Joining An adVenture

Bilbo’s offer letter from Thorin in J.R.R. Tolkien’s The Hobbit exemplifies the proper attitude that you must have when joining an adVenture.

The Hobbit“Thorin and Company to Burglar Bilbo, Greetings!

For your hospitality our sincerest thanks, and for your offer of professional assistance our grateful acceptance. Terms: cash on delivery, up to and not exceeding one fourteenth of total profits (if any); all traveling expenses guaranteed in any event; funeral expenses to be defrayed by us or our representatives, if occasion arises and the matter is not otherwise arranged for.”

OK. So you are an entrepreneur, but you are not an inventor. You want to help create a team and build something from nothing but you do not have a world-beater idea.

No problem.

You just need to find an adVenture in need of your talents.

Unlike when landing a position with a Big Dumb Company (BDC), you cannot simply scan the want ads, shotgun your resume and do the interview dance. Finding the right position with a startup requires flexibility, creativity and patience.

One of the reasons so many startups never get started is because of the Catch-22 associated with hiring the Core Team and raising money. It is difficult to obtain the talent necessary to raise seed funding without having seed funding to compensate the team. Which comes first? The team or the money? The money or the team?

Because of this dilemma, Founders often must first put up their own sweat equity, gather funds from soon-to-be former friends, fools and future estranged family members in order to initially compensate the Core Team. As such, the Core Team often must be extremely flexible with respect to their initial cash compensation.

For instance, at one venture, I accepted a 50% pay cut, with the proviso that my salary would increase (but would still be below market) once I helped the company obtain adequate funding. Fortunately, we closed a $30M funding round at a substantial pre-money valuation a few months after I came onboard. Thus, I was able to secure an outsized equity position by initially accepting a significantly discounted salary. We later sold this company for more than $230M.

In another venture, when I was asked by the Founder how much I wanted to be paid, I told him to name the price and I would accept whatever he offered. This reduced the tension associated with negotiating my package and it also clearly communicated that I appreciated the venture’s cash strapped position. The company offered me a laughable salary, which I gladly accepted even though most Wharton MBAs would not have crossed the street in exchange for such a small wad of cash.

Within a month or so, the Founder unexpectedly granted me a substantial raise and additional equity, as it was clear to him and the investors that I was adding value which was not in sync with my initial paltry compensation. We eventually took this company public and it was subsequently sold for $148M.

Money Is No Object

Thus, one way to land a position with a startup is to offer your services without demanding a paycheck on day one. If you are like most people and you need a bit of cash compensation for such luxuries as food and lodging, then only ask for what you really need.

Startups are analogous to real adventures in which there is a bountiful payoff at the end of the road. If you wanted to join a caravan heading to the orient during Marco Polo’s day, you would not ask for your share of the spoils up front. If you did, you would lose out on a chance to see the Orient. You would likely only ask that your necessities be provided for during the journey. Once the adventure was concluded and the profits were realized, you would then expect to be awarded an outsized portion of the proceeds – far more compensation than if you had been paid a market rate salary during the duration of the adventure.

Startups are like adventures of old. As noted in Bank Robber or ATM Operator?, you do not join a startup so you can immediately start shoveling money into your bank account. If you want to earn a market rate for your services, join a BDC.

Tactics for Joining an AdVenture

Consider which of the following tactics best fit your personality, risk profile, financial standing and temperament. This list is not a one-size-fits-all solution. Deploy only those tactics which you deem appropriate.

  • Flexibility
  • Egoless
  • Flypaper
  • Batting Cleanup
  • Value Before Pay
  • Pay to Play
  • Standout
  • Become a User
  • Professional Student

Each of these tactics is discussed in more detail in the remainder of this entry.

Flexibility – The good news is that startups are chronically in need of talented contributors. Because of this perpetual manpower deficit, you can usually chart your own course and perform at an executive level that would not be available to you at a BDC. The bad news is that startups are chronically in need of talented contributors. You must be flexible when you first approach a startup and be willing to perform certain tasks that may not be to your liking. If you are successful and patient, you will eventually be in a position to focus on the tasks that you want to do as you will have the resources to hire others to do the less desirable tasks.

Egoless – When you join an adVenture, check your ego at the door. In order to ensure your adVenture’s success, you must subordinate your self-interest to that of the team. It ain’t about you, it is about the team’s success. Your individual success will ultimately be derived from the team’s overall success. The lower the drama quotient, the more resources and energy your team can apply to executing its Action Plan. For more regarding creating Action Plans, see Tom and Huck.

Flypaper – Make yourself sticky so that adVentures will come to you. Let the members of your entrepreneurial ecosystem know that you are in the market to join a startup, as described more fully in Nature or Nurture?. Establish relationships and gain credibility with the accountants, Venture Capitalists and entrepreneurial lawyers so they will be willing to share your resume with entrepreneurs who are in the process of pulling together a Core Team. Anyone who is in a position to review startup deal flow is someone you should add to your network. Be patient, as it may take time for the word to ripple through the entrepreneurial community regarding your availability. For additional ideas regarding how you can effectively network within your entrepreneurial ecosystem, see Your Personal Pitch.

Batting Cleanup – Homerun hitters have more success if they are followed by consistent hitters with high batting averages. In such cases ,pitchers must throw the homerun hitter strikes because they cannot to walk him, for fear that he will eventually score. Conversely, the homerun hitter feels more comfortable swinging for the fences when they know they have one or more consistent hitter(s) following them in the lineup. Even if they strike out, there is a good chance that the following batter(s) will get on base and eventually score.

If you are fortunate enough to be in a relationship with a significant other, you can swing for the fences while your better half maintains a more secure position in the vocational batting order. I was lucky enough to deploy this tactic, as my spouse held safe jobs with various BDCs while I worked for far too little pay and accepted unreasonable risks in the hopes of sharing in the pot of gold at the adVenture’s end. We were fortunate to become involved with several great startup teams which managed to achieve successful exits. However, if we had not, our family would have still been financially stable, due to the fact that my spouse hit financial singles and doubles and never struck out.

Even if you do not have a significant other following you in the batting order, you may be able to call upon your family to provide you with a temporary financial safety net. In addition, you can create mini-ventures or venturettes that will increase your financial flexibility and allow you to eventually swing for the fences, knowing that you can count on the residual income generated by your mini-ventures. Venturettes are discussed more fully in Small Ideas, Big Benefits.

Value Before Pay – Add value to your new adVenture before asking for anything in return. In your initial discussions with the startup, identify one or more tasks that you can perform which will deliver real value. For instance, at one startup, I first negotiated a substantial agreement that allowed the company to begin processing credit cards online. This agreement, which had highly favorable terms, added value for several years. The Founders were impressed that I was willing to take the time to negotiate and craft this agreement, without asking for quid pro quo compensation.

At another adVenture, I helped negotiate the company’s new phone system, which saved over $35,000. Thus, before ever receiving a dime, I was able to help the company in a material way.

Not only does this approach give you a chance to display your skills, it also provides you with an opportunity to get to know the players at the startup beyond the superficial interviewing environment. By joining meetings and helping to make decisions before you accept a full-time role, you have an opportunity to assess the company’s fledgling culture and determine if it is a good fit for your temperament.

Pay to PlayAnother way to secure your position on a startup team is to bring cash with you, either directly from your pocket or by introducing investors to the adVenture. Investors will likely be impressed that you feel confident enough in the startup to donate your blood, sweat and toil. If you bring capital to the adVenture, you will effectively offset the incremental cost of adding you to the team. From a Founder’s vantage point, securing investments from early, key employees is a convenient way to further strengthen the employees’ vested interest in the company’s ultimate success.

Standout – Startups need to minimize their bad hire risk, as the relative impact of such misfires is significant, as noted in Finding an Entrepreneurial Gem. One way you can encourage a startup to devote some of its limited resources to you and reduce its risk of making a bad hire is to do something that makes you stand out.

At one of my first adVentures, I joined a team of engineers who were surviving on government grants. At the time I joined the company, the Founder said, “I am not sure what you can do for us, but I am sure you can help in some way.” The running joke for the next seven years, which included going public and eventually selling the company, is that “I just kept finding things to do.”

I landed this position, in part, because I took the time to read the Founder’s PhD dissertation, which was titled, “A Computer Architecture for Advanced Robot Control.” Although it was highly technical, it provided me with a basis to understand why the company’s technology was unique. It also served as a great door-opener with a Founder who did not initially appreciate the value that a businessperson could add to his engineering-oriented startup.

Become a User – As applicable, be sure to use and rigorously evaluate the startup’s product or service. When I interview potential new hires, this is one of the key factors I consider when evaluating a candidate’s commitment. At one startup, we offered a free trial version of our product, which made using the service very convenient for any potential new hire. Even so, it was surprising and disappointing how many candidates who professed a passionate interest in our mission had not even taken the time to download the free version of our product.

How can you commit the next three to five years of your life to a startup without a first-hand, user’s understanding of the company’s value proposition? Of course, if the startup’s product or service is under development, it may not be possible to test-drive their solution. If the solution has not been publicly launched, ask to become an Alpha user. Hands-on use of the company’s solution will provide you with invaluable insights as you evaluate the adVenture’s fit with your skills and proclivities as well the startup’s overall chances of success.

Professional Student If you are on the front end of your entrepreneurial career, you should consider first taking a job at a BDC. This will give you a chance to learn a bit on their dime and gain some experiences that you can apply when you eventually join an adVenture. This concept is discussed further in The Fringe.

But Do They Really Care?

Every company claims to care about their employees, but one way you can tell if they really do is the state of their bathrooms, particularly the women’s bathroom. They do not need to be opulent or grand. This would be a sign of a startup that has its spending priorities upside down, as described in Frugal Is As Frugal Does. However, the bathrooms should be clean and well-maintained.

One startup in which I worked put little stock in their human capital. This was reflected in the restrooms, which were constantly filthy and smelled rancid. You may be thinking, “Hey, the bathroom is the landlord’s purview and not the startup’s responsibility.” It is true that the landlord owns the building, but it is up to the startup’s Core Team, the people who are putting money in the landlord’s pocket, to raise Holy Hell if the landlord does not maintain sanitary office facilities.

There And Back Again

Many people do not realize that the subtitle of The Hobbit is There And Back Again. This subtitle underscores what every entrepreneur on The Fringe knows to be true – it is the journey that matters most, not the treasure you will split with your team at the journey’s end.

Although you hopefully will not come across any trolls or orcs, your startup’s journey will be an adventure filled with unforeseen perils and exhilarating successes. There are countless piles of treasure out there, but as Pink Floyd so aptly stated, “They’re giving none away.” In each case, the treasures are guarded by a dragon of one sort or another – be it entrenched competitors, product alternatives, market apathy, or something else. To slay the guardian dragon(s), all you need to do is: find the right team, cut a deal with significant upside potential and maximize the fun factor during your “There And Back Again” adVenture.

Copyright © 2008 by J. Meredith Publishing. All rights reserved.

 

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John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.


Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.





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