Nov 26, 2019 | Techcelerate Ventures |
Startup Handbook Angela Tran Boris Wertz November 2019 Startup andbook Contents Introduction 3 Building your Team 5 Four steps to successful hiring . . . . . . . . . . . . . . . . . . . . . . . . 5 Case study: the “Boom way of Hiring” . . . . . . . . . . . . . . . . . . . . . 13 Develop your hiring brand . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Hiring impacts your company culture . . . . . . . . . . . . . . . . . . . . . 17 Building distributed teams . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Determining compensation . . . . . . . . . . . . . . . . . . . . . . . . . 20 Building your Organization 22 Invest in yourself and your people . . . . . . . . . . . . . . . . . . . . . . 22 Running the organization . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Building your Investor Base 33 Fundraising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 What to do if you’re oversubscribed . . . . . . . . . . . . . . . . . . . . . . 35 To bridge or not to bridge . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Other financing options . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Investor communication . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Board Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 How to leverage your investor . . . . . . . . . . . . . . . . . . . . . . . . 43 Working with advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Resources 46 Do you want to create a startup? Are you in the midst of building one? Over the past ten years, we have invested in and worked with close to 100 startups. Along the way, we have seen teams, ideas, and practices work spectacularly well. We’ve also witnessed others flame or fizzle out. After a decade in the trenches, we want to share some best practices to help you make an impact and turn your vision into reality. You might be thinking, “Aren’t there already a lot of startup guides out there?” It’s not our intention to add more digital clutter to a crowded landscape. In this guide, we’re focusing on a particular stage of the startup lifecycle—post-Seed to pre-Series B. Since we primarily invest in seed stage companies with follow-ons to Series B, we’re going to share some of the advice that we give our founding teams. For this reason, we won’t focus on the logistics of company formation here. Likewise, you won’t find any content on product-market-fit (PMF), although we recognize that PMF isn’t always reached at the seed stage. If you’re looking for help on this stage, we strongly recommend Sam Altman’s Startup Playbook. You also won’t find much content for Series B and beyond. For help scaling, we recommend Elad Gil’s High Growth Handbook. This guide is broken into three sections: • Chapter 1: Building your team (hiring, culture, compensation) • Chapter 2: Building your organization (leveling up, running) • Chapter 3: Building your investor base (fundraising, investor communication, advisors) INTRODUCTION We want to thank Andrew Sider, Sam Pillar, and Alex Kern for their invaluable feedback during the creation of this book. It’s intended to be a living document and will be regularly updated by our team, with help from our wise community. There’s nothing more valuable than the insight that comes from real-world experiences, so we welcome you to share any thoughts, lessons, and experiences. We hope you’ll find the content useful for your own journey. Keep in mind that while this guide is built around best practices and real world experiences, it doesn’t mean that everything will fit your specific startup and situation. You may want to add your own twist to some practices or ignore some advice altogether. As you’re building your business, never forget that you’re in charge. It’s up to you to decide the best way to run it. — Angela and Boris, November 26, 2019 1 BUILDING YOUR TEAM We often hear from founders that hiring is the most challenging thing to do right. It’s also the most important. Hiring forms the foundation of your company. Good hires, which result from a strong hiring process, will have an outsized effect on your startup’s success. In this chapter, we’ll cover all the essentials of building your team—from growing your candidate pipeline to cultivating your culture and building distributed teams. Many of you will be interviewing and hiring during the early stages. And, hopefully those hires will result in a better company than you have today. Reminder: Since this book is focused on a startup’s early days, our hiring advice is primarily geared toward your first 10 to 20 hires. If you’re beyond this stage and looking to scale your recruiting function, we again recommend Elad Gil’s High Growth Handbook. FOUR STEPS TO SUCCESSFUL HIRING Everyone appreciates the importance of hiring. The challenge lies in translating this appreciation into action. When a startup is scaling rapidly, process often gets left behind. In our experience, successful hiring is a combination of process discipline and a proper system of checks and balances. We break down the hiring process into four basic steps: 1. Understand your need. 2. Create a candidate pipeline. 3. Run an effective interview process. 4. Close the candidate. | 6 Building Your Team Recommended reading: Kevin Morrill, co-founder of our former portfolio company Mattermark, recently published the Interview Game Plan Template with very helpful checklists, process ideas, and scripts. Step One: Understand your need (define the candidate profile) Before you start hiring, you should understand who you need. What will the person do? What are the ideal backgrounds and qualities for the job? Generally speaking, you are trying to hire athletes (i.e. high-performing generalists), not specialists, during early-stage hiring. You should prioritize for smarts, work ethic, and ambition over experience. First hires should be like “swiss army knives,” willing to take on multiple tasks at any stage and able to figure out their own solutions. With that said, there are certain situations where specialists will be key for early-stage companies—it’s usually specialists, not generalists, who push toward more ambitious, visionary problem solving. When it’s time to start hiring specialists, you will need to be very specific with the job description. For example, let’s say you want to hire your first marketing person. You might need a demand generation marketing rock star. Or, maybe you need someone who is really good at product marketing and developing solutions for customer needs. Clearly, these two marketing roles require different backgrounds. The bottom line: take the time to develop the ideal profile of a position, so you can better target your search and interview process. Step Two: Build your pipeline Throughout a startup’s lifecycle, the recruiting function should evolve from DIY recruiting (seed stage) to hiring a recruiter or Head of People. No matter your stage or size, never wait for candidates to come to you; you need to actively build a pipeline. | 7 Building Your Team Early-stage recruiting During the early stages, we wouldn’t expect a startup to have a dedicated recruiting position, but there’s still plenty you can do to build your pipeline and find the right candidates. • Leverage your own network and your investors’ networks. Proactively reach out to people through your own LinkedIn network and your investors’ LinkedIn networks. Keep in mind that most people find outreach on LinkedIn noisy. It’s better to use LinkedIn as a source for candidates, but when possible, send a short and personal email to initiate contact. You can save time by using a service like Upwork to send emails to candidates on your behalf, but make sure that all emails read as though they come from you personally. • Encourage internal referrals. Leads on strong candidates typically come from the inside. For example, a current employee may have previously worked with a really good database engineer or customer service manager. Incentives go a long way toward encouraging referrals—either a cash bonus or other perk for a recommendation that leads to a successful hire. One of our founders suggests formalizing the process in order to best leverage your team’s networks. Scan each team member’s network using LinkedIn Premium and identify promising connections. Then set up a quick meeting with that team member and let them know the specific connections you’d like to discuss. Ask them to come ready with a few additional candidates, even if those candidates are currently employed. In the meeting, you can discuss fit and the best way to reach out to a potential candidate. • Use all available channels that work for you. There are many, many services out there, all promising to help you identify candidates. Use all of them, as long as they’re working for you. Our portfolio companies have had good results from LinkedIn, AngelList, Github, and Quora. Hire a recruiter and/or Head of People We recommend that companies build up their in-house recruiting function as soon as they’re ready to hire at scale. This is usually after the A round, although we recognize that different companies are ready to scale at different stages. | 8 Building Your Team Jeff Richards makes a strong case for hiring an internal recruiter or Head of People early: “If you really believe people are going to differentiate your ability to win, then why wouldn’t you invest in an expert in this area early—just as you are in Engineering, Sales, Marketing, etc.?” One caveat: when candidates are looking to join a company during the early stages (i.e. under 10 employees), they are most likely looking to build a relationship with a founder. In this case, founder-led recruiting (or at least founder-led outreach) can be most effective. You might be wondering if you need to hire a Head of People or recruiter. These two positions are quite different. A recruiter typically has one specific function: sourcing candidates. A Head of People, typically brought in at around 50+ people, is responsible for setting up an organization to do their best work in a way that scales. Someone hired as a Head of People likely won’t want to do recruiting. Or if they do, it won’t be their primary focus. When you need to quickly go from 25 to 50 employees, your biggest issue is typically recruiting—and you may not have the budget to hire a Head of People. At this stage, bring someone onboard who is great at recruiting. After your headcount hits 50, it’s time to look beyond just the recruiting function and hire a Head of People. Chelsea MacDonald, Head of People Operations at Ada Support, considers this a renaissance role. “You’re looking for skills in: marketing & PR (employee branding, communications, events), BDR and sales (recruiting), product (employee experience, diversity, data), customer success (employee performance), and legal (HR law, terminations). Throw in a bit of wellness coach, and you have yourself a role for a renaissance person (or alternatively, someone who knows how to hire for their weaknesses).” You can learn more about Chelsea’s thoughts on the Head of People role. Engage an external recruiter While internal recruiters should do the bulk of the pipeline work, it makes sense to leverage external recruiters for VP-level positions and up. External recruiters are very expensive, but are usually a worthwhile investment for key hires. As we’ve mentioned before, we recommend Elad Gil’s High Growth Handbook for tips on scaling your recruiting function. | 9 Building Your Team Step Three: The interview process It’s always astonishing to see how many good companies are unprepared for the interview process. You’ll probably recognize many of these missteps: interviewers show up late for meetings and haven’t been briefed on the candidate beforehand. They spend the first few minutes of the interview fumbling through the CV, asking vague questions to gain context. Then after each interview, they don’t properly collect feedback. Whether you’re trying to grow from 10 to 25 employees, or from 25 to 50 employees, hiring is one of the most important functions in your company. This is why we encourage every founder to take the time to define a proper interview protocol that works for both the company and candidate. You’ll want to document the process and be sure to explicitly assign each task (recruiting, interview day, hiring decision, etc.) to an individual. Particularly during the early stages, it’s all too easy for certain tasks to fall between the cracks when there’s no specific ownership assigned. • Prioritize the logistics. You want the interview to be a great experience for the candidate and give a strong first impression of your organization. Candidates should know beforehand how many meetings they have and who will be interviewing them. On the interview day, candidates shouldn’t have to fend for themselves to find their next interviewer or just wander out of the building after the last interview without a proper send off. Sounds pretty basic, right? Unfortunately, little details like these are often overlooked and can sour an otherwise good experience. • Develop hiring skills throughout the company. Most people understand that it’s important for founders and early leadership to be good at hiring, but you should develop these skills in anyone involved in the hiring process. Once hiring scales beyond the founders, everyone involved should have a clear understanding of the founders’ hiring philosophy so they can develop their own hiring instincts to be in strong alignment. • Give candidates a test. Have each candidate do something that is representative of their future job, such as a coding challenge, short presentation or writing test. Many people are great at talking about their CV, but not so great at their actual job. Be sure to tailor the interview to the candidate’s level of experience—you don’t want to give the same test to an entry-level and level 6+ engineer. | 10 Building Your Team One school of thought would get rid of the coding challenge or interview test altogether, since these types of technical interview tests can bias your talent pool toward people who are great at interviewing. Farhan Thawar wrote an interesting piece on ditching the technical interview and instead hiring promising candidates for a 90-day probationary period with check-ins at 30, 60, and 90 days. This method may not work for every company, but it’s worth thinking about, as well as rethinking how interview performance translates to job performance. • Gather feedback from the interview group immediately after the interview. Creating some kind of formal scoring will make the process as objective as possible. Without a process, you’ll end up with a group discussion where the loudest, but not necessarily right, voice might win. – Have each interviewer enter or write down their feedback. You can adopt a numeric ranking (1 to 5), Likert scale (“strongly recommend” to “strongly against”) or even binary (“hire” or “no hire”). The key is to create a system that will prevent neutral stances. – Make sure the interviewing team understands the weight of everyone’s feedback, and consider that perhaps not all votes are weighted equally. For example, when an engineering manager evaluates a marketing candidate or a VP of Marketing evaluates an engineering candidate, they may be looking at different aspects of a candidate. It’s up to you to figure out what is most important and if there are any deal breakers. We’ve seen some organizations look for a majority vote; others require unanimous approval; and many CEOs have veto power. All practices can work—the key is to define the best process for your company culture beforehand and make sure everyone is aligned. • Build a correcting function into the process. A “correcting function” is often a final interview with a founder. After your company has scaled and a founder can’t meet with every candidate, you can create a function like Amazon’s bar raiser. Bar raisers are Amazon employees who are skilled evaluators and interview job candidates. They can veto any candidate, even for positions that are completely out of their area of expertise. Bezos has said this program helps weed out the “cultural misfits” at Amazon and makes sure the company makes good hiring choices by forcing several diverse employees to sign off on a candidate. | 11 Building Your Team Why do you need to add a correcting function? Overloaded teams might be tempted to hire as quickly as possible versus waiting for the best candidate. Or your interview teams might not have the deepest interviewing experience yet. • Always do your due diligence with reference checks. Ideally, you’ll want to talk to a peer, a manager (or someone senior), as well as someone who reported to them, if applicable. Generic questions like “What are this person’s strengths and weaknesses?” often yield generic answers. And on a whole, references end up being too positive and don’t necessarily provide the information needed for you to make the best hiring decision. For these reasons, we like asking references two specific questions: – What did this person do to make an immediate positive impact on your work/the organization/your life? – Where do you think the greatest area of improvement is for this candidate and how do you think we can help/support this person at our company? A16’s Andrew Chen also suggests some great questions to get more out of your reference calls: | 12 Building Your Team Lastly, if possible, try to get backdoor references for the most honest feedback. These are people that you trust and know the candidate, but weren’t given as a reference by the candidate. The easiest way to find backdoor references is to look for mutual connections on LinkedIn. Step Four: Close the candidate Once you decide to hire a candidate, try to do everything to close the deal. One of our portfolio companies shared its hiring funnel for engineers. Their key finding: only 20% of candidates accepted an offer. We wouldn’t be surprised if most startup funnels had a similar number. The question is: what can you do to improve the acceptance rate? Since October 2017 Total % Moving on to Next Round Phone Screen 380 35% Technical Screen 132 23% Take-Home Project 29 47% On-Site Interview 14 40% Offer 5 20% Hired 1 Sample hiring funnel for engineers | 13 Building Your Team Founders need to be the ones closing candidates early on, but investors and board members can also help. Recommend that a candidate speak to one of your investors. Reassure the candidate that the investor will not be evaluating his or her skill, but rather, is available to answer any questions and address any concerns around you as a founder, the company, the market, and the competitive landscape. As for selecting an investor for this task, you obviously want a champion but also someone who has a good pulse on your business and your team, and not just a 35,000 ft. view. A good “closing” investor is one who knows the competition, sees the current challenges of your startup, and more importantly, has a strong conviction about the opportunities ahead. He or she can effectively pitch candidates on the impact they can make to align with the big opportunities ahead. CASE STUDY: THE “BOOM WAY OF HIRING” Boom is one of the most ambitious startups we know—their mission is to develop supersonic planes. As you can imagine, you need incredibly talented people to achieve this goal. So when Blake Scholl, Boom’s founder and CEO, recently shared insights into the company’s hiring playbook in an investor update, we asked him for permission to publish. The “Boom Way of Hiring” is a great blueprint for startups to take their recruiting processes to the next level. As you’ll see at the end, their acceptance rate is nearly 100%. | 14 Building Your Team The following insight is an extract from Boom’s investor update: We like to say that our vision is to remove the barriers to experiencing the planet, but our mission is actually about company building: we aim to make Boom the place where the best people on the planet can be inspired and enabled to do the best and most meaningful work of their careers. If we succeed at our company- building mission, we’ll realize our vision. But if we screw up the team, culture, or management structure we most certainly won’t. Recruiting is at the heart of what we do, and it’s everyone’s job. This month was epic for recruiting. We extended 18 offers, of which 14 were accepted, 3 are still pending and only one intern declined*. Including accepted offers from folks not yet started, Boom is now 96 strong—and we expect to be over 100 by the end of the year. We did this with a dedicated recruiting staff of one (!), which is both a testament to how hard Tim (recruiter) is cranking as well as the dedication of our hiring managers, who take direct responsibility for filling their roles. I’d like to highlight one of those hires: Chris “Duff” Guarente, who is joining as our second test pilot, behind Bill “Doc” Shoemaker, our Chief Test Pilot. Duff comes to us from Scaled Composites where he was Chief Test Pilot and has a deep background in flight test of new-design aircraft. Duff flew 100% of missions on Northrop’s T-X “Swift” and was the first test pilot to fire AIM9X guided missiles from the F-22 Raptor. In other words, we hired the #1 pilot from the #1 experimental aircraft company in the world… to be the #2 pilot at Boom. Since the founding of the company, we’ve said that we should be able to raise the talent bar as we go. How’s that? In part, our access to talent improves over time: The number one thing great people want is to work with other great people—and the more we attract, the more want to be here. Additionally, as our success becomes more visible, more people are willing to make the leap to a startup—broadening our access to talent. The “Boom Way of Hiring” | 15 Building Your Team Success in recruiting requires process discipline and checks and balances as well. We’ve learned from Amazon, SpaceX, and Google and developed a Boom Way of hiring. Here are some of the pillars: • Before we start recruiting, hiring managers write a formal job description. These aren’t cookie-cutter HR speak but describe in plain English what the person does, what success looks like, and what kind of background we’re looking for. When roles are unusual, JDs include “exemplar candidates”—real profiles of real people who would fit the role. This prevents us from developing a “unicorn” profile that exists only on paper. • Job descriptions define the “competencies” for the role—the key skills and aptitudes we’ll need to interview for. Competencies are assigned to interviewers—so everyone knows what they’re assessing and we don’t forget to probe something important. • We filter for mission alignment early in the process. If you don’t share our vision of mainstream supersonic flight you don’t make it past phone interviews. Using this filter early results in a downstream lift in offer accept rate, making the whole recruiting process more efficient and preserving the bedrock of our culture—an intense passion for expanding our world. • Each candidate gives a presentation to the interview team. This gives the whole team a common background on the candidate, saving what would be repetitive background in 1:1 interviews. Additionally, the presentations test the candidate’s ability to give (technical) presentations—and an opportunity to see what it’s like to interact in a group setting. • All interviewers write interview notes and evaluate the candidate on a 4-point scale (strong yes, yes, no, strong no—being on the fence isn’t allowed). Written interview notes force interviewers to think objectively about their interview experience and to provide evidence for their conclusions. They also provide a mechanism for us to quality-control interviews: one can tell from reading interview notes whether a high- quality interview was conducted and lets us know who would benefit from additional training or coaching. The “Boom Way of Hiring” | 16 Building Your Team • We conduct reference checks—including backdoor reference checks— before extending an offer. Recruiting supports scheduling of reference checks but hiring managers are expected to conduct them themselves. Reference checks never flip us from no to yes, but they can flip us from yes to no—and can provide additional insight on concerns uncovered during interviews. Lastly, we have a Founder interview as the last check before a candidate gets an offer, after the interview team has decided to move forward. Historically, that’s been with me—now we’re transitioning to have my co-founders Josh and Joe do Founder interviews as well. The Founder interview is a QA check on the whole process—we read the interview notes, look for yellow flags and check whether they were addressed in the debrief. We check culture fit and look for key characteristics, like a history of being curious and being a self-starter. Additionally, the Founder interview is a pre-close: we ask: “assuming the numbers work, what are the barriers to accepting an offer?” and then sell until we’ve overcome all the non-financial objections. Importantly, we help frame the candidate’s decision process and work to focus them on making a decision based on fundamental characteristics that will truly matter to their happiness: do you believe in the mission? Do you believe you’ll be able to contribute meaningfully? Do you like and respect the people you’re working for and with? We remind candidates: “You have to love the vision. It’s really hard—and there are going to be ups and downs. If you don’t love it—and you’re sane—you’re going to give up.” The result is both a high offer acceptance rate (near 100%) as well as a low regretted attrition rate (2 cases of regretted attrition over 4 years across ~100 hires). Source: Blake Scholl, Boom investor letter The “Boom Way of Hiring” | 17 Building Your Team DEVELOP YOUR HIRING BRAND Your hiring brand has a big impact on each step of the hiring process and will ultimately shape how successful you are in attracting and converting candidates. Here are a few tips on developing your hiring brand: • Invest time in the career pages on your website in order to tell a compelling and differentiated story for potential job candidates. Make sure your messaging is consistent across every platform: LinkedIn, AngelList, Twitter, Facebook, Github, etc. If you thoughtfully crafted every word in your bio from a recent event, don’t let those efforts go to waste. Make sure all the latest and greatest messaging is incorporated into every public profile. • Glassdoor has become the go-to place for job seekers to check out the reputation of a company; you definitely want to monitor your profile there. • Spend time building your hiring brand for key audiences, e.g., engineers from a certain university. This is costly and time-consuming, but will ultimately be a very good investment. Jobber CEO Sam Pillar noted they’ve had a lot of success with a strong presence at meetups. “Donating time for presentations and sponsoring events with food or drinks (if you can) is a positive signal to the community that your company is engaged and committed. Don’t be too sales-y or company focused though—you need to participate from a genuine place of interest.” HIRING IMPACTS YOUR COMPANY CULTURE Your company’s culture is not about perks and ping-pong tables. It’s about common values and a shared passion for why the company exists. It’s also about how everyone can work together to pursue your common goals. Here’s Shopify’s definition of culture: “We define culture as the sum of every single individual at Shopify. Every person plays a part in creating it, and when someone leaves or joins, they have a direct impact on the culture.” | 18 Building Your Team Culture is created by the people that you hire. This means that the way you set up your hiring process has a huge impact on the culture you are creating. Set clear values and live them. Practically every start-up has created a list of values that they care about, but not every startup actually lives them. The consistency of your daily actions as a leader and as an organization will make sure that your team remembers the values, believes in them, and lives them. If you talk about a “no politics” rule, but then promote a person who is viewed as being overly political, your words just lost all credibility. The founder and CEO needs to lead by example. On diversity and inclusion There are countless studies showing that diverse teams are more successful. Josh Brewer, CEO/Founder of Abstract (a V1 portfolio company) wrote a great post on the topic of how inclusion is a choice. It’s recommended reading for all. Josh writes: “…we began recruiting people from underrepresented backgrounds. We brought in people—from all backgrounds—who are genuinely passionate about inclusion. We built a remote-friendly culture that allowed us to include people from across the United States. We threw out the engineering white board interviews (that don’t work anyway) and began to bring in diverse talent in every one of our departments.” BUILDING DISTRIBUTED TEAMS The predominant advice for startups has traditionally been don’t open a second office until you reach 100+ employees. However, the pressure of sky-high housing costs, salaries, and competition for suitable candidates is causing startups and investors to rethink their approach to distributed teams. Among our Silicon Valley-based portfolio companies, every company past Series A has a distributed team. | 19 Building Your Team In addition to cost concerns, your company’s location will also be driven by the location of the specific talent you are looking for, as well as the location of your key customers. When it comes to opening a second location, there are two common approaches: • Open a location built around specific and well-defined tasks (e.g., platform integration or customer service). We have portfolio companies that are building teams in secondary cities in the U.S. for customer service and in Eastern Europe and India for development. This approach is a great way to quickly scale non-core activities at a much lower cost. As long as the task at hand and the interface to headquarters are clearly defined, this approach is very effective. The biggest challenges are typically: a) finding a local leader that can manage and scale the teams and b) finding somebody in the company that can effectively manage the interface to HQ. • Distribute team members across the board with a mix of headquarters and distributed team members. Physically separating a team usually works best in areas where a general playbook exists, such as sales and marketing, and where teams don’t need to get together for frequent brainstorming sessions. For this method to be successful, your company needs to have the structure and communication channels of a distributed company. It’s not going to work if there are offline discussions happening at headquarters and team members in the second location are left in the dark or updated as an afterthought. Fortunately, the tools to set up communication for distributed teams have never been better (e.g., Slack, Zoom). Companies with distributed teams need to work harder to create a tight culture absent of regular offline interactions. Bringing everyone together in person on a regular basis and using online tools like Donut can help in this regard. | 20 Building Your Team DETERMINING COMPENSATION Compensation typically includes both cash compensation and equity (options). During the early stages of a startup, cash compensation is less of a factor. Early employees usually join for reasons other than their take-home salary. They may be looking for a significant equity stake, truly believe in the vision of the company, or probably both. As a startup matures, cash compensation becomes more important and, as a founder, you need to understand how your company’s compensation fits into the overall landscape of what comparable startups are paying. This is where compensation surveys come into play. There are many public and private compensation surveys available, but the best free data is available from AngelList and PayScale: • AngelList: they slice salary and equity data by roles (from programming to marketing), location (all major startup ecosystems are covered) and market (i.e. enterprise versus consumer). • PayScale: the PayScale survey has broader coverage than just tech positions and can also slice data by location, skill level, and specific company. Their survey is limited to salary data and does not cover equity. Other surveys include: Hired (for tech roles), Betts Recruiting (for sales, marketing, and ops roles), and LTSE’s Hiringplan. About equity Equity is usually given to employees as option grants. Here are some common rules for option programs: • A typical options grant vests over four years with a one-year cliff (meaning that an employee will not get any shares vested until the first anniversary of their start date). • Once an employee is fully vested, they usually get a “top-up” which can be around 25% of the original grant. This assumes that the employee still has a similar position to when he/she started and didn’t get promoted, which usually would have triggered a new option grant. | 21 Building Your Team • The exercise price of the option should be determined on an annual basis by a 409a valuation. In the past, this was often done by specialized consultants for a few thousand dollars, but now you can get it at a much lower cost by cap table management software companies like Carta. • The size of the option grant is very individualized in the early stages of a company and becomes more standardized as the company matures. For example: – A key engineer that joins as the first employee might get 2-5%. – A VP of Sales that joins after the B might get 1-1.5%. • Be wary of handing out large equity packages. Equity is hardest to price early on (2% now could be a much bigger deal down the road). Recommended reading: “A No B.S. Guide to Startup Stock Option Grants.” SkillShare’s Matt Cooper sheds light on how they determine the size of option grants and how potential and current employees can evaluate their option value—including links to calculators that companies can use for new hires. 2 BUILDING YOUR ORGANIZATION INVEST IN YOURSELF AND YOUR PEOPLE Rapid growth is the defining element of a startup. It’s also the thing that makes scaling startups incredibly hard. Many founders are first-time entrepreneurs and find themselves needing to scale an organization without having seen or done anything like it before. Employees that joined as individual contributors are often asked to become managers before they’ve acquired that skill set. And an organization that was run by a small group of aligned people during the first few years now has to think about org charts, scalable processes, budgets, and Objectives and Key Results (OKRs). In this context, it is critical to invest in yourself and your people. Invest in yourself Great leaders are made, not born—although we tend to see just the end result and not the hard work that led to the success. Scaling from founder to manager is going to take a whole village— coaches, mentors, peers, feedback from your company and direct reports. Most importantly, you need to look at feedback as an opportunity to grow, rather than as criticism. We can all learn from what Stewart Butterfield has done, and continues to do, at Slack. In conversations with Stewart, we are always impressed by how self-aware he is about his own strengths and weaknesses. He actively seeks feedback on how he can further improve himself. This has been critical because when a company scales as quickly as Slack scaled, its leaders need to scale equally fast. | 23 Building Your Organization We cannot emphasize enough the importance of growing as a leader. When founders fail to level up as a manager, or can’t recognize their own limitations to build an executive team around those areas of weakness, the startup often fails (usually somewhere between 25 and 75 employees). Sometimes, the CEO is removed by the board, but this action is often too little, too late to save the company. With that in mind, here are some of the resources you can use to help you grow as a leader: • Coaches: Most CEOs of Silicon Valley startups use coaches to develop their CEO skills. The Information recently ran an article on some of the most popular coaches in Silicon Valley. Choosing a coach is a very personal experience. There is a full spectrum of coaching styles—from emotional (“be in tune with your feelings” and “visualize what your feelings look like”) to academic (“studies show that these inputs affect your output” and “x% of individuals who have a certain experience are y% likely to behave in a certain way”). On one end, the focus is more on acknowledging the underlying emotions, while the other end focuses more on the action or behavior and how to change it. Both approaches hopefully lead to greater self-awareness—it’s just a matter of which end you start from. When you’re looking into coaching, it’s important to understand the difference between therapy and coaching. Therapy aims to address the root causes of your issues (bringing you to your functional self ), while coaching takes you from your functional self to optimal self. It’s typically better to find a local coach, but great coaches are scarce in smaller ecosystems so you may need to rely on remote coaching. As expected, there’s a range in pricing, but we find that most coaches work on a retainer, ranging from $1,000 to $10,000 a month. And while it’s not a replacement for a coach, we highly recommend Eric Schmidt, Jonathan Rosenberg and Alan Eagle’s book, Trillion Dollar Coach: The Leadership Playbook of Silicon Valley’s Bill Campbell. There’s a ton of actionable advice and great examples in the book that will help any CEO and entrepreneur become a better leader. After it was published, we sent a copy to every founder in our portfolio. | 24 Building Your Organization • Mentors: Learning from a mentor is a very powerful thing. The challenge is that there are usually way fewer mentors than there are mentees. One hack is to have “informal” mentors—people you learn from without a formally established mentor- mentee relationship. Boris has two to three people in his life that he considers informal mentors. But this relationship works only if you also give back in some way (e.g., introductions to people your mentor would like to connect with). If you just take and take, these people won’t want to meet with you anymore. • Peers: More and more VCs are making sure they build a community around their founders. At Version One, we typically organize two founder dinners each year in San Francisco, NYC, and Toronto to help foster community among our startups in each location. • 360° feedback: To learn how you’re doing as a manager, nothing beats feedback from peers and the people that report to you. Ideally, this feedback should be anonymous so it can be as frank as possible. At AbeBooks, Boris (the founder) had a biannual 360° feedback process and while it sometimes hurt, the feedback helped him identify his weaknesses to grow as a manager. • Feedback from the whole company: At AbeBooks, Boris did an annual survey of employees to understand things from where they were sitting: Is the vision of the company clear? Does everybody understand the strategic priorities? Do employees think that we are living up to the value we defined? Such feedback at scale can be incredibly valuable and is the basis for measuring progress over the years. Invest in your people Leadership development is typically limited to executives, but employees at all levels can benefit from some kind of coaching—particularly those who are promoted to first-time management positions. Newer generations of employees recognize coaching and development as an important employee benefit—like health benefits or retirement savings matching. For some, employee development is a table stakes responsibility of the company. As Jobber CEO Sam Pillar explained, “Coaching and development is a significant competitive advantage for talent. Since this aligns nicely with the imperative for the company to get the most out of its people, I think it’s a no-brainer for companies to invest here.” | 25 Building Your Organization Shopify has done a great job in making sure their company leaders are nurtured and developed at all levels of the organization. They brought on a part-time coach when the company had around 60 employees, and then a full-time coach when they reached 160 employees. They’ve been offering one-on-one coaching for executives, ad hoc mentoring for first-level managers (who supervise employees directly) and second-level managers (who manage supervisors), as well as “at scale” leadership workshops for all company managers. You don’t have to bring the coaching function in house. LifeLabs Learning offers a good series of workshops and some of our portfolio companies have used Sounding Board and Prosper for scalable and affordable 1:1 coaching. Preventing marginalization as you scale People often talk about the challenges associated with moving from individual contributor to a leadership role. But we’ve noticed another challenge that isn’t as frequently discussed: early employees who are generalists can feel marginalized out of their responsibilities as the company matures and roles begin to narrow in focus. To keep these early generalists motivated, invest in their depth. Start developing specific “technical” skills in engineering, product, marketing, sales, and design—wherever an employee shows interest and aptitude. Having a VP/Head of People in your organization is a great way to address this issue, since you have someone who is dedicated to thinking about your people and their growth. As Ada’s Head of People Chelsea MacDonald explained to us, “The question that keeps me up at night is: ‘Is everyone at Ada working on the most important things, at the edge of their abilities?’… I still worry about [getting sued], but the cost of a lawsuit is drastically less than the cost of our entire team working on the wrong things, or not working to the best of their abilities.” We’ve also seen marginalization become an issue for co-founders who are not CEOs. As the company grows, it may turn out that the technical co-founder isn’t right for a CTO or CPO role. Now what? If keeping the co-founding team is important, you need to find ways to keep the non-CEO co-founder engaged. You can make them responsible for running special initiatives or projects. He or she knows the long-term vision of the company and can help give the company a head start on that path. | 26 Building Your Organization RUNNING THE ORGANIZATION Operations are very ad hoc when you’re a small team working hard to get to product-market-fit. Once you start scaling, people may no longer be as aligned. Decisions aren’t made as quickly. And, the whole pace of execution starts to slow down. The problem is you’re still a startup— being an aggressive and fast-moving entity is usually the only fighting chance you have against incumbents. Amazon’s magic is that it’s a behemoth of a company that still operates like a founder-driven startup in several key areas. This is partly because Bezos has a strong cultural influence throughout the company. But, he also developed some unique tools to institutionalize his core values in the company. Here are a few best practices that can keep a startup executing fast while scaling up the size of the organization: • Align the whole organization: In the early days, the first handful of employees likely formed a single tight-knit group and the management structure was pretty flat. As you cross 100 employees, different groups will evolve and layers will be added—and it becomes all the more important to keep everyone aligned to the central mission. One of the most important things a leader can do is to make sure the whole organization understands the company’s vision, priorities, and goals. We’ve found that most CEOs underestimate just how often the vision needs to be repeated. Stewart Butterfield advised, “Repeat the message until you are sick of hearing yourself talking about it.” Some of our founders make a point to share the vision at least once a week to the whole company (for example, at weekly town halls). And Andrew Sider, a former portfolio CEO (VarageSale) and current investor, recommends enlisting team managers to fortify the message by repeating it in smaller settings with their own teams. Fred Wilson has spoken about the heartbeat of a company; effective companies operate on a cadence that is perceptible to everyone in and around the company. There are many ways to get this heartbeat going—from agile product development to regular OKRs and weekly show-and-tells at the all-hands meeting. | 27 Building Your Organization According to Fred, “What it comes down to in my view is a mindset around getting stuff done on a regular cadence and then letting that rhythm become a wave and riding that wave. And it starts with the CEO. They are the drummer in the band. They set the beat and keep the beat. And everyone plays around it.” • Not every decision needs to take long! At Version One, we usually know within a few days whether we should invest in a company or not. After we get this initial feeling, we can spend several weeks doing more due diligence, but that added work will only bring incremental benefits. If we know the company isn’t a good fit for us, delaying the decision with added research and deliberation just eats up everyone’s time. It’s the same for entrepreneurs. It’s usually better to make a decision quickly (even if it’s the wrong decision) rather than sit too long. When you try to reach 100% certainty before acting, you slow everything and everyone down. And most likely, your decision won’t be any different or better than the action you would have taken at 80%. Bezos refer to two types of decisions. Type 1 decisions are consequential and irreversible, or nearly irreversible. Type 2 decisions can be easily reversed; they’re like walking through a door—if you don’t like the other side, you can always go back. Bezos’s message is that business leaders often use the heavy-weight Type 1 decision- making process on too many decisions, including those that could be easily changed. As a result, organizations are too slow and risk averse to truly innovate. Not every decision should take weeks of deliberation. Be decisive and quick when you can. • Develop agile teams: Amazon’s Two-Pizza rule is pretty widely known. If a project team can eat more than two pizzas, then it’s too large. This means they break up a big project into smaller projects, where the smaller project teams can stay nimble and be less subject to complex governance. The supporting piece is that every product at Amazon should have an API, just as if it were developed for an external client. This decouples the speed of development between different product teams, and offers a clean hand-off between the two. The more that individual teams can execute independently and interaction is standardized, the more your company will be a fleet of fast boats, rather than a large tanker. | 28 Building Your Organization • Run efficient meetings: We’ve all heard stories about or sat through meetings that are mind numbingly boring and a colossal waste of everyone’s time. The answer isn’t necessarily eliminating all meetings, but running more productive, focused meetings. Bezos is famous for banning PowerPoint from meetings and instit
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