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Attracting talent

This article is the sixteenth in the Startup Series on FirstPost’s Tech2 section and first appeared on May the 25th, 2017.

Apart from having a strategic direction and enough money to execute on the vision, the key challenge for founders is talent. Based on my experience, I will go out on a limb and say this: talent is not scarce. No matter what we hear about the “war for talent”. What is scarce is the ability to know what talent you need, find that talent, and find that talent efficiently, quickly, and affordably. This is truer still of the earliest hires, who shape your vision and your startup’s culture.

Here are some pointers based on my experiences with helping founders find people for their teams.

Making a successful hiring decision requires a process: knowing whom you seek, where they hang out, whether they see and notice your call for talent or otherwise know of your need, whether your call for talent is attractive enough, whether they are interested enough to apply or reach out, whether your hiring process confirms a mutual fit, whether you agree terms and, finally, whether they are still interested and have not been poached by a better offer in the meanwhile. This step-by-step looks obvious when one lays it down in black and white. In reality, most founders founder when it comes to hiring because they are haphazard and their follow-up is poor. Avoiding disorganised thinking and the ensuing chaotic hiring process, which can repel many a good candidate, is therefore the first thing to aim for.

The second thing is to avoid obvious and easy answers. At every step.

Most founders look in one type of spaces e.g. online startup communities or mailing lists or Slack groups. These are also spaces where your target talent is most likely to see all the other competing possibilities. Avoid being so narrow and niche. The wiser thing to do would be to tap your IRL network too. Ask the people you know who are not connected to the startup space and you may unearth several new possible candidates. As a bonus, your contacts would also have vouched for you and your startup before those candidates agree to talk to you.

People have CVs and people have side projects. These side projects in many cases provide insight into a person’s thinking as well as their skills. The obvious mistake is to not probe these side projects and thus miss possibilities. In two instances that I have been involved with, the side projects pursued by potential hires showed how those hires were perfect for the company’s international expansion plans.

Falling back on unconscious biases is another obviously easy thing to do in hiring. And avoidable. It has been shown that women get hired on proof, while men get hired for potential. If you are not finding or reaching talent of the kind you want, it would be foolish to let your unconscious biases against an entire gender make your hiring outcomes worse. Unconscious bias training goes some way not the whole way in addressing these flaws in thinking although it would be advisable for your own personal growth as a leader and entrepreneur. Emerging hiring technology could give a helping hand too. For instance, Blendoor enables merit based matching by hiding irrelevant data and thus widening your candidate pool.

Google’s chaotic hiring process in the early years has now passed into tech industry legend. It is also something best avoided and not emulated. It is crucial that founders build a creative but robust hiring process that scales, including for collecting candidate data, made simpler by platforms such as Workable, and conducting telephonic and face-to-face interviews. Equally it is important to make references as systematic and methodical as interviews themselves. Not asking meaningful questions and failing to listen actively to what the referees say is unwise, although it is easy to do cursory checks and feel you are done.

Last but not the least, avoiding firing people who aren’t a great fit is not a great move. Especially early hires, who will shape your startup’s culture, have to enable your vision and not sabotage it. If they are being disruptive or otherwise do not fit the startup, the founder has to learn to let them go. There are laws of the land that will cover firing within and outside probation periods. Of course this assumes you have given people employment contracts! It is also useful to talk to people in “exit interviews” before they leave to understand what you might have contributed to the disagreements.

Hiring is a contact sport. Putting this advice into practice will take commitment to solving the talent puzzle for your own startup.

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Early employees and the art of equity distribution

This article is the fifteenth in the Startup Series on FirstPost’s Tech2 section and first appeared on May the 10th, 2017.

As a professional and an advisor, I have been on both the founder’s and the early employee’s sides of the question of equity for early employees.

In an early stage venture, equity is an idea, and equity distribution an art rather than a hard science, regardless of how much algorithmic formula type advice you find floating on the web or from well-meaning people. At an early stage, both founders and early employees are driven by the vision and the possible value creation from realising that vision. Both sides need preparation and clarity on their best number, their best alternative to a negotiated agreement (BATNA), and their respective exit strategies.

This column draws upon the several startup situations I have been or advised in and covers some essential considerations in such a discussion.

For her part, the founder sets aside a pool of X percent equity, from which early and later-but-crucial employees, and members of advisory board etc., will receive shares. Some of this X is designed to be given away as restricted stock, which is “granted” or “given”, and other as stock options, which must “vest”. The founder should have at least a rough plan for using this pool, with clear ideas on how the cliff, vesting, clawback etc may work. If she is unable to find how other startups are thinking about this, she may be able to get advice from an experienced startup lawyer, whose role in a startup has been discussed in earlier columns in this series. I have experienced at least one situation where creating the pool was an afterthought and created avoidable friction among the co-founders.

Often early employees are advised by well-meaning mentors to demand a percent of equity and not budge. Equally, founders are advised to make a fixed offer and stick to it. Both of these are poor advice. Not only is the making and the accepting of the offer a very personal decision for both sides where formulaic approaches may not work, but negotiation is also normal and an inflexible attitude does not help the situation.

Both stock grant and stock options have different implications for the recipient’s personal taxation and wealth generative situation as well as his “tie-in” to the company. Both may have a cliff, and a lock-in period or vesting schedule. The lock-in is where the founder’s and the early employee’s interests may diverge. The founder wouldn’t want a valuable employee to quit as soon as his options vest, for instance. The potential employee may rightly want to maximise his professional and wealth generative opportunities. The founder should be clear about communicating the terms of such grant or options. The potential employee will have to determine for himself whether the schedule and the lock-in are in line with his vision of his career and life.

It is worthwhile for founders to be transparent about exit avenues being envisioned or developed for the startup, and for early employees to understand those possibilities. In very early stage startups, this can be a fuzzy discussion. But it can be made better by discussing what the company is already doing, what the trajectories are, and what outcomes are feasible. This would enable the potential employee to make up his own mind about whether the offer is appealing enough for the associated risks of accepting a pay cut and the uncertainties that come with a startup.

Who drives the process? Here is some advice specifically for the potential employee. Unless you are an absolutely crucial hire, the founder will get distracted if the negotiation carries on too long. In a start-up, there are always more important things to do than discussing your specific situation ad nauseam, so you have to be the one driving the process. It would be wise to agree on a date to close an agreement. This is just a practical pointer. Sometimes we can get so hung up on the maths that we forget to have the actual conversation.

Finally, if things do not work out, it is worth remembering that walking away is a valid option for both the founder and the potential employee.

Leaving on good terms may earn the startup a friend and there may be a chance to engage again sometime in the future.

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How to be a valuable non-tech co-founder

This article is the thirteenth in the Startup Series on FirstPost’s Tech2 section and first appeared on April the 3rd, 2017.

The excessive media focus on techies as startup founders often makes non-techies doubt their ability to found and build a startup and create value. Many non-tech persons I meet believe that they won’t get investment without a tech co-founder whom they then spend considerable time trying to find. Many techie founders on the other hand seem to not think of finding non-tech co-founders with the same keenness. Both approaches need a rethink.

For starters, both the tech and non-tech founders have to stop using the term “non-tech”. The term suggests the primacy of tech skills which, while not inaccurate, does not highlight its limitations i.e. unless the technology is solving a problem and can create a product or service for which someone will pay, there is no business there. “Non-tech” in other words is the business person in a startup team.

A well-known story where a “non-tech” leader changed the fortunes of a “tech” company is of Mark Zuckerberg, the tech founder of Facebook, bringing Sheryl Sandberg on board as the Chief Operating Officer. At the time, Facebook was privately owned, valued at $15 billion, making nearly $56 million annual loss. Within eight years, under Sandberg’s leadership, Facebook grew its revenue more than 65x, made nearly $3.7 billion profit, did a successful IPO and, at $320 billion, now ranks as the fourth-most valuable tech company in the world.

So, how to be a valuable business co-founder?

Bring an understanding of the target customers. Talk to as many as you can. Listen with an open mind. Don’t look for patterns too early. Don’t challenge their reported lived experience even if it clashes with research data. Just listen, with attention.

But what if you are building is something truly path-breaking such as Henry Ford’s car? Ford famously said if asked for what they want, customers would have asked for faster horses! Even in such a case, you will still need to listen, evangelise, recruit champions, and build an organisation to reap the rewards for the startup. That was the magic Sheryl Sandberg brought with her operational nous to growing Facebook!

In an early stage startup, the business co-founder would translate the understanding of the customer to the tech team building the product. Being the champion of the customer and the community through the development process is not easy and will require great empathy with the tech team and the development process as well. At the same time, it is important to emphasise how some tech decisions should not be made before the business issues are resolved. A startup I advised learnt to its considerable cost that it is wise to get the payment gateway sorted before signing up to the customisation of a shopping cart and e-commerce platform. This folly of putting the cart before the horse was also quite expensive.

Test your product, service or app yourself first, and do so remembering the customer feedback you collected. Go further and involve some of your strongest critics in that testing. Enable iterations with an eye on the customer’s concerns, balancing the customer journey with technological feasibility. In a startup I was involved in, the business co-founder wanted the website to be designed to be accessible even on low bandwidth as many consumers were likely to be. Her concerns were overlooked to such an extent by the tech co-founder that the end result was an unusable website, the death knell for the e-commerce-only venture.

Examine all the processes, interfaces, “touch points” where your customer and community interact with your business. Ask if you are treating them well – addressing their concerns, reducing friction in how they can pay for something or raise complaints or indeed give feedback to the business.

In another startup, customers wanted the ability to consult a human being on the phone or chat before completing a purchase. The lack of such a possibility was frustrating customers and ending up in no sales being made. Neither the tech nor the business co-founder had paid attention to that feedback from the customer testing phase, as they were both used to eschewing human contact in favour of online experiences while shopping.

Examine the processes and organisation design for whether they are fit for purpose, efficient, and scalable. Does your business have seasonal cyclicality? Will you need more staff to ship thus increasing costs in your high season? How will you process returns if all your staff is dedicated to shipping faster and more? These questions are often not thought of in advance, as I saw in case of a fashion startup, whose success exceeded their expectations.

 

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Getting help for your startup

This article is the twelfth in the Startup Series on FirstPost’s Tech2 section and first appeared on March the 16th, 2017.

Asking for help is an essential founder survival skill. But founders often do not know when to seek help, whose help to seek, whose help to accept, and how to evaluate and pay for any specialist expertise about which they, as founders, know little. Here are some key questions founders ask (and should ask) about getting help.

What help is needed? The answer often depends on the stage of the startup’s life. For instance, a competent startup lawyer would help with the legal structure, the shareholding rights agreement and other key legal scaffold in the early days. Essential help pre-launch could also come in the form of strong introductions to early adopters, potential channel partners, or influencers who can shape early adoption or off-take for your product as well as to people who can help access angel or VC funding and make introductions to advisors or board directors. The help needed post-launch varies. Customer referrals & recruitment, partnerships for growth, raising growth capital, geographic expansion, possible exit conversations are some examples. It helps a founder to map out the first growth stages

Whose help is needed? In my experience, the advisors that work with startups fall into three broad baskets: specialists, hands-on warriors, and famous-names. The first two are self-explanatory categories and include advisors such as lawyers and accountants, and people who are rainmakers, door-openers and hustlers on your startup’s behalf. Some of these are needed short-term or as-and-when. Others may be involved for short or longer periods of time. The last category however often dazzles and confuses founders. I recently advised an innovative social enterprise one of whose founders is a “celebrity”. While keen to keep control and wanting to be CEO and board director, the celebrity cofounder does not have time to do any actual work. This is problematic especially given the brand gains from keeping the famous cofounder on board. Could another advisor perhaps have a word and clarify expectations? Think of Theranos as a cautionary tale! A stellar lineup of directors and advisors, assembled for their political connections not their scientific nous, has not helped but hampered the company’s goals.

How to assess the suitability of advisors? The best way is to use a combination of verifiable credentials and testimonials. If asked for references or testimonials, I introduce the founder who is asking and one or more of the other founders I have advised, and let them converse freely. But this is rare. More commonly, founders approach me because they have been referred by someone who knows us both well. In such a case, I am the one who asks questions. Due diligence is a two-way street after all. This is when I find founders unprepared to talk or share information. Some ask for NDAs before sharing anything. Others go overboard in talking themselves up. None of these works. Advisors have finite time, and if you cannot sell your idea and vision to them, you won’t keep their interest very long.

How to compensate advisors? Startups often struggle with this question. The varying degrees of involvement required thwarts one-size-fits-all approaches. Many founders are pleased that some advisors are happy to accept equity. But equity is really the founders’ only major bargaining chip. Giving it away like toffee is unwise. Investors may also not be very happy with too much equity in the hands of advisors not actively involved. Some advisors such as lawyers, whom you want involved long term as you grow, may be better candidates for equity or options, than some other advisors whose advice is short-term or highly specific in nature. Then again not all advisors may accept equity. In such cases, the founder has to ask how badly that specific advisor is needed by the startup. Whatever you agree, put it in writing, alongside the framework for engagement; especially where you are giving away shares or options, clearly state the cliff and the vesting schedule.

Finally, how to manage advisors? This is crucial not least if you are paying your advisors. The keenest of advisors will not chase you, the founder, to give their advice. You, the founder, have to figure out a way to get their input. It helps to have a framework in place. One of the best frameworks I have worked with specified the scope of advice, the time expected of the advisor per month including roll-overs if the agreed time was not used in a given month, and the mode of communication that also identified which of the founders will be their interface.

Not all advice will be good, implementable, or effective. Some advice may be just awful. The relationship between advisor and advisee needs to be mutually beneficial and subject to periodic review. As founder, it is finally your call. It is, after all, your dream!

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Of diamonds and responsible eternities

Millennials, often described in media as hapless, poor and unfocused, reportedly dropped a cool $25 Billion on diamond jewellery in 2015. This indicator of current and future demand for sparklers notwithstanding, we are nearing the peak of natural diamond mining.

It raises the question as to why synthetic diamonds have not taken off.

After all, millennials as consumers are also focused on environmental consciousness and reportedly willing to pay a premium too. Further, laboratory-grown synthetic diamonds — not to be confused with diamond simulants, such as the non-precious cubic zirconia and the semi-precious white sapphire — are virtually indistinguishable from natural diamonds mined from the womb of the Earth in an energy intensive and ecologically intrusive process. The Gemological Institute of America now even certifies that the synthetic diamond you have just bought is real, authentic synthetic. Synthetic diamonds also come from a transparent supply chain with no human exploitation, which is an excellent reason to choose them.

Why then isn’t the world switching en masse to the more environmentally sensible option?

The answer lies in the deeper probing of what shapes our preferences. We don’t buy diamonds, diamonds are sold to us. There is hard nosed business behind shaping our desires even though the traditional reasoning behind engagement rings no longer holds water, and plenty of women can and do buy their own diamond rings.

The economics is simple enough. Synthetic diamonds sell at a considerable discount to real diamonds. Trade makes more money selling a real diamond than it does selling a synthetic one, even with a certificate. In turn, this means a consumer is likely to see many, many more real diamonds on offer than she will see synthetic ones. This shapes the consumer’s consideration set and undoubtedly influences what gets bought.

The value chain reason is more interesting. Making synthetic diamonds is a capital intensive business. The barriers to entry of a new player are significant. So unless the demand for synthetic diamonds is proven to exist, investment may not come pouring into the space. In a delicious but understandable irony and a strategic masterstroke, a De Beers group company owns a vast majority of patents in the manufacturing of synthetic diamonds. So while it is possible to manufacture synthetic diamonds, it may be darned hard to do so without committing patent violations. This is not trivial. From a consumer’s point of view, this changes nothing and everything at once. De Beers has invested in distribution as well as, since Frances Gerety’s virtually immortal “A diamond is forever” line in 1948, branding for diamonds. It would have been foolhardy and self-destructive, if De Beers did not try to hold on to those advantages.

The branding reason is, of course, the strongest.

Most diamond purchases are not rational purchases but rationalised, emotionally led buys. Feelings are notoriously difficult to dislodge and remarkably easy to hurt. For years, the intrinsically “forever” and “real” character of diamonds has been used as some kind of proof of eternal love and commitment. Would a synthetic diamond ring mean fewer flaws, more perfection but also fake, performative love on the cheap?

Here lies the opportunity.

The brand story for the category itself is ripe for change.

Millennials say they are willing to pay a premium for environmentally friendly products (though not always willing to make good on those intentions). If the positioning is right, synthetic diamonds need not be sold on the cheap. They could be positioned as the environmentally friendly, technologically advanced, ecologically savvy, energy conserving version of the gemstone for the new, tech-savvy generation, while their sparkle still remains celebratory.

Thanks to digital platforms, the engagement with millennials can be kept quite targeted and kept away from the prying eyes of the boomers or even Generation X, who may be confused by the messaging about synthetic diamonds or feel cheated.

Moves are afoot in the space already.

Until a few years ago, when I heard the word “diamonds”,  Dame Shirley Bassey’s booming “Diamonds are forever” rang in my ears. Mental concerts are a real thing, look them up.  The song is wall-to-wall marketing of the De Beers catchphrase of enviable longevity.

However nothing lasts forever, as the rock prophet Axl Rose reminds us.  Why then should sparklers bear this unfair burden of eternity and permanence?

Why not move the discourse from eternity and permanence to a more achievable and realistic exhortation to just “shine like a diamond”?

Move over Dame Shirley, Rihanna, the millennial maestra, is here.