This Week in Startups - Building a Great Team: Startup Checklist E5 | E1319

Episode Date: November 4, 2021

We continue with episode five of the Startup Checklist, where Jason gives 10 points to build a great team. He covers hiring, compensating the early team (11:31), outsourcing, structuring the company, setting the cadence (39:48), finding advisors and more!

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To redeem a $100. LinkedIn ad credit and launch your first campaign, go to LinkedIn.com slash checklist. And Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a sock to report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. Hey everybody, I want to tell you about Angel University. This is a workshop I've been hosting since I wrote my book Angel three or four years ago. And it's a virtual class.

It's coming up on November 15th. And it's open to all investors now. Not just accredited investors. We've opened it up to all investors. Of course, accreditation rules in your country may be different or you may not have them at all, but they are changing over time. So we wanted to, in preparation for maybe an angel investing accreditation test, allow non-accredited investors in.

since we took the course online in March 2020 during the pandemic, we've held over 10 virtual classes and we've had over 3,500 investors attend. Amazing. And many of those accredited investors are now part of my syndicate at the syndicate.com and we share a deal flow and we invest alongside each other in what's called special purpose vehicles. You'll learn about that in the course. But again, the course is for all investors. Whether you're accredited or you're a retail investor, It's just a learning day for you. In 2020, our syndicate deployed over $21 million in 38 deals. And in 2021, we're on track to double that, basically.

And we'll wind up deploying, you know, closer to $100 million. There's a lot of great deals out there. We really vet them well. And this course is how you can learn to vet deals, find deals, and to network with other angel investors. I teach the course with my friend Mike Savino, one of my best friends and longtime collaborators. and in this workshop, we basically share all the lessons that we learned deploying tens of millions of dollars in over 300 startups, including ones you know, like Uber, Robert Hoodcom, Trello, etc.,

and superhuman. You're going to learn how to source and negotiate deals, evaluate startups, and manage your portfolio. We also go deep into adding value as an angel investor, and we do portfolio construction scenarios. We talk about securing pro rata rights, getting investor updates, what it means to have information rights and just so much more. Plus, we recently added a new segment featuring an interactive investor Q&A with some of the best angels in the business for November's class will be joined by my friend, Mb Farber. He's the chief investment officer of Cambria Investment Management.

And Mb has a great podcast that I've been on and he's really into angel investing previously. And I think still public market investor, but he really got the bug and is now loving angel investing and the returns that he's seen. So the course is. $300, but all the proceeds go to charity. Since March 2020, we've donated well over $50,000. Whether you're an accredited or non-accredited investor, to learn more, go to angel.university. Okay, everybody, welcome to episode five of our startup checklist. These are 100 bullet points that you can go through with your team, with your co-founders, and just check each one to make sure you're thinking about every single aspect of your business and you're not forget.

getting something. The reason we came up with this was because we read a book called The Checklist Manifesto, had a profound impact on me and my team. Essentially, if you create a checklist, your rate of failure will go down dramatically. If you try to remember all the things you have to keep in mind, well, you're going to crash the plane or you're going to kill the patient. How do we know this? Well, in the book, the Startup Checklist, they talk about how they created checklists and procedures in operating rooms and lowered the number of people dying from things like septic shock when you get bacteria in your bloodstream. Or they had a story in that book about how they kept crashing airplanes with four engines on it and they thought pilots would never be able to fly a

four engine aircraft. When they created checklists and they had the pilot and the co-pilot and maybe the navigator all working through checklist saying, okay, flaps up, check, okay, speed indicator checked, okay, oil indicator check, then they had less accidents. It turns out the pilots who winged it would sometimes forget to check the oil. They check that they had put the landing gear up or down or the flaps, and then they died. Well, you know, startups are not a matter of life and death, thankfully, but if you have a checklist and you go through it, the chances of you for getting something really important will go down and your chances of success are going to go way up. So, in the previous four episodes, episode one, we did qualities of a winning founder.

Basically, what do you have to do? What do you have to have inside of you in order to win? Episode two, we did another 10 checklist items around business model. Episode three, we talked about your customers. Do you understand who your customer is? Do you know how to delight them? And that's part of the startup flywheel, right, is customers. Then episode four, we talked about building a great product.

Again, that's part of my startup flywheel, customers product team. and today, episode five, we're going to talk about building a great team. Again, a flywheel is something that once you get cranking, will pick up speed and it will grow, hopefully, violently and delightfully, and just uncontrollably. If you get your team right and you get the team to build a great product and you delight customers, that compounds itself because the customers give you money and they give you data to build a better product.

And if you have a better product, you get more customers, and if you have customers, you get money to build a better team or give raises to your team or give them more resources. This should all be self-explanatory, but many of the founders I talk to, I will have a half-hour conversation with them. They don't talk about their team. They don't talk about their product. They don't talk about customers.

They talk about market size and competitors, and they're not focused on these three important things. You can see the entire checklist at this week in startups.com slash checklist. This week in startups.com slash checklist. And you can print. it out. And you can, you know, take this and copy it and rehash it, build your own blog post, tell me what we got right, what we got wrong. You could create bullet points under it with your own checklists. We did all this on Notion. Feel free to create a new copy of the page. All I ask is that you

link back to this week in Startups.com slash checklist. So we hope this is a living document. I'm probably going to look at this every year and edit it and change it based on what changes in startup land. So let's get into building a team. All right. The first question I yet all the time is do you need a co-founder? If you're a first-time founder, the simple answer is probably yes. It's really lonely to start a company and it's super stressful and having a co-founder will make it less lonely and less stressful, especially if you can divide and conquer. Maybe you're great at fundraising, you're an extrovert, you love traveling.

That's a full-time job. And then maybe your co-founder is an introvert and they love product and they love studying the metrics and they don't care about going on the road and they freeze up when they're put in front of a group of people in a boardroom trying to take their money and they don't like to ask people for money. Plus, speaking of money, VCs expect you to have a co-founder. Why? Well, if one person quits, you got a backup plan. This is why VCs, accelerators, always want to see two or three founders. If it doesn't work out, they got a backup plan. Remember, they're putting in millions of It would be kind of like going on safari and you're driving through the desert and you're

you know, Land Rover defender and you don't bring a spare tire. You kind of bring two spare tires, don't you when you're going out into the, you know, and you bring an air pump and you bring a kit to fix flats. They want to see some redundancy. They want to see a backup plan. Most startups don't work. Everybody knows that. If you're betting on a solo founder, you're basically doubling or tripling the risk.

So if you have empathy for investors and you just think if you were on that side of the table, when they see a solo founder, they think, no, buono, this is too much risk. And they have other choices. So they have other teams that they can invest in that will have multiple founders. So therefore, you are going to lose in the zero-sum game of getting money from investors. Again, it's a zero-sum game. They invest in one company. They may have the money to invest in a second or third company, but they don't have the time.

times the gating factor here. If you don't have a co-founder, you know, it's incredibly hard to find one. You have to convince somebody to go on this journey with you. You have to know and pick them as if they were a spouse

and most people find it from having worked for 10 years with other people at another company or on another project. So you're going to have to take some risk, have three people, but you vest. So if one person doesn't work out

or if a fourth person doesn't work out, their stock options go back in the pool, maybe they invested one another four years. And, you know, it's hard to find co-founders. And if you can't find one, you kind of fail the first test. It means you can't convince people that your idea or you are good enough

to go on this crazy adventure for. And that's where you have to reflect and look deeply inside yourself and say, what is it about me that people don't want to come on this journey with me? It might be that you're not credible enough, in which case, maybe you want to go

build your skill stack and learn more skills or maybe go work at a company and build your credibility. Okay, so that's point number 41 on our overall checklist and the first point we're going to do today. If you listen to Twist often, you've heard me talk about O-Doo suite of business apps a lot. Well, they are going to give you your first app free forever. At $1,000 off your first implementation pack at O-D-com slash twist. That's O-D-O-O-O-O-com slash twist. And here is why O-D-D-O-D-O-D-C-com for something. startups. Well, their suite of business apps helps you run your entire company on but one platform.

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Just go to O-D-O-com slash twist for that $1,000 off again, O-D-O-O-O-com slash twist. Okay, I'm going to take the next two checklist questions. I'm going to bundle them together. The first is checklist item number 42. Do you know when to make your first hire? Checklist item number 43, do you know what positions to hire for first? So you have to, in the marketplace, get somebody to quit their job and come work for a startup that is high risk. This is not an easy task.

So let's assume you have three co-founders, right? You're going to have to assess, well, what are the three of you do really well? And are there any glaring holes in your team? So let's say you have two developers and somebody who is a great sales executive, who's doing the fundraising, and they're the CEO. and one person's the CTO and the other person is the president. What are you missing? Maybe you're missing a designer, somebody who's great at UX. Maybe you're missing somebody who's great at customer support, customer happiness.

You're going to have to look and decide who is the best person to help. There might be just another developer. It might be a sales executive because you have a great product and you need more people to sell it. So it's also going to cost money. So you might want to get the problem. to the point in which you've raised money, or you have your first two or three customers

and you've got a little bit of money coming in. Because what you don't want is to have that person sitting there doing nothing. Or you don't want to hire somebody for so far below market that they quit. And so it can be a difficult thing to figure out. Once you've raised money, well, then you should start thinking about, hey, where do we need to be in 18 months? Hopefully you've raised 18 months of runway. Where do we need to be between 12 and 18 months?

months when we start the fundraising process again. Will we be at break even and we don't need to raise money or profitability? Will we be burning 50K a month but have 10 customers who are spending $10,000 a year with us? You want to really do a little bit of a plan there and the plan will then dictate what you need. So if you're trying to get to $10,000 a month in reoccurring revenue $1,000 a month per customer, 10 customers, but you need to sell those 10 customers. Well, you need to have two salespeople if your salespeople sell one person every two months. Or you're a thousand dollars. Or you you need one person if they sell one person a month. You get the idea. And so let's move on to checklist point number 43. Do you know what positions to hire for first? Okay, we've talked about

that first hire. You really want to get somebody who is filling in basically for the fourth founder position or the third founder position and who's going to move the ball forward. Now, once you've raised money, now you have to start thinking about what positions you're going to hire first. Sometimes you're going to need to hire a lot of people in one group. If you are an AI company and you're doing machine learning, can it take two or three people, right? So you may need to hire them before you do anything else because you're pre-product market fit

and you cannot get the product complete without those three. And you're going to need to think about, well, when are you going to start the sales process and the marketing process? One of the most frustrating thing for sales and marketing people is to come to a company before they have product market fit, before they finish the product because they're going to sit there twiddling their thumbs. What do I do? Write marketing materials?

What do I do? Create ad creative when we haven't finished the product. It's incredibly frustrating. Same thing would be true for a customer support rep. Well, if there's no customers, what's the rep going to do? Be very careful to not hire too early. Conversely, if you've got the sales team out there selling and you don't have customer success and customer support in yet, you are quickly going to be faced with,

churning customers. This is where a plan comes into place. If you make a plan for how many customers you're going to have, how many you're going to add each month, well, you've set a target. I want to add two customers a month. Okay, our sales executives can land 10 meetings a week at scale, but they ramp up to that. So let's just put it at 20. We'll cut it in half. They're going to do five meetings, one a day. We think that's what we can book. Okay, we know that every 20 results in one sale, so we need two salespeople. Over time, great salespeople will become more efficient, maybe they'll get 30 meetings,

and therefore they'll start signing one or two customers a month. Okay, great. So you can kind of model that. You also know that salespeople turn over quickly because in a lot of cases, they might not be missionaries, they might be mercenaries. And so you might expect a little bit of a higher turnover rate.

Therefore, you're going to say for every three sales executives, we expect one to not make it past three to six months. therefore our hiring plan is to hire six salespeople to get to four. And if we happen to get to six, we'll be delighted. That means we have to hire one every month for six months, so that in month seven we have four up and running, landing two customers. If we are, in fact, landing two customers each and we have eight coming in a month,

we're going to hit this amount of revenue, and we're going to need ballpark, one customer success person for every, you know, 10 new customers a month. Great. and we're going to need to have a customer support rep, you get the idea. You're going to really want to think through a plan. And when you have a plan like that, the goals you set in the plan will determine the resources needed. In other words, the human resources needed, the positions needed.

Some you can outsource, most of them, you cannot. Accounting, you can. Legal you can. HR, you can. Like sales, you can't. So keep that in mind. If you can outsource, certainly accounting, legal, are always, and human resources are almost universally today outsourced in the first two years.

Okay. When you're starting out, people tend to hire generalists and then specialists. What do I mean by this? The first five employees that a company tend to do three, four, five jobs each. Then over time, you get to 50 employees, and those 30 skills, you tend to have more. one or two or three people working on each one. What's an example? Well, when you're starting out, you might have an operations person. They might do HR. They might do the accounting. They might do legal. They might do fundraising. And they might manage the office if you had an office. And they might

also do IT. Company hits scale. You tend to have an IT manager, an HR department with three people in it. You'll have an accounting firm, maybe an internal bookkeeper. You get the idea. If you're ambitious, it's great to be an early employee at a company because the generalists get to do so many jobs. However, if you do not quickly become a specialist, you will get replaced by a specialist. That's why you see some people who do four years at companies and then go to another startup. Why? They like the zero to one function, going from no product to having a launch product, from no customers to a customer. And that's okay. Those generalists are awesome in the world. But they tend not to be specialists. They may not like to do one thing

50 hours a week, which is what you need at scale. Okay. So, what do you need early? You really need developers and product managers early. What don't you need? HR, lawyers, PR. That stuff comes later and you can outsource that stuff. Keep in mind the barraiser hiring process at Amazon. Every person you hire should be better than 50% of those. in similar roles. Basically, the concept of hiring is, you know, if you have the resources, you want to hire people who you can learn from as the founder.

So I always try to hire sales executives or operational people who have done more of that than me. Now, I'm 50 years old. I've done a lot of this stuff. So the chances of as you get older and wiser and you got more scar tissue and you've done it multiple times, the chances of having somebody you can learn from and a hire goes down, but I still find them, and it's really great when I do.

So hire those bar raisers, especially if you're a first-time founder. And when I was a first-time founder, I had Carol Mortesco, Elliott Cook, a lot of people around me who knew much more than I did about running companies, Joanne Wilson, and they basically were able to pull me up and say, hey, Schma, here's how this works. And I'd say, oh, thanks. I had no idea what the difference between accrual and cash-based accounting was. and they had been through that 10 times. And they were like, do this, do this, do this.

And I was like, okay, I'll just listen to them. And it was great for me. Listen, right now, LinkedIn is going to give you a hundred dollars towards your first ad campaign on LinkedIn by just going to LinkedIn.com slash checklist. And then you're going to get the $100 right in your account. Now, you know you need high quality leads. Every startup founder and marketer has been there. You're not alone.

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we get past this and COVID is no more than a typical cold or that these vaccines were to the, you know, with the Nova and other vaccines coming out. So to date this podcast and when it was taped in 2021 in the fall of 2021, we're still dealing with the pandemic. So that affects the advice here. Distributed teams are fantastic because you're not hiring people within 50 miles of your office. And they're challenging because you have to know how to manage remote workers. You can't as somebody who's not a developer, manage a remote developer,

credibly because you can't look at the code, you can't see what they're submitting. But if you are a CTO and you're a developer, you can. If you're a CEO, can you manage a sales executive? Actually, you can because you don't have to look at code. You can just look at the calls and you can look at the CRM system, the customer relationship management. It should have all the emails in there.

You should be able to look at the contract. So there are things that founders can manage that other people can. Now, there is a disadvantage, I think, for the founders not to be in the same room, be bonding with each other and building a culture. It's hard to build culture remotely. So you're going to have to invest in that. But boy, you're going to save all that real estate cost. And the real estate costs in these early stage companies, you know, if you're spending 10K on an office, that could be two more salespeople, you know, at 60K all in with some commissions on top of it.

Or it could be your, you know, third developer. Now the third developer is like, oh, it's just one more developer. No, it's 50% more developing capacity. So let's pause for a second. It's not one developer. If you have one developer and you add one developer, you have 100% more capacity. If you have two developers, you add one, you have 50% more capacity. Is some flashy Wii work off is no offense or some warehouse worth it? Or is 50% more or 33% more or 100% more developer capacity, a better thing? I think we all know the answer to that. And speed is super important. So you really want to be able to move fast. If you can hire somebody from anywhere and get them today versus wait for three months,

you may only have six months of runway, man. Keep moving. And you need to know how to do slack puddles, weekly team calls, quarterly team retreats. This best practice is being built in real time. I think you have to embrace remote because startups need to move fast and remote means fast. And startups need to compete. If you don't accept remote workers and Google and Facebook are accepting remote, man, you're at a serious disadvantage now. You have to press every advantage you have as a founder.

Remote work is an advantage. You're going to have to level up as a founder and figure it out. If you can't figure it out, don't be a founder. Go work for the post office. Okay. Checklist, no offense to post office workers, but it's different. Checklist item number 45. Do you know what to outsource to freelancers and how to outsource to freelancers?

This is critical. There are things that will take a lot of work, a lot of time, but they're not strategic. If it's administrative, repeatable, one-time outsourcing. What's an example of that? Well, we needed to research all the founders in Australia. And so I went on Fiverr, or I shouldn't say I went on on Fiverr. One of my team members went to Fiverr. We hired two different people.

We said, hey, here's a database, make us a database. read the news in Australia, do Google searches for startup founders, use Crunchbase, use Pitchbook, use anything you can. Look at the, find us all the accelerators, look on their portfolio page, find us on Twitter,

every Australian startup, put them into this database, try to guess the person's email, confirm the email, because we want to invite them to come to launch Festival Australia. And, man, we started on third base. I could have had my internal people do it,

but I wanted them picking the speakers, finding a location, and doing the marketing. Now, you might be able to hire a freelancer to find locations. You might be able to crowdsource that. Sales, building product, probably not a good idea. Product customers team, right? That's what I talk about with this flywheel.

Product customers team. Don't outsource recruiting customers and product. Anything in there is kind of a secret sauce, right? those are the three legs of your stool. You rip off customers, your rip off product, you rip up team, the stool falls over. If you have an outsource product team building, they're not full time, they're not dedicated to you,

they work on a project basis. That might be fine for building your MVP, but honestly, it's a major red flag, like 10 red flags if you can't build the product in-house. Because every investor knows we give you $250K,000, you give it to your outsource development firm, and then development stops. Okay, give you $500K,000.

give it to your outsource development. You got to have that in-house. Same thing with customers. If you're not talking to your customers and somebody else is selling them, you've abstracted that layer. That's why all those rep firms that called in the early days of this week in startups

and said, hey, can we sell your ads? I said, no, I want to have a sales team. I want to know who the advertisers are on the podcast. I want to meet the advertisers myself. I actually do onboarding calls with each advertiser, which is kind of intense, given how many we have now. But I still try to do at least an onboarding call with them. So they know me.

I can let them know I appreciate them. I can hear from them what their goals are. And it just increases renewal. So even I take this hard medicine of really getting to know the customers, even though it's time consuming. And let's face it, you know, a lot of other podcasters think they're above it. Like I don't think, you know, every podcaster of note or of my stature is getting on calls with advertisers.

I still do it. And I'm going to try to keep doing. Team, same thing. You know, no offense to headhunters, please don't start emailing me. but, you know, if you're outsourcing, headhunting, it means you don't have a great culture. It means you don't have a company that people want to work for. It means your mission is not good. And you're probably going to get people who are not great hires.

You need to have that muscle internally, work that muscle internally, get good at it. Product, customers, team, in-house, everything else outside. HR tools, gusto, I mean, amazing. They just get everything done for you. these PEOs, et cetera, rippling, Zenefits, all these places are great at that. Outsourced accounting, tons of places to do that for you. And with outsourced services,

people look at that as efficiency. You don't need to rack your own service. You don't need to build your own HR department until you hit, you know, massive scale. And even then, HR you want to bring in-house, probably 50, 100 people is what I hear from most founders. And building your own server form, Unless there's some super compelling reason to do it,

you're probably not going to be able to compete with Google Cloud or Azure or everybody else trying to lower the costs of doing that. Okay. Item number 46 on our checklist. How much do you pay early employees? Do you know how to manage your bankroll and not have to pay a fortune? You are going to be unable, if you're a seed-funded company, to compete against Google.

and Facebook. You should not try. When you're interviewing somebody and they say, hey, I have a Google deal. Hey, this is my LinkedIn deal. Here's my Microsoft deal. You just have to say to them, we can't compete with that. If you're going for max money, you should go work there. If you're going for max impact, you should work here. And immediately sort them out of your process. Immediately. I literally had a founder say, hey, this person's got a competing deal with Google. How do we compete? I said, you don't. You don't. If that person wants max money, just tell them this is not max money. You're going to make half as much cash comp,

and you're going to get, you know, the chance of getting the lottery ticket at options of a company that's currently valued at $10 or $20 million or $50 million or $100 million. If you want to go work on making, you know, billions of people click on Facebook ads, 0.001% time. Go ahead. If you want to change the world, please do that here. That's the difference.

Do not try to compete against those. you want to do the best you can. And so what you can say is, listen, we are seed funded. We've raised a million dollars. We know as a developer you can get 200, 250 working at that company. We can offer you 150 or 125. You're a salesperson. You can make 150 working at Twilio for your base salary and then get 2% of sales to get you to 250K.

I can pay you 75K, but I'll give you 10% of sales for the first year. And we'll see in your two. So, you know, 10% on 500K or a million would be 50 to 100K, you get to 125. But we want you to give you stock options and you can grow from that. So I think you have to be creative. And then when you get funded with more money, you can go back and remember those conversations and give people raises. And you can be much more aggressive in your raises when you start raising more money.

And if people are going for max money, you just have to accept in the startup world. that you will not be able to compete. Period. End of story. And don't try to. You can always also look for, if this person's a VP of sales, and you can't get them to leave some SaaS company doing $100 million in revenue, who's two steps below that person. Is there a sales executive who wants to be the sales manager? Is there a sales manager who wants to be your VP of sales?

That's the way to do it is you take somebody who's the sixth, seventh, eighth player on the basketball team, but not in the starting five. and you say, we believe you should be a starter. On our team, you'll be a starter. So sometimes in the NBA, they'll say, hey, this person is going to go to this team to chase a ring or to be on a team with a winning record of this person is going to go to a team

because they want to be the man and have the ball in their hands and be starting and playing 40 minutes. So they're picking the team, not based on how much they can get paid all things being equal, they're picking it based on the role. That's what you're looking to do,

is find people who want to be the man, or not in the case of the NBA or the woman in the case of the WNBA, who want to shoot their shot, right, and who want to get more minutes on the court. And that's what you're selling. And if people are mercenaries and they want to go for money, just cut them off immediately, we can't compete with Google, where our offer is going to be on a cash compensation basis far below Google. And then stop talking and see what they say. And they say, oh, well, I need to make max cash. Can you match them?

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so they could target larger customers. If you haven't heard of SOC2, to you will when you get to those big customers. So unlock the big sales and give your employees time to work on more business critical assignments like your product, like sales. Vanta's giving twist listeners a $1,000 discount on their subscription at vanta.com slash twist. Once again, vanta.com slash twist for $1,000 off. B-A-T-A.com slash twist. Okay, let's go to checklist item number 47. Do you have a plan to give each employee the right amount of equity? Do you know how much equity to give to your early hires? This is where working with your attorneys and your venture capitalists

can come in handy. Putting aside co-founders for a second, there is a schedule as the company grows of how to give this equity. If a person is coming in as a co-founder and you're splitting it three ways and they're at inception and they're all vesting, you know, four co-founders, 25% each and then you give 10% to the employee stock option pool. You give 20% to your investors. Everybody takes a 30% haircut, 30% off of 25%. You get the idea you're going to start getting down into the teens. And then eventually each of the four co-founder is going to own 4% or 5% of the company.

If it's two, they might own 10% each by the time the company gets sold. gross public. If it's a solo co-founder, they could own as much as 15 to 25% of the company. Very rarely happens. There are tons of websites that will break this down for you. You need only do a Google search or look on those websites. But senior engineers in the early stage, they could get 50 bips to 1%. A VP, you know, somebody in a top 10 position, like a CTO VP in the early days, would get low single digits, 1, 2, 3, 4. again, investing over four years. People who are junior engineers, they might get 10, 25 Bips, mid-level engineer, 25-50

Bips. When they say Bips, that means fractions of a percentage. So 50 Bips is half a percentage point, 25 Bips is a quarter of a percentage point. So not 1%, 50.50. And then, you know, other folks might, junior people might get a token 5 to 10 Bips. It's very limited equity. So you really want to be smart with it. And then you want to look as time goes on and say, hey, when do we need to ask our board to give us more equity?

Because you blow out your ESOP, employee stock option pool. That first ESOP should last you through the Series A, maybe the Series A you would top it off 5%. And then that would come either before or after the financing. Some of the investors, if they're giving you a Series A term sheet says, we want you to take everybody on the cap table takes the 5% hit. Then we put our money in. So they're not buying 20% of your company and then it means you losing a point, right? So they want the equity refresh to happen before that. So there are little issues like that that people negotiate on the margins.

But you want to be generous, but realistic. And you want to have a plan for where this is going to get you. And that's where having a great board and advisors and people have done it before comes in really handy. If you go to this week in startups.com slash basics, we did a stock options episode with Becky DeGraw from Wilson Sonsini. Amazing episode. An amazing takeaway from that was selecting for your 83B provision. This is crucial for founders, employee stock options because it gives you the option to pay

taxes on the total fair market value of your stock options at the time of the granting. If you don't elect this option, you're going to owe taxes on your stock after every new round of fundraising. It's a really challenging thing. Just bring up 83B with your startup lawyer so you understand it. Vesting schedule, a four-year commitment. That means you divide the number of options into four years that you're going to get that amount per year, but a one-year cliff. So you get nothing until month 12. After month 12, you might vest monthly or quarterly. In other words, you would take 148th of the option grant. So if you had, let's say, 0.98, just to make it easy.

0.98% of the company, 48 months means you're getting two bips a month. So after you get that first year, then you get two bips a month. What that means is it's being fairer to both parties. If you don't stick around a year, you're that lame, or we're that lame as the company that you don't want to stay. You shouldn't be on the cap table. But if you do get to month 13, we had a good enough time to get to know you. You had a good enough time to get to know us.

That's plenty of time. You get that big 25% equity grant. And then after that, you go monthly so that if you were to leave a month seven, you're not sticking around to month 25, which isn't the bad interest of everybody if you shouldn't be there, right? You don't want a dysfunction employee who's sticking around for a long time. I actually, in my venture firm, I have people investing in six-month clips and year clips for the funds.

Why do I do it that way? Well, I want people to take a 10-year view of working in venture capital, not a monthly view. If you're in it for monthly, you're in the wrong thing. You have to think in a decade like I do. I think in two-decade periods, anybody who's working for me on the venture side should be thinking in a decade-long period of building a venture firm to last and building a syndicate to last at the syndicate.com and building wealth that is generational. I want people on my team thinking about making millions of dollars, tens of millions eventually,

and moving up the stack from researchers to associates to principals to managing directors so that they can eventually buy a million dollar, multi-million dollar home. You can only do that if you're around for 10 years because these investments take 10 years to mature and you have to vest them. You get the idea. So some people do five-year grants now to keep people even more invested. It's interesting stuff. You can build an org chart with your board.

This is like board-level discussions that you'll get good at eventually. Number 48 on checklist. Do you know when to start thinking about culture? Day one, day one thing about the culture you want. And the culture should be about you and the founders. What makes you want to come to work every day? You do not have to make a culture that is for everybody. That's a mistake.

You want a culture that works for you and your co-founders and then employees second. Why? If the employees love the culture and you don't, you're going to quit. I need you to come to work every day, the founders to come to work every day. If you work hard and you believe in being relentless, great. If you, on the other hand, are believe in six weeks of vacation and people turning off their computers at five and not checking email on the weekends and life work balance, and you have the opposite of that going on at your company in either situation, you now have conflict and dissonance. Your employees want life work balance. You are working every weekend and nobody's responding to your emails in Slack at 9 p.m.

you believe in taking the weekends off and stopping work at five, and you got go-getters on your team who are emailing you at night to close a contract over the weekend, and then they're like, well, this person's not moving fast enough. I've lost employees because I didn't move fast enough, and I've lost employees because I move too fast. It's like Goldilocks. Some bosses are too hot, some are too cold. You've got to get to that just right moment.

The just right moment happens because of alignment, and you got to write it down. So for me, I like people who do not need to be managed. I like people who manage themselves. At a certain point when we were doing more remote work and I was trying to manage more and more people, I said, I want a culture where everybody comes into Slack every day and says, a transparent culture, this is the three or four bullet points I'm working on. At the end of the day, they say, this is what I got accomplished today. And they linked to the documents in Notion or spreadsheets on Google Sheets or the assignment,

sauna board or CRM system for sales, whatever it is, so that everybody was super informed. I had two people who refused to do it. They don't work for me anymore. Great. They don't want. One of them said I was micromanaging. Not micromanaging. I'm trying to have you manage yourself.

Well, I can't manage myself. I'm like, great. Then spend five minutes in the morning and five minutes at the end of the day just saying what you're doing and what you got done. It turned out that those two people, in hindsight, in the debriefs with their coworkers, were the least collaborative and didn't work as hard as everybody else. Great. There was tension there. I want to have things outlined of what people are getting done.

Now, the reason I'm doing that is not to micromanage. It's so I don't have to do any management. That SOD and EOD program I wrote about on my blog, you can type in Calicanus SOD EOD, EOD, start a day and a day. If you just type that in, and we'll link to it in our notes here at this week in startups.com slash checklist. that SOD EOD program was embraced by the high performers and people who wanted to advance their careers.

And it was framed as micromanaging by people who wanted to be professional managers and not do work and felt certain work was beneath them. It's that simple. And great, it's my company. So I get to choose and I chose that. And if people didn't do their SOD EODs on some consistent basis, it just didn't work out for them here. And that's fine with me.

I do it at both companies, actually. And what everybody says is our communication and our execution is higher because of it. Great. And there was one or two people who said, I feel like my SOD and EOD are really light. And I said to them privately, so you feel like you're not contributing enough? And they're like, yeah, I'm really worried. I'm like, what are you worried about? I'm worried.

I'm going to fire. You're going to fire me. You don't need me. I'm like, what if you raised your hand and said, can I help anybody with any projects? I have some extra time. They're like, oh, that's a great idea. I'm like, why don't you try it? They tried it.

They got included in more projects. They learned more and they loved the job. Now I have the opposite problem. I have some people who are so hardcore that their end of days, end of weeks, have too many things on them. They do too much. And I have to tell them, can you take a vacation like producer Jackie, who is now a managing director?

I'm like, Jackie, I'm getting these notes about how many days you have off accumulated. Do you want me to give you that as money? Or would you take a goddamn vacation, please? And I got to take some days off. So I actually had the opposite problem. Now, that does not mean I'm advocating for 996 either. It just means I'm looking for hardworking people who manage themselves. If you're not a hardworking person, you don't manage yourself, this is not the company

for you. There are places where people get put into very specific silos and they get managed and they're not allowed to do things in other verticals. How many friends do you have, or maybe you have this experience? I'll ask the people who are watching live right now. How many have you had the experience where you did extra work and somebody told you, please don't do that? That's not your responsibility.

That's this person's job. That's what I was getting told my whole career. You know what I said to that? Well, that's stupid. I literally said that to a manager. I was like, well, that's dumb. I have extra time. I want to do more work.

Why wouldn't you let me do that? Well, that's their job. What about the company? that that job's not getting done. That work is sitting there undone. Like a little am setting up computers and then there's servers to be set up and that person went home.

And the servers are still in the box. And I took them out of the box. I cleaned them. I racked them. I put the nick cards in, network interface cards. I set them up and the next day I got yelled out for doing it.

And I said, but it's done. And they're like, it's not your job. I'm like, but it's done. And now we can do the next job and get the fuck out of here and do, I'm sorry, I bleep that out, but get the fuck out of this job

and go do the next one. to make more money for the company. And I worked late because I wanted to go watch the next game and eat dinner in the 90s. I was going to go watch the next game at CCC and, you know, go have some food and expense it on the company. So I cost the company 40 bucks for my dinner. And I got a Lincoln Town Car home. And I stayed here until 9 o'clock, 8 or 9 o'clock.

And then I watched the second half of the next game. It was literally a true story. And I almost got fired. I was like, I need to go work for myself. It's just some people, you know. So anyway, back. with a checklist item. Do you know when to start thinking about culture?

You want to do it early. You can look at all the different ones that have been done out there. You can read all the books about it. What's essential is that you write down at our company, this is what we value. And this is our culture.

And you can change that. It can be a living doc. But if you don't write it, then when you hire people, you can't show it to them. And then you hire the wrong people. And they say, well, I believe that I should not check my email on the weekends.

And it's like, in a finance business, or in a sales position, if you did that, oh, my God, like, you know, you're going to lose. So you have to write these things in a way that are shared with people. I have another friend, conversely, who said, I have a highly profitable business. I don't want anybody stressed out. I want to have everybody delighted.

So I am purposely going to hire 50% more people than I need in customer service. I'm going to tell them they can do as long as they want on the phone with customers. They can call customers proactively and they can set their hours. Literally a friend of mine did that. And they let people set their own hours as long as they put in the 40 hours a week and they shouldn't do overtime. They were told not to do overtime. And they had the most delighted customer support staff in the world that was overstaffed

because they were wildly profitable. You ever go to a hotel that's a five or six star hotel like Amman hotels or the Rosewood Hotels? I think they're a five star and I think Amman is six star. Anyway, those hotels, you'll have four people clean your room at the same time. I'm like, whoa, what's going on? Am I in trouble? Four people walked into the room with the Amon Tokyo at the same time.

And I was like, this is crazy. It was a $500 night hotel and treated myself. I was there for Book Tour. Four people are not needed, but that's the way they do it. They want your room turned over in like the least amount of time possible and they go crazy cleaning everything like maniacs. Different businesses can have different philosophy. of how to do things. One might be going for, we're going to start knocking on your door.

You ever have that knock at 8 a.m. at a hotel and they're like, housekeeping, you're like, at 8 a.m. Really? And then they come back. Housekeeping, 9 a.m. Housekeeping, 10 a.m. I'm like, oh my Lord, please stop doing that. And they're like, well, we have to, housekeeping leaves at 4 o'clock. Therefore, we have to get your housekeeping done by then. This is a stupid example of two different styles of businesses having two different priorities. one is efficiency and cost to keep the prices low, and one is luxury and making the person feel cherished and not caring about efficiency. Two different strategies.

If you mix those strategies in the same culture, it creates chaos. So as the founder, please define your chaos, girly. And frugality is one. Amazon is frugal. Other places might not be. Okay. Checklist item number 49. Do you know when to fire an employee?

If you think there's a question, if there is any. Any question, there is no question. When you have a question about an employee and you don't think they should be there, get rid of them. It literally, 90 times out of 100, your guts correct. Now, there is a process legally of how to do this to make sure you don't get yourself in trouble, work with your HR department. But almost universally, people hold on too much longer. I used to think about creating performance improvement plans, you know, and trying to be this master motivator in my, you know, 20s and 30s. And then I said, you know what? I'm not here to motivate you. If I have to motivate you,

I can mentor you, but not motivate you. If you are not driven, hardcore, if you don't learn, if you don't have a love of learning, if you don't have a love of becoming better at your job, I cannot put that in you. That was your parents' job. That's your job is not my job. I can give you goals, targets, support, and mentoring. Those are things I can do. And so what you need to do as when you're thinking about firing somebody, ask yourself, like, which bucket is this falling into? Is this something intrinsic about the person? They're lazy.

They're not thoughtful. They're not type A and they're in a type A position. Or they're not customer facing, they shouldn't be a customer facing person. They're angry. They're curt with people. They're bitter. They're not a good communicator. They get annoyed by people.

They get frustrated. They get misinterpreted. They're an introvert. Whatever it is. they're not customer, they should not be customer facing. And then you have other people who are super customer facing. Like you just, maybe you hired the wrong person and their alignment's not there. You can't change that.

It's just too, too far of a bridge to cross. Now, you could take somebody who is affable and make them delightful. You could take somebody who's delightful and make them effervescent. You know, you can on the margins train people on how to be 10, 20% better at something. Very rare. you can get somebody to take that huge jump. So ask yourself, is that even going to happen? And again, be professional, be graceful, give people severance unless they've done something wrong and you're firing them for cause.

And even when firing for cause, you can talk to your Human Resources Department about this. But when you fire somebody for cause, if you say, hey, it's not working out. We'd like you to resign. And if you resign, sign these papers. and we're going to give you two weeks severance, or we're going to fire you for cause if you don't want to sign these paperwork. Like, there are people who do that kind of a situation for like, here's your exit ramp and here's the alternative.

I think that that's becoming a bit of a best practice. In all cases, don't gossip about people, don't give people a hard time, don't say bad things about people specifically. When I talked earlier in this program about people who didn't enjoy working under the SOD, EOD. I didn't mention which company it is. I created an amalgamation. of that and it was years and years ago. So like, you wouldn't hear me say this person. So you'd have to guess it's one of these 10, 20 people. You don't ever, ever want to put yourself in a position

where you're bad-mouthing a previous employee. It just makes other employees think that you're going to do it to them. Be graceful, be professional. If other people on your team are bad-mouthing a previous employee, you can say, you know what? We made a mistake and put it on yourself. Or they did the best they could. We're happy they found a better fit. You got to to kind of move into that. When I was younger, man, I would get angry when somebody would leave the company. Man, I would be like scorched earth. Can't believe this person left the team. I just had a very like cutthroat attitude about it. I've since moved on from that. And I've even had boomerang employees. I've had great employees who've left. And I said, oh, I'm really disappointed you're

leaving. Would you like me? I literally said this was somebody recently. Would you like me to fight to you here? Or would you like me not to fight to keep you here? And they said, no, I've made my decision I want to go. And I'm like, great. If it doesn't work out, I've always got to. a spot for you. They were like, I mean, they were just like, J-Cal, I love you. Okay, be classy. It is another way of saying that. Now, if somebody steals from you or otherwise does something, absolutely, there's a different checklist item. You are within your right to pursue legal remedies or do what you have to do to fire them for cause. And I wouldn't say badmouth them, but you also are not obligated to give them a positive reference in the future. I think the best

thing to do to lower your liability is to just decline giving a reference for somebody who did something bad with you, that speaks volumes. Think about it. If you, somebody worked for you for two or three years and then you don't give them a reference, that's glowing, what do you think when you're in that situation? It's pretty much the ultimate tell. If you call up somebody's previous employer and they're not willing to get on the phone with you and you email them or call them three times and they don't call you back, it means that person is not endorsing the person. That's the non-non endorsement. They would not hire the person again.

Okay. Item number 50. Are advisors valuable? I get this all the time. Checklist item number 50. Are advisors valuable? Well, let's define what the advisor is. Are they somebody who is willing to put their name on your company

if you give them 50% of your company for free up front? That's kind of marauding. That's not adding value. Let's say that person is going to get 50 bips at your company for over, two years vested monthly, 150th every, or whatever that is, 148th of it every month. And you have a scope of work of what they're going to do. They were a VP of sales. They're going to help you write sales material.

They'll interview your final candidates for your sales positions. They'll give you two hours a month and one quarterly on-site for our lunch brainstorming session. Okay. Then you could say, okay, the 50 basis points is currently worth $50,000. and when we become a $100 million company, it'll be worth $500,000, therefore, $50,000 for their services. If it fails, $500,000, if it works out, great, I'm going to hire that person as an advisor.

Make sure you document everything nice and tight. But these generally do not work to make a huge difference in the company unless you're actually getting value as a founder. If you're doing it to impress investors, that's not going to impress us in 99. of a hundred cases. It might open some doors, but generally speaking, I think people overvalue it. If they're valuable to you as a founder and they're willing to put in, you know, at least an hour or two a month and at least 50 hours a year total with you, you know, like a week a year,

maybe 30, 40, 50 hours a year between lunches, dinners, phone calls, then I think it's worth it. There's some trade going on here of actual value. You can see the fact. Founder Institute's Fast Agreement, F-A-S-T. It's basically a founder-advisor standard template that my friend DeL came up with. Most people use that. And you just have to have a candid discussion. Hey, if it's not working for you, then you should cancel it. And if it's not working for us, we are going to cancel it, so we're not giving you free equity.

So that's what I can tell you about advisors. Rapping up here, we're halfway through the series. I am so excited about you trying this out and giving us feedback. You can always email producers at This Weekend Startups.com. That goes to all the producers and to me. Let's make sure that goes to me too. I want to see the things people are emailing producers at this weekin startups.com. And you can visit this checklist at Thisweekandstartops.com slash checklist.

It's on Notion, so I think you can cut and paste it or make a new page, edit it for yourself. We're going to put checkboxes on it. We'll put our notes on it. We're going to make this a living document. The last three segments have been about the startup flywheel. customers, product, team, really think that through. You might say team product customers because it tends to go in that order. Team product customers.

Get that flywheel going. Stay focused on that. When you are talking about your team, you're talking about your product and you're talking about your customers with investors, with potential employees, with the press, you'll see how they respond. When you talk about everything else, not so much. Okay, in episode six, we're going to work on the market. There's a reason why we put market after team product customers.

it's because that's when you should start thinking about it. After you have your team product and customers, you've got to really think about the market, your total addressable market, competition, and that kind of stuff. So episode six is coming, understanding your market. Thanks again to our team. Jackie, Ashley, Charlie, Nick, Fresh, Marine. I'm not sure who else worked on this,

but a lot of folks worked on this internally to distill our knowledge. And maybe we'll make it into an e-book someday and keep editing it. But thanks again for tuning in. Thank you.