Sunday, March 29, 2015

How Valuable Are Stock Options Offered By A Startup?

stock-exchange-options Wouldn’t you like to be one of the lucky people who joined Google and Facebook when these were startups, and now be a multi-millionaire? So people ask me “How many shares should I ask for or expect when I join a startup today?” In reality, the number of shares doesn’t mean anything – it’s your percent of the total that you need to negotiate.

For example, 200,000 shares may sound like a lot, but if the startup has issued 20 million (a common starting point), that’s just 1% of the company. By the way, you will normally only be offered “options,” which vest over a 4-year period after a 1-year “cliff.” That means you will get none of these until after you work for one year, and the total only if you stay for four years.

Plus you have to remember that these 200,000 shares could still be worth nothing in four years, depending on the “strike price” today, compared to the market price four years from now. Many employees forget that there isn’t even a market for startup stock, until after the company has gone public, which hasn’t happened positively to many companies in the last few years.

Thus, options don’t “pay the mortgage” today, so to speak. Unless you have a sizable nest egg, or a working spouse with an income to support you, I would recommend that you consider any stock options as a “potential bonus,” rather than a key part of your compensation for joining a startup.

With all that said, here are some “rule of thumb” guidelines on what might be a reasonable offer, as summarized from a classic article by Guy Kawasaki, and based on discussions I hear rattling around the investor community.

  • CEO brought in to replace the founder, 5 - 10%
  • CTO, CFO, VP of Marketing or Sales, 1.5 - 3%
  • Chief Engineer or Architect, 1 - 1.5%
  • Advisory Board Member, 1%
  • Senior Engineer, .3 - .7%
  • Product Manager, .2 - .3%

If you are not on this list, just worry about getting whatever your peers are getting. It never hurts to ask in a job interview what stock options are available, and don’t fall for the offer which promises to “work out the equity terms later.”

Obviously, what you get will vary depending on what you bring to the company, and what the market will bear. The numbers I mentioned don’t have a level of precision that can be associated with a particular geography, or a particular business type. Offers near the high end of a range will likely come with a lower cash salary, maybe even 50% of the going rate.

Any offers of equity compensation before the first round of institutional capital should be considered purely speculative. You should also assume that your percentage will go down through dilution as the company raises additional rounds, and offer sizes will go down as the company grows.

Your compensation is the total package of stock plus salary plus benefits. At best, you should view stock as “deferred compensation” or a “bonus,” which has no value today, and a risk for the future that is much higher than mutual funds, or a conventional balanced public stock portfolio. Yet it has been a source of great wealth to a tiny percentage of people.

Couple all this with the fact that working at a startup is much tougher than working at bigger companies – despite all the hype you see about startups which provide free food, foosball tables, and totally flexible hours. Generally, less structure means more stress, and fewer people means higher expectations, longer hours, and a job that may be gone tomorrow.

The bottom line is that you shouldn’t even think about joining a startup, stock or no stock, unless you believe in it and are ready for the adventure of your life. It will always be a learning experience, but it may be a bumpy ride to nowhere. It’s a huge gamble. How many gamblers do you personally know that have won big?

Marty Zwilling


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Saturday, March 28, 2015

No Expert Has A Startup Checklist To Ensure Success

checklist-startup A common request I get while mentoring entrepreneurs is for a copy of the startup checklist they need to follow, in order to build a successful new business. I wish it was that easy. The challenge is that every new business needs to be innovative and different, in order to rise above the crowd, bring real change to the world, and give you the satisfaction you seek.

Nevertheless, there is nothing wrong with studying and learning from the wisdom and experience of others. So for those of you that love checklists, I saw some real value in a recent book by James M. Kerr, “The Executive Checklist: A Guide for Setting Direction and Managing Change.” His checklists cover everything from building a vision, to consistently delivering results, for entrepreneurs up to mature business executives.

Although I’m not an aficionado of checklists in general, I really appreciate one he has included for keeping up with the latest technological trends that are reshaping business strategies, which should be the drivers for many startups. See if you understand each of these technologies:

  1. Internet of Things. The physical world is quickly becoming Internet enabled, allowing it to be fused with the digital world. Everyday devices, like Internet soda vending, have an embedded computer allowing full remote reporting and control. Other examples include smart-home remote control, cell-phone tracking, and remote auto traffic sensors.

  2. Mobile Computing. From tablets to smart phones to the Apple watch, people are increasingly relying on their mobile devices to assist them in managing their lives. The next phase of evolution will demand device independence, enabling an uninterrupted computing experience as we move from device to device throughout our daily lives.

  3. Cloud Computing. This is a phrase used to describe a variety of computing technology concepts that involve a large number of computers connected through the Internet. There are already a variety of cloud computing solutions available for common business usage, including the following:

    • Software as a Service (SaaS). This is a software distribution and pricing model in which new applications are hosted by a service provider and made available to customers over a network, rather than requiring customer hardware. Upgrades and troubleshooting can normally be provided over the network, as well.

    • Infrastructure as a Service (IaaS). Data storage, hardware, and networking equipment are provided to the customer on a per-use basis by the IaaS vendor, who holds the equipment and is responsible for running, and maintaining it.

    • Platform as a Service (PaaS). This is a service delivery model that provides the capability to lease the hardware, operating systems, storage, and network capacity over the Internet. It allows startups to rent virtualized servers and associated services needed to develop, test, and run applications.

    • Business Process as a Service (BPaaS). Procurement, payment processing, and payroll are just a few of the business functions that can be supported through BPaaS provider, who delivers the necessary infrastructure so that organizations no longer need to staff and perform the activities in-house.

  4. Social Media. Social networks like Facebook, Twitter, and LinkedIn manage communities comprised of millions of people worldwide. The challenge for most businesses is determining how to best harness the potential. Every entrepreneur needs to leverage social media for better marketing, requirements, and customer service.

  5. Gamification. This refers to the use of game thinking and software design mechanics to make it more effective and friendly for people to engage with technology. Many businesses are already weaving gamification into their strategies to enhance loyalty programs, customer retention, productivity measurement, and training.

It is time for entrepreneurs and all executives to stop being intimidated by technology discussions and, instead, establish a foundation for understanding the basic constructs that are reshaping the ways in which organizations process information and conduct business.

If a checklist like this one helps you get it done, then by all means find one and use it. But don’t be bound by it. Success in business today really requires that you go beyond any known checklists, with vision, innovation, and determination. Are you driving the technology, or is it driving you?

Marty Zwilling


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Friday, March 27, 2015

Is Your Use Of Social Media For Marketing Working?

social-media-working Isn’t it frustrating to think you finally understand something in business, like marketing with social media, only to realize that the landscape changed while you were looking at other priorities? For example, it used to be that marketing via social media meant banner ads on Facebook, buying search engine results, and sponsoring blog entries, but these don’t suffice anymore.

In a recent book on social media by Jim Tobin, “Earn It. Don’t Buy It,” he asserts that “earned” social engagement drives better business results than paid social exposure. Jim should know, since he is the president Ignite Social Media, of one of the best known social media marketing agencies. Here are a few bits of current wisdom from both of us along these lines:

  1. Nobody clicks on Facebook ads anymore. Banner ads routinely average a .1% click through rate and Facebook manages to be about half as good as that. That’s 99.96% of people not clicking on those ads. When the glass is only .04% full, you should start looking for a new container.

  2. Where are the young social media users going? They are going to Instagram, Tumblr, Pinterest, and Snapchat. In 2014 Tumblr overtook Instagram as fastest-growing social platform, and Snapchat is the fastest-growing mobile app, driven largely by Millennials and teens.

  3. You need influencers more than advocates. Brands need influencers working on their behalf because they provide the third-party credibility and social proof that validates their products. 92% of people trust “recommendations from people I know” and 70% trust “consumer opinions posted online.”

  4. Where did your friends go? While Pinterest and Tumbler saw activity increases approaching 100%, Facebook was the only big network to experience a drop in active usage last year, even if only by 9%, according to GlobalWebIndex (GWI), a research firm that interviews 170,000 internet users in 32 markets.

  5. Maybe they just don’t care. As far back as 2013, Pew Internet & American Life Project started reporting that their focus groups found “waning enthusiasm for Facebook” among teens, that Facebook has become a “social burden” for them, and that “users of sites other than Facebook express greater enthusiasm for their choice.”

  6. New can turn old very quickly. Friendster was a fad, Second Life was a fad, MySpace was a fad, and Facebook suddenly seems old school. Don’t connect the latest platform, which may be transient, with the larger phenomenon of digitally enabled social conversations. If you can figure out why people care about your product, you’ll have success regardless of the platform du jour.

Earning social media clout for your business, rather than buying it, seems to be all about engagement. Engagement occurs when customers and stakeholders become participants by sharing ideas with you, or talking to their friends about you, rather than merely viewing what you publish. Each participant becomes part of your marketing department, as other customers read their output, and become part of the conversation. It’s the principle underlying “viral marketing.”

So how do you facilitate engagement and conversation with your solution? According to an explanation I first saw on Social Fresh, it’s really a cycle consisting of three key phases:

  • User to product (engaged user base). This part isn’t new. In order to build any following, you need a solution that solves a real problem, not just technology that wows you, or great functionality with a painful learning curve. How engaged people are will depend on how much value they see, and how much they enjoy using the product.
  • User to brand (engaged audience). Once someone is engaged with your product, you’ll want to get them engaged with your brand. This happens today when you talk to people through social media and responsive customer service. Get in the habit of having genuine conversations with your engaged users to create an engaged audience.
  • User to user (engaged community). Now you have an engaged audience of people who feel an emotional connect with your brand and product. Time to start connecting them with each other. You can do so using conversation platforms like forums, Facebook groups or build something yourself.

So that’s how you earn customers through social media, rather than buying them with banner ads. But don’t be misled, social media marketing to get customers and brand recognition through engagement still costs money (and time and effort). There is no free lunch. But don’t spend your money on things that don’t work anymore. That won’t build any competitive advantage.

Marty Zwilling


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Wednesday, March 25, 2015

What Can Big Data Ever Tell Us About Human Behavior?

BigData_trasparent We are now solidly in the era of big data, where computers are capturing and processing the details of everything we do with all our interconnected devices in real time. Businesses see this as the Holy Grail for finally being able to predict who, where, and when customers will buy their existing solutions, and what their future solutions must look like to be attractive.

By some estimates, humankind now captures the same amount of data in any two days than in all of history prior to 2003. That’s a lot of data, but the jury is still out on whether technology can make any sense of the data, or derive new meanings from it in our fast-paced and rapidly changing world. So far, we haven’t been very good at predicting the future in life or in business.

For me, the first step in understanding the potential is to better understand what human data really looks like as it comes in from all these sources. I found some help in this regard from a new book, “Humanizing Big Data,” by leading consumer researcher Colin Strong. I will paraphrase here the keys ways he outlines that our lives are becoming increasingly datafied:

  1. Datafication of emotions and sentiment. The explosion of self-reporting on social media has led us to provide very intimate details of ourselves. Many market research companies now use this data by ‘scraping’ the web to obtain detailed examples of the sentiment relating to particular issues, brands, products, and services.

  2. Datafication of relationships and interactions. We are now not only able to see and track the ways in which people relate, but with whom they relate, how they do it, and when. Social media has the potential to transform our understanding of relationships by datafying professional and personal connections on a global scale.

  3. Datafication of speech. Speech analytics is becoming more common, particularly as conversations are increasingly recorded and stored as part of interactions with call centers, as well as with each other. As speech recognition improves, the range of voice-based data and meaning that can be captured in an intelligible format grows.

  4. Datafication of offline and back-office activities. Within many data-intensive domains such as finance, healthcare, and e-commerce, there is a huge amount of data stored on individual behaviors and outcomes. Add to that the emergence of image analysis and facial recognition systems processing in-store footage, traffic systems, and surveillance.

  5. Datafication of culture. There is a whole new discipline of ‘cultural analytics,’ which uses digital image processing and visualization for the analysis of image and video collections to explore cultural trends. For example, Google’s Ngram service has already datafied over 5.2 million books from 1800 to 2000 to let anyone analyze cultural trends.

Of course, there is a big jump needed from data to real insights, intelligent decisions, and future predictions. This book author also explores some of the major challenges associated with humans making sense of big data, and using it effectively, including the following:

  • The human psychology of cognitive inertia. Humans seem to be wired to resist change, with a set of cognitive ‘rules of thumb’ which focus us on short-term loss-averse behaviors. Human are inclined to rely on familiar assumptions and exhibit a reluctance to revise those assumptions, even when new evidence challenges their accuracy.

  • Cognitive ability to make sense of data. Even though computers can process and store large volumes of data, assessing the implications still falls primarily in the realm of humans. Sense-making is the process of deriving meaning from experience and situational awareness, which seems to be a struggle for both people and computers.

  • Information overload and data quality. In reality, more data does not necessarily lead to better decisions. More information usually means more time is required to make a decision, perhaps leading to inertia, or volumes of one type of data bias the decision in the wrong direction, since more data is not always better data.

As we continue to become more data connected online and offline, there is no question that our digital exhaust will tell more and more about us, allowing better short-term projections of our buying habits and interests. Yet, the challenge of really predicting future needs and behavior is much tougher. Thus, I predict that humans will be driving big data in business, rather than the other way around, for a long time to come.

Marty Zwilling


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Monday, March 23, 2015

Is Your Advisor a Critic Posing as a Mentor?

critic-or-mentor Every startup needs a couple of advisors with deep experience and connections in your business domain or financial skills to complement your technical focus. Advisors need to be mentors, looking ahead and directing you on key actions to take or avoid. Unfortunately, many prefer the role of critic, looking backward to highlight your mistakes. These people don’t help you or your startup.

Obviously, you can learn from both, but mistakes already made cost you more in time and money to recover, while mistakes avoided save both. A mentor’s objective is to build your confidence and business understanding with forward-looking insights, while a critic tends to undermine your confidence and spend time on weaknesses rather than strengths.

The same considerations apply to every constituent inside and outside your team, including co-founders, investors, strategic partners and every team member. Here are some clues that will help you see and attract the best advisors, as well as the right team members:

  1. Is there a sense of trust and mutual respect? The most productive business relationships are built on trust and respect, where both parties have the other’s interest at heart. The results are win-win relationships. Mentors have no interest in win-lose relationships.

  2. Do advisor credentials include practical experience in the domain? Critics tend to rely on anecdotal or academic evidence to support their position, as opposed to a mentor’s insider perspective based on years of practical experience. Good mentors don’t talk in terms of right or wrong, but in terms of best practices and elements of risk.

  3. How effective are the advisor's communication skills? You need advisors that are effective and unemotional direct communicators, face to face, over the phone or via email. Beware of people who are prone to emotional outbursts, pick public forums for their discussions and hope to influence you through messages to friends and cohorts.

  4. Do advisor ethics match your own expectations and culture? You will not be well served by an advisor whose ethical rules do not match your business area or government rules. In ethics, one size does not fit all, particularly in international business roles and cultures. Questionable ethics are not a risk any entrepreneur can afford.

  5. Can you visualize a long-term relationship with this advisor? Advisors that are good mentors often lead to career-long relationships and friendships, such as the one between Bill Gates and Warren Buffett. An advisor’s value goes up over time as they better relate to both you and the business. Would you nurture a long-term relationships with your critics?

Nevertheless, you don’t always get to pick all your advisors, and we all have to anticipate some critics. Every entrepreneur needs to improve how they deal with critics to make their lives less stressful and more satisfying. Here are some recommendations that work, but all take self-discipline to implement:

  • Do not take every criticism personally. All critical comments are not meant to reflect on your personal character. If you take every criticism as a personal attack, and react defensively, even the best-intentioned advisor or mentor will stop providing you the feedback and recommendations you need to improve your skills and your business.
  • Be an equal-opportunity listener. It’s a natural human reaction to discount even good recommendations if they come from someone you don’t know well, is in a different age bracket or a non-native culture. Smart entrepreneurs learn to evaluate the content of the communication independently of the speaker.
  • Practice the pregnant pause before responding. Pushing to reply immediately prevents comprehension or even hearing any advice or feedback. Think before you respond, and always answer with a reiteration of the points of agreement, before answering any points of criticism.
  • Always respond with a smile and calm sincerity. Responding with anger and emotion leads to a confrontation. A smile projects confidence and a calm resolve to listen. The smile is contagious, and helps to put all parties at ease during serious and potentially volatile critiques. Your critic may actually see your perspective and become a supporter.

Most advisors I know really believe they are mentors and not critics. So before you sign up, it pays to check references or peers who have worked with them. True mentors are rarely confused with critics. Every entrepreneur needs help moving forward, and knows it’s hard to be a leader if you are always focused on the past.

Find more mentors and walk away from critics.

Marty Zwilling

*** First published on Entrepreneur.com on 3/13/2015 ***


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Sunday, March 22, 2015

Close Relationships At Work Bring Value And Risks

Laughing_couple We all have to communicate and collaborate with other people at work, but most of us start out instinctively trying to maintain an emotional distance from others in the work environment. In fact, most employee training courses recommend the distance if the work relationship crosses management levels, and most management policies strictly forbid fraternizing with the team.

Yet the 2015 Office Romance Survey by Vault, Inc. found in polling more than 1,000 professionals at companies nationwide, that 51% had participated in not only a friendship, but an office romance, and only 5% think that office romances are never acceptable. So recently I started looking for some expert guidance on the pros and cons on this issue.

One source I like is the classic book “Who’s That Sitting At My Desk?” by Jan Yager, who is a Ph.D. in sociology, and a coach and speaker on work issues and friendship. She outlines the potential benefits of “workships” (work relationships) evolving into friendships and romances as follows:

  • Improve communication and productivity. Even casual friends at work are more likely to understand your requests, be convinced of the value of your ideas, and more likely to work in concert with you on projects. That’s a win-win situation for both sides as more positive things happen more quickly. Warm feelings also make the work seem easier.
  • Offer support through tough times. Positive workplace relationships can help balance some difficult issues you are facing outside of work. Even at work, if you are struggling with a difficult project, getting some help and support from friends there can easily make the difference between success and failure. We all learn more from people we trust.
  • Aid in self-esteem. Work places provide that day-to-day interaction opportunity that is a key to self-esteem for many. Friends are more likely to provide the positive feedback and accolades that we all need from time to time. Friends are also less likely to exhibit aggression and rudeness, which can lower the self-esteem of any receiver.
  • Can be a competitive advantage. Despite accusations of favoritism, if your friendship with the boss is one of many factors in why you get promoted, that friendship may be a big plus for you at work. If you easily make friends with people at work, it means that you have good relationships skills, which is a key requirement as you move up the ladder.

Of course there can be negative consequences to close friendships and romances at work as well:

  • Work-related betrayal. According to most experts, romantic betrayals are the most frequent type of friendship betrayals, with work-related issues a close second. Betrayals at work run the gamut from telling lies, coloring the truth, plagiarizing work, to saying negative things to the boss. Of course, all these things can happen in any workship.
  • More vulnerable emotionally. Through friendship you open yourself up to acceptance, being liked, admired, respected, trusted, and appreciated. You also open yourself up, as do others when they befriend you, to the greater possibility of disappointment, rejection, and misunderstandings. Success is the best antidote to emotional vulnerability.

  • Competition over salary, promotions, and position. Sometimes friends share too many details on salary levels, work habits, and promotion expectations. This can cause feelings of unfairness, and initiate emotionally competitive efforts. The result can be a loss of friendship, and even loss of any working relationship.
  • Hard to keep work-related disagreements separate from personal relationship. Work-related disagreements break up many romantic relationships, and broken personal friendships break up many businesses. In this new age of collaboration, unemotional different perspectives and disagreements have been proven to lead to better decisions.

If you are contemplating a transition from a workship to a more intimate friendship, according to Yager, you should make sure that it satisfies the following three conditions:

  1. Make sure the move is a shared wish. There are three distinct kinds of friends: casual, close, and best. A fourth category is more intimately romantic relationships. None of these four work well if they are "one-sided,” meaning only one of the parties is committed.

  2. Be ready to reveal and involve your non-work experience. Some people find that they have much in common in workplace duties and perspectives, but have nothing in common outside of work. Or they really don’t want to share their personal life details.

  3. Expect increased pressures from trust and discretion issues. All friendships bring increased demands for your time, and bring expectations and pressures during any changes in your life, or at work. Make sure you both have the shared values in your personal life, as well as at work.

In my view and experience, the benefits of more friendship at work far outweigh the disadvantages. Socializing at work today, contrary to a couple of decades ago, is considered collaborative and productive, rather than a waste of time. Today the trend is to “open” office spaces, even for executives, versus the private and quiet offices of yesterday.

Going further in the friendship direction, to a romantic relationship, is still almost always a negative at work, because the emotional ties and tolls often override rational actions. As an example, I find that most Angel investors still decline to fund startup founders that are romantically involved, citing the high risk of breakup.

Work relationships are in vogue, inside a company for collaboration and teamwork, and outside to customers and partners through social media for loyalty and interactive marketing. But all good things can be overdone. Are you maintaining the right balance in your work relationships?

Marty Zwilling


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Saturday, March 21, 2015

Protect Your Business Reputation Online Or Lose It

online-reputation-business Every startup fears that one angry and unfair customer who can jeopardize the business by a negative post on Ripoff Report, Yelp, or one of the hundreds of other consumer complaint and review sites on the Internet. Most entrepreneurs don’t even know how to keep track of what people are saying about them on the web, much less how to respond or remove it.

Web reputation management, both business and personal, has become a top priority requirement. On the personal side, these items can kill your career, as I discussed in an old article “Google Yourself to See How Other People See You.” Luckily, the basic principles for reputation management are the same for both business and personal environments:

  • Actively monitor what people are saying about you. You may assert that monitoring the entire Internet space is an impossible problem. Fortunately, there are already tools out there, like Google Alerts (free) and Brand Yourself, which can do the work for you, and send you a daily email report of every link where your name or brand appears.
  • Proactively build a positive reputation. Maintaining a good reputation means you have to build one early and maintain it. There is a big difference between no reputation with one negative comment, versus 1000 indications of a positive reputation and one negative. Most people accept that no person or organization is perfect.
  • Quickly address every negative. Many negative customer experiences can actually be turned into positives, if you quickly and unemotionally acknowledge the problem, resolve it, and spread the positive message before the negative one gets amplified. Don’t emulate the “United Breaks Guitars” experience.
  • Push negative content out of view. In reality, most people will never find negative content, unless a link appears on the first page of search engine results. With the right focus on search engine optimization, or the help of companies like DefendMyName, you can usually push negative links out of sight into the swamp of the Internet.
  • Remove unwanted content, where possible. Removing your content from the Web is not as easy as canceling your accounts, nor is it completely impossible. You can easily remove content you own (comments on your site or accounts). Experts, like Reputation Defender, have proprietary techniques to correct or completely remove other unwanted content.
  • Your reputation is your responsibility. The last step is to recognize that you alone are responsible for managing the reputation of your business and your life. Doing nothing, or counting on more laws, is not an answer. Due to First Amendment rights, offensive content, once entered, is often untouchable, and the sources are immune from liability.

The upside to the difficulty of removing unwanted content is that it does justice to those who have come by their bad reputations legitimately. For curbing bad guys, the speed and visibility of the Internet can be a very useful thing. For all the rest of us, it’s nice to know that we can shout back quickly and broadly, when someone starts to whisper about us.

As I have discussed in previous articles, social networking sites like Facebook are now the most frequently used websites on the Internet. Unfortunately, they have also become some of the most abused websites on the Internet, due to the emotions of failed relationships and the immature whims of young users.

So the social networks are the early place to start, in learning the discipline of building and maintaining a positive reputation. If you get that right, the transition to your business will be easy. On the other hand, if you let your reputation slide early to be “cool,” it may take a lifetime to recover. It’s easier to make Google remember than to forget.

Marty Zwilling


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