WHITE PAPER                                                TAKEAWAYS          Attracting          Talent to               ...
Topics in this White Paper✚      Introduction                            3            ✚      Who works for a Startup?     ...
IntroductionThis white paper discusses some ofthe unique problems that facestartups, the “phases of life” that theygo thro...
Insanity & Genius                      You have to be somewhat crazy to launch a startup…. “The distance between  insanity...
Founders & a WhiteboardThere are several typical stagesin a startup:Founders & a whiteboardIn the beginning, someone has a...
Founders & a WhiteboardThe part about being crazy is notan exaggeration. Founders –and the people who follow theminto the ...
Wearing Many Hats                      Marketing                            Engineering        Sales                      ...
Wearing Many HatsThe founder(s) and the early team must wear many hats. A startup isn’ta corporation where a task can be s...
First HiresFirst hires: By now, the founder(s) haveraised some limited friends and familymoney and/or Angel Investor money...
PrototypePrototype. The prototype is built,and the founder(s) use it toconvince more angel investors totake a risk.They go...
BetaBeta. The founder(s) convinceotherwise sane people at regularbusinesses (corporate types) toinvest their time, and hen...
Pre-LaunchPre-Launch. The founder(s)have now convinced enoughAngel investor(s) or small privateequity investors to contrib...
Launch / A-RoundLaunch / A-Round. Theproduct has proven itselfenough to attract moresubstantial investment. Thefounder(s) ...
State of the TeamThroughout these                          ✚ Each must wear many hats(oversimplified) stages, the         ...
Growing and Growing                                           AudioNet / Broadcast.com just kept growing                  ...
Startups are NimbleA word about culture: There is a                During the rocket-like growth ofreason why big companie...
Startup -vs- Corporate CultureSo, if big companies can’t dowhat startups do, why do somany startups try to recruitthrough ...
Startup -vs- Corporate CultureDon’t get me wrong. Bigcompanies are the way they arefor many reasons. They need acertain am...
NetworkingStartup founders need to be                   Many startups are largelyvery active networkers. They             ...
Networking                                                 ✚         http://www.conotes.comOf course, it goes withoutsayin...
Referral IncentivesStartups often offer referralincentives, such as cash forreferring / recruiting new teammembers. If you...
EventsSponsoring special eventsprovide a nice opportunity toreach out to your collectivenetwork. This can range fromsettin...
EventsEvents like these are anopportunity to invite people toget to know you and for oldcolleagues to find out what’s     ...
Interns & College/UniversitiesCollege career centers and job boardscan be a great place to recruit interns andentry level ...
Interns & College/UniversitiesMy friend Bettina Bennett, ofWhichBox Media, has a summer         Einstein Intern Program:“E...
Compelling?Why is working at your startup a compelling thing?✚Are you on the bleeding edge of your field?✚Use the latest t...
Who works for a Startup?CBInsights reviewed VCFunded startups back in2010 and found thattypical founder was a 35-44 year-o...
Early employeesYour early startup employees (the goodones) are specialists at working in fast-moving, unstructured, chaoti...
Poaching?Where do you find talent? From your competition,of course. BusinessInsider did a study onLinkedIn, backtrackingAp...
Poaching?As a startup, you probably don’thave the deep pockets to pay bigsalaries and steal talent from thelikes of IBM or...
Location & RecruitingStartups often end up at alocation that is convenient forthe founder(s). Before settingthe anchor, lo...
FlexAre you providing flexible workingarrangements? While you obviouslyneed to watch out for people who abusethe privilege...
CompensationTechnical fields are especially price-competitive. To fill these roles, you needto look for people who want to...
Options valueFor example, if you are offering a salary that is, say, xx% belowmarket, and are offering stock options -- ar...
Compensation Plans                                                ✚ http://theoperationsguy.com/building-                 ...
RetentionWhether the economy is up or down,keeping your team members from jumpingship when the wind blows is challenging.R...
RetentionOn the other hand, you can take advantageof local conditions – such as locations withhigh tax rates or costs of l...
RetentionExample: It is no secret that it ismore expensive to do business inCalifornia — and the tax situationreminds me o...
The simple thingsSometimes, it is the simple things that help. If you’re good on everything else,*knowing* your people cou...
The simple things Impromptu. Pros: Extra time off doesn’t just mean vacation time.  Impromptu company celebrations– “Hey ...
Family Invite spouse and/or children to lunch or other “company events.” While this  can sometimes be logistically challe...
Family Simple, simple, simple: Find out when the spouse’s birthday, anniversary,  children’s birthdays are – send a card ...
Family Junior Interns. Inviting teenage family members to be a summer intern  can be a great way for parent and child to ...
Perks & Bennies Enhance their “space” – upgrade their chair or desk or some other  improvement to their workspace. Simila...
Perks & Bennies Year Book: Many on-demand book printing services exist now that make  it easy to have one or a small numb...
Perks & Bennies Alternate job titles. Consider “secret identity” or, simply, fun alternate job  titles. They keep their o...
Change of Control /M&A (Merger & Acquisition)Much has been written about the structure ofoptions plans and vesting. Is the...
Change of Control /M&A (Merger & Acquisition)In other cases, there are Change ofControl bonus plans, granting acontractual...
Change of Control /M&A (Merger & Acquisition)Transparency is critical here. Those team members who’ve been aroundthe block...
Flush with Cash?Even some of today’s high flyingorganizations, flush with cash, find itdifficult to attract and retain top...
… or NotChances are, your startup doesn’t (and shouldn’t)spend this kind of money. That’s not what yourinvestors had in mi...
About the Author                         Patrick Seaman currently mentors and advises technology startups                 ...
About Pepperwood PartnersPepperwood Partners is a boutiqueinvestment banking advisory firmheadquartered in Dallas, Texas.P...
Startups: Attracting and Retaining Talent (updated 3/6/13)
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Startups: Attracting and Retaining Talent (updated 3/6/13)

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White Paper on attracting and retaining talent for your startup. Based on my own experiences in many startups and early stage companies. Topics include: Introduction 3
Insanity & Genius 4
Founders & a Whiteboard 5
Wearing Many Hats 7
First Hires 9
Prototype 10
Beta 11
Pre-Launch 12
Launch / A-Round 13
State of the Team 14
Growing and Growing 15
Startups are Nimble 16
Startups –vs- Corporate Culture 17
Networking 20
Referral Incentives 21
Events 22
Interns & College/Universities 24
Compelling? 26
Who works for a Startup? 27
Early Employees 28
Poaching? 29
Location & Recruiting 31
Flex 32
Compensation 33
Options Value 34
Compensation Plans 35
Retention 36
The Simple Things 39
Family 41
Perks & Bennies 44
Change of Control 47
Flush with Cash 50
Or not 51
About the Author 52
About Pepperwood Partners 53

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  • Your slide on keeping employees working together as a team at the same place makes perfect sense. Even at the huge corporate level, Marissa Mayer at Yahoo announced today that they are reeling in all remote working employees. ''To become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side,' the memo said. 'That is why it is critical that we are all present in our offices.''
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  • I appreciate it Sergey, good to hear from you. We've all got our battle scars from the startups we've done!
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  • Good insightful presentation
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Startups: Attracting and Retaining Talent (updated 3/6/13)

  1. 1. WHITE PAPER TAKEAWAYS Attracting Talent to •Startup -vs- Corporate Culture Startups •Incentives, Compensation & Equity By Patrick Seaman February 2013 •RetentionAll Rights Reserved Revised: February 2013 Page 1
  2. 2. Topics in this White Paper✚ Introduction 3 ✚ Who works for a Startup? 27✚ Insanity & Genius 4 ✚ Early Employees 28✚ Founders & a Whiteboard 5 ✚ Poaching? 29✚ Wearing Many Hats 7 ✚ Location & Recruiting 31✚ First Hires 9 ✚ Flex 32✚ Prototype 10 ✚ Compensation 33✚ Beta 11 ✚ Options Value 34✚ Pre-Launch 12 ✚ Compensation Plans 35✚ Launch / A-Round 13 ✚ Retention 36✚ State of the Team 14 ✚ The Simple Things 39✚ Growing and Growing 15 ✚ Family 41✚ Startups are Nimble 16 ✚ Perks & Bennies 44✚ Startups –vs- Corporate Culture 17 ✚ Change of Control 47✚ Networking 19 ✚ Flush with Cash 50✚ Referral Incentives 21 ✚ Or not 51✚ Events 22 ✚ About the Author 52✚ Interns & College/Universities 24 ✚ About Pepperwood Partners 53✚ Compelling? 26 Note: This paper is based on my personal observations and experiences. It is not intended as a blueprint or roadmap or endorsement of any particular strategy, nor does it reflect the views of Pepperwood Partners.All Rights Reserved Revised: February 2013 Page 2
  3. 3. IntroductionThis white paper discusses some ofthe unique problems that facestartups, the “phases of life” that theygo through, and how these affect therecruitment of both core teammembers and talent in general.We’ll discuss startup✚Culture✚Recruitment✚Incentives 2929 Elm Street, Dallas, TX✚Compensation – original home of AudioNet / Broadcast.com✚Equity (after Mark Cuban’s spare bedroom)✚Talent retention✚Etc. All Rights Reserved Revised: February 2013 Page 3
  4. 4. Insanity & Genius You have to be somewhat crazy to launch a startup…. “The distance between insanity and genius ismeasured only by success” -- Ian Fleming Tomorrow Never Dies – said by Elliot Carver (Jonathan Pryce)All Rights Reserved Revised: February 2013 Page 4
  5. 5. Founders & a WhiteboardThere are several typical stagesin a startup:Founders & a whiteboardIn the beginning, someone has acrazy idea. This crazy personsomehow talks another crazyperson into working with them onthe idea – giving up a big chunk oftheir otherwise normal lives. Courtesy, Rick JacksonAll Rights Reserved Revised: February 2013 Page 5
  6. 6. Founders & a WhiteboardThe part about being crazy is notan exaggeration. Founders –and the people who follow theminto the fray, must be somewhatcrazy to do what they do. Theyare risk takers.Unhappy with the status quo,they have a pioneer spirit. Who needs Vegas? I run a startup!There’s a “Problem” they want tosolve. They’re unwilling to takethe safe and ordinary path, or,the ordinary corporate career.All Rights Reserved Revised: February 2013 Page 6
  7. 7. Wearing Many Hats Marketing Engineering Sales Accounting Support Operations Founder PR Quality Control Legal Cook, Bottle Washer, Janitor Customer Creative ServiceAll Rights Reserved Revised: February 2013 Page 7
  8. 8. Wearing Many HatsThe founder(s) and the early team must wear many hats. A startup isn’ta corporation where a task can be sent off to another department. Thebuck, and everything else, start and stop here.I know of one startup that had a commercial product, and active sale.They just couldn’t seem to make ends meet. The “CFO” who had beenhired from a corporate background up and quit one day.The founder looked in the vacated desk and discovered all the checksthe departed financial wizard had not deposited – this had always beendone by another department when he had worked at a big company…. And Starts!All Rights Reserved Revised: February 2013 Page 8
  9. 9. First HiresFirst hires: By now, the founder(s) haveraised some limited friends and familymoney and/or Angel Investor money andhired some talent to do the heavy lifting.Sometimes this is a contractor(s), butusually it is another startup junkie – willing towork for minimal pay plus equity. While Steve Jobs may have needed to suit-up to get funding, don’t expect suits and ties from early hires at your startup!Leap of faith: The risk-takers, wanting to get in on the ground-floor, andwilling to take the low pay and (usually) no health insurance or otherbenefits, often view themselves as rebels. They don’t want a “traditional”corporate lifestyle, and may leave if the company starts to become toolarge. They like the relative independence and less structuredenvironment.All Rights Reserved Revised: February 2013 Page 9
  10. 10. PrototypePrototype. The prototype is built,and the founder(s) use it toconvince more angel investors totake a risk.They go on to convince more Topstartup-junkies to join the merryband. secretAll Rights Reserved Revised: February 2013 Page 10
  11. 11. BetaBeta. The founder(s) convinceotherwise sane people at regularbusinesses (corporate types) toinvest their time, and hence money,in trying the beta product.Beta users aren’t quite adventurousenough to leave and start their owncompanies – but vicariouslyexperience a hint of it, just by being By the time the beta comes out, thebeta users/testers. startup is beginning to develop its own “culture”All Rights Reserved Revised: February 2013 Page 11
  12. 12. Pre-LaunchPre-Launch. The founder(s)have now convinced enoughAngel investor(s) or small privateequity investors to contributesufficient funds to keep thedream alive.Terms like “pre-money valuation”and “burn rate” are often The merry band is still tiny, but has attracted multi-talented and colorfuloverheard from the founders- team members.circle, answering to investors. A few of the early AudioNet / Broadcast.com gang (courtesy D Magazine)All Rights Reserved Revised: February 2013 Page 12
  13. 13. Launch / A-RoundLaunch / A-Round. Theproduct has proven itselfenough to attract moresubstantial investment. Thefounder(s) are challenged byadvisors and investors – howwill the company manage The growing AudioNet /growth and meet its goals Broadcast.com gangand projections? (courtesy Stan Woodward)The harried founders pressure employees to provide KPI’s andreports of all kinds. All Rights Reserved Revised: February 2013 Page 13
  14. 14. State of the TeamThroughout these ✚ Each must wear many hats(oversimplified) stages, the ✚ Many report directly to thecompany might have grown, CEO/founder(s)for example, to a dozen ormore people. These are often ✚ Each has much morepeople uniquely qualified for responsibility than in normalthis early stage. corporate environmentWhat does the profile of ✚ Often, these team members arethese early team members strong generalists – good atlook like? multitasking & firefighting -- able to do many thingsAll Rights Reserved Revised: February 2013 Page 14
  15. 15. Growing and Growing AudioNet / Broadcast.com just kept growing (courtesy Stan Woodward)All Rights Reserved Revised: February 2013 Page 15
  16. 16. Startups are NimbleA word about culture: There is a During the rocket-like growth ofreason why big companies buy Broadcast.com, we often “lookedstartups. Startups are able to over our shoulder” expectinginnovate and explore new ideas Microsoft to step on us. Instead,and markets in a way that big MS partnered with us andcompanies cannot. leveraged our network to prove-out their own media player technology.Perhaps a sports metaphor wouldhelp. Think of startups as a farmteam system. Successful startups Broadcast.comcreate attractive, fresh, young, ultimatelyattractive products. That’s why so merged withmany are bought out by larger Yahoo! for overorganizations. $5b. All Rights Reserved Revised: February 2013 Page 16
  17. 17. Startup -vs- Corporate CultureSo, if big companies can’t dowhat startups do, why do somany startups try to recruitthrough mainstream recruitingchannels dominated by corporate(ie: big companies)? I’ve seenthis over and over. A startuprecruits a corporate... Err...person, and finds out weeks ormonths later that he/she doesn’t Wikimedia commonshave a clue about how to work ina small organization. There areno “departments” to hand aproblem off to. All Rights Reserved Revised: February 2013 Page 17
  18. 18. Startup -vs- Corporate CultureDon’t get me wrong. Bigcompanies are the way they arefor many reasons. They need acertain amount of inertia. Theycan’t afford to run off in multiple STAYdirections, losing focus. THEThey have a business plan andtheir investors require them to COURSEexecute on it. All Rights Reserved Revised: February 2013 Page 18
  19. 19. NetworkingStartup founders need to be Many startups are largelyvery active networkers. They beneath the radar. Clearly,need to regularly attend recruiting from them can berelevant “events” as well as hard if you don’t know they arelocal user group meetings, there!professional and technicalgroups/meetings/forums, andall the other “startups-anonymous” groups out there.Founders need to be plugged-in to their community. Startup Networking Groups All Rights Reserved Revised: February 2013 Page 19
  20. 20. Networking ✚ http://www.conotes.comOf course, it goes withoutsaying that founders should be ✚ http://www.startupers.comaggressive in quality ✚ httpnetworking on Linkedin, and ://www.ventureloop.com/ventureloop/take advantage of relevant home.phpinterest groups. ✚ http://www.crunchboard.com/jobs/Here are some example job ✚ http://jobs.mashable.com/a/all-jobs/boards that target startups (in listno particular order): ✚ http://www.startupzone.com/ ✚ – just google “startup job board” All Rights Reserved Revised: February 2013 Page 20
  21. 21. Referral IncentivesStartups often offer referralincentives, such as cash forreferring / recruiting new teammembers. If your startup has afollowing, offering swag may alsowork. Signing bonuses or toprecruits may include cash orequity, or both. Some incentives include cash or even stockEach situation is different, but all options, warrants, or straight-out stock grants.require an upbeat and creativeapproach. Have fun with it! We gamble that the stock in a startup will someday be valuable, though many times it ends up being worth less than wallpaper or … other paper products. All Rights Reserved Revised: February 2013 Page 21
  22. 22. EventsSponsoring special eventsprovide a nice opportunity toreach out to your collectivenetwork. This can range fromsetting up a “mixer” at a localhot spot and inviting lots ofpeople to informally hear aboutwhat you’re up-to, to,specialized events likehackathons. Willie Nelson event & Broadcast.com. Courtesy Laura Boyd DeSmith All Rights Reserved Revised: February 2013 Page 22
  23. 23. EventsEvents like these are anopportunity to invite people toget to know you and for oldcolleagues to find out what’s STARTUPnew. It is also an opportunity toshare your growing companyculture and attitude.In many ways, your company is Courtesy American Idolthe one that is “auditioning.” All Rights Reserved Revised: February 2013 Page 23
  24. 24. Interns & College/UniversitiesCollege career centers and job boardscan be a great place to recruit interns andentry level team members – young, freshand untainted by Dilbert®-esque corporateculture.As you grow, your best interns may stay-on, or return later as some of your verybest talent.Build a relationship with local universitiesand they’ll begin to trust to send you thebest and brightest. All Rights Reserved Revised: February 2013 Page 24
  25. 25. Interns & College/UniversitiesMy friend Bettina Bennett, ofWhichBox Media, has a summer Einstein Intern Program:“Einstein Intern” program with the ✚ How can I help you? Attitudefollowing requirements: ✚ Mac savvy and a wizard with Word, Excel, PPT ✚ Loves widgets, gadgets, iPhone, iPod, iPad, etc. ✚ Excited about all things digital media ✚ Loves research and discovery ✚ Has good communication skills ✚ Is detail oriented and organized ✚ Is a self-motivated and independent thinker ✚ Strives to go beyond whats expected ✚ Excels at multi-tasking in fast, fluid environment ✚ Strong artistic/graphic design/creative skills ✚ Good line and copying skills ✚ Superior oral and written communication ✚ Superb online research skills All Rights Reserved Revised: February 2013 Page 25
  26. 26. Compelling?Why is working at your startup a compelling thing?✚Are you on the bleeding edge of your field?✚Use the latest technology that will help a candidate in his/her next job?✚Is the “coolness” factor so high that people just “want in?”Sticking a foosball table in the corner does not cool make. Startups do notexude job security. People are attracted to startups not because it’s acareer, but because they want to be part of something non-mainstream.You’ve built a Value Proposition for the product you make – you also need avalue proposition to attract the top talent. You are competing against otherstartups and organizations for the talent you want. All Rights Reserved Revised: February 2013 Page 26
  27. 27. Who works for a Startup?CBInsights reviewed VCFunded startups back in2010 and found thattypical founder was a 35-44 year-old white malewho served as a CEO ina previous company.This falls inline with thefollowing chart of averagestartup team memberages, although thesenumbers are for VCfunded startups, notindies. All Rights Reserved Revised: February 2013 Page 27
  28. 28. Early employeesYour early startup employees (the goodones) are specialists at working in fast-moving, unstructured, chaoticenvironments. They are geniuses at themath of Startupville.Cultivate these people and treat them well.Many won’t want to stay on after yourcompany gets big enough for an “HRDepartment.”You’re going to be looking these samepeople up for your next startup. Treat themwith respect! All Rights Reserved Revised: February 2013 Page 28
  29. 29. Poaching?Where do you find talent? From your competition,of course. BusinessInsider did a study onLinkedIn, backtrackingApple employees’previous employers tofind out where Applerecruits from.Looks like Apple lovesHP, IBM and Microsoft! http://www.businessinsider.com/where-apple-hires-from-2012-4?op=1All Rights Reserved Revised: February 2013 Page 29
  30. 30. Poaching?As a startup, you probably don’thave the deep pockets to pay bigsalaries and steal talent from thelikes of IBM or Microsoft.That’s good. You don’t wantcorporate-types. You needpeople who understand what itmeans to work a startup – andwho are willing to take that riskwith you.So, instead of stealing from the big boys, you need to really know your localstartup community. There are always struggling startups, low on cash. Puton a straight face and circle the wounded beast like the predator you are atheart. Just be careful to take only the best cuts.All Rights Reserved Revised: February 2013 Page 30
  31. 31. Location & RecruitingStartups often end up at alocation that is convenient forthe founder(s). Before settingthe anchor, look at where youare located with respect to thetalent pool you are recruitingfrom.For example, if you are a techstartup, where are thecompanies you want to recruitfrom located? Map, copyright MapQuestThis is a very strategic decision. Locate companies that have the kind ofpeople you need (competitors, or not) on a map and draw a circle around thehighest concentration. You need to try and be inside that circle.All Rights Reserved Revised: February 2013 Page 31
  32. 32. FlexAre you providing flexible workingarrangements? While you obviouslyneed to watch out for people who abusethe privilege, keep in mind that you’reoften asking people to work belowmarket rates, for long hours in thehopes that there will be a long termliquidity event. That is, if everyonesurvives that long. As long as the workgets done in a timely way, it can pay-off.Trust, but verify!The flip side is that there is really no substitute for having your teamtogether in the same space, sharing the vibe, the energy and workingas, well, as a team. I prefer to have my team physically together! All Rights Reserved Revised: February 2013 Page 32
  33. 33. CompensationTechnical fields are especially price-competitive. To fill these roles, you needto look for people who want to use yourstartup to push their personal envelope.Overachievers, who seek the greaterresponsibility and relative freedom instartups as cure to the anathema of acorporate cubicle.Make sure you communicate anunderstandable picture of the optionspool, and what the total outstandingshares look like. All Rights Reserved Revised: February 2013 Page 33
  34. 34. Options valueFor example, if you are offering a salary that is, say, xx% belowmarket, and are offering stock options -- are those options goingto conceivably worth *more* than the difference?I’m serious. Over the years, I’ve seen founders offersubstantially below market salaries and a pittance for stockoptions.That said, you can’t predict an actual value – and you need tobe careful you don’t try to. OTOH, if you offer 1000 options tooffset low wages, how much will those options have toeventually be worth to make up the difference? Is thatnumber…. Crazy? Is it believable? Let the employee do themath themselves, but the numbers had better seem“reasonable” and within the risk the employee is willing to take. All Rights Reserved Revised: February 2013 Page 34
  35. 35. Compensation Plans ✚ http://theoperationsguy.com/building- compensation-package-startup-equity-There are many, many papers, blogs compensationand articles on how to structure your ✚ http://www.payne.org/index.php/Startup_Equity_Foptions pool (just google “startup or_Employeescompensation package”). The following ✚ http://www.quora.com/Startups/What-links talk to structuring compensation compensation-can-a-CMO-VP-of-Marketing-packages and equity and benefits. These expect-for-a-late-stage-startup-that-has-closed-are sample links to give you a feel for series-C-and-is-growing-rapidly ✚ http://www.quora.com/Startup-some of the questions often asked. Compensation/Whats-the-typical-salary-for-an-Keep in mind that there is a huge entry-level-Marketing-PR-Social-Media-position-difference between a large VC-funded at-a-San-Francisco-start-upstartup with $30m in the bank and a ✚ http://blog.salescrunch.com/how-to-compensate-small private equity backed startup with at-vp-sales-at-a-tech-startup/a fraction of that amount available to ✚ http://www.zanebenefits.com/blog/bid/121633/Thework with: -5-Minute-Guide-to-Affordable-Startup-Health- Insurance All Rights Reserved Revised: February 2013 Page 35
  36. 36. RetentionWhether the economy is up or down,keeping your team members from jumpingship when the wind blows is challenging.Retaining team members with high demandskills is hard enough. If you happen to belocated in an area experiencing growth, itgets harder-still.It is a catch-22. The best people are usuallyfound where the action is, and where theaction is, is often where the location costgoes up. All Rights Reserved Revised: February 2013 Page 36
  37. 37. RetentionOn the other hand, you can take advantageof local conditions – such as locations withhigh tax rates or costs of living (likeCalifornia). If you can offer a greatenvironment with significantly lower costsbut is a great place to be, you can attractsavvy people. Facebook is building aFor example, many California-based major office in Austin,companies have been either moving and Apple already hasoperations to Austin and Dallas — or — over 3000 employeeskeeping their offices in California, but there.opening new offices in Texas where the bulkof growth is taking place. All Rights Reserved Revised: February 2013 Page 37
  38. 38. RetentionExample: It is no secret that it ismore expensive to do business inCalifornia — and the tax situationreminds me of an old-world hunt,where beaters walk through thebush, driving the tigers out into theopen. In the case of Californiataxes, driving business out of thestate.Don’t forget, the tiger bites back. Gutenberg Project All Rights Reserved Revised: February 2013 Page 38
  39. 39. The simple thingsSometimes, it is the simple things that help. If you’re good on everything else,*knowing* your people counts:Attention to detail: Knowing when birthdays, anniversaries, etc. are and justsending a hand-written card is, sadly, rare these days. Bump it up with flowersor the equivalent – appropriate to the individual.Extra time off after really pitching in with long days & nights on a project.Extra vacation days. Pros: This is a popular method that does not requiredirect cash, and it can be just the ticket for overworked, overstressed andburnout-avoidance. Cons: Care needs to be taken when using it. Jealousiescan erupt if not perceived as being applied fairly. Also, extra vacation days canturn around and bite productivity and even delay product launches at criticalpoints in your roadmap. All Rights Reserved Revised: February 2013 Page 39
  40. 40. The simple things Impromptu. Pros: Extra time off doesn’t just mean vacation time. Impromptu company celebrations– “Hey everyone, take tomorrow off!”, or, “Wow, great news on closing that big sale, take the rest of the day off!” can be great ways to relieve stress in improve general morale. Cons: If you do it too often, it can become expected. An employee may want to attend a trade or industry conference or event. Subsidize the trip with time-off or even paying for some portion of the trip. Keep up with money issues, such as pay freezes or other actions that may have been necessary earlier, but should be regularly revisited. Be open with fiscal realities – don’t keep your team members wondering. Transparency can be your best defense against the rumor mill. Movie day. Is there a big movie coming out that one or more of your team really wants to see? Either buy them tickets or even make an event of it – shut down early and all go to the movie – “I’m buying the popcorn.” All Rights Reserved Revised: February 2013 Page 40
  41. 41. Family Invite spouse and/or children to lunch or other “company events.” While this can sometimes be logistically challenging for working parents and school schedules, the payoff can be honest good wishes if you are able to “connect” with the spouse and family. Your team member sacrifices a lot to work for your startup. Establishing good will and support from the spouse and family can go a long, long way to reducing the stress on your team member. This doesn’t have to be a complicated or expensive event – it can be as simple as a company picnic or other family-friendly outing. You have a team member who has put in much extra time, long hours, and been a total rock star. Send flowers or equivalent gifts to the spouse and/or family! All Rights Reserved Revised: February 2013 Page 41
  42. 42. Family Simple, simple, simple: Find out when the spouse’s birthday, anniversary, children’s birthdays are – send a card or cake! Bump it up by enclosing a gasoline gift card or just a Visa/MC gift card. Date night. Pay for dinner & a movie (you get the idea) to help your team member(s) stay happy on the home front. I recall during the early days of broadcast.com, we had encoder/servers sitting at Mark Cuban’s house in Dallas. Mark was off to talk to investors in New York, so he paid for my wife and I to have a nice dinner and spend the night at his house while I tended to the hardware. It was a nice gesture, which my wife never forgot. Find a great vacation deal (for cheap) and award tickets for a long weekend vacation, or, similarly, concert tickets. All Rights Reserved Revised: February 2013 Page 42
  43. 43. Family Junior Interns. Inviting teenage family members to be a summer intern can be a great way for parent and child to have a special bonding opportunity – expanding on the ‘take your child to work’ idea, and turning it into a real learning experience for them. Of course, some pre-screening is important – you need to be confident that the teenager is really interested in doing it, and, that they’ll actually be serious about it. Take it slow and non-committal to make sure it is really going to work out. If it does, then everyone wins and you can have fun giving them special recognition. Gifts for the kids – a gift-card to Game-Stop is the kind of thing kids prize these days. All Rights Reserved Revised: February 2013 Page 43
  44. 44. Perks & Bennies Enhance their “space” – upgrade their chair or desk or some other improvement to their workspace. Similarly, upgrading their computer, monitor or tablet device or phone, is something they’ll use every day. Pay an auto detailing service to clean and detail the team member’s car, while it is sitting in the parking lot (maybe even pitch-in, too!). On their birthday or work anniversary, have cake and personally narrate a brief PowerPoint/slide-show that lists and celebrates their accomplishments and longevity with your organization. Have a trophy or plaque made that honors the team member and their accomplishments. EASY / SIMPLE: Write a nice recommendation for them on their LinkedIn profile.All Rights Reserved Revised: February 2013 Page 44
  45. 45. Perks & Bennies Year Book: Many on-demand book printing services exist now that make it easy to have one or a small number of hardcover or perfect bound books printed. Create a company “Year Book” that celebrates your people, your company, and the milestones, accomplishments and individual contributions. Give them out for a company annual anniversary, Christmas, or other occasion. Combine it with a company signing party. Make sure the founder(s) personally sign and write an individual message of appreciation in each book. Meals. Bring in or cater occasional breakfasts and/or lunches, and make them relaxed affairs / mixers. All Rights Reserved Revised: February 2013 Page 45
  46. 46. Perks & Bennies Alternate job titles. Consider “secret identity” or, simply, fun alternate job titles. They keep their official title, but you help them choose a more fanciful title. For example, at WhichBox Media, Bettina Bennett is CEO, and also “Chief Maverick.” Other examples might be “Legal Eagle” or “Head Intern” or “Codaholic” or “Java Junkie” – you get the idea. Telecommuting may or may not work for your organization. In my own experience, I’m not a big fan of it for startups – you really need the in- person dynamic. Regardless, I do encourage organizations to be flexible, especially under special circumstances. For example, if the weather is bad, or the roads are icy (usually a day or two out of the year, here in Dallas, at most), I encourage people to work from home. All Rights Reserved Revised: February 2013 Page 46
  47. 47. Change of Control /M&A (Merger & Acquisition)Much has been written about the structure ofoptions plans and vesting. Is the deal fully vestedat issuance, or over time? What are the vestingtriggers?One of the tricky areas has often involved whathappens on a material change of control in theorganization, including a merger or acquisition.Some plans have vesting triggers tied to such achange of control.Whether the company is expecting a 4-5 year play,or is on an accelerated trajectory, will impact whatkind of plan really makes the best sense for theunique requirements of the organization. All Rights Reserved Revised: February 2013 Page 47
  48. 48. Change of Control /M&A (Merger & Acquisition)In other cases, there are Change ofControl bonus plans, granting acontractually agreed upon amount of cashto be paid to the employee in the eventsuch a change happens. Morecomplicated plans may use a formula fora bonus payout based on the size of thedeal.Often, these documents are dumped onthe team member with little or noexplanation. “You get x options that veston a y formula at a strike prize of z… “Followed by 50 pages of legalese. All Rights Reserved Revised: February 2013 Page 48
  49. 49. Change of Control /M&A (Merger & Acquisition)Transparency is critical here. Those team members who’ve been aroundthe block may have been stung by other deals in the past. It needs to becrystal clear to team members what the stakes are – how the deal is set up,and how it will work in different scenarios and liquidity events. If certainquestions are asked over and over – maybe you need to have youragreement “improved” to be more understandable.Beyond these issues, it is normal for most startups to rely heavily on anoptions pool (or equivalent) to provide for some degree of deferredcompensation and upside liquidity. Care should be taken here. Regardlessof NDAs, employees will often compare notes. Gross allocation disparitieswill often come to light, and it’s usually not good when they do. All Rights Reserved Revised: February 2013 Page 49
  50. 50. Flush with Cash?Even some of today’s high flyingorganizations, flush with cash, find itdifficult to attract and retain top echelontalent.For them, it is gourmet cafeterias, freemassages, laundry service, shuttles,hair cuts, upscale cubicle/work-spaces,couches, pubs and bars, park-likecampus settings, full-service gyms,arcades (yes, even foosball), bring-your-dog-to-work policies, and on and on. All Rights Reserved Revised: February 2013 Page 50
  51. 51. … or NotChances are, your startup doesn’t (and shouldn’t)spend this kind of money. That’s not what yourinvestors had in mind. Oh, and don’t go and buy anew car or boat!You can creatively build a fun and fiscallyresponsible environment. The kind of people whoare attracted to companies at this stage ofdevelopment will usually appreciate that you’re notblowing money on frivolities, and instead arefocused on your company and product.Take pride in what you are able to do, andlisten to your team! All Rights Reserved Revised: February 2013 Page 51
  52. 52. About the Author Patrick Seaman currently mentors and advises technology startups and turnarounds at Pepperwood. Most recently Patrick served as the Chief Operating Officer for Cinsay Inc., and as COO and CTO of the Software as a Service company, WhichBox Media. Author of the first major book on online media, Website Sound, Patrick was the first employee of Broadcast.com (then owned by Mark Cuban) and served as Director of Technology, VP of International Development, and on the Board of Directors of Broadcast.com Japan. Broadcast.com sold to Yahoo! for more than $5 billion.Patrick Seaman Patrick currently serves on the Advisory Board of Kraftwurx (3D Printing), Qples (Digital Coupons) and the University of Texas at Dallas School of Natural Sciences & Mathematics Advisory Council. Contact Patrick at patrick@pepperwoodpartners.com, patrick@patrickseaman.com and www.linkedin.com/in/patrickseaman/. All Rights Reserved Revised: February 2013 Page 52
  53. 53. About Pepperwood PartnersPepperwood Partners is a boutiqueinvestment banking advisory firmheadquartered in Dallas, Texas.Pepperwood provides a suite ofinvestment banking advisory services to Two Lincoln Centrebusinesses in the technology, media, 5420 LBJ Freeway, Suite 535telecom, nanotechnology, energy and Dallas, Texas 75240 USA +1 214.442.6056alternative asset sectors. With a strong info@pepperwoodpartners.comfocus on institutional relationships in theRussian, European, and CIS regions, Learn more at: www.PepperwoodPartners.comPepperwood works with businesses toachieve capitalization and growthobjectives.All Rights Reserved Revised: February 2013 Page 53
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