Don't indenture employee nr. 4 2
I see Google is creating a Alumni Relations Program to help create a informal network of ex Google employees.
I think this is a great idea. I’ve always thought that current employees should be (but rarely are) thought of as potential future ambassadors, business partners and clients.
Alumni such as the PayPal alumni, often go do great things together based on their informal network. Rarely does the originating startup benefit at all from these often very strong networks.
I think the following 2 problems are what causes this.
Tight knit startup cultures and traitors
Good startups have a very strong team culture. We’re all in this together, we’re taking the same risks, working the same hours, living the same dream.
This culture is great and important but it also has the very natural side effect of turning people who leave to pursue other dreams into traitors.
There are these awkward moments before the traitor leaves, where no one really wants to talk about it. After the person leaves, he is a natural scape goat when the server crashes as an after affect of that 3am hacking session a few weeks ago.
All in all it’s about as uncomfortable as a divorce, with many of the same symptoms.
I’m not quite sure how to avoid this. But one way would be to actually discuss these things when the employee starts. Lets realize that it’s a real possibility that employee nr 4 in a hot San Francisco Startup might get a more interesting offer or start his own shop in 6 months time. It has been known to happen.
Rather than all the uncomfortable silences you should rather look at this as an opportunity. Talk openly about where they employee is going and what he’s going to be doing. Encourage him to stop by for lunch in the future, who knows there may very well be something that the 2 startups involved can do together in the future. Even informally.
He should be your ambassador and a potential future partner. You might even want to pay a small monthly retainer for him to help out an hour or two a month in case a problem comes up only he knows how to do.
How stock option vesting affect alumnis
Traditionally startups have been desperate to retain employees for as long as possible. One of the ways this is done is by offering stock options with long vesting periods. This means you would have to stay in the company for say 2 years before you could exercise (sell) your stock options.
This I think is a mistake. I have known many people who really want to move on and do something else often for them selves, but who have felt stuck and bitter due to this contract. You often hear the term indentured servant being thrown around.
What happens is one of 3 things:
- The employee sticks out the vesting period, making money from the options. He’s a happy man. However he still might leave shortly after he is able to exercise his options.
- The employee sticks it out for the vesting period. His stock options are fully vested but worthless. He is bitter that he wasted 2 years of his life on this, when he said no to other offers or he could have started his own shop.
- The employee leaves early for a better opportunity feeling bitter that he left the stock options. Often this kind of employee starts bad mouthing the old startup. The founder was a fool, the VC’s destroyed it whatever. Typical drunk bar talk in the Bay Area.
Now the Alumni program Google has fits well with them as their alumni probably come under the first item above. Their alumni are happy, they made out well and now want to experience new things.
A better solution
I know nothing about stock option law etc. But I can’t help thinking that a more flexible approach to stock options for employees (and freelancers even) might hold part of the solution.
Is it possible to vest someone bit by bit on a quarterly basis? Maybe vest entirely within a year, but from the outset offer bonus stock options if you make it to year 2. That small change itself might make stock options feel more like carrots than shackles. Less bitterness.
Once an employee leaves, why not allow some kind of limited stock option plan as part of being part of the informal alumni network and/or being on retainer.
I know there are all kinds of solutions to this. However I feel that too often very innovative startups keep doing things the way they always have been done in the valley. Without questioning why.
This has been another piece in my blog series Think outside the Rounded Box.
Burn your checkbook!! 3
Please, please, please get with the program. Checks are ancient pre industrial age relics that still hang around in a few places in the world. Unfortunately the worlds most dynamic economy the US is still addicted to checks. This makes this article extremely US centric, but it also affects non US readers who do business with US businesses.
I also want to say that I am not in anyway targeting any specific clients of mine here. This is a generic problem and based on conversations I have had with other US based freelancers. That said, with the exception of one client all my US clients have insisted on using checks.
I am targeting web 2.0 businesses here in particular. We are constantly asking other people to “think outside the box” and do things transparently and online. Paying people with checks is basically the least transparent and online thing we do as part of doing business. There are great alternatives that we can and should use.
What is so wrong with checks you might ask?
Everyone uses them? First the obvious:
- Snail mail is so 1980s
- I have better things to do than go stand in line at a bank (thats such an old fashioned activity)
- Relatively high risk for recipient
- Slow clearing. In particular for international payments.
- For international payments the recipient (and his bank) is likely to say “what is this thing you call a check?” (See Jarkko’s experience trying to deposit a US check in Finland)
So why do people use checks?
- Is there any other way to pay?
- Habit
- Intentional delays – Hopefully by the time he receives the check, the check I just received will have cleared.
- Float – earn interest on the money until the victim/supplier is able to clear it.
- My accountant told me to do so
- There is not an easy way to send payments electronically in the US
- It is the cheapest option
Alternatives?
PayPal and ACH transfers are the best alternative for US businesses. For international transactions PayPal is good if it’s available in the recipients country, otherwise SWIFT transfers are available all over the world. If you are worried about cost, ask the payee if he’d be willing to go 50%/50%.
ACH is only good within the US but is a fairly cheap option. ACH is the network that is normally used for payroll, but it is actually also the backend network used for clearing of checks, so it really is very economical. The downside is that there may be a day or two’s clearing of funds. Ask your bank how to do it. I believe most banks should be able to offer it. My bank Wells Fargo sent me a RSA Secure ID to be able to do ACH payment, which they call DirectPay. To send someone money this way all you need is the name, ABA number and account number of the recipients bank account.
PayPal has been around now for nearly 10 years and is a great option. It’s easy, it’s quick, it’s safe, it’s the Web 2.0 of money. Use it. The downside that the recipient may have to pay up to 2.9% transaction cost. I know personally I’ll happily absorb that cost for the convenience of not having to waste an hour going to the bank. A non obvious benefit with PayPal is that if you can use your credit card and receive air miles, that potentially could add up.
Habit
Not an excuse, get over it.
Intentional delays
First of all the intentional delays might be fine for the struggling cash strapped startup juggling large faceless suppliers such as the phone company etc. However as a startup your core suppliers are likely to be various kinds of human resources such as programmers and designers who you work closely with. I think this is highly disrespectful. Freelancers are just as likely to be cash strapped as you are. The way to deal with this is to be honest with your suppliers.
While we all would like to be paid on time, we all live and understand the realities of being a startup. Give us a heads up with an estimated time of payment and we are probably happier than hearing the “check is in the mail” defense for the 10th time.
Float
This is also an intentional delay and a really stupid one for most startups. Unless you are operating at the scale of a business like PayPal, the few dollars you make in extra interest is really not worth pissing off your suppliers.
My account told me to write checks
I’ve heard this over the years. Checks makes the accountants life easier. Seriously. That is just a load of cr*p. You already handle book keeping and receipts for all sorts of electronic transfers. Besides providing email receipts, PayPal and Banks have this innovative feature called a statement. It has all the information you or your account needs to match transactions with invoices.
As small businesses we often take everything our accountants and lawyers say as gospel, remember they are people just like us. They are however way more traditional thinking and less likely to question status quo, than your average founder of a revolutionary social web 2.0 startup. Question the advise they give you.
There is not an easy way to send payments electronically in the US
See the section on alternatives. There are 2 very good options that you probably already use for other things.
But checks are cheap
Firstly ACH payments are pretty cheap. I already mentioned that many suppliers are happy to absorb the extra transaction cost of paypal.
However checks are not cheap. Ok it might take you a few minutes to write one out and put it in an envelope. However think about the recipient. It costs me about an hours worth of lost earnings to go to my bank and deposit a check. That is a pretty heavy transaction cost for me.
Burn your check book!!
Just say no to the check option. There really is no excuse for you to pay people (yes suppliers are people too) by check. If you have been annoyed at some point having to go deposit a check, stop the cycle and don’t do it for your own suppliers. Almost every other aspect of our life is handled electronically and you as a visionary entrepreneur should know better.
Think outside the rounded box
Living in SOMA San Francisco like I do, you often feel (rightly or wrongly) that you are part of this massive revolution. Earlier it was labelled the “dot com/bomb” revolution, now it’s more likely to be the “social network” or “Web 2.0” revolution.
It can be argued that some of this is nothing more than just another reality distortion field, but with some critical thinking I think these are all part of a longer and very real revolution happening in both society and economics.
You do get some very smart people here (and elsewhere of course) thinking about real innovation in a number of fields. There is one thing though I have noticed and that is outside the world of their exact field of interest (data portability, video sharing, project management etc) the majority of the startups do very little innovation in the day to day aspects of their business.
My plan here is to create a new category in my blog like I originally did with Bootstrappers Anti-Patterns which I’m calling Think outside the Rounded Box, where I will try to talk about some of the silly old habits that even real innovators unfortunately still follow.
These are based on a combination of my own experiences and talking over the last year to lots of different people working with and in the “social network” or “Web 2.0” revolution.
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