Employee equity is a crucial tool to motivate and align the team. Having a strategic approach to distributing it that is guided by the principles of fairness and transparency is key. Communicating its value should be done by sharing number of shares and price per share for an understanding of the total value of the equity grant. Furthermore, conveying potential risk adjusted outcomes will empower the employee to understand how even in non-unicorn situations there is money to be made with equity.

It is often frustrating when one hires employees and they want to negotiate for a higher salary by sacrificing their proposed equity stake in the company. The chances of that equity making them "fuck you rich" is not high but it doesn't mean it is worthless.

I have personally participated in secondary sales as part of startups that have netted me substantial sums of money that are financing my whole startup investment strategy. Did the equity in those startups make me "fuck you rich"? No. But there are levels to success and where value is generated sustainably in a venture there will also be a value ascribed to the equity.

It is therefore really important to change the paradigm in people's heads around the value of equity and the potential upside. This is not an easy task but let's tackle it anyway. Note there is a lot of theory, which will become clearer in the example section of this post.

Equity Philosophy

Equity can very much be worth a lower salary. Here I presume as an employee you are able to survive on the lower salary and that you have done your due diligence that the outfit you are joining is legit and not some sort of clown car of a company. While this life is not about becoming rich, the most efficient way to those Benjamins is probably not salary. Equity appreciates passively while you are asleep. Equity appreciates as a group effort - even if you are slacking off (which you shouldn't). Capital gains is only taxed at 20% versus income, which depending on your circumstance is likely a lot higher (in the UK). There are EMI schemes that make taxes on employee's startup equity more efficient etc. Also if you are lucky, equity can go 30x after a few of successful fundraising events. Who's salary goes 30x?

On the provider side of equity, startups should be fair and thoughtful. There are unfortunately too many stories of companies where only the senior managers get equity and all of it is handed out in seemingly random patterns. Thankfully most startups I have recently seen provide equity to all full time employees (despite it being quite some effort). While they may not be programmatic about it, the mere fact that everyone gets to participate in the upside of value creation is commendable. It is worth remembering that an equity incentive system that leads to better alignment has a higher chance to lead to better outcomes.

Value of Equity

To not run into the issue I described in the intro of this post, namely that the generous incentive of equity is being undervalued by employees, we need to figure out a good way of communicating said value without being misleading. It is tricky to convey the value of equity because, firstly, it usually vests over time so it is not immediately accessible. Secondly, it can be expressed in a multitude of ways, which are complicated. Thirdly, the change of its value is not smooth and somewhat opaque. Fourthly, it is not part of a liquid market, therefore not immediately realisable.

You don't hand out equity in a lump sum transfer. It usually vests or is accrued over a period of time in a pro-rata fashion. This means that all expressions of value of equity should assume a fully vested position, while being transparent about the vesting structure. In other words, you want to tell people what the their whole stack is worth even if they may not have access to it right away.

The way the value of equity is expressed can be confusing at best and deceptive at worst. I've had some VC types suggesting that we should split our shares (there can be good reasons for doing that). This way we can give people big numbers of shares, because "that looks better". Seriously? Of course our monkey brain prefers big numbers but we can do better telling the value story than hoodwinking employees. But what should we communicate: numbers of shares, value per share, percent ownership, total value of equity stake, etc? We'll get into the weeds of this later on.

Equity appreciates as a step function. While public stock prices fluctuate seemingly based on real-time performance (yeah right!), equity in a startup gets reevaluated every time you are raising funds. So for 2 years your company may technically stay worth the same despite say 10x its revenue. This is the nature of early stage private markets. When you go out to fundraise and investors assess your company's value it can go 5x from one day to the next. After such value adjustments it is important to communicate with the team so they understand their new equity value.

Finally, startup equity is not liquid. Comparing it to public market stock doesn't really make it look very sexy. However, the illiquidity also comes with higher potential multiples comparatively (yes, I know, so does Nvidia stock). It is important to explain to employees that liquidity events occur (in case the company executes successfully) even before a potential exit scenario is achieved. At later stages (Series C+) there are also platforms that allow for employees to sell shares on secondary markets.

Irrespective of these complicating factors there are many examples to point to where startup employees have made decent or even life changing money. Owning part of the business you work for is a great feeling so long as you believe in the company, strategy and leadership. As a founder allowing for employees to participate in the value upside of the business you are building together is equally rewarding.

Employees Levels

To determine the right level of value you want to give to employees, you will have to develop an ongoing framework. This needs to be adjusted after each fundraise and will ensure fairness. The goal should be that if somehow every employee's equity stake would be leaked that all the decisions seem consistent. Whether people agree with the levels of equity you hand out is another matter.

To be consistent we want to make sure that every employee that comes in at a given level of experience should get the same equity. Let's simplify this and say we have 4 tiers - entry, mid, lead and c-suite. The beauty of a consistent model is that you can tell hagglers that your model doesn't allow for deviation. Now there can be exceptions but you better make those obvious so that everyone would agree with them in hindsight (superstar developer that ends up contributing 4x compared to others etc).

What you also want to do is to ensure that every employee that joins the company at the same level of risk of failure gets the same level of equity. Joining a Seed stage startup means a lot more potential to fail than a Series B startup so the risk takers should get more equity. This is why after every fundraise you can adjust the 4 levels above in terms of equity stakes that you hand out. The more multiples have being realised by the increase in valuation of the company the lower the potential upside for later stage employees.

Communicating Value

There are a couple of ways to express the value of startup equity. Percentage ownership is not a great way to convey the value. On it's own it's useless so you would also share the company valuation for it to make any sense. The problem is that every time you fundraise you issue new shares, which dilute the equity stakes of every shareholder. So you would always have to restate the ownership stake over time for everyone, which becomes an unnecessary calculation. C-level folks like to know the percentage ownership stake when getting an offer as it is used for benchmarking but beyond that use case it's not worth spending time on.

The better way is to communicate the value of the granted equity stake by giving out the number of share options multiplied by the value per share option. This gives us an easier calculus that can be updated along the way. Every time there is a fundraise the price per share option goes up reflected by the multiple of the increase in the company's overall valuation. This gets us around abstract percentage ownership and dilution shenanigans.

Side note: I mention the term share option because mostly companies hand out the right to buy a share as an option. Once you want to make use of that right you will have to pay the option strike price to buy the option. Why options? Basically it allows the company to give employees shares without them having to spend money on buying them. What is good about early stage share options (and usually until quite late into the lifecycle of a company) is that they are valued at a discount to the price that investor pay per share. HMRC allows startups to give discounts of up to 99% to their employees when the company is still at a very risky stage. In other words, a VC could pay 100 GBP per share while you would only have to pay 1 GBP per share option that you own. So yes, there is a cost to get your equity but it is usually nominal compared to its value.

Vesting Schedules

Why is there vesting? Shares vest so that employees have an incentive to stay with the company. If employees were to get a lump sum of shares on day one and quit on day two that'd be pretty annoying. The standard vesting schedule is 4 years long.

Vesting usually occurs in a pro-rata fashion. This means the total granted equity stake will be split up over 16 quarters (4 quarters every year times 4 years) and the employee will get 1/16 every quarter of their tenure. There are companies that want to incentivise employees to stick it out longer and change the equal distribution to something that is more back loaded e.g. year one 10%, year two 20%, year three 30%, and year four 40%. In a standardised market it's hard to do something exceptional if you don't have leverage (your company is hot shit). In other words, like for like as an employee I would prefer pro-rata. The back loaded distribution would have to give me a larger overall value if I stick it out for it to become more or equally appealing to pro-rata.

There is also a concept of a cliff in vesting. Prior to reaching a cliff employees will not own any of their equity. They will be vesting their options according to whatever schedule has been agreed regardless. The reason for cliffs is simply to prevent job hoppers to collect equity in many companies. It is also quite annoying to manage a lot of tiny shareholders in ones' company, so the concept of a cliff creates a minimum threshold to get on the capitalisation table of a company. Usually in a 4 year vesting cycle this cliff is cleared after 1 year. This means that before the employee hits their one year anniversary they have zero share options. Once they clear it they will own 25% (assuming pro-rata vesting) of their grant.

Top Up Grants

From a company perspective employees with tenure are usually worth more given their institutional knowledge, amassed industry expertise and credibility in the company. This is why the goal is to keep such employees aligned long term with the company's growth. 4 year and one day into the tenure of an employee they are fully vested and therefore feel less inclined to stick around. This is where top up grants come in.

In essence what you want to do is layer equity grants so that before the first one vests fully another one has already started to accrue equity for the employee. If you feel the employee is very valuable you could give them a new grant at their one year anniversary. If they start showing their strength later on you could give someone a top up at the second year anniversary. Whatever the system you want to ensure that these layered grants provide a long term incentive so that leaving is theoretically costly.

Remember that while we may give the same amount of equity to every employee of a given skill level and risk appetite upon joining the company, the top up grant is where you can reward performance that sets people apart from their peers. For instance, a mid level person may turn out to be a dud but an entry level person could be a high performer. You may want to reward the latter with a top up at their one year anniversary, while the former may not get a top up until year 3.

ESOP

Employee Stock Ownership Plans (ESOPs) represent the equity available to hand out to staff. Hold on you can't hand out as much as you want? Nope, because every time you hand out equity you are diluting everyone else on the capitalisation table. Therefore, what usually happens is that an agreed upon amount of equity is set aside for the ESOP around every funding event. It usually dilutes the existing investors and shareholders (i.e. out of the pre-money valuation) not the new ones that are investing.

You have to be fairly strategic about this pool, which is usually around 10% at every funding round. What I mean by that is that you should have a good idea how many employees you want to hire until the next funding event (when you can create a new ESOP). This way you know how much equity should go to each hire. Remember that different levels of employees require different levels of equity to be satisfied, so not every to be hired employee gets the same share of the ESOP.

To make matters more complicated, you need to determine which one of your employees should get top up grants to ensure they are incentivised to stick around. Those come out of the same ESOP. This means some strategic planning is required to get this right. Advisor equity also usually comes out of the ESOP but I will not take this into consideration now to not make things even more confusing.

Example Template

I've put together a sheet that you can make a copy of to play around with. Let me explain how it works (also see comments in the cells for more guidance).

You start with the ESOP sheet. The first number to plug in is the size of the pool (B2). Also plug in number of shares this represents (B9) and the current valuation of the company (E9).

Now go to column N and figure out how you want to fill this out. Entry level employees represent one equity unit. You now have to decide how much more valuable different levels of employees are compared to an entry level person. I know that it's not koscher to reduce human beings contributions and value to multiples but if you have a better idea I'm all ears. In the example I'm suggesting a mid level person is 2x an entry person and a lead is 4x. A C-level is 8x. Once you start playing around with the sheet you will get a better feeling for the sensitivities of these factors and get a better sense of what is fair. I grant this is fairly abstract and of course an exercise in extreme generalisation but therefore also seemingly the most fair at the beginning when you are hiring someone with very little information about their actual performance.

Next you need to fill out column K and H. For this you need to consider a hiring plan until the next fundraise. That's how long the ESOP needs to last. You will also have to take a stab at how many people you want to give top up equity. This is obviously hard as this will be dependent on people's performance levels. With all these numbers you rather want to overshoot, because if you undershoot you will hand out bigger stakes and run out of ESOP. If you have remaining ESOP at the next fundraise it just gets added to the new pot.

Now column E will calculate how many entry level equity units are required by multiplying all the different weights. The sheet also now reflects the percentage granted per employee level and the corresponding number of shares (Column B). Look at Cells E13-E16 to get the equity value you are going to be able to give to each level of employee at this stage. To see how best to communicate this value go to the second work sheet Equity Communication.

Enter the equity value into cell B3 (I've taken the lead level from the ESOP sheet). Fill in the current company valuation in B12. Look at some cases of Series B valuations in your particular industry. We pick Series B because if things go well, this is the first moment the whole team is likely to be able to take some money off the table in a secondary sale. Granted this will be an amount probably capped at 5-10% of their overall equity they have vested at that point but it is nevertheless the first time equity can be realised into cash. If the business survives of course! This is why we need to adjust the best case values we get in B8-9 by applying a risk adjustment. To do this pick failure rates to plug into E3 and E4. I've supplied the industry standards in E12-17. To get to Series B we need to survive a Seed raise and a Series A raise. (You can take the sheet to Series X by increasing the multiples in column B and adding more failure rates but I'll leave that up to you).

Column H will give you the risk adjusted equity value and if you add vesting time in K3 and salary in K4, you get a sense of the risk adjusted salary uplift that you can get from the equity grant. This number is not super impressive but it is essentially half a years salary up to 3/4 in this example. Is it really worth giving this equity up to haggle for 5k more base salary? Remember that in the best case scenario the numbers in B8/B9 come into play, which is worth considering. That likelihood is at 3% based on conservative industry standards (I used the worst failure rates). If your company has a lot going for it that percentage could be higher but the employee should be the judge of that. Ultimately, as a manager, who communicates the value of equity to an employee, it is prudent to stay conservative and this is what this sheet does. That said it is always worth pointing out that the whole goal of joining a startup is to realise cells B8/B9.

The last sheet (Vesting) is just an illustration of how layering grants works. It shows that if the value of a company multiplies, the vesting amounts of previous grants become more interesting. The equity that was previously vested will have also appreciated, which the sheet isn't showing, because it is giving a snapshot of the value of the shares in the moment they vested. This should give employees an idea how seemingly small grants can lead to big outcomes in good scenarios. It hopefully also gives the sense of how one can layer different grants on top of each other for higher long-term employee retention.

Conclusion

Employee equity design is complex but important. There are many decisions from the initial contemplation of how to deploy the ESOP to how to communicate the equity's value. These decisions can profoundly impact both the company and its employees. Equity, while not a direct path to insane wealth for every participant, holds the potential for significant financial reward and a deeper connection to the company's success. It is a financial representation of the relationship between a startup and its workforce, where success is shared and growth is mutually beneficial.

As startups navigate the process of equity distribution, the principles of fairness, transparency, and strategic planning are key. By adhering to these principles, you can create a company that can foster a culture of ownership and alignment, where every employee is invested in the collective success of the venture. This approach not only improves the company's potential for growth but also enhances the likelihood of achieving those very outcomes that turn startup aspirations into tangible multiples.

For founders and company leaders, the challenge lies not just in the mechanics of equity distribution but in effectively communicating its value. This communication is crucial in shifting the paradigm, helping employees see beyond immediate salary gains to the potential long-term benefits of equity ownership. I hope that this post and the spreadsheet provides a useful methodological approach to equity allocation and communication. The goal was to make this complex subject more tangible and understandable.

In conclusion, while navigating employee equity design requires careful consideration and strategic foresight, the rewards of getting it right are not to be understated. By valuing equity not just as a financial instrument but as a cornerstone of company culture and employee engagement, startups can unlock higher levels of commitment and innovation. In this shared journey towards success, equity becomes more than just a compensation tool—it can become a tool for alignment that unites a company and its employees in pursuit of a common vision.

Taking on advisory positions at startups can be rewarding on many levels. Consider the dimensions of financial upside, potential learnings, potential connections, and potential future job opportunities. To build a funnel be out there and vocal about being available to advisory roles. Use existing contract templates and frameworks to ensure not taking advantage of hard-working entrepreneurs. Be a thoughtful and humble advisor. Take money off the table when you can.

This post is relevant for those of you who want to get into advising startups. While a lot of the why and how is relevant to any stage advisors, I will focus on early stage advising in particular.

Why Advising?

Building startups is hard. Tapping into wisdom of people who have done it before is invaluable. Being an advisor is about providing some of your hard earned and relevant expertise to founders. There are financial upside, learning, job opportunity and self-actualisation reasons that make this a worthwhile pursuit.

From an economic perspective being an early stage advisor offers you the opportunity to spin the wheel of startup upside fortune without having to commit your life to one company. If you pick the companies well (lucky), you can earn significant upside. For those startups that make it, a 30x from pre-seed to first liquidity event is a realistic (yet rare) outcome. Say you get options worth 10k at a 5 million pre-seed valuation. A 30x means pre-tax earnings of 300k (minus option strike price costs) if the company makes it to a 150 million Series B. Given the crappy odds of success we’ll have to think a bit more about the risk reward side of this calculus later in this post. Building up a portfolio of private company equity through advisory work is a capital efficient way to have exposure to a risky but potentially very rewarding asset class.

As an advisor you bring functional or sectoral experience but will also gain invaluable applied experience. Most recently I’ve had front row seats to AI both on the image generation and LLM side. This type of exposure and learning is worth a lot, probably more than my advice is. It is also valuable to learn what does and does not work in other early stage businesses, if you currently (or in the future plan to) work in a startup. What tools are all the rage, what’s the best platform to spend ad dollars on as a B2B SaaS company, which recruiters do a good job, etc. are all important questions you can crowdsource from entrepreneurs, including those who you advise.

Advising is a good way to try before you buy. Often joining a business in a senior role at an early stage company is a big leap of faith. The entrepreneur is likely not willing or able to share as much info about the business as you will need to feel 100% convinced about joining. Becoming an advisor allows you to get a sense of the metrics and experience the work ethic as well as personalities of the team before you commit to joining.

The self-actualisation part of advising is a bit more fluffy. Whether imparting wisdom floats your boat, is an individual thing. For me, leveraging my experience to accelerate someone else’s journey is very fulfilling. So much so that even if most of the startups I advise fail, I’d still be winning. Being an advisor especially at the early stage of a business means partially being a mentor, coach or confidant. There is a lot of emotional turmoil and rejection that one needs to overcome for a business to become successful. Supporting someone through this journey is sometimes intimate and will likely be a path to a long-term friendship.

How to Build a Funnel

So how do you find these advisor opportunities? There are many roads to Rome. Useful content is a good way to establish your expertise visibly and gain exposure to potentially new entrepreneurs who are not within your network. It is also a great way to create your own particular brand. Leveraging your existing network is another obvious path. Finally, Angel investing can also be a great channel to find gigs.

Think of your advisory services as an opportunity to create a diversified product. Setting up a brand that sets itself apart from others is a good way to cut through the noise. How and what you communicate are the way to set yourself apart. By now you’ve caught on to the fact that I’m somewhat describing what I’m doing here with Startup Pragmatism. The tone in my case is rather informal and direct. The what is focused on more early stage lessons across the spectrum of operating, advising and investing. Pick your how and what so that you can be authentic in your communication. The way one can stand out in a noisy world is by being extreme or exceptional. The former is not a game I’m interested in playing the latter is hard and requires you to find your own voice. Choose your path.

The main platforms to get out there are LinkedIn, Twitter (X), Reddit, HackerNews, Substack, Medium, etc. Micro-blogging i.e. writing longer “Tweet length” insights is a viable path. I am a fan of writing longer form and distributing via channels. For this it’s advisable to build a mailing list that you can expand one interaction at a time. I usually ask people, who I meet in a business context, whether I can add them to my blog distribution list. Consider cross-posting and recommending other complimentary content creators to grow your audience. Writing value add content should get you new followers over time organically. You can optimise when you post etc. for the highest bang for your buck but in the end the most important rule in the content game is consistency of posting.

If you don’t want to play the content game (and I don’t blame you as it has become an inauthenticity oversharing race to the bottom) at least make sure that your various profiles explicitly signal that you are advising. Without putting the word out you won’t get any inbound. Therefore, make sure your LinkedIn and professional profiles give context about what type of advising you do and show off your existing engagements. These profiles are your storefront so design them thoughtfully.

Presumably you’ve built a network of business connections and investor relationships during your operational tenure. Put the word out there that you are looking for advisor jobs. Make sure you provide your network with a snappy blurb of what your unique selling point is so that they remember you when relevant. Mine is “Early stage commercial COO with nearly 2 decades of b2x experience. Always strategic and pragmatic. Raised more than 100 million.” Entrepreneurs network so make sure that the companies you are already advising put the word out, if they meet other promising startups that could use some help.

Another great way to get advisor opportunity flow is to join angel syndicates. Some of these networks have high quality deal flow and allow you to invest in companies with as little as 1.000 GBP. Once you are on a startup’s cap table and get regular updates you can engage with the company to offer help. If there is a good fit, you can formalise the relationship over time to become an advisor. I’m part of Ventures Together and it’s been an amazing network with some extraordinary deal flow.

How to Pick

This may not be a problem you will have initially but in general consider assessing advisory opportunities across the dimensions of financial upside, potential learnings, potential connections, and potential future job opportunities.

The dimension of financial upside is something I’ve mentioned earlier. The thing to consider here is what multiple can this startup still generate. Of course if it’s a paid engagement (I don’t do those as often) then the calculus is different. The likelihood of a liquidity event needs to be part of your assessment as well. Early stage startups have to pass a lot more hurdles to get to a place that you can take money off the table than a Series B business. In other words, consider comparing the risk reward ratios of two different opportunities with each other:

RR = R x (1-P)/P
COMP Ratio = RR1/RR2

RR = Risk Reward
R = Reward
P = Probability of failure
COMP Ratio > 1 = take opportunity 1
COMP Ratio < 1 = take opportunity 2

This is not an exact science but it is as close as you can get to look at things from a less emotional perspective. R is something you can figure out by looking at comps in the respective field (i.e. what have been say Seed to Series A multiples for HR SaaS tools recently). P is the brutal failure rate of startups that is well documented (roughly - pre-Seed/Seed 70-90%, Series A 50-70%, Series B+ 25-50%). Remember that liquidity events happen potentially around Series B. So your P is a factor of all the failure rates at different stages. If this was confusing, keep going. I’ll spend more time on this later.

An important factor for me personally are the personal growth elements that can come from both learning and connections that I am able to make because of the advisory position. The learnings are individual. As mentioned I’ve been advising various AI startups. This has allowed me to understand the technical underpinnings of the current technology and its limitations very well. One can also spend time learning about this personally but that doesn’t come with equity upside. If any of the desirable knowledge or skills you are seeking are available for you to pick up through an advisory engagement, it feels like a no brainer.

The connections you can make should also factor in. Primarily the question is, do you rate the team highly and will you want to build long-term relationships with these people. But also consider if the startup is creating a product with an end customer that you would like to engage with (e.g. startup builds a tool for VC funds). It will allow you to engage with said end customers, which can help you to build up a valuable network for the future.

Finally, contemplate if the company you are advising, might be a business you’d want to work for in the future once they are further down the product-market fit journey. If the answer is yes, advising is a great way to try before you buy.

Don’t Be a Douche

This subtitle speaks for itself.

The tech ecosystem prides itself for being a friendly place. I remember the naughts and teens of the London tech scene being a supportive and friendly place full of givers with a remarkable energy. It is true that a lot has changed since then (more snake oil merchants, egomaniacs and leeches) but compared to other industries tech still feels more supportive of strangers than other fields. Let’s keep this alive.

With that in mind, not every request by a founder or startup needs to be monetised. You can just pay it forward and do someone a solid. A couple of intros are not worthy of equity (even if it is to a VC). In general, the rule should be if you are spending a non-trivial amount of time on something or are repeatedly spending time on something it probably qualifies for a more formal arrangement. One offs don’t have to be monetised if they don’t require any of your time.

The flip side of this for entrepreneurs is to suggest potential remuneration proactively. Most people, who are in the position to advise, don’t like to bring up getting rewarded for something trivial. You can still provide them with value for their willingness to help. If you have a b2c business give them a free month subscription. If you have a b2b product maybe give them or their friends a discount for a month. I’ve been supportive of many startups that took the intro/help and never ever looked back. That feels kind of shitty. Don’t be shitty.

This rule obviously also applies once you have an advisory gig. On the advisor side, make sure that you live up to the expectations stipulated in your agreement. If you are repeatedly not, bring it up proactively and decide how you can rectify the situation. Don’t take on engagements when you know you won’t be able to do them justice. Also, don’t overestimate your impact on the business and therefore don’t negotiate aggressively with entrepreneurs.

On the entrepreneur side, don’t just rug pull an advisor. If something didn’t work out as intended suggest to adjust the equity or the ways the advisor can provide value. I’ve had a situation where I put a lot of effort into supporting a founder with a fundraise that didn’t work out. It wasn’t my fault but she turned around and cancelled my advisor agreement before I cleared the equity cliff stipulated in the contract. So I wasted many days of my life and reputation, without anything to show for. That was a bad experience. Needless to say I informed my network of this behaviour by the founder and have since been doing a lot more reference checks before I enter an advisory agreement.

The Paperwork

This is a contract that is established as the standard for advisory agreements. What’s good about using this is that you know that there is no funny business going on. Look through the details of it yourself. I will highlight two parts in particular vesting and equity compensation.

As mentioned in my bad experience above, vesting is something you need to consider well. At the very basic level vesting is there to ensure that both sides live up to their side of the bargain. Equity is not given out in one up front chunk for advisors but is allocated on a set schedule (similar to how employee equity works). There can be a cliff, which provides the entrepreneur with a trial period before they pay equity.

The standard cliff is 3 months and the standard vesting period is 2 years, during which the equity vests pro rata on a monthly basis. For the entrepreneur this means that at the 2 month mark you better communicate with your advisor and tell them if you are unhappy with the arrangement so they have a chance to step up. As an advisor this means you will have to trust that the entrepreneur doesn’t rug pull you in the first 3 months. It also means that you have to hold up your part of the bargain, if you want to pass the cliff and continue to get equity allocated for your work on an ongoing basis (5 day notice period to terminate by either side).

There are a couple of adjustments I make to the cliff. Sometimes I get rid of the cliff all together. If for instance a lot of my work is up front, then it does not make sense to have a cliff. I would rather provide the entrepreneur with references from folks I’ve worked with so they get the assurance they need to give me equity right away. This preferable to risk wasting my time. The other change is accelerated vesting when the main part of my engagement is about fundraising. In the case of a successful outcome, I then ask for 50% of the equity to be vested post money hitting the startup’s bank account. The reason for this is that I am usually very hands when it comes to fundraise engagements and spend many hours with the entrepreneur working holistically on story, strategy, data, pitch and outreach. So a lot of value is front-loaded, which is reflected in the accelerated vesting schedule. If you are providing the majority of your value upfront, think about adjusting the schedule (workshop, project work with upfront deliverable, etc).

Let’s talk about the most contentious issue: how much equity is your time worth? Remember first off that the likelihood that you will earn anything here is quite lopsided. A minority of your gigs will lead to any financial outcome and those that will most likely will be decent to meaningful. In essence, that means you don’t want to have a bad deal for those that are winners. This shouldn’t mean you negotiate every agreement to rinse the entrepreneur but that you should apply a consistent framework.

The table above which is part of the linked FAST agreement is pretty good benchmark to take as a starting point. I would redefine the stages to:

• Idea stage = pre product up to early traction, no meaningful revenue (pre-Seed/Seed)

• Startup stage = product hypothesis somewhat validated, good traction, some revenue, starting to test growth hypothesis (Seed/Series A)

• Growth stage = product hypothesis validated, meaningful traction and revenue, nailing growth hypothesis to prove product-market fit (Series B+)

The levels (Standard, Strategic, Expert) on the advisor performance are useful but I don’t think the tier explanations in the exhibit make sense for all engagements. This is an art not a science but let’s talk about some of the elements that matter: time, relevant skills, relevant network, type of project work.

It’s simple to correlate time spent per month with a higher advisor tier. That said, that’s only part of the picture, as a high quality skill set and network can provide higher leverage with less time spent. If you and the entrepreneur feel that you have a uniquely useful skillset or network for the position, you should see yourself in at least the middle tier (if not in the top one). Skills means for instance technical ability, growth marketing chops, fundraising experience, etc. Network means for instance access to relevant required talent, strong target customers relationships, etc.

There is also a difference between being focused on a specific work product with a specific goal versus being regularly consulted on an ongoing basis. I often help with fundraises or specific business development deal negotiations. These are both time boxed projects so they might not neatly fit into the tiered framework. For these situations you have to come up with a custom percentage.

Let’s use some numbers to make sense of all this. Say you are going to advise a Seed startup at the Idea stage. You are planning to talk to the founder twice a month for an hour each and have relevant experience. The valuation of the startup is 5 million and you settle on 0.5% equity vesting over 2 years. In other words, 48 hours of work for 25.000 of equity value. We need to risk adjust this and take the potential upside into consideration to get to a more realistic number.

Value per hour = V = 25.000 / 48 = 520

PSeed = failure rate of Seed startups = 90%
PSeriesA = failure rate of Series A startups = 70%
PSeriesB = failure rate of Series B startups = 50%

Vr = Value risk adjusted = V x (1 - P)

Seed adjusted = (520 x (1-0.9) = 52
Series A adjusted = (52 x (1-0.7) = 15.6
Series B adjusted = (15 x (1-0.5) = 7.8

Va = Value actual = Vr x Val(future) / Val(current)
Va = 7.8 x 150 million/5 million = 7.8 x 30 = 234

Let’s assume your 25.000 stake will return 30x in a liquidity event at Series B. That’s 750.000 (pre-tax). However the likelihood of this happening is low - success rates at each stage need to be accounted for: (1-0.9) x (1-0.7) x (1-0.5) = 0.015. So the risk adjusted upside is 750.000 x 0.015 = 11.250. To get your hourly rate 11.250 / 48 = 234.

Of course, you can use slightly different numbers for failure rates depending on team and market. You can also adjust the upside multiple based on the sector and country benchmarks. Being conservative rather than exuberant is probably the best bet. However, all this is not meant as an exact science but a framework. Having an hourly number allows you to compare your various advisory engagements with each other and other real money (as opposed to potential future money) jobs.

A good way to think of the 234 number is that it should compete with potential expert network hourly rates that you can charge. Yes, mostly corporates use those services so the rates are usually inflated but they are a good guide. I’ve been paid anything from 200-600 USD per hour on expert networks so 234 would be at the lower end. Use this framework to know what a good target equity amount is for each different stage you get involved. You can also use it to figure out how much equity to charge for a 5 day workshop (assuming a desirable day/hourly rate).

How to Advise Well

This section should probably be a post on its own. That said here a not comprehensive list of things to keep in mind while advising.

First and foremost, align. Set expectations and ensure you are both on the same page as to what is required of you and the entrepreneur. Try to overdeliver regardless, as founders will thank you for it with liquidity or referrals.

Don’t watch the clock (also goes for the entrepreneurs). It’s natural that sometimes there is more need for help and sometimes there is less. This will all somehow balance itself out. If either side takes the piss, it becomes obvious enough to address.

I’ve had advisory agreements where the startup I’ve been helping has been so heads down that they didn’t need me for a couple of months. Once they had some results, they resurfaced and we spend 5 times the agreed upon time in a month digging through numbers. This sort of unpredictability requires the flexibility to sometimes talk super early or super late or on weekends, as you’ll have to accommodate for time you didn’t budget for. If this is not your jam, then ask yourself if advising early stage companies is for you. Later stage businesses are less stressed and more organised, so you’ll likely not run into this sort of randomness.

Build a relationship rather than being transactional. If shit hits the fan, pick up the phone. If there are issues, be more present. This stuff is fun for me, because ultimately it makes me feel I am part of creating something, even if my contribution is minor. More importantly, I am building long lasting friendships, which can be rewarding in ways one can’t anticipate from the outset.

Remember that you are not actually doing any of the work. This means that you should be humble about your opinions and careful about how you express them. Entrepreneurs, who are executing hard, sacrifice a lot so what they don’t need is someone giving them crap for messing up. Be a supportive listener that uses the Socratic method to get to the bottom of issues.

There will be moments when you know better. Provide anecdotes or case studies of other startups and your own experience that have been successful using the strategy or tactic you are advocating for. It’s good to show practical applications of ideas.

Be proactive, and be on the look out for useful things to ping over to the founder - articles, relevant events, potential candidates and most valuably, potential BD or partnership opportunities. You soon find out if they value them, and occasionally you will strike gold. Always use double opt in for any intros (thanks Dan).

Be in the weeds. Most startup advice in most videos and blog post is saying the exact same thing. The valuable advice is the one that is applied to the specific circumstance and context of the startup. This requires digging deep into the metrics, team dynamics, customer feedback etc. to find out what is going on. Your pattern recognition will pick up other signals from the noise than that of an inexperienced first time entrepreneur.

Make sure you know what the next company milestones are and provide feedback on whether they are the right ones to focus on. Check up on progress on those milestones during your meetings (without being annoying). Try to channel the best self of the entrepreneur and hold them accountable to their own ambitions (without being annoying).

If it is within your remit and you have access to burn and cashflow, be the voice of reason that advocates for frugality and responsible cashflow management. No more money, means a dead company and no more upside for you or the founder.

If an employee at the company is bad but the entrepreneur doesn’t see it, bring it up, if you feel it is appropriate. If it isn’t, introduce the founder to someone who does that job really well and let them figure it out by themselves.

Know your industry stuff and learn about the competition. Stay on top of trends and memorise metrics of the business. You don’t have much time together so having to catch you up for half the session until the advice can start is frustrating for the founder.

Sometimes just be emotional support and pick them up by giving them a positive perspective on things. This startup thing is a hard slog and by all measures a stupid thing to do but so much fun. On those bad days, all that is required is someone with experience that reminds you that the rollercoaster also goes back up.

Liquidity

I’ll keep this section short: TAKE MONEY OFF THE TABLE WHEN YOU CAN

.

.

Series B startups still have a 50% chance to fail. If there is a liquidity event, take money off the table. These opportunities to sell are rare and this startup thing is a gamble so don’t be a degen. How much you can sell, is not up to you. How much you should sell, if you have abundant allocation is up to your risk appetite. Some multiple of your principal would be sensible.

Also remember it is not at all guaranteed that you will be able to participate in a liquidity event. Say a founder has managed to negotiate as part of a Series B fundraise to have a secondary sale (existing shareholders selling equity rather than creating new shares). They will have a limited allocation. First the founders will want to sell themselves, then they will want to offer some up to the employees, then some funds may want to realise some of their gains (yes at Series B! you’d be surprised), then it’s time for angels and advisors. If the startup has many angels and advisors, then it is guaranteed that not everyone can participate at all or meaningfully. This means you want to be top of mind and an MVP (most valuable player) so that you make the cut (this also applies to angels).

Conclusion

Advising startups, especially at the early stages, presents a unique opportunity. It's not just about the potential financial gains through equity, which, though risky, can be significantly rewarding. More importantly, it's about the personal and professional growth that comes with it. Through advising, you gain invaluable insights into the latest industry trends, expand your network, and experience the gratification of mentoring burgeoning entrepreneurs. The journey of a startup advisor is as much about imparting wisdom and guidance as it is about continuous learning and relationship-building.

To excel in this role, it's crucial to approach it with a balanced mindset. Understanding the nuances of risk and reward, and learning to evaluate opportunities judiciously, are key to making the most of your advisory engagements. This involves not just a keen understanding of the startup's potential and the market dynamics but also a thorough self-assessment of your skills and the value you bring to the table.

Moreover, remember that your role as an advisor goes beyond mere business strategy; it often extends into mentorship and emotional support. The startup world is as challenging as it is exhilarating, and your role in steering entrepreneurs through this landscape is invaluable. Maintaining authenticity, humility, and a spirit of collaboration will make you not just a successful advisor but a trusted confidant and potentially a lifelong ally to the entrepreneurs you guide.

In essence, being a startup advisor is a dynamic and rewarding role that requires a blend of expertise, empathy, and strategic foresight. Whether you're in it for the financial upside, the learning curve, or the joy of helping others succeed, the journey promises to be as enriching as it is challenging.

Finding product-market fit requires more than just traction. It is about validating the value hypothesis (the insight) the implementation (the product) and the growth hypothesis (the go-to-market strategy) sufficiently before scaling a business. Getting there requires lean and MVP focused thinking to maximise the learning cycles available given your startup’s runway.

As an advisor to early stage entrepreneurs, I often talk about product-market fit. I’ve been doing so informally and figured I’ll formalise some of lessons learned. While the content here will be trivial to seasoned entrepreneurs, it may contain a few interesting lessons.

Most of the post is based on Andy Rachleff excellent Stanford lesson Aligning Startups with their Markets. I don’t think you can find a recording of it as such but I’ve worked through various Youtube videos and posts to piece it together. Rachleff’s (who is said to have coined the term “product-market fit”) advice is both strategic and pragmatic, which is exactly what Startup Pragmatism is all about!

Understanding Product-Market Fit

Product-market fit (PMF) is tricky to define for many reasons. Often it is viewed quite narrowly to convey that the product resonates with the customer. But ultimately the way it should be used is in its broad definition - product-market-business-scale-fit.

To reach product-market fit, Rachleff urges founders to test the three parts of their company strategy that constitute a business:

• The value hypothesis (the insight)

• The implementation (the product)

• The growth hypothesis (the go-to-market strategy)

We will talk about each of these steps in the following but note that last step of go-to-market strategy fit is something that 2nd time founders obsess over. They know that leaving it out of their product-market fit definition leads to a lot of issues.

Andreessen has a good way of describing before PMF versus after PMF:

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.

Ultimately nothing else matters to your company when you are before PMF than getting it. This means you should do anything and everything needed to get there. Including changing out people, rewriting the product, moving into a different markets, trying many business models, shutting them down again and thereby “failing” publicly, raising more money… whatever is required. Most other things don’t matter much.

While it’s not advisable to ignore everything but PMF, you probably could. And sometimes it is a good exercise to think whether you really should spend time on the things that you are. I emphasise this, as it has been an expensive lesson I learned personally throughout my career.

Identifying Your Target Market

As an angel investor I often look at team, product and market when deciding to invest. One often likes to consider the team being the most important element of that constellation. Rachleff puts it this way:

• When a great team meets a lousy market, market wins.

• When a lousy team meets a great market, market wins.

• When a great team meets a great market, something special happens.

In other words, the #1 company-killer is lack of market, not a bad team or product.

No company has found product-market fit without a unique insight that their founding team either had from inception or discovered while working on a previous idea and then pivoted to. Unique insights usually occur when there is massive change happening to a market and/or a technology framework. “Without change, there's seldom opportunity,” says Rachleff.

The nature of insights varies. A startup might identify a market need that incumbents have ignored because it’s an unattractive segment to them. Others might identify a new technology that enables workflows not possible before. Either way it is good to look at markets that are in flux and at technologies.

In disruptive innovation theory (Christensen) There are two broad ways one can disrupt a market. New-market versus low-end disruption.

New-market disruptions target non-consumers, or those who have not had access to features and functions being offered because of lack of money or skill. An example of a new-market disruption is Midjourney. It created a new paradigm by introducing the notion of decent quality image generation for unskilled people, which previously was only accessible by paying skilled illustrators.

Low-end disruptions target customers who are over-served by an incumbent. These customers would prefer purchasing a product with less, but good enough performance if they could pay a lower price. An example of a low-end disruption was Uber’s launch of UberX, which offered a cheaper and more convenient solution to traditional taxis.

Finding the right market is the crucial first step in building a successful business. Studying different sectors to understand what change they are undergoing is the starting point. Pair this by looking at emergent technologies which are or very soon will be disrupting markets either by creating blue ocean opportunities or by changing the unit economics. The tricky bit is that you will have to choose a market long before you have any idea whether you will reach product/market fit. This is why despite all the rational factors you should pick a market and problem you love. That way at least if you fail, you focused on a passion.

The Value Hypothesis

You have your market, now you need your hypothesis. A value hypothesis attempts to answer the question: why a customer is likely to use your product? It identifies the features you need to build, the audience that’s likely to care, and the business model required for a customer to buy your product.

First you need to define and test your value hypothesis. And then only once proven do you move on to your growth hypothesis. The value hypothesis defines the what, the who, and the how. What are you going to build, who is desperate for it, and what is the business model you are going to use to deliver it:

• What are you going to build? 

• For whom is it relevant? 

• How do you price the product? ‍

Let’s focus on the what and who. The value hypothesis states the primary reason why a specific set of target customers might want to use your product. It is obviously important to find out whether people really want to solve the problem that you intend to fix. For example, you don’t want to enter a market where customers are extremely happy with how well the existing solutions meet their needs.

When you develop a new product or improve an existing product, you want to address customer needs that aren’t adequately met: their under-served needs. ‍‍For customers to risk or invest their time in adopting a brand-new startup’s product to satisfy a under-served need, they need to be desperate. Investors also call this the “hair on fire” problem. Desperation can manifest in many different ways. It can stem from boredom and frustration with existing tools or from a complete absence of choices preventing potential customers from taking any action at all. 

Customers are going to judge your product in relation to the alternatives, so the relative degree to which your product meets their needs depends on the competitive landscape. For them to pay attention to a new idea that no one is talking about yet, it needs to be radically different from the status quo. This is why your product vision can’t be simply incrementally better than well established incumbents. ‍“If you're just going to add incremental improvements to your product, it's unlikely people are interested, because there's a good enough alternative they already use,” says Rachleff.

As you are figuring out the details of the product, personas are a great way to describe your target customer so that everyone on the team understands for whom they should be designing and building the product. You may not have a clear definition of your target customer at the outset: that’s okay. You just need to start with a high-level hypothesis and then revise it as you learn and iterate.

Remember that it is OK to first be niche. Every technology has an adoption lifecycle. The chasm lies between early adopters (willing to take a chance on a new product if it solves a hair on fire problem) and the early majority. To cross the chasm, startups must first dominate a niche or create a beachhead and then expand from a position of strength. Don’t try to skip the early adopter stage and move to early majority.

Foursquare did a great job at finding a diverse set of early adopters who were in it for lists, gamification, deals, location diary, social elements etc. Unfortunately, we didn’t manage to ever get to the early majority due to competitive pressures and some botched product strategy. At one point we split the app because we did know that sacrificing some of those early adopters was the only way to get to the early majority. This was an important lesson in pivoting to get from a local maximum to a higher level of PMF.

The Implementation or Developing a MVP

You have a market you have a sense of a problem and a value hypothesis of how to address it, now you need to get out there. A startup is a hypothesis validation machine with a finite amount of learning cycles before it dies or fundraises (or becomes profitable). To be most efficient with those learning cycles you need to build a minimum viable product (MVP) to test the viability of your PMF.

This is a good place to quote Jobs, “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.”

Translated to the early days of a product, don’t focus on making it robust. Find product market fit first, then harden. How do we find the MVP feature set? While you build, err on the side of getting things out to get feedback. You won’t know exactly what is needed to create enough value in the eyes of your target customer. Quick iteration cycles to validate that you are heading in the right direction are the best bet. Customers may end up telling you that your MVP lacks an important piece of functionality. Or they may tell you that they wouldn’t use a particular feature that you decided to include in your MVP. The goal is to iterate until you have an MVP that customers agree is viable.

Create aggressive deadlines for yourself, otherwise, you’ll get swept away in unnecessary details that aren’t actually mission-critical (i.e. thinking about logo colour schemes). Aggressive deadlines help separate what’s a need-to-have from a nice-to-have. Your MVP should be about getting to the core of the problem you’re solving, not architecting exactly what the final workflow or product will be.

While you could build a live, working version of your MVP, it’s usually faster and more prudent to create an MVP prototype. A prototype is a representation of your product that you create without having to build your actual product. You can use a set of mockups of your product’s pages/screens to create a clickable/tappable prototype. Prototyping tools make it easy to simulate the user experience of the final product with enough fidelity and interactivity to obtain valuable feedback from customers.

Always remind yourself of what it is you are hoping to learn about the problem? User tests in batches or waves are advisable. You want to strike a good balance between too few and too many opinions to not over- or under-index on feedback. The goal is to identify patterns of similar feedback from multiple customers and prioritise any concerns that you’ve uncovered so you can address them. Side note but if you ask a customer if they’re interested in your product and they say, “Maybe if you had x features, I’ll buy,” they're not desperate, and might never buy your product. They might just be avoiding saying no.

There are moments where you want to revise your hypotheses based on what you learned and loop back to an earlier step in the process. The feedback will determine which step you should return to next. A UX design or feature set issue requires a different intervention than feedback that the value proposition doesn’t serve customer needs, or that the target customer needs to change. You may find that you just can’t seem to make much progress despite trying several iterations. If that happens, you should take a step back and revisit your hypotheses. You may conclude that in order to achieve higher levels of PMF you need to pivot. Products and ideas should be disposable at this stage. Don’t get stuck in a sunk cost fallacy. I know this is easier said than done but it’s the only way to think with a finite runway.

Serendipity plays a role in validating your value hypothesis but the process to get to serendipity is incredibly consistent: start with a hypothesis, test it, iterate until you prove it. Then move on to the growth hypothesis and do the same.

The Growth Hypothesis

Don't go after the growth hypothesis until you've proven the value hypothesis. “If you don't lay a strong foundation — if the dogs don't want to eat the dog food — it doesn't matter how cost-effectively you can acquire customers. They're not going to stay and it's not going to be effective,” Rachleff says. “Almost no one's initial value hypothesis is correct. And that's true for every successful company.”

Comprehensively speaking about how to test a sustainable and scalable go-to-market strategy is going to be beyond the scope of this post. That said it is of utmost importance to ensure that the growth engine of your business is sustainable. Otherwise you ain’t got PMF. Many startups have made it to millions of users and revenue as well as lofty valuations but didn’t have a sustainable business or scale model (heck some products have billions of users like Google Maps but are still not sustainable without being cross subsidised). While I’m not suggesting to not take advantage of momentum, you should always be honest with yourself about where your business is on the PMF journey.

But how do you know that your growth hypothesis is working and you’ve reached PMF? If you can generate exponential organic growth in retained users — not paid growth. You can always “fake” growth by spending money. “The only way to generate organic growth is through word of mouth. And the only way you generate word of mouth is through delight,” Rachleff says.

We had a strong organic growth engine at Citymapper, because we took a daily active user behaviour (city transport) and improved on the experience way beyond the benchmark experience (Google and Apple Maps). We also added fun and delight to a product that was perceived as a boring utility. This made us a home screen app and therefore a word of mouth phenomenon.

On the enterprise side, if you have a top-down sales motion, a good metric for PMF is hitting a sales yield of greater than one repeatedly. The term sales yield refers to the sales learning curve, defined as the ratio between your annual net revenue and the fully loaded cost of your sales team. In other words, if you are generating more net revenue than the cost of your sales team you likely have PMF.

I will write a go-to-market 101 post to go deeper on this. In the meantime, check out this a16z presentation on GTM best practices.

Common Pitfalls and How to Avoid Them

The number one problem for startups that achieve escape death momentum is that they don’t have product/market fit, when they think they do. One of the most common ways that startups die is “premature scaling.” Startups need 2-3 times longer to validate their market than most founders expect.

We scaled way too fast at Foursquare. Getting a big check from Andreessen Horowitz and Union Square Ventures got us giddy. We hired far too many people too quickly, while we should have stayed lean.

In general, hiring before you get PMF fit slows you down, and hiring after you get PMF speeds you up. Until you get PMF, you want to live as long as possible and iterate as quickly as possible.

The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product. Getting product right means finding PMF. It does not mean launching the product. It means getting to the point where the market accepts your product and wants more of it. First to market seldom matters. Rather, first to PMF is almost always the long-term winner.

At the risk of annoying early potential customers, it’s important to keep digging for the truth. Rachleff says he would rather annoy 100 early potential customers than risk not reaching a potential market of 10 million customers with the right product.

Startups can all too easily get caught in the trap of tweaking their product instead of focusing on the more important issue: identifying the customer they’re creating a unique product for. Prioritising well-known customers over desperate ones is often a distraction early on. Of course it is great to have a slide with recognisable logos in your pitch deck but not if you waste tons of time to acquire them and they churn fast.

Maintaining an inflexible business model or GTM will lead to issues. Many startups fall into the trap of rigidly adhering to their initial strategy, often driven by a strong vision or commitment to a specific approach. Markets are dynamic, and customer needs evolve. Don’t stick to a plan without adapting to market feedback, emerging trends, or competitive pressures. This can hinder your company's ability to find the right PMF. Flexibility and adaptability are key; startups must be willing to pivot, tweak their offerings, or even overhaul their approach based on real-world data and customer interactions. This agility differentiates startups from corporates and enables them to respond effectively to market demands. Not falling for sunk cost fallacies increases your chances of success in a competitive landscape.

We tried more than 10 different business models with Citymapper. We failed publicly when we shut down out Smart Bus and Smart Ride services. But we were unemotional about these experiments because we knew that what matters is to get to PMF.

Conclusion

We've explored the multifaceted journey towards achieving product-market fit, a crucial milestone for every startup. If you take one thing away from this post, remember the importance of validating the value hypothesis, implementation, and growth hypothesis. PMF is not just a static goal but a continuous process of adaptation and evolution, shaped by market changes and customer feedback.

For first-time entrepreneurs, understanding and navigating these dynamics can be daunting, yet it's essential for the survival and success of a startup. Remember, it's not just about creating a great product or assembling a talented team; it's about finding a market that eagerly awaits what you have to offer and is willing to embrace it enthusiastically. As we've discussed, this often involves challenging assumptions, being open to pivoting, and always prioritising the quest for PMF above all. Strong execution aside, success will come to an open minded listener because as Rachleff would say "When you find a good market, the market pulls the product out of the startup."

Key lesson from various CEO insights on decision-making: the choice is just as important as the complex context that influences it.

As we are wrapping up 2023, I've been thinking about the year ahead and some important decisions I need to make. To be adequately prepared (as if), I decided to tap the collective wisdom of some prominent CEOs. In the process I used Google, ChatGPT, various interviews and quotes to come up with a list of different things that each CEO said. To make this knowledge easier to digest I took my findings and categorised them. In the following, some insights I gained from this exercise. I dedicated two sections at the end of this post to Jeff Bezos and Andy Grove, who I felt had some particularly unique views.

CEO Selection

Who to add to the selection? Unsurprisingly most of my searches for "legendary CEO" lists were very Y chromosome heavy. So I went for a more manually curated approach to make things more diverse. Of course, this is a completely subjective process and I'm sure many "legendary" figures are missing.

• Warren Buffet

• Jeff Bezos

• Meg Whitman

• Ursula Burns

• Indra Nooyi

• Andy Grove

• Steve Jobs

• Carly Fiorina

• Zhang Yin

• Bill Gates

• Bonus - Charlie Munger - while he's known as Buffet's sidekick at Berkshire Hathaway (where he wasn't CEO), he was still a legend! RIP.

(I didn't include Elon as he gets far too much air time already.)

General Insights

Here the often recurring themes grouped in general categories ranked by number of occurrence:

Long term thinking - in a trade off between short and long-term goals, the latter should always take precedent. Aligning decisions with the long-term vision of an organisation should be the goal. I wonder if CEO stock bonuses don't sometimes skew this…but let's not distracted.

Ethical considerations- this is embarrassing but none of the men prominently mentioned this point but all the women did. It's not a bad idea to make decisions that are in line with common sense ethics, especially if profit maximisation would suggest doing the wrong thing (sup Sacklers).

Learning - the notion that failure is part of the creative process of company building is well accepted. As such, good organisations embrace it and make learning the more important goal than failure avoidance in decision making.

Courage - all women brought up courage as an important factor when having to take bold or unpopular decisions. None of the men did. This may be selection bias on my part or may be an indicator of how much more women are scrutinised (by men and women) when making decisions in the corporate world.

Adaptability - decisions and decision making processes need to adapt to ever changing internal and external business circumstances. This is especially true when a decision is made based on very little information.

Data - using data to make decisions is obvious. The only CEO disagreeing and arguing for intuition was, you guessed it, Steve Jobs. He believed that creativity and innovation often come from following one's intuition rather than from a purely analytical process.

Collaboration - Fiorina put it nicely: recognise that good ideas and sound decisions come from different levels within the organisation.

Speed - Bezos suggests that decisions should be made with about 70% of the information you wish you had, thereby recognising that in a fast-paced business environment, being too slow can be as harmful as being rash.

Simplification - simplicity in decision making should be preferred to situations that are too complex to understand. This can be achieved by focussing intensely on what is essential. Deciding what not to do is as important as deciding what to do.

Stakeholder - Whitman highlights the importance of considering how decisions will impact employees, customers, shareholders, etc. Understanding different viewpoints and the impact of decisions on various stakeholders is crucial for making well-rounded decisions.

Diversity - Nooyi stressed the need for inclusivity and diversity in the decision-making process. She believes that diverse teams bring varied perspectives that can lead to more innovative and effective solutions. Diverse here can also be interpreted as having differing perspectives.

A few other topics that came up more than once, which are straight forward enough just to be mentioned rather than expanded upon are Rationality, Transparency, Customer Focus, Quality Focus, Personal Commitment, Resource Utilisation.

Notable Contributions

Some contributions stood out:

Opportunity Cost: Munger places a high value on the concept of opportunity cost in decision-making. He suggests considering what else could be done with the resources or time that one is planning to invest in a particular decision.

Circle of Competence: Buffet suggests staying within your "circle of competence," meaning making decisions based on what you truly understand. This approach minimises risks associated with venturing into unknown territories or industries.

Avoid Repeating Decisions: Gates advises not to make the same decision twice, highlighting the value of making a solid decision the first time to prevent revisiting the issue unnecessarily​​.

The 'No' for a Thousand 'Yeses': Jobs famously talked about saying no to a thousand things to make sure they didn't get on the wrong track or try to do too much. He was a strong advocate of simplicity and would often make decisions to eliminate clutter and focus on a few key objectives.

“Invert, Always Invert”: Munger often emphasises the concept of inversion in decision-making. This involves approaching a problem backward, looking at what you want to avoid before considering what you want to achieve. It's a way of thinking that helps to identify and avoid potential pitfalls.

Independent Thinking: Buffett encourages thinking independently rather than following the crowd. He believes that popular opinion isn't always right and often leads to suboptimal decisions.

Holistic Thinking: Jobs had a unique ability to think holistically, considering the various facets of a problem – technology, design, user experience, and business strategy – to arrive at decisions that aligned all these elements harmoniously.

Jeff Bezos

Bezos needs no introduction. While one can question the moral foundation on which his business empire was founded, it is very hard to deny how impressive his execution has been. Taking a predominantly B2C focussed Amazon into B2B web services before Microsoft or Google was visionary. His attempts at hardware, despite public failures of the Fire Phone, were ahead of its time. When it comes to decision making some of Bezos ideas are worthy to be adopted widely.

Importance of Being Right, a Lot: Bezos acknowledges that leaders must often make decisions with incomplete information. However, he also stresses the importance of a leader being right a lot. This comes from honing judgment, being open to new viewpoints, and continuously learning.

Leaders Are Obligated to Express Divergent Opinions: He expects leaders to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. This approach is aimed at ensuring robust discussions and the best possible outcomes.

Two Types of Decisions: Bezos categorises decisions into two types. Type 1 decisions are high-stakes and irreversible, or at least very difficult to reverse. Type 2 decisions are like walking through a door that swings both ways; they are reversible and less consequential. He emphasises that these two types should be approached differently.

Bias for Action: Bezos champions a "bias for action" in decision-making. This means preferring action and experimentation over unnecessary delay and indecision. For reversible decisions (Type 2), he advises making swift decisions to maintain momentum.

Escalate When Necessary: Bezos encourages his team members to escalate decisions when they cannot reach an agreement. This prevents decision-making from becoming a function of stamina (who can argue the longest) and ensures that decisions are made effectively and efficiently.

Disagree and Commit: He promotes the concept of "disagree and commit." This principle is particularly useful in a team setting where consensus cannot be reached. It means that even if a team member disagrees with a decision, they commit to its execution to support the team and the project. This approach helps prevent stalemates and ensures progress.

Regret Minimisation Framework: Early in his career, Bezos used what he calls the "Regret Minimisation Framework" to make significant life decisions. He projects himself into the future and considers which option he would regret less. This framework led him to leave his job and start Amazon.

Decision Making and Proxies: Bezos highlights the danger of making decisions based on outdated or inappropriate proxies instead of seeking the underlying truth they are meant to represent. Say an organisation tracks a metric for 5 years. A kind of inertia can set in where the truth behind why this metric was watched is forgotten. Say this number was returns per thousand orders and it was meant to measure customer happiness. Well if an organisation becomes more complex and doesn't only sell things that can be returned this metric is obviously no longer a good proxy for customer happiness.

Bezos discussed the point above on Lex Fridman's recent podcast, which is worth listening to as it's really good.

Andy Grove

Andy Grove was a legendary CEO primarily due to his transformative impact on Intel and the broader technology industry. He was known for his exceptional vision and strategic thinking, which enabled Intel to evolve from a memory chip manufacturer to a dominant player in microprocessors. Grove's pragmatic approach to business, exemplified in his philosophy of "Only the Paranoid Survive," fostered a culture of relentless innovation and adaptability within the company. His focus on results-driven management and his ability to foresee industry shifts made him a pivotal figure in the rise of the personal computer era.

Moreover, Grove's leadership extended beyond corporate success; he was instrumental in shaping Silicon Valley's entrepreneurial ethos and was highly respected for his contributions to management practices. His legacy is not just Intel's technological and financial achievements under his leadership, but also the generation of leaders and innovators he mentored and inspired.

Strategic Inflection Points: Grove introduced the concept of "strategic inflection points," moments when significant changes in the business environment require fundamental adjustments in business strategy. He stressed the importance of recognising these points and making bold decisions to adapt to them.

The Five Whys: Grove often used a method known as the "Five Whys," a technique for getting to the root cause of a problem by asking "Why?" five times in succession. This approach helps in understanding the fundamental nature of problems and thus leads to more informed decision-making.

Constructive Confrontation: Grove was famous for his belief in "constructive confrontation." He encouraged open, direct, and often intense debate among his team to ensure that all viewpoints were considered and that decisions were rigorously challenged before being made.

The "Groveian" Approach to Uncertainty: Grove stressed that in the face of uncertainty, it's important to build a strategy that is robust across a range of scenarios. He encouraged leaders to prepare for various potential futures rather than trying to predict one specific outcome.

Feedback Loops: He was a strong advocate for establishing rapid feedback loops in the decision-making process. This approach allows for quick adjustments and course corrections, which is vital in a dynamic business environment.

Empowering Lower Levels for Operational Decisions: For operational decisions, Grove believed in empowering lower levels of management and the frontline employees. He felt that people closest to the issues often had the best understanding and should be entrusted with decision-making responsibilities.

Theory of Constraints: Influenced by Eliyahu Goldratt's theory, Grove focused on identifying and managing bottlenecks in any process, believing that decision-making should target these constraints to improve overall system performance.

Managerial Leverage: In his book High Output Management, Grove discusses the concept of managerial leverage - the idea that a manager's impact is maximised by making decisions that influence other people's productivity and output, rather than focusing on personal productivity alone.

The book High Output Management actually was the inspiration for Startup Pragmatism. It is a rare example of a business book that gives very matter of fact advice to business leaders. It is widely regarded in Silicon Valley as one of the best business books of the 20th century.

Conclusion

What stands out across all these diverse insights is a common thread: the importance of balancing various elements—rational analysis, ethical considerations, long-term vision, and a deep understanding of one's business and its environment. The wisdom of these leaders shows that great decision-making is not just about choosing the right path but also about understanding the myriad factors that shape that path.

I hope that as we step into another year, these insights allow me and maybe you to approach decision-making with a more nuanced, informed, and strategic mindset. Whether you're leading a startup, managing a team, or just navigating your personal career, the wisdom shared here offers valuable guidance for making decisions that are hopefully not only successful but also sustainable and ethical in the long run.

Happy New Year and see you in 2024!

If you want to land a job at a startup, you need to stand out. Hiring managers are time poor and resource constrained people. Make it easy for them by being unreasonably well prepared. Show that you are someone that can add value in every interaction and without much coordination cost. Make yourself the inevitable choice by being introduced from various people close to the company. If you can, suggest that they can work with you as a consultant or on a part-time basis before they hire you.

So you want to get a startup job? Whether you are a person working for <insert big tech evil corp> or someone working for a corporate in a different industry, here are some tips that will help you stand out in your startup job search. Let me warn you this is the opposite of a spray and pray approach. For reference I've both been on the hiring side and on the job seeking side of the equation a few times.

Three Dimensional

In general, when you are changing jobs there are multiple dimensions of change that can occur: industry, function and location. It is not advisable to try to change all three at once. For instance, if you've been a London based lawyer in finance it's going to be hard to become a Singapore based marketer at a startup.

Your first job at a startup might have to be a compromise. What you've done previously (e.g. law), even if you are bored of it, is your best shot when switching to a new industry (e.g. tech). Once you've landed a job with a company, you can gain reputation and credibility to switch the function (long game). So ideally stay focused on roles that are a decent fit to your current functional experience when you are making changes on the other dimensions (industry, location).

Perusing Portfolios

The starting point for your journey is knowing what companies are out there. The startup scene can be a bit more opaque, hence assessing the opportunity space is not super straightforward. A good place for you to look is the portfolios of the Venture Capital funds that you consider reputable. Just Google / ChatGPT a list. They usually have portfolio sections on their website where you can find all the companies that they have invested in. Another approach is checking sites like Pitchbook or Crunchbase for recent investments as some of the portfolio page listings may be outdated.

The startups you pick should depend on what type of experience you are seeking. Wanting to join a company that has roles that are fairly broad and allow you to dabble in many different functions, requires joining a riskier early stage company. So it doesn't make sense to add a bunch of Series B+ companies to your selection.

Stack Ranking Opportunities

You found a bunch of startups you like but haven't really looked at the job pages (the senior jobs are often not on there). How to rank these startups? There are many ways to skin a cat. You know what matters most to you but here a far from comprehensive list of a few factors I like to take into consideration:

Without access to the team

• Vision/Mission - if you're into it, it won't feel like work

• Potential total addressable market size - if you are interested in upside this is important

• Financial health - figure out the last raise, assume a monthly burn and calculate remaining runway

• Competitive landscape - how differentiated is the company vis a vis the market

With access to the team

• Founder/CEO character - the culture of a startup is determined top down

• Work culture and values - work hard, play hard or here for a fun ride

• Existing team and dynamics - quality of the team

• Development potential - how much can you learn and how much can you move up

• Financial upside - valuation of the company and what equity will you get

Find All the Roads to Rome

Now it's time to find multiple angles to the potential hiring manager. Who that is, very much depends on how mature the organisation is. Say you are a lawyer and are applying to a Series A startup. It's fair to assume that the COO/CFO is the right person for you to go to. If it's a Series C startup there is probably already a General Counsel you should try to get to instead. At Seed stage go to the CEO.

You should try to reach out directly but only do so after you've had at least a few people ping your CV over to the hiring manager. LinkedIn hopefully tells you who your connections in common are. Going through VCs or Angels is also a viable option.

Don't underestimate how much of an impact it makes to be mentioned by various different people. It immediately shows the hiring manager a much stronger intent than a random application coming through the job site.

Note I did not suggest that you should reach out to recruiters or the in-house recruitment team of a company. Third party recruiters have incentive systems that as a hiring manager I'm suspicious of so if I get approached by them, I'll take the applicant less serious. Also, someone good should make the effort to find their way to the hiring manager directly. It’s called hustle.

Bypassing the in-house recruitment team is also advisable. In-house recruiters can only say "no". They are not empowered to hire you. So they at best become an intermediary of your story (thereby watering it down) or at worst they shoot you down before you even got started.

Anti-Coffee Meet

NEVER ask for a coffee. Let me say this again NEVER EVER ask for a coffee meeting. Hiring managers can buy their own coffees. They are time poor and busy so they don't want to grab coffee with random people, who think that their time is worth very little.

To stand out among the masses add value to the hiring manager's life. Point them to a relevant news article about the industry or competition. Suggest to introduce them to a contact of yours that could help with a potential business problem. Present them with information you have gathered from a competitor you’ve emailed as a consumer. Be creative!

I remember how one applicant suggested a business development deal including the specific unit economics. I had thought through that type of deal before as it was my job but the fact that this person had figured out so much detail impressed me. In another situation, an applicant sent me a job spec for one of the many roles I was half-assing at the time. They had rightly assessed the business need and written a pretty good spec. Needless to say, I took the meeting.

The bottom line is if you don't care, ask for a coffee meeting. If you do, then give it your best shot.

Love Their Babies

Startup life is intense and usually the lives of employees especially if they are more senior are dominated by their work. As such, sometimes for better or worse their self-worth is bound up with the startup. So don't go in and start criticising their company. You can never have a good enough understanding from the outside to credibly criticise.

If a random person walks up to you and your baby and tells you it's not cute, you'll be pretty upset. However, if you double opt into getting feedback on whether your baby is really cute or not, then honesty is a good policy. So unless they ask for feedback, stick to the cute stuff. In other words, figure out what you love about the company and convey that to the hiring manager as you communicate with them. Parents like hearing that their babies are cute.

Break the Box

The most infuriating moments of my career have been when I see people wasting an opportunity. If you manage to work your way to an interview with the hiring manager, don't half-ass it.

Showing up to an interview without having consumed the public material available about the company is half-assing it. Not knowing everything there is to know about the people interviewing you is half-assing it. Not knowing broader industry trends and competitive dynamics in the relevant domain is half-assing it.

It makes such a big difference to sit across a prepared person in an interview compared to someone who hasn't put the work in. It's actually much harder to reject someone (even on an emotional level) who has done the work. To improve your odds, be that person. You may get rejected because of timing (I interviewed with the hiring manager at Foursquare one year before I got the job) or other reasons out of your control but at least you gave it your best shot.

The best people who I've rejected asked me for specific intros to other companies. If they were their best selves in the interview with me, I would gladly make the intro. A good rejection can actually be a door opener to other opportunities.

Trade Items of Unequal Value

To stand out from the crowd or improve your odds consider how to make hiring you more appealing. Startups are cash poor and can't pay high salaries. Can you live with a lower salary and instead ask for more equity? This is a contentious point, because affluence makes this trade off easier but I appreciate wanting more equity and thereby being long-term aligned with the business' success.

Sometimes the hiring manager has many jobs at the same time and can't imagine finding time to onboard you. Half-assing seems less painful than training someone new, even if shortsighted. Spend time to deliver a thoughtful work product that proves you don't need much supervision and can immediately add value. I remember a Head of Talent candidate sending me a redraft of our whole jobs page and every job spec. She also sent me a few articles/videos about what her philosophy around interviewing and talent assessment was. This conveyed alignment to me, which meant less time having to calibrate and easier onboarding.

Sometimes joining part-time or for a project, gets you a foot in the door. Coordinating with a consultant that requires a lot of communication and alignment is prohibitive. So the type of projects that work best are research focused with a clear output. For instance, figure out the early go to market hacks of the most successful B2B companies and suggest MVP project experiments. While this example is fitting for a Seed stage startup, a later stage equivalent might be an analysis of a client vertical or a new market. Remember that you are trying to show independent work competence and relevant judgement, so don’t incessantly ping the hiring manager with decisions they are trying to outsource to you.

Conclusion

So, there you have it – some hopefully useful insights to navigate the startup job market. Remember, transitioning to a startup job is more than just a career move; it's about aligning your aspirations with the right opportunity. It's about understanding the unique dynamics of the startup ecosystem and positioning yourself as a valuable asset. From assessing startup viability to making yourself stand out to getting to hiring managers, every step is crucial and therefore has to be thoughtfully planned.

Keep in mind that startup culture is vastly different from corporate environments. It's faster, often more demanding, but also incredibly rewarding for those who thrive in such settings. Make sure you are ready for such a life.

If there is one thing to take away from this post, it is the power of preparation and personal initiative. The most successful candidates are those who go beyond the basics, demonstrating a deep understanding of the startup's mission, its market, and its challenges. They are the ones who bring not just skills, but also specific ideas and authentic passion.

In this journey, remember that rejections are not the end but rather stepping stones. Each interaction, each interview, is an opportunity to learn, grow, and network. The startup world values resilience and creativity, so use every experience to build a stronger, more compelling case for yourself.

ADDENDUM

This is a bonus tip for those among you who are not looking for an early stage job but are looking for a sidekick. First and foremost remember that finding a co-founder is similar to finding a husband/wife. A divorce in a childless marriage might be easier than breaking up your co-founder relationship (hyperbole for dramatic effect), so what is important to assess beyond the basic chemistry fit and interest in building something together is value alignment. Many of the breakups I've witnessed are around the fact that there is a mismatch in terms of willingness to sacrifice one's own needs to make the business work. There are many other questions you should cycle through that are not in the scope of this post but Y-Combinator has a good list.

You can find a co-founder through programs like Entrepreneur First or by hanging out at enough networking events. The more advanced approach is to headhunt a co-founder by seeking out someone with the right industry knowledge or technical skillset. It's best to approach folks who already have well-paying jobs at the right time (not 9 months into a new job but probably post their 4 year vesting cliff).

Creating a hiring process that doesn't stop with the offer, but extends into the probation period allows for much better assessment of candidates. While it may create some awkwardness and disruption if a candidate doesn't pass probation, in the long run it creates a much stronger culture and team. The key to doing this right is transparent communication, a well thought through onboarding process and clear deliverables.

Hiring is Hard

Hiring talent is one of the hardest things a startup has to do. It's impossible to really assess someone well during an interview process. Especially, as most startups are time poor. It's natural to have a conversion bias, rather than an overly thorough approach. While a systematic interview process and a work product are a good base on which to make a hiring decision, it is natural to make mistakes. The probation period, if used right, can ensure a longer period of assessment to ensure the initial decision was the right one. However, most startups squander the probation when it comes to defining discrete deliverables to get a better sense of the new recruit. Unless an employee really messes up badly they always pass probation. This lack of critical assessment leads to false positive candidates sticking around for far too long, which causes a whole host of undesirable consequences (erosion of culture, good employees getting demotivated, drag on performance, etc).

Hiring strategy is a bigger topic, which I'll cover in another post. That said one important goal of a good hiring process is to avoid false negatives. While it's often natural to have some false positives (i.e. hiring someone who doesn't work out), most startups don't worry enough about false negatives (i.e. rejecting people who could have been 10x employees). A hiring strategy that allows for course correction during a probation period allows to make decisions that give borderline candidates a chance.

Google Dublin

I started my career at Google Dublin. I joined the company as a contractor in the customer support department, which was an onramp to more exciting roles down the line. The way Google had setup their hiring process in Dublin might be seen as a bit "mean" but it was effective. Let me explain.

As a customer support contractor our job was to approve or disapprove Google Ads created by advertisers. We received great training and a lot of resources that helped us to learn our core job. Getting a full time contract depended on our ad approval speed and ad approval quality. Speed was assessed by looking at our daily reviewed ads stats. Ad quality was determined by checking a sample of our decisions to see if they adhered to the Google's policies (i.e. no excessive caps and punctuation in ad texts, websites can't sell firearms, etc). This was a clear and fair progression system. If we did well enough with ads, we progressed to email customer support. Again there were expectations for number of tickets closed and email quality. Training and resources were abundant to make sure we didn't feel out of our depth. Once we met the predefined targets we would get a permanent contract offer to join the team.

While I was going through the experience, I did feel the stakes. I had moved to Dublin for a full time role, so I wanted to make the cut. This was stressful. Google also didn't allow contractors access to all parts of the office so I felt a bit like a second class citizen until I joined "the other side". Overall, though, the system ensured that everyone who passed through the gauntlet was good at the basics of the job. 95% of my colleagues were top notch. Creating an upfront funnel to assess people before they "make the cut" was an effective way to create a strong culture with high performers. It also allowed Google to make offers to people with non-traditional backgrounds. Some folks had studied literature or pedagogy and would have probably not been given a chance if it wasn't for this contractor onboarding phase. Finally, it allowed Google to make a lot of offers without too much effort, which was important giving its crazy hiring needs post-IPO.

Transparent Communication

Why the Google interlude? I am not suggesting to hire all your team as contractors and then convert them to permanent employees. Let's be real, sometimes you are actually quite happy if someone accepts an offer, so creating more obstacles for them to join sounds like a bad idea. That said most startups I’ve seen treat a new joiner as a full time employee but without any high expectations for the first 6 weeks. This is backwards. The damage a false positive employee can cause to culture, motivation and performance of otherwise great employees is not negligible (especially if the hire in question is a manager). It is also much easier for an employee who doesn't make it through probation to get back to the market without having to justify an awkward 6 months stint (assuming that no one is going to put 1-2 months on their CV).

So how can we make best use of the probation period? Let's be clear upfront that a good hiring process is key. Being sloppy while hiring, just to then let someone go during a probation is irresponsible. Run a thoughtful interview process, get some 2 hour work product, and run references. Now that it's time to make the offer, we have to be fully transparent. It's important to message the fact that the probation period is still part of the assessment in a non-threatening way. The majority of people should pass through if the hiring process is good. You could say:

"As an organisation we continue to assess our new employees throughout their probation period. Nearly all our hires complete their probation successfully. We don't do a perfect job with our hiring process and want to ensure to address any mistakes early both for the sake of our existing team and the new employees."

Note that the statement takes the edge off as it assures the employee that most make it. It also establishes that hiring the wrong person is the company's fault and not the fault of the candidate. Finally, it conveys that this is done for the team and the candidate. Having the best interest of the team in mind hopefully sounds compelling. They might not believe that it’s in their best interest to let them go but is it really fun to work at a company that doesn’t appreciate ones contributions?

It is possible that at this point some candidates could be spooked and might reneg on joining the company. I would venture to say that those folks probably weren't a fit to begin with, however, I understand this can be painful given the sunk cost. It is also sometimes hard to do this with very senior employees as they negotiate the probation period away. It is a hard call to decide to still keep the probation or do a super thorough reference check instead. Setting a bad precedent to make exceptions for senior employees is not great. One can hope they understand that and therefore sign up for the same terms as everyone else.

Thoughtful Onboarding & Deliverables

To enable our new employee with the best chance to pass probation, we need to ensure they are well onboarded. Startups are frantic, under resources and over worked but the ROI on this is a no brainer. In an ideal world there should be some up to date documentation that can be shared with a new starter. In addition, they should be paired up with a buddy that is going to be their first port of call when they run into issues. Moreover, their manager has to be hands on with them to ensure any obstacles are removed. This could mean checking in on a daily basis.

For the most part the reason that I've seen people fail their probation is not that they weren't as capable as I thought they'd be during the interview. It comes down to the fact that they couldn't adapt effectively to the operating principles of a startup. There is a particular mindset one is looking for at early stage companies - adaptive, highly communicative, thriving at fast pace, comfortable with ambiguity, efficiency minded, proactive are all qualities that come to mind. These are really hard to fully assess through interviews and references as they are subjective and specific to each particular company (in other words, what I define at fast pace might be a joke to you).

When it comes to the deliverables, ideally you'd like to have something quite objective like in the Google example (ad/email volume & quality). The benefit of this is that it will be a comparable measure for everyone that starts in that job. In reality, though, it's hard to define deliverables that neatly. In that case the manager of the new recruit should propose a deliverable that is sense checked with the wider team to avoid bias. As a matter of fact, it is good for the immediate team to know about the pass criteria for new employees so they can help them (within reason) to achieve it.

Getting the deliverable right isn't an exact science and therefore one needs to be lenient if a new recruit doesn't achieve it in the first 6 weeks. It is actually less about the actual achievement but more about battle testing someone early in their tenure to see if they can deal with the particular way of work at the company. They may be a perfect fit, but due to circumstances out of their control not hit the milestone. As long as peers and manager agree there is a fit, they should pass probation. In summary, the main goal is to use the first 6 weeks of a new employee's time at the company properly to assess their fit, rather than assume that the interview process is perfect. Waking up to the idea that someone was a false negative 6 months into the job should be avoided.

Managing Bad Outcomes

So what if someone fails. The easiest scenario is that there is a mutual understanding and everyone can go their separate ways (Hollywood ending). If the employee disagrees with the assessment then it is important that the messaging is done well. What helps in this case is if the rejection doesn’t come as a surprise but that they had been already prepared that things weren’t going well. In the end, if the company manages the communication well it comes down to the maturity of the employee. It is always great to offer help to them in finding a new role (through introductions), especially if the fit issue has nothing to do with capability but rather with compatibility.

The other important constituency to manage is the existing team. If they agree with the decision this is easy. Nevertheless, it is always good to explain why someone was not converted. Especially, because some of the direct team members spent time interviewing, onboarding and working with the person. Transparency as far as possible goes a long way. This is doubly important if some of the team disagree with the decision. In such situations, the team needs to understand how high the bar is, why it is that high, and how the candidate didn’t pass. This doesn’t have to be a company wide conversation but is most relevant for the immediate team affected. The goal should be that existing employees feel special given that they passed.

A year into my Google job we joked that “the old guard” wouldn’t pass the probation period (contractor stage in this case) anymore, because the bar had been raised. It made us feel special and also made us appreciate our new colleagues more.

Conclusion

This method of assessing new employees throughout the probation period might seem like extra hassle but it helps avoid major headaches down the line. It is important to establish a culture which appreciates that this process is created in the interest of the existing team and not to be a harsh employer. If you get this right it will strengthen the existing team’s pride in their role and appreciation for the colleagues that make it through.

There are broadly three different modes of operation that parts of your business can assume: Figure Outers, Scalers, Business as Usual. The mode will determine the type of culture, team and processes these units will require to work efficiently. Using a uniform approach for your whole business will lead to inefficiency and frustration, which you can avoid through thoughtful organisational design.

One Size Doesn’t Fit All

Defining an overall company culture and a set of uniform reporting and goal setting processes across an organisation is an important foundation for running a startup well. In reality, though, we all know that parts of the business operate differently. Often the differentiation is along the lines of functions e.g. “the engineers are less flexible that the business folks” trope. However, the differences are not only tied to team functions but to business units/problems. Depending on how mature the business units are and how ambiguous the problem they are trying to solve, the needs for the culture, team and processes within them differ.

Let’s assume you have a b2b startup and your product has early product market fit. In other words, you have found something that solves a client need and is sticky. However, you haven’t figured out product market business fit yet, meaning the go to market (GTM) strategy is not clear. The team in charge of the product surely has a development roadmap that needs to be worked on but since the customers have their needs fulfilled with what’s delivered, it is no longer a Figure Outer but rather a Business as Usual. GTM, on the other hand, is a Figure Outer and needs to experiment, report more often and get a different level of attention from leadership.

So while you may have defined an overall operating system for the company by setting its processes and culture, keep in mind that different business units or business problems can and should deviate from the overall system.

Figure Outers

The main feature of Figure Outers is that you are operating in an ambiguous environment. You know what problem you want to solve but you don’t know how. Solving these problems is usually key for your company to succeed. To progress effectively you need to adapt this part of your org by tweaking its culture, placing the right people in it and adjust its processes.

When operating in ambiguity you need to be unemotional about failure. Every failure is an opportunity to learn (yes, the cliche is true), nothing more nothing less. As a matter of fact, you want to as inexpensively and quickly cycle through as many failures as possible to get to a suitable solution. Apart from resilience, this type of working also requires a strong ‘disagree and commit’ type culture. Furthermore, you need to operate an environment of cognitive safety and radical candour. Cognitive safety allows for out of the box thinking and “stupid” ideas to be heard. Radical candour allows for “stupid” ideas to be discarded efficiently. Again not being territorial and emotional helps when working like this. Alignment is crucial when attempting to cycle through experiments quickly, as you want to make sure that everyone is clear about what is tested and how specifically.

It goes without saying that this type of working requires an emotionally mature and entrepreneurial minded team that is accustomed to a high pace. As such, what you want to likely do is rotate your early team members (assuming you hired well and got entrepreneurial folks into your business early on) through Figure Outers. They should be used to this type of working. If you are hiring new folks for this team I suggest that attitude is more important than experience. Sometimes experience hinders you to think outside the box and find the right solution to your flavour of the problem.

Figure Outer departments need to run fast and therefore you need reporting as needed. What that means is there shouldn’t be a weekly meeting scheduled, rather you should meet as soon as there is progress. That should ideally be multiple times a week so that you can continuously align and course correct if needed. You also want to ensure to be specific about the parameters of the experiments you are running. So for instance if are trying to prove the viability of a distribution channel then set the budget and timeframe. After the timeframe assess if the channel was viable - you can either chose to run the experiment for another cycle with a different approach or move on to the next experiment (a different distribution channel in this example).

Figure Outers are usually important problems that need to be solved to ensure business success, which means they also require the attention of the senior leadership team. This means you should be spending more time on Figure Outers than on Business as Usual.

During my tenure at Citymapper we treated monetisation as a Figure Outer. We ran discrete experiments like selling software cities/operators, running a night bus, running a responsive mini bus network and introducing a multi-modal subscription to all your transport needs (which was the winning model - well, until the pandemic hit). The cap-ex requirement for these experiments was high, which is why we ran these longer than merely testing a distribution channel. Regardless, the team and processes devoted to solving monetisation adopted a different approach than other parts of the organisation.

Scalers

A Scalers environment is characterised by having a proven playbook that needs to be executed upon tightly with slight adaptations to meet specific regional or particular user/client needs. Usually the problem you are solving with Scalers is that of growth.

Scalers are more straight forward than a Figure Outer. As such putting someone with previous experience in the required field in charge and letting them run your playbook is a good approach. While the playbook must be adapted, this will happen in tight confines of what makes sense. Deviation from the established strategy creates friction and should only happen if worthwhile (i.e. adopting a certain privacy feature to operate your product in Europe or introducing a specific reporting feature to be able to sell to enterprise clients). This means you don’t need as much out of the box thinking. As a matter of fact, you are looking for people that like to stick to the script and execute at high velocity. Hiring is important while scaling and doing so with a clear understanding of who you need and what skills they need to bring is crucial to keep the momentum while onboarding.

Regular reporting on specific metrics at a previously agreed upon cadence (i.e. weekly) is key both for motivation and for alignment. Tight cost control needs to be top of mind when it comes to Scaler challenges. It is far too easy to succumb to a ‘scale at all costs’ mentality. I’m not suggesting to step on the breaks but scrutinising metrics like client/user retention/engagement, CAC/LTV ratio, burn multiples, etc. continuously while scaling is key. Don’t assume things will work out just because you have a proven playbook. If you sacrifice any metrics, you should do so with intent.

Launching new cities and regions at Citymapper was a Scalers endeavour. We knew what we were doing and what type of people we need to hire to launch new cities. We adapted our approach to different regions but usually within the confines of what made sense for the scale of the user opportunity a city presented us with.

Business As Usual

Most central departments that are concerned with running your company are going to run on Business As Usual mode e.g. Finance, Legal, HR etc. The problem that is being solves is one of maintenance. Of course there will be projects that might require you to adopt a different mode for those central functions (a fundraise, a hiring spree, office setup in a new country, an acquisition). Depending on whether you’ve already created a playbook for the particular problem or not you’ll have to treat this as a Scalers or Figure Outer exercise.

Other departments that operate in Business As Usual mode are those that are working to maintain something that’s working fine (i.e. your infrastructure team, your customer support department, Google search’s design team, etc).

The Business As Usual mode should be closest to the operating system and culture you have define for the company overall. If your overall culture is one that for instance ‘moves fast and breaks things’ then these teams should embody that culture. Processes and reporting should mirror the company benchmark that you’ve set.

To be clear, being in Business As Usual mode doesn’t mean there is no need to optimise and innovate, that’s what all parts of an enduring organisation should do at all times. It just means that the culture, people and processes in these departments can be comparatively less entrepreneurial and hectic.

Conclusion

Being more thoughtful about designing different parts of your company to adapt culture, team and processes to the problems they are solving, will help being more successful. You may do this subconsciously already but being deliberate about it will allow you to make much more meaningful and effective decisions.

There are of course moments when you run most parts of your organisation in Figure Outer (pre product market business fit) or Scaler (post a growth funding round expansion spree) mode. Under normal circumstances, however, it is good to keep this differentiated framework in mind so that you can distribute your limited attention and resources according to the problems you are solving.

Assessing, developing and promoting talent throughout their tenure at your company can be better achieved by mapping specific skill requirements for every role and level. This is not a panacea for a perfectly fair career progression system but it creates more transparency and objectivity.

Redesigning the Assessment Process

Building a successful company requires a lot and it isn’t always easy to balance the needs of the business with those of the team. In the long run, though, you are just as much in the business of developing people as you are in the business of building a company. Spending time thinking about your team’s potential, skill gaps, growth opportunities and assessing these on an ongoing basis, is key to your company’s success. If done right, it also helps motivating your employees and creating a strong employer brand.

The topic of managing talent is broad. In this post we’ll focus on how to design a progression system that attempts to be fair and transparent. Formal assessments of talent happen (at best) on a quarterly basis. Usually those assessments focus on performance against individual goals (trickled down from company level) for that period. This process is repeated until high performers get promoted to retain them.

What’s problematic with this way of assessing and promoting is that it’s inconsistent across the organisational functions. Some companies have calibration sessions to normalise the individual treatment of employees across teams. Even so, this approach doesn’t allow managers or employees to compare their performance/skills against a desired role they want to attain in the organisation.

If you’ve ever played a role-playing game (RPG) then you know that most job progression systems leave much to be desired. In an RPG you pick your starting class, say a mage. You know from the outset what specialisation you can reach along the progression path as a mage (sales), say you want to be a a fire mage aka pyromancer (Account Executive). The game tells you what exact skills you need to attain to achieve the goal on your desired path. To become a fire mage you need to level up your overall experience (i.e. spend a certain amount of time at the company) but specifically you need to increase your intelligence (e.g. work on account management skills) and use a lot of fire spells (e.g. successfully retain x% of your clients). I’ve overstretched the metaphor sufficiently but you see the appeal of the RPG progression: you know exactly what to do to become a fire mage (Account Executive).

Real life is not as straight forward as an engineered game world. There is a lot of randomness and many competing interests that make things more complicated. This shouldn’t stop us from designing a better system, even if it can’t be perfectly followed.

Skill Mapping RPG Style

Being assessed against quarterly objectives is pretty standard at most companies. Some organisations even do personal development plans (PFPs), which allow employees to express their learning and development goals. This allows their managers to hold the employee accountable for their own ambition. Usually, these plans are meant to incorporate the skills that could net the employee a promotion. However, often what skills/achievements are actually needed for the promotion are not explicitly expressed.

An alternative approach is to design jobs and levels like an RPG. Let’s imagine we have a sales role with the following progression (from junior to senior): Account Associate, Account Manager, Account Executive, Account Director. We’ll now create a skill map for this progression starting with the most senior role:

Account Director Skills - Account Management, Reporting, Communication, etc

The above is not comprehensive and as you can see it’s close to what you’d expect being in the responsibilities/requirements section of a job spec. Now we’ll pick one of those skills and specify different levels:

Account Management (1-5)
Account Management (5) - Managing C-level relationships S&P 500 with customer satisfaction >4; Identifies 6 figure growth opportunities within account portfolio; Customer retention rate of 90+%, etc

Account Management (4) - Managing clients with turnover above X million (not S&P 500) with customer satisfaction >4; Identifies 5 figure growth opportunities within account portfolio; Customer retention rate of 85+%, etc

…

Again the above is not comprehensive but you get the gist. Take a skill, define levels and then specify what is required at each level of that skill. Now if we look at the Account Director skill set above we require an Account Management (5) skill level for anyone who wants to take that role. While if you want to be an Account Executive, an Account Management (4) skill level is sufficient:

Account Director Skills - Account Management (5), Reporting (5), Communication (5), etc

Account Executive Skills - Account Management (4), Reporting (3), Communication (4), etc

…

When you do this exercise for all jobs and required skills in your organisation you realise that some of the skills apply across the company. Communication for instance is something you can then define in a consistent manner for everyone, irrespective of their specific team.

Once you have defined jobs, skills and levels you need to assess your team and determine their current levels. This part is always going to be subjective but to minimise arbitrariness and favouritism you want to make skill level definitions objectively measurable as much as possible (see customer retention above). As part of whatever assessment cycle you run, you can now see where your employees are on the skill level progression for their specific path and suggest development opportunities to get them to the next level.

Omid’s Assessment - Account Management (4), Reporting (4), Communication (5), etc = still needs to improve upon Account Management and Reporting to progress to Account Director

Of course, most well run companies have an assessment process that communicates how people can improve and get to the next level. However, from personal experience managers mostly apply individual frameworks to employees that are not normalised across jobs and levels. This in turn leads to a lack of feedback consistency and transparency across the organisation.

Life isn’t Fair

There is a lot of nuance and complexity that comes with slicing and dicing jobs, skills and levels like this. Definitions will not always be perfect. You may discover skill requirements for certain jobs are different than what was assumed initially. As the company evolves so will its skill needs. It’s worth acknowledging that no system is going to be perfect or 100% fair. It’s pretty obvious that the thought required to set a system like this up alone, is worth the effort. It will give the leadership and management team a much better understanding of what skills the company needs.

During the assignment of employees to a specific skill level, subjectivity will still be an issue (unless you quantify things well) but over-quantifying and specifying helps reduce the arbitrariness of assessments even if not being 100% fair.

Sometimes there is no business need for someone to be promoted despite them having reached the skill level that is required for the next step. The skill map makes these instances more obvious and this may lead to employee frustration. In general, this is less of an issue for individual contributor positions but more so for people on a people management path. In those situations, however, having an honest conversation about business need is always more fair and graceful than making up reasons for why a promotion is not happening.

A lot of work goes into running and maintaining a skill map. This is why going through this exercise is most useful for startups that have found product market fit and are starting to scale.

Conclusion

All performance assessment is unfair to an extent. By creating a skill map we enable managers to standardise their judgement based on pre-defined and thoughtful criteria. Employees will be able to assess themselves against clear requirements for progression. This transparency is both motivating and increases the fairness in the assessment process which ultimately leads to a much stronger employer brand.

TL;DR

You will run your company more efficiently (and effectively) if the whole team is working in the exact same direction. To make this work you will need to optimise your lines of communication and command to align everyone continuously.

Put the Horse before the Cart

Imagine two equally strong horses pulling a cart in opposite directions. That cart ain’t going nowhere and will quickly break. Now imagine that one pulls the cart forward and the other pulls orthogonally to that direction. That cart sorta moves forward (the net vector is in between the two directions at a 45 degree angle) but not as efficiently as a cart which both horses pull forward. I think you get the gist of this overstretched metaphor - the cart is the company, the horses are the team (with all due respect) and the forward direction is the intended strategy: alignment will yield more energy expended on the desired company outcomes.

It is impossible to get any team perfectly aligned so that everyone always agrees on everything and moves in unison (nor is that desirable). However, the point is that energy spent on alignment is worth it and should be on top of every leaders agenda who wants to ensure a motivated team that achieves the company mission most efficiently.

Types of Alignment

The dimensions that matter to us are communication, command and culture. Lines of communication allow for conveying strategy & culture top down and feedback & results bottom up. Lines of command allow for setting goals and agreeing on execution/tactics. Culture stands for alignment around the mindset and operating principles required for the stage and mission of the company.

When communicating downstream with the team one-to-many we set the company vision, mission (why) and culture (how). If everyone is fully aligned with these then there are less misunderstandings and unnecessary debates (necessary debates are welcome).

When feedback and results are communicated, we want to ensure we are aligned about the feedback mechanisms and format. Similarly, results should be relevant and gathered in an agreed upon way. Informal feedback and reporting have a place but to run an organisation that cycles through experiments efficiently to find the elusive product-market business scale fit, being aligned about how to communicate upstream is key for error correcting and adjusting the company direction.

While downstream communication is mainly preoccupied with the ‘why’ (mission/vision) and ‘how’ (culture), command (which is always downstream) is mainly focused with the ‘what’ (goals) and ‘how’ (execution). High-level company mission and vision is broken down into specific unambiguous targets and the parameters within they can be achieved are clarified.

Culture alignment is about how much the team is aligned regarding the attitude that is required for the stage of the company. A small team that is still figuring out product market business fit needs people to have the same level of excitement and tolerance for ambiguity and change. It’s hard to work with negative, inflexible and risk-averse people during the early stages of the startup journey. Team members also need resilience to motivate each other and be able to fight adversity with pleasure.

Lines of Communication

To ensure that downstream communication of mission/vision and culture works well it has to happen often especially in fast moving organisations. A rule of thumb is that when you start getting bored of saying the same thing over and over it will just start registering with everyone else.

The best tools to ensure this works are quarterly strategy on-sites, weekly team meetings and weekly one on ones. You need to encourage your managers and team to relate whatever is being discussed every week back to the mission, vision and culture in an authentic manner. If the whole exercise ends up feeling corporate, it misses the point. This “cult” like repetition makes decision making easier as the north star is always shining bright.

A good way to create a continuous presence of mission/vision and culture is to display things and write them down visibly. Yes, it is a cliche that startups create graffitis (whiteboards are fine too) of values and missions on office walls but those help with alignment.

The alignment in upstream communication is equally important. Reporting allows the organisation to understand whether its hypothesis around its experiments are working. This has both up- and downstream components. Often departments don’t cross report. Information goes up to management and then is reported across. However, making sure that the team knows what needs to be reported how often and in which way upstream is crucial for the integrity of downstream reporting. Without an aligned reporting infrastructure you are flying blind and wasting time and money.

Feedback flows both ways. Downstream is natural given that companies are hierarchical structures. Regular standing meetings allow for this to occur naturally (one on ones, weekly meetings, quarterly on-sites). However, what is just as important and often neglected is upstream feedback. You want to create a zero resistance environment for the frontline to report to the top leadership. There should be a clear alignment on how people can feedback, a clear understanding of its value and as little bureaucracy involved in the process as possible. The more intermediaries between top leadership and the company’s frontline team or its users/customers the more disruptable it becomes.

Whether it’s downstream or upstream communication, creating infrastructure and rituals that allow for it to continuously occur in a structured manner and in the right cadence is key to alignment. Therefore, spending time on designing the lines of communication thoughtfully is time well spent.

Lines of Command

Most of what I’ve mentioned above applies to lines of command too so I will keep this section shorter.

Command lines are about downstream instructions. Setting of goals (what) and the tactics (how) is key to getting desired results. The most motivating way to do this, is to show exactly how goals tie back to the mission/vision of the company. Doing this once every quarter doesn’t cut it. Similarly to the principle of repeating mission/vision and culture until you are bored, you should always remind people of how their specific goals and objectives are crucial to achieving overall success. This ensures that your team feels aligned with the overall company direction. This is also an effective litmus test that uncovers when your goals are misaligned, namely when you can’t tie things back easily.

A good way to keep the team aligned with goals is to display results everywhere. Often effort may be misunderstood as achievement. Monitors, whiteboards, weekly emails with actual results allow the team to be on the same page as to how they are stacking up against goals. This makes adjusting tactics easier as everyone is on the same page as to why course correction is happening. This is a no brainer but I still see many companies paying lip service to ongoing reporting with half-assed efforts. In the right culture this sort of reporting can be motivating and an a great effectiveness unlock.

The specific execution and tactics (how) used to achieve goals should be similarly tied back to the company culture. If ‘move fast and break things is a cultural value’ then quality assessing something for a quarter doesn’t make sense. So aligning execution/tactics with culture to ensure teams are working in line with the wider company expectations will lead to smoother acceptance of the specific “commands”.

Making sure that lines of command align goals and tactics with the overall company direction will make them feel more legitimate and will make achieving them motivating.

Culture Alignment

Startups are hard. There is a lot of adversity, ambiguity and volatility. To overcome all that is impossible, if you and your team don’t care about the mission/vision. Moreover, you need to have a positive (but not deluded) mindset about the journey.

Connecting with or being passionate about the mission of a startup makes work feel less like work. That’s good because especially at the beginning of setting a company up chances are that you’ll have to clock a lot of hours at work. So hiring people who are aligned with the mission will allow them to bring a different level of energy to the enterprise and increase the likelihood of success.

Culture alignment, among other things, is a fancy way of saying that someone has the right attitude and expectations. Being stressed about a changing direction or strategic adjustment signals inflexibility, which has no place at a nascent startup. Usually these misalignments express themselves in emotional reactions and negativity. Again it’s good to be critical to interrogate any given strategy sufficiently but not being able to stop complaining or letting go zaps everyone else of their energy.

Finding people who are happy to hold strong opinions lightly is advisable. Given that your startup has a limited runway and needs to cycle through experiments quickly, you need flexible and unemotional strategy adjustment. This means disagreeing but committing to a new tactic should be commonplace.

Hiring a team that has the right expectations, attitude and motivation is crucial. When everyone is aligned culturally, the unavoidable downs, adjustments and pivots will be more bearable. This way achieving traction and PMF will be easier and more fun.

Conclusion

Aligning an organisation is a no brainer and most startups do so. That said, there are orders of magnitude differences in the output between startups that do this right and those that don’t. By output I not only refer to hitting milestones but also the motivation and job satisfaction of your employees.

To do alignment right you need to design your lines of communication and command purposefully. Don’t forget that as an organisation grows you need to continuously adjust the infrastructure and rituals that enable alignment to make sure they fit the size of the company you are running.

Startups are under-resourced compared to corporates. Their key advantages are 1) flexibility of culture which leads to better adaptability to externalities 2) pace of execution & decision making which allows for faster cycles of iteration. Optimise for pace & flexibility to keep your edge.

Outgunned and Outnumbered

Stacking up the resources of corporates you are competing with very quickly leads to a sobering conclusion - you don’t have a chance. Well, you don’t, if it were a race in which you run the same company operating system. This is why it is important to lean into your competitive advantage aggressively.

Acting like a corporate at early startup stage is a sure fire way to fail. If you previously worked at a big tech company and start your first venture you need to forget some ways of working and adopt a different approach. Hopefully some of the thoughts here can help you with that.

End of the Runway

Most startups have to deal with the reality of a drop dead date or runway. Naturally this means that you either have to turn profitable or create as much value as possible before then. Profitability is rare early on and even then you may want to go for a fundraise to accelerate growth and grab market share. In other words, fundraising is hard to avoid so creating as much value as possible before raising to give you the best possible leverage in a negotiation and minimise dilution, is part of the meta game of building a company. It should, of course, not be the guiding principle as that leads to short-term thinking but it should be an important factor in your strategic decision making matrix.

Bring your Swiss Army Knife to the Gunfight

Both to win a fight against corporates and to get yourself into the most favourable position before you run out of money, will require you to create a culture that unemotionally optimises for value creation.

Value creation is not a straight line. The infamous “pivot” is something that occurs quite often at early stages of a business. Of course naturally you are more focused given your limited resources but you have a spectrum of strategic choices. Being emotional about a certain strategy that is not working or is creating unconvincing outcomes, results in wasted resources. Don’t fall prey to the sunk cost fallacy that leads you to put more resources behind a suboptimal strategy. Also don’t forget you have limited business cycles until you are out of funds so every strategy should get a predetermined time allocation (and budget) to be deemed valid (scarcity breeds creativity). Figure out milestones and deadlines to avoid putting more of your limited cycles into an approach that is just “somewhat working”. This systematic approach to strategy validation is important and I’ll write more about this some other time. But remember that sometimes killing a strategy and dedicating the remaining cycles to a different approach yields the better result.

Everything that applies to strategies also applies to the tactics you use to implement them. Run experiments, measure as much as you can and adjust your approach. An early stage business is far from perfect and very few tactics will survive over time. There are always opportunities to adapt and learn. Does a new iOS feature give you an edge? Use it as soon as possible. Did you find a new productivity tool that can increase employee efficiency. Validate it and then mandate it quickly. Not getting comfortable and maximising learning with every cycle as if your (company’s) life depends on it, allows you to be more productive than any corporate despite their resource advantage.

This unemotional adaptability of your strategy gives you a clear edge over the oil tankers that are corporate entities. While you are gracefully jet skiing the tides of new ideas meeting customer reality with flexibility and an open mind, they require years to change course by a few degrees.

Faster Harder Better

While adaptability gives you a larger range of strategic outcomes and possibilities, pace allows you to pursue those additional options efficiently. Whatever the length of your business cycles, you need to squeeze the most possible progress out of them to optimise value generation.

Whenever this point comes up the notion of work life balance is raised. Everyone has to determine that balance for their company and operate within those limits. Remember that if you are working at the pace of a corporate, however, your chances of success will be lower, despite your higher adaptability. My experience in life has been that if you want to have a fighting chance to be successful, you need give it your best shot. There is enough natural adversity to building a thriving company, not spending enough time on it should not be the reason you don’t manage to get a good outcome early on.

Managing a company relies on lines of command and communication. Optimising both of these for pace is key. Crucial information should be with you whenever it is available not whenever the meeting is scheduled to review it. Ideas for improvement should be broadcast to the relevant decision makers continuously. Any misalignment needs to be addressed immediately to allow for more effective working. In other words, cram as much alignment, coordination, reporting and ideation into a given cycle as possible.

Optimising lines of command means decision making needs to be efficient. Define the limit of autonomous decision making and expect timely escalation whenever anything falls outside of those bounds. Waiting for a one on one to unblock a team is a waste of valuable time. Ensure your managers are investing time to align their team with the company strategy so that everyone is working effectively towards the same goal.

I’ll dedicate a post to lines of command and communication as these are important topics that are out of scope for this post. Needless to say you can operate orders of magnitude faster than a corporate by ensuring communication and command flows work efficiently. Design those flows mindfully and optimise for pace.

It’s the Culture, Stupid

Obviously honing your edge requires the right culture and the right team. Early stage hiring needs to select for employees who score highly on adaptability. You also want to ensure that expectations towards work-life balance are aligned. It is fine to be forthright and explicit about what is at stake at this stage of your company’s life cycle and what is required of everyone to make it work.

Changing direction is emotionally taxing. You need to be passionate about what you are doing to deliver high output so if direction is changed this can be disconcerting. Explaining the decision as well as the value of adaptability and pace repeatedly is important. Failed strategies should be celebrated and learnings should be exhibited like trophies to soften unavoidable emotional blows.

With changing strategy you may also have to reorganise the team and people could end up in jobs that they previously did not imagine doing. In terms of career development this can be problematic. Hiring generalists at the beginning of their careers for roles that don’t require specialist knowledge is the safer option. Without a firm strategy you don’t have a firm organisational structure figured out. A point worth making is that maximised value creation will lead to the best return on the value of everyone’s equity which will hopefully make up for any perceived loss in a straight line career progression. In my experience people early in their careers actually join startups exactly for that diversity of remit that usually comes with the early stage and get antsy as things get formalised later down the line.

It requires discipline to keep pace and run business cycles efficiently. Proper goal setting and reporting are crucial to keep things on track. Giving the team more visibility will lead to more ownership of the strategy and ultimately alignment which in turn will make the task of running cycles easier.

As always, leading by example is crucial to establish the right culture. Be ruthless with strategies and tactics you have championed and if they are not working, quickly and visibly shut them down. Show everyone that there is no double standard and legitimise the mantra of flexibility and pace.

Conclusion

It’s not easy to run fast and be flexible at the same time but making the most of your startup advantage will mean that you are maximising value creation. This will both give you an edge over your corporate (and even startup) competitors and put you in a stronger position should you fundraise. With an ever more rapidly changing business landscape being fast and adaptable may be the only choice to build anything with longevity.

Constructive conflict is the lifeblood of the creative process of company building. The culture has to actively promote it, while also providing cognitive safety. Otherwise most of the company's direction will be determined top down and much of the human capital will be wasted.

“Fit” Ideas

Building a company, especially in the early stages, is a creative process that follows a similar pattern to evolution. You try out strategies and the market’s Darwinian forces determine which will survive. As such, you need to be open to experimentation and left field ideas. There are trialed and tested approaches to how to build a company, of course, but the core of what you are building is likely differentiated and therefore novel. To ensure you end up with the “fittest” version of that novel core, you can’t allow for millions of years of evolution to give rise to a neocortex and an opposable thumb but need to quickly decide what works or doesn’t. Of course, the temptation is there to call the shots all by yourself to be fast and that may work sometimes, however, it may not lead to the most optimal strategy. Ideas that have survived “scrutiny” tend to be more robust. Needless to say, given that the people in your company are the most expensive “asset” it would also simply be wasteful to not use their brainpower to gain an edge.

Consensus versus Conflict

One way of doing this would be to debate every move until everyone is convinced, in other words, by seeking consensus. However, as we know it is important in a startup to maximise the pace of execution and decision making as it’s our competitive advantage. One of the key differences between a startup and a corporate is your ability to pack more cycles of iteration into a shorter amount of time. While we do want to test ideas and strategies for their “fitness”, we don’t have enough time to seek consensus at every juncture. As a matter of fact, public authorities and big companies’ for good reason get bogged down by consensus culture. At a certain scale and depending on the context this is the right approach, however at an early stage startup with limited runway, you need to be more efficient than that. There are exceptions of course. Some decision are irreversible and need more general buy-in by the team but reversible decisions need to be taken fast.

Constructive “Conflict”

The idea of conflict doesn’t sit well with most people. We want to get along and are descendants of pro-social monkeys (even if it’s hard to believe that sometimes…the pro-social bit). Though, the word conflict gets a far too bad wrap. Mary Parker Follett (1868–1933) who was one of the leading business geniuses of her time put it well: “the mechanical engineer capitalises on friction, the music of the violin we get by friction, we left the savage state when we discovered fire by friction”. She has ample writing on conflict and leadership, which this post has been inspired by. I recommend you seek out her writing, if you want to delve deeper into the topic.

A definition of conflict that fits our context: “a serious incompatibility between two or more opinions, principles, or interests.” This sounds extreme but the more incompatible two opinions/ideas are the more scrutiny is going to be applied to them by the opposing faction. This is exactly what we want, especially if we are going to invest millions based on some ideas/decisions.

Without wanting to veer off into the metaphysical a good philosopher to invoke here is Hegel. I am merely paraphrasing but his Dialectics poses that a thesis meets an antithesis, which leads to a synthesis and so the “Weltgeist” or world spirit becomes more perfect. American Capitalism meets Russian Communism and we get social capitalism in postwar Europe as a synthesis. The clash of opposing ideas leads to a “fitter” more perfect idea. In this spirit we want to create a space in our creative endeavour of company building to produce the fittest strategy.

Cognitive Safety

Certainly most companies do not pursue strictly consensus driven decision making. There are discussions happening in most offices that are trying to calibrate ideas to get to better outcomes. Maybe some brave employees, sometimes in a few of those offices, stand up to their bosses to voice opposition but it takes courage to do that. Good luck getting introverted employees to voice their opinion against the grain. This friction in the process of finding a potentially better idea is suboptimal. If we don’t want to live in an eco chamber or conformity with whatever the highest ranked person in the room is suggesting, we need to create a culture that celebrates organised dissent.

Upending the natural hierarchy of the company org chart needs explicit designing. Often organisations suggest they have open cultures but opposing ideas are ultimately unwelcome. To avoid this hypocrisy the first step is to create a realm of cognitive safety. When every employee in the company feels that they can express their business/product/tech thoughts freely without retaliation in the next performance review or without snarky comments while passing the water cooler, will the full spectrum of ideas available within the minds of your workforce come to the fore. Note that a company that has equal representation of sex, race and sexual orientation can still be one that is not open to opposing thoughts when it comes to business decisions.

No Ego

If you have a culture in which constructive conflicts are embraced, arguments sometimes can get heated. When you eventually chose a side and make a decision, someone will lose out. We’ve all have felt sore or emotional after losing an argument. Obviously, we want to avoid this especially in a business setting as it leads to potential unwanted animosity.

The key to avoiding this, is to build a culture where strong opinions are held lightly. We want arguments to get scrutinised thoroughly, which requires strong opposition. Someone who doesn’t buy into an idea will challenge the very foundation of it. That is a great stress test. However, once the validity of an approach is established the opposition needs to let go of their hopefully lightly held strong opinions. This does require a certain intellectual flexibility but if the team believes in the bigger purpose of the company they should be able to go along with it. It’s important to keep an eye on this and also reward the “losers” for their contributions.

The “losing” opposition needs to abide by the motto that Jeff Bezos made famous but that has been around since democracy itself and that is “I disagree but commit”. Arguments need to end unemotionally once a decision is made. In essence that requires belief in the collective decision making and a suppression of ones ego.

Making a Call

When is an idea/strategy debated sufficiently? The reason we are adopting constructive conflict is to produce better ideas but to also be faster than a consensus culture. So getting bogged down in long discussions would defeat the purpose. Every decision should get the time it deserves.

A good model to use is to place decision into 4 quadrants: cheap reversible, cheap irreversible, expensive reversible and expensive irreversible. Cheap/expensive relates to whatever dimension is the most relevant - i.e. cost, work hours, realignment, etc. Of course very few decisions are truly irreversible but many are de facto irreversible. I.e. changing your company name years into operation is hard; once you pick a certain programming language to build your backend with you are reasonably locked in. Depending on what type of decision you are making you need to allow enough time for it to be sufficiently tested. Rule of thumb, which is grossly simplified, is that you should take hours to make cheap reversible decision, days to make expensive reversible, days to make cheap irreversible and weeks to make expensive irreversible decision. Very few decisions in a startup should take more than 4 weeks.

There are many other things that are relevant for decision making like who should participate, if data is used, how the actual decision is made etc. I will dedicate a full post to this as it is out of scope here.

Embedding Conflict in your Culture

Like with every principle that you want to make a core value of your company, you will have to embed it in the culture. That means you have to be explicit about the fact that dissent (in the right setting) is expected. You want to remind people of this at meetings, off sites, on Slack or when ever there is about to be a discussion that is seeking the full spectrum of ideas.

We don’t want every conversation in the company to be conflict laden and encumbered by discussion. In general, the best thing to do is to set the context for every meeting/call in advance. Broadly speaking you have figure out, decision making, alignment and reporting meetings. Figure out meetings require constructive conflict. Everyone should attend them having received an email or memo that allows them to have a starting position. They should come with the expectation of conflict and discussion - everything goes. The beginning of these meetings should be dedicated to exposition. Everyone should get a few minutes to lay out their ideas without any opposition so that everyone is heard. The bulk of the meeting is then spend discussing with gloves off. A reminder that none of the opposition is personal allows for more openness. Make sure you encourage/prompt introverts to speak their mind. You know your team so bring those into play that need a push. If you feel they didn’t engage despite having potentially good contributions allow them to submit those after the fact. If some arguments get too heated feel free to intervene to calm things down.

Generally decisions shouldn’t be made during a figure out meeting unless it’s a straight forward or cheap reversible problem. You’d have a decision making meeting after the discussion which can consist of a smaller group of people. The outcome should be a clear decision that everyone commits to even if they disagree. These meetings should also be open to constructive conflict as long as it’s clear form the beginning that everyone leaves the room aligned.

Alignment and reporting meetings shouldn’t be conflict based. Once we decide on a path forward we align on the details and once we have results we look at the reporting. As we cycle through iterations the loop begins anew.

Figure out meetings may lead to some good ideas that lose. Put them on an “idea bench” and make that something that in its own right is an achievement. Losing an argument doesn’t mean the contribution needs to be wasted. It’s possible that the decision was wrong and benched ideas will be revisited. You can call out benched ideas in weekly meetings to show that you welcome dissent even if it doesn’t lead to action.

The decision making meetings will need to end in alignment between all participants, even if they have passionately argued for a different path. It’s good to institute a disagree and commit ritual. It takes the sting out of “losing” and just makes it part of the course of decision making. No need to create an elaborate handshake - three knocks on the table by everyone at the end of the meeting can suffice. Whatever it may be it should become a recognisable ritual within the company. This Churchill quote comes to mind: “Tact is the ability to tell someone to go to hell in such a way that they look forward to the trip.” People should feel happy about the fact that their ideas were shot down as they have contributed to improving the strategic direction of the company regardless.

As a leader in the company, you need to visibly and publicly loose conflicts. In other words lead by example. Showing that hierarchy loses to good ideas and passionate arguments, ensures that all your employees even potentially introverted rise to the challenge.

All this works best if you have done a good job with hiring. By that I don’t only mean selecting the right folks to join the company but also being explicit about this part of your culture in the hiring process. This allows for people to join with the right expectations. The idea is not to hire only alpha minded employees that want to have impassioned conflicts but to hire people who are comfortable and happy with dissent. This is actually very important to get across to any manager you are hiring as the traditional “the buck stops with me” mentality isn’t conducive to constructive conflict culture.

Conclusion

Conflict sounds like something that should be avoided. The reality is it’s all around us and not utilising it in an organised form at work is a missed opportunity. The alternative is employees who don’t explicitly share their opinion but complain in the shadows about the direction of the company. Give everyone the opportunity to voice their opinion in opposition to yours and celebrate losing ideas - you’ll end up with a “fitter” strategy.

Interviewing is an art rather than a science. There are people who have a very intuitive approach to assessing others during interviews, which I can appreciate. In no other space do I believe in the God of the gaps more than in the realm of human interaction. Intuition has lead to some of my best hires and to some of the worst. So irrespective of your preference for intuition, being aware of a framework and being mindful of potential biases can help avoid bad outcomes.

*Note that hiring and your approach to talent should be different at various stages of your business’ maturity. I will devote a post to this topic separately. This post is very much focused on the basic framework to use for the interview process.

Mindfulness

Yes, it’s a word that unjustly comes loaded with a lot of new age self-help book baggage but bear with me. When it comes to human interaction a lot of things happen at any given time. Demystifying human interactions takes away from the magic of love at first sight or that warm feeling of familiarity you could have towards a random stranger. When we are assessing another human being for their fitness to contribute to our company, however, it’s best to not be lead by magic but have an awareness of the meta games that may be going on.

As such there are multiple levels to assess before, during and after every interview:

1. What is the candidates actual experience, thinking & motivation? (Before)

2. What is the candidate selling as their experience, thinking & motivation and why? (During)

3. What else do I need to get out of the candidate to get a full and balanced picture? (During)

4. What am I liking/disliking about the candidates experience, thinking & motivation? (After)

5. Why am I liking/disliking it? Am I being biased? (After)

That’s a lot of stuff to tackle which is exactly why having frameworks before going into the interview process helps.

Preparation

Hectic work lives sometimes don’t allow for prep but sacrificing this time for an interview can waste not only your time but also the time of anyone following you in the chain of interviews. This doesn’t even take into consideration the time and resources that are wasted by making wrong decisions. To avoid this you want to go into every interview knowing what you need to understand about a candidate during your time together to have more confidence about your recommendation at the end of the interview.

The things you can assess prior to an interview are what the candidates actual experience has been to prioritise your questions during the interview. It also allows for conjecture as to what skills they have learned, why they maybe pursuing the role with your company and whether there is a culture fit.

The four relevant dimensions we want to assess are:

1. Role related knowledge

2. General cognitive ability

3. Culture and value fit

4. Motivation

Role related knowledge (RRK) is any hard and soft skill that the candidate has picked up throughout their career that would be relevant for the role you are interviewing for. By understanding the gaps that may exist between your requirement for the role and their existing skill set, you have identified an area for questioning during the interview. Ask yourself:

-For this role am I hiring for specific role related knowledge or for potential?
-Are the skills I’m looking for explicit or implicit on the CV?
-How experienced is this person in the domain that is relevant and have they worked at places that are known for excellence in it?

General cognitive ability (GCA) is the level of intelligence a candidate brings to the table. Intelligence has many dimensions in itself so you need to assess the aspect which is relevant for your role. What can be assessed well through a CV or application is someone’s ability for written communication, structuring thoughts and judgement applied to any questions you may have asked. Ask yourself:

-What’s the signal to noise ratio of this persons descriptions on their CV and or in answers to application questions? Is it a bullshit bingo exercise or substantive?
-Have they worked at places that would require a high level of GCA and test it as a prerequisite to join?
-Have they shown creative thinking and thoughtfulness in any of the application questions they have submitted?

Culture and value fit (CVF) is the collection of beliefs a person has about how organisations should be run and which purpose they should serve. The best way to assess this before the interview is by understanding the cultures and values of the companies’ they have previously worked at. Ask yourself:

-Do the organisations that the candidate has worked at feel similar to mine (i.e. corporate vs. startup)? Do they have the same values, velocity, size, ways of working?
-Does it seem like this person has made opportunistic career decisions or have their decisions been value driven?

Motivation is the underlying drive that has lead to the decisions the candidate has taken in their career and life. Some people may be motivated by external forces others by internal ones. Some have a clear plan about their career development others fall into things. The best approach to assess motivation is to put yourself into the candidates shoes and walk through their CV from their degree to their current role. Ask yourself:

-Do all the career decisions and the career progression make sense to you?
-Why does this candidate want to join your company in that role? Is it a step up or a sideways move?
-Why do they want to leave their current job? Are they stuck at the same level in their current organisation for a while? Are they not challenged?
-Does the person seem like someone who would be excited about the mission of my company? Is there any explicit evidence of that on their CV or in their answers?

*Note that all of the above questions are just a selection of those that you can ask. The list may be different for your organisation and circumstance. Also note that negative answers to the questions above don’t have to mean the candidate is inferior or not a good fit. It’s just a matter of assessing someone based on a two dimensional CV and application which will inherently be plagued by superficiality.

With all these questions asked (which shouldn’t take longer than 10mins) you’ll have a superficial picture of the candidate that you now need to in/validate during the interview. As such you should have a prioritised list of topics you need to hone in on to make up your mind.

…Action!

OK so you have prepared and are going into the interview with a clear understanding of what you want to get out of it. There are a few things that you want to keep top of mind to get the most of the 30-60 mins with the candidate.

Bias is natural and you will have some based on the prep you have done, however, beyond that remind yourself of general biases you may harbour. I am more of an extrovert so sometimes might gravitate more towards those like me rather than someone who is a quiet introvert in an interview. You know best what pre-programming you have and it’s worth reminding yourself of it just before it’s game time.

Depending on how big the seniority gap between you and the candidate is, you may want to break the ice to relieve them of their nerves. An easy way to do this is to ask them about where they grew up. There are roles that will require folks who can operate under pressure, where you may want to do the opposite and start the interview by forcing them to think on their feet. Either way remember that the beginning of the interview is important in setting the tone.

Once the interview has started you need to remind yourself that it’s your fault if you walk out of the room and haven’t gotten to a conclusive judgement as to whether the candidate is a fit or not. It is also your responsibility to give them a fair shot. So ensure you ask all the questions you need to be able to make a decision. It’s better to interrupt someone (respectfully) to guide them in the right direction, rather than politely letting them waffle along about irrelevant topics. As a matter of fact, you’re doing them a favour by managing the conversation to extract the information you need. A good way of doing this without creating awkwardness is by commenting on something they are currently talking about, thereby signalling its seeming relevance, to take over the conversation to then steer it in a different direction.

The key to understanding how someone will act in the actual job setting, is to tap into specific examples of prior behaviour. That’s best achieved with what we call behavioural questioning:

-Tell me about a situation when you had to work under pressure to deliver a project on time.
-Tell me about a time when you coached one of your direct reports who was failing.

Note these are open ended questions as opposed to closed. It’s hard to answer these questions generically and if someone does you need to push them for specific examples. Making up specific examples with enough detail on the fly which end up being believable isn’t easy. That’s why this approach gets us to assess someone’s true RRK and CVF.

Assessing GCA during an interview depends on the role you are hiring for. The usual brain teasers are a decent approach. Personally, what I like to ask is conceptual questions about my business or the sector it’s in. My expectation is not that the person will give the right answer but exploring a space that is new to them competently and eloquently is a good proxy for intelligence. Others consider the airport test as a good gauge - will you get bored hanging out with someone at the airport if your plane is delayed? In other words, are they interesting enough to engage you intellectually more so than the book you’d otherwise read.

Motivation is tricky to assess because of course everyone wants to work for your company as “it’s the BEST”. A good way to get to the truth here, is to ask them about the why of their previous job changes. What was the reason they moved? Were they stuck, did a friend make them aware of a new opportunity, was it opportunistic, random? Obviously, you’ll want to ask them about why they want to join your company too. For the most part people will make up something (and that’s OK) to answer that question, it’s your job to assess how believable the reason is. If it’s obviously a sales pitch, then assess if it’s a good one. Not everyone who joins a company has to be intimately in love with the mission (especially not at later stages). They can fall in love with the company and its achievements after joining. There are of course also people who have devoted their life to a cause or a mission. If that fits with the one your business is committed to then you have found yourself someone who won’t consider their day job work but a passion.

A good thing to do as you are coming to the end of an interview is to give the candidate a sense of your impression of them - truthfully. Obviously, if the interview was a train wreck you probably want to be diplomatic about the outcome. However, especially if you’ve liked someone and have some doubts, you should give them that feedback. Both mention the positive points as well as the areas where there may be some question marks. This gives the candidate an opportunity to address those areas and possibly make your decision easier. This real-time feedback can sometimes lead to awkward situations especially if the candidate then feels like they messed up. You should not do this to make people feel bad but to help them do better next time, so make sure when you provide feedback it’s with the right tone and intent. For the most part, though, if done well, candidates are very thankful for the immediate feedback loop.

Debrief

Nearly there! Now that your impressions are fresh you should take notes about the candidate right away. Jot down your assessment of their GCA, RRK, Culture and value fit as well as motivation. It’s useful to write down what questions you asked, what the answers were and how you felt about them. A colleague might assess the candidate’s answers differently which is a good thing to explore.

Take a moment to critically interrogate your assessment of the candidate. Were you fair in your assessment of the candidate? Was there any bias (their name is the same as your best friend’s) that you need to correct for? There is nothing wrong with getting things wrong “in the heat of the battle” as long as you call yourself out.

Whether you want to brief the next person in line in the interview process depends on a number of factors. Most importantly if you know that the person going next is someone who has their own opinions and can openly disagree with you, you can be more forthcoming with your thoughts on the interview. I generally give an indication of how a candidate fared as well as mention areas where a bit more drilling would be useful to get a more complete picture.

Deciding who gets the job requires a system that allows you to compare candidates with each other without bias. To make candidates truly comparable some companies (especially bigger ones) resort to detailed rating schemes. Ultimately I’ve found comparing candidates relatively to other candidates in the process much more useful. A post interview debrief then goes more like - “…Cathie’s GCA was much higher than Michael’s but he has a higher RRK while Bill’s CVF stands out…”. The candidate that scores highest relatively on most of the dimensions that matter to the role should get. the gig.

Conclusion

Hopefully these relatively straightforward tactics will give you framework to approach the interview process in a more structured fashion to achieve better results.

A very crucial part of every business success comes down to hiring strategy which was only fleetingly addressed as part of this post. I’ll devote another post to this topic.

Let me say upfront that I don’t claim for any of my posts to be gospel or necessarily the right approach for you in your specific circumstance. One thing that working in tech and startups has taught me is that your method has to always be customised to the context of the situation, which in turn can mean a drastically different approach. However, there are some basic frameworks that should make it easier to structure our thinking to solve certain business problems. I apologise in advance if some of the content is too basic. I’ve often been surprised how things that I took as a given or as basic ended up being a value add for people I’ve been managing or advising. Therefore, my approach will be to not be presumptuous and build up from the basics rather than assuming prior knowledge.

I hope that your time spent with my writing is going to lead to some practical improvement in your business even if on a very incremental level. If it has helped, if you disagree with my writing or just want to get in touch please do drop me a note. I’d love to hear from all of you!

Connect with me on LinkedIn and tell your friends!

Subscribe now