Entrepreneur Myths (33 page)

Entrepreneur
Myth 47
|Your employees will work as hard as you do

Your employees will never work as hard as you do in your venture. End of discussion. You can skip the rest of the chapter if you agree with this statement.

Even with all the employee stock incentives you may give, employees still aren't going to give it the
umph!
effort that you do. Your venture is not their baby, and their ass isn’t on the fucking line with the investors — like yours is.

When you start your venture, it’s similar to raising a child. You love your baby more than anyone else does. Sure, the ultimate management goal is for each employee, especially during the startup phase, to step up to the plate and treat the venture as if it was their own. You want to set up a company culture where employees feel psychological ownership of the venture — this is what enables a startup to create magic.

You do this by involving employees in making group management decisions, and building a family-like culture. There is a saying, “It takes a village to raise a child.” The same applies to startups and emerging companies. It takes smart, aggressive and passionate employees to raise a startup.

Sure, you help enable that ownership culture by providing company stock or equity options to employees, based on their tenure, effort and results. Most companies in high tech already offer this and more. So what do you do when everyone offers the same or better? It comes down to sharing your vision with your employees, and developing a dynamic company culture where people work because they believe in the cause. Some of the best companies that have done this are out of Silicon Valley. I call their management style Silicon Capitalism.

Despite Wall Street recently giving capitalism a black eye, it is still the best way to help ventures succeed. Silicon Capitalism involves enabling employees to own equity in the startup. I worked for a few companies who promised to provide equity to employees, but never fulfilled their commitment. I see entrepreneurs who are extremely frugal and cheap about giving equity to employees. I wish they were like that in regard to burning my investment money. In today’s environment, frugality is in, but not when it comes to providing incentives to your employees.  Don’t be a greedy motherfucker. Share the vision and share the equity. The equity has to be reasonable if you want to attract high-level employees.

Bill Gates is the ultimate capitalist. He created more employee entrepreneurs and millionaires in the history of business than most likely any other entrepreneur, besides the Google founders. Whether you like Gates or not, you have to appreciate what he’s done for employees and entrepreneurs around the world. Because of his employee stock option programs at Microsoft, which made so many employees multi-millionaires, the value of the stock has revolutionized how startups are funded and employees compensated.

The same scenario has played out at Google. Look at the number of millionaires that were created out of Google going public. Some of them left to start new companies, and some of them become active angel investors or venture accelerators like AngelPad.

The stock option programs offered to employees in Silicon Valley, Silicon Alley and other places have enabled startup entrepreneurs to attract highly-skilled employees who accepted lower salaries in exchange for the dream of hitting a homerun when the company goes IPO or Googlio.

Notice: Currently, it’s getting harder to retain high-tech employees because of the high-tech boom, so the stock options are being vested over a much shorter period of time than some years back. Otherwise, the employees will think up their own ideas and join the ranks of entrepreneurs, thanks to the changing dynamics of venture capital played out by business accelerators, micro VCs and seed funds.

If you’re a greedy bastard and don’t want to offer equity to employees, how will you motivate them to work hard or even harder? Sure, a big salary could be an option, but then you’re increasing your fixed costs. You could provide incentive programs based on revenue targets, but then how do you forecast correctly? You could have the attitude that they’re lucky to have a job and work here, but that’s only going to go as far as their next job offer.

What can you do to give employees the incentive to work as hard as you? I pondered this management question for years. Here are a few things I learned and applied in my various ventures, that worked:

Swarm Management:
Being a complexity scientist, I learned the hard way that groups can make better management decisions than individuals — most of the time. I adopted a management style that works from the bottom up. Employees are encouraged to make decisions on what’s best for the business. I ask employees for their advice and opinions, and they do the same, so major decisions are made in a swarm-like manner. The group could override my decision if they felt I was making the wrong decision. It is difficult for founders and CEOs of startups to let go of control over all decisions, but it can be done. You have to put your ego aside and act like you’re part of a soccer team. A CEO should be there to lead — not make all the management decisions. A CEO should operate like a captain of a soccer team. The players can make decisions and actions that benefit the team. Sometimes this requires passing the ball to each other or directly to the captain. Other times, they require the captain to help lead them to victory.

Equity Compensation
: Obviously, I set up an employee stock ownership program where they vested over some period of years. In Silicon Valley, the standard total employee ownership is 20% of the entire company. Stock employee percentage will vary by sector or region, but there should be decent equity for all employees.

Company Culture:
Building an open, collaborative culture is critical to success. Employees are going to work harder if they feel good about going to work. If they’re having
fun
at work, they will work harder and be more loyal. You have to set up a playful, open, transparent, collaborative and party-like culture. This type of culture is especially important in the high-tech sector.

When I ran Futuredex, a media and publishing company, we arranged for the entire company to take a day off and visit the Sonoma wine country. It might sound crazy to close down the business for a day, and not every company can afford to do this — but in the long run, it builds stronger ties between employees, and everyone feels like part of the team. I must admit, it was fun drinking wine with all the employees, but I didn’t see them as employees. I saw people at Futuredex working together as friends — friends working with friends.

To sum it all up: Equity has to be there for employees to work as hard as you do, but you should also set up a culture where employees feel they are part of the family.

Brain Candy: questions to consider and ponder

(Q1)
If you have a venture, do you think your employees work as hard as you do?

(Q2)
Do you communicate freely with your employees about your business activities? Do you make them feel like they are part of a family?

(Q3)
Have you set up an equity plan for your employees? If not, why not? Are you fucking stupid?

(Q4)
If you have, what is the stock option vesting period for your employees? Are you being realistic?

(Q5)
What employee incentives are you offering, other than stock, to attract good talent for your venture?

(Q6)
Do your employees enjoy coming to work? Is it fun for them or is it a job? Are they looking forward to coming back on Monday?

Entrepreneur
Myth 48
| Your employees are entrepreneurs too

If you think your employees are entrepreneurs too, then you're going to have a lot of headaches.

Startups are difficult. Entrepreneurship is hard. The employees you attract or hire should be more entrepreneurial-minded than employees who work for Fortune 500 companies. But keep in mind, they are not entrepreneurs like you. They will not take the same risks you have taken. Let me give you some basic definitions in relation to the human resources department, which most seed startups can’t afford, so you won’t make the same mistakes I made.

Employee:
a person who joins your startup venture because they are looking for a huge upside — along with getting paid every week. They see your vision; they’re excited about it and want to ride the same train. Some of your employees may not be able to get a job anywhere else, so they might as well try a new, exciting venture. For whatever reason, they join you in your entrepreneurial adventure, they do expect to get paid every week or every two weeks. They are not risk takers. Employees also expect medical benefits, 401K plans and free coffee. And in Silicon Valley, they also expect a masseur to come in every week. If you don’t pay them on time, or your payroll checks bounce because of cash flow issues, they will run like hell. Do you blame them?

Partner:
a person who is an entrepreneur like you, is paying his own way in the venture, does not get paid a salary unless the venture is able to afford it — and gets paid possibly after every other employee has gotten paid and there is plenty of cash-flow for the next month. A partner also invests money into the business — just like you did. They
are
an entrepreneur, and that is why they signed up to be one of your partners. You’re ecstatic to have them along to share the risks and headaches of being an entrepreneur.

Entrepreneur:
a person who takes all or most of the venture risk, pays their employees every week or every other week, and worries about meeting the company payroll on a weekly basis. Basically, their ass is on the
fucking
line. The pressure to perform is daily — no, hourly. If the entrepreneur fucks up, they could lose it all, including the life savings they used up to start the company.

Make sure you never confuse the three definitions.

Employees are not entrepreneurs, but one of your tasks is to provide an entrepreneurial atmosphere. Before you do that, you have to keep in mind that employees are not going to work for you unless you pay them consistently — as you promised.

When I was a newbie entrepreneur, I ran into a temporary cash-flow issue in one of my early ventures. I made the mistake of thinking my employees would stick it out even if the payroll was a little late. You can’t be even one day late on payroll. You hear me?

Focus on helping your employees act more entrepreneurial without the risks of being entrepreneurs themselves. They will work harder if they believe they are entrepreneurial too.  Remember, that while training your employees to be more entrepreneurial (see Myth 47), your employees must feel secure that the venture is going to make it — even if it is a startup. You must have enough capital to be able to sustain the business during any turbulence that might occur down the road.