What kind of Advisor Does A Startup Really Need?

I had a discussion with two entrepreneurs of a 3 year old startup in the travel space, who were looking for an advisor or mentor. They have both (along with another co-founder) run their web-based initiative for 3 years, and have done reasonably well to the point where they are starting at over 1.5 Million uniques monthly, and are actually profitable as a business. Their need for an advisor was to help them guide the next stage of the business and review their strategy for a few options to scale it to the next stage.

As a side note, I am consistently impressed by the depth of knowledge, and wisdom in most entrepreneurs (the current crop) who have started companies in the last 5 years. There are few questions that are “standard” or banal. They are more savvy about valuations, opportunities, and are seeking to actively grow their business to reach global scale, which has to be an awesome thing for all of us. Thanks to some excellent technology blogs, VC blogs, incubators, entrepreneur clubs, and many other sources of startup information, there are very few “basic hygiene” issues to ponder.

We got talking about the kind of advisor they needed. It was plain that they had they reviewed strategic options, learned about the market landscape and were clear on what  the pros and cons to each strategic choice they had in front of them.

Option 1 was to go for a “business advisor”. This would be a person who was a business executive from a larger company. I got the impression very quickly that any generic “business advisor” was going to run out of things to tell them within 6 months. This person would usually give you business advice that any experienced executive, CA or lawyer can, but with less of the specifics.

Option 2 was a “seasoned been-there-done-that entrepreneur” from the eCommerce industry with a company much larger. Most of these guys are running their own businesses and would rarely have any time to advice them. Worse, I have seen a few cases where mentors deliberately dont share key operational advice in the pretext of “competitive reasons”.

Option 3 was a “startup accelerator mentor” who was possibly a semi-retired, experienced technology executive at a large organization, who I definitely felt would help, but his lack of connections in the specific industry would make him fairly limited in use.

The final option was to look for an industry expert who can in phase 1) deliberate all the pros and cons of each strategy, then in phase 2) help connect the right people to the company based on her industry expertise and phase 3) help put some metrics and systems/processes in place to ensure rapid scale. It was obvious to me that for this team, this person would be the toughest to get, but would be the one with highest value.

I personally look for 3 things in advisors:

1. Can they give me time?

2. Can they help me with operational metrics and processes, not just strategy?

3. Can they help me scale my business from my current stage to the next “logical stage”.

I dont think I would ever look for an advisor from “cradle to growth”, since they are rare, but if I could get tremendous value from an advisor for 18 months, I typically consider that person a great advisor.

What’s your opinion?

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Comparison of Compensation Structure For Startup Employees [An Employee's Perspective]

Over the past few years I have worked with different startups and all with different compensation structures. Here’s a teardown of those structures from an employee’s perspective, based on my and few friends/colleagues experiences. This will help you decide a compensation structure that will work best for a long term employee.

1. Standard Stipend – Of the few college students who get a decent internship during the 4 years, most have little knowledge of the field they are supposed to deliver in. The startup takes a big risk in terms of management time by hiring an intern; as most students do not deliver production level stuff. If an intern ends up contributing something to the startup, no matter what stipend you give him chances are that he will think it is unjustified. Don’t dodge from your initial budget, the contract here was not about money but about making him do and learn. All you need to take care of is to be good to him, give ears to him, challenge him, and laugh with him. If you did all this right, the good interns will always stick around and come back to you. The ones that left for a higher paying job are not the ones you’d need or not the ones you deserve.

2. Below Standard Fixed Cash – If you are paying him a small fixed salary, much lower than what his counter parts are getting then you can never expect him to stick around. Hunger to learn and much needed working experience is all good motivation but at the end of the day that tickles only 1 half of the brain. The rest 50% is driven by materialistic compensation.
I have seen a lot of small software services firms do this and name it as training. The end result is a very unstable organisation. People are always looking out for a decent option. There is no one that has grown with the organisation.

3. Standard Fixed Cash – A fixed component only, is underestimating the potential of the employee. Having only fixed cash discourages workplace innovation. In start-ups specially where even the smallest feature change could turn around a stuff, it’s important to welcome ideas from all end, starting from your employees. Seeing his idea being implemented will definitely motivate the employee and is enough for the first time but from next time onwards he would know the value of his contribution and would want a “reward” for that. Even for the low-skilled employees, the reward is important.

4. Standard Fixed cash + Variable cash – The variable cash is a good motivator but the metrics you define for that is most important. In startups initial business plan and key metrics change every month. What looks like the employee’s key focus area may not even be part of your business in next few weeks. In such cases it is tiring and often an uncomfortable aspect to keep re-defining metrics for the variable cash. Also, the day the target is met, that guy is going to leave you because there is no “stickiness” component. Hard metrics based cash component is for freelancers and external agencies, not for employees.
This kind of compensation may work for sales guys who do transactional one time sales but contribute little to the product.
Product metrics is important to manage the product, not to manage the employee’s compensation.

5. Standard Fixed Cash + Variable Cash + Stocks – A stock option with a decent vesting period (3-4 yrs) is the best form of materialistic motivator. For a founder it makes sure that the employee will stick around for long enough. For the employee it assures a share in the pie. The stocks are required over and above the standard fixed cash because this element will make him slog the extra hours that his counterparts in large companies don’t.
Large cash bonuses mean a liability on your books and even if the employee is performing good, cash may not be flowing well to justify his contribution.

Suggestion – What works best?

1. Standard Fixed component – Nothing less than what someone with his kind of tag would get at a large company. By tag I mean only the education / domain / yrs. of exp. Do not account his quality of work here. If his work quality is not good, fire him; never keep an underpaid or underskilled employee.

2. Justified stocks with long term vesting – This is the component that will make him stick around. There will be times when he would be getting good offers from all over or an itch to start on his own or may be he is just pissed off and is about to take an impulsive decision to leave you; the stocks options will make him think twice.

3. Small bonus Stocks / Cash – A non fixed component is very important to keep the good guys on their toes. Instead of making it quarterly target driven, make it annual, open for a subjective discussion and based on cross employee review. Let the employee decide whether he wants cash or stocks. It’s good to define an upper cap beforehand incase of cash, for the sake of avoiding liability in your books but still keep it open ended. If he is really very good, let him have the very good share of the pie.

The point in stock option is that it clearly justifies startup’s success, “We will make it if we are together in this for long enough. No matter what we end up making, everyone will have their piece in the pie.”

What do you think? What has worked best for you?

PS: I haven’t discussed these thoughts ever earlier, please be polite in the comments. Avoid personal attacks/questions and discuss the subject.

pic credit

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What Makes A Great Startup Employee? [“You Are Replaceable If What You Do Is Replicable”]

“I can make a General in five minutes but a good horse is hard to replace.” – said Abraham Lincoln.

[Editorial Notes: Guest article by Santosh Panda, founder of Ayojak. Santosh shares a very important/key ingredient to become a great ‘product engineer’].

In professional life, no matter what you do, you are replaceable if what you do is replicable. This is more evident in software product development companies as access to rock star engineers (i.e. those who are simply incredible at what they do) is key for success. Hence a software product development company will always replace those who can be replicated. This replace & replicate must have been same even in agriculture age or industrial age (think Ford assembly line).

There is a distinct difference of replicating what you do vs. replicating how you do. Replicating ‘How you do’ is difficult and the more difficult it is, the higher is your irreplaceability quotient.

This thought came while running a startup, I find many people walk-in, work over the years and suddenly find that they are replaceable – it confuses them, irritates them, makes them feel that company is not understanding their value. However this is natural /bound to happen if you have stopped adding value to what you do and you fail bring your own differentiation to it.

Lets take an example, during a software product development start, a set of process, framework and learning process gets established and each engineer gets it going as per the defined protocol. Over the time, only certain engineers think differently, add/suggest a different process/framework/methodology and 90% others simply follow what has been written/established on day one. Now these 90% claim they didn’t have time, they thought ‘doing as per rule’ is the way to go forward. However irony is whatever this 90% engineers did, all their knowledge is captured, product has been established and there is no differentiation in their thought/action, hence they are replicable & replaceable. They are not going to go to next stage of product development life cycle for that specific product.

Only those key people who kept on modifying their approach, questioned ‘why we do the way we do‘, debated about different ways, forced some of their small initiative to be added by demonstrating advantages – these type of engineers are less replaceable.

Here is my own analysis that I use for evaluating during interviews/assessment for finding a product engineer. If you score 3 ‘yes’, you are replaceable as a software product engineer. oops..

1. Are you using same programming language for last several years?

2. Are you using one framework for your product development for years without even checking what’s coming on in the framework roadmap ?

3. Do you think more number of years of experience in product development means more expertise?

4. Are you only a developer who writes code but who doesn’t know what a User Interface usability is?

5. Do you think writing more number of lines of code means lot of work?

7. Do you only read/visit Infoq.com or stackoverflow.com and hardly visit tech-business blogs like Techcrunch, Pluggd.in, Mashable etc?

8. Do you think coding is fun but system administration/vi editor/server setup has no value?

9. You don’t find time to write blogs, talk tech things in your company/city?

10. Do you think if there is no complexity in software development (hi-fi patterns for the sake of), then it won’t be a great product ?

Based on observation, talking to friends, other startups, and communities, I think there are less software product engineers in India vs software service engineers a.k.a ‘software outsourcing engineer’.

What’s your opinion?

[Reproduced from Santosh’s blog]

[Image credit: blackmetalbanjos/Flickr]

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