phrases like infinite learning curve.
  • 34m50s – What makes a good cofounder and how to evaluate?
  • super important to collaborate really well. have serious trust. diversity of skills. technical, business side. do they collaborate well. do they help each other get to truth.
  • 37m28s – How do you different founders in different areas?
  • in software, speed to market, speed to learning is key; in hardware shipping right thing is crucial; attributes unique pre domain – atomic devices v. games; have right judgement at the moment
  • 40m02s – How do you know when to pivot?
  • If based on your investment thesis your confidence has been stagnant or decreasing over time and you are considering what to do to increase confidence, then that is probably good time to consider pivot; frequent mistake is to wait until you’ve crashed into the wall and can’t maneuver any more, then waited too long
  • in terms of personal career goals: balance, founders don’t have balance; super focused (at least for a time); jumping off cliff and building an airplane on the way down–default result is death– metaphor.
  • 42m45s – How good is startup ecosystem at identifying contrarian opportunities?
  • mixed but generally system is pretty good at it.
  • 45m18s – How do you feel about creating markets versus discovering them?
  • challenging question. Does market not exist because it will be huge or non-existent. Test investment thesis: what leads me to think there is a need. Problem: how do you get fast adoption if people don’t even know they want it. Founder should be able to clearly answer why they think market will be created where one doesn’t already exist. For example, with LinkedIn recruiting directly to individuals v. enmasse with classified was a new market.
  • 47m17s – How do you know you trust someone well enough to be a cofounder?
  • one of the risks you take. for example, when giving advice to founders hiring CEO: spend 20 hours with indepth discussions on anything that could be important. Set up expectations before encountering problems.

Additional Reading

Series