It’s no secret — and no point of shame — that people start companies with the dream of building something huge and ultimately getting rich. But there is another amazing part of startup success that founders don’t think about until the big day arrives:
Seeing their employees get rich too.
The day that we announced the sale of Bleacher Report, there weren’t a lot of surprises left in the tank. Everyone could tell that something was going on, and the secret had already been leaked to major media outlets. When the “big announcement” was finally made to the company, some people laughed, because the news seemed weeks overdue.
But for most employees, the one thing they didn’t know was the share price and, more importantly, what that share price meant for their bank account.
And, very quickly, people started to realize that they were about to get real money. Enough to put a down payment on a home. Or pay for their kids to go to college. Or no longer have to live paycheck-to-paycheck in a city that is insanely expensive.
I received a lot of thank you letters from employees, who were overwhelmed by the seemingly sudden fortune. Several of the emails or letters (yes, a few gave me actual hand-written ones) were unfairly kind.
The experience was, without a doubt, one of my favorite memories from the company.
But the point of this article is not to write a sort of fluffy recollection of happy days gone by — it is to point something out for people who are still in the early phase of starting companies.. You need to plan for this amazing experience, and there are some things you can keep in mind during the early days that will maximize the outcome for employees.
Here are some tips:
Tip No. 1 — It’s not their fault they don’t know about equity
Stock options are not the norm for most Americans. Sure, some of your prospective employees may have spent the last decade in Silicon Valley. Or, they may have moved there with dreams of getting rich. Those people get how equity works.
But, especially if you are hiring non-engineers, you may find that a lot of people have simply not encountered equity.
Hires outside of California or in fields like Sales or Editorial are particularly unexposed to equity at their prior jobs.
And it’s not entirely their fault for not knowing the value it can create. Most jobs in America provide nothing more than salary and benefits. And that is the case for most positions at most Fortune 500 companies. We are the exception, not the rule.
Sure, it is easy to say, “Well — she didn’t really ask for equity or push for more shares, so why am I obligated to give them?” But wait until two years pass, and that woman is central to your success. You are going to feel like complete shit when you sell your business for $100 million, and she walks away with $6,000.
And under-sized (or non-existent) equity grants are one of the few mistakes that cannot be reversed as time elapses. So get it right on day one. You are a founder — there are plenty of things you don’t know how to do. So don’t judge others for what they don’t know.
Tip No. 2 — Short exercise windows are unfair and can be changed
One of the most common deal terms in Silicon Valley is one that should be abolished. Typically, an employee who leaves a company has only three months to buy his shares.
Invariably, you will watch as some great employees leave your company. There are plenty of legitimate reasons why somebody can leave amicably after years of valuable contribution. You hate to lose a good teammate, but if they have given you two years of hard work and value, they deserve to share in the ultimate success.
The problem is that they practically have to strike their options as they are walking out the door. In some cases, they simply do not have the cash on hand to write that $8,219 check to buy their shares. Or sometimes they don’t understand the 40-page document that HR hands them as they leave. Or maybe they just forget, which is a poor excuse, but not one that should necessarily warrant the extreme consequences that ultimately result.
If a respectable employee leaves your company, ask your attorney if you can extend his exercise window. An extra year or two can really go a long way. It doesn’t really cost the company anything.
Lawyers may say otherwise, but they are wrong.
Tip No. 3 — Be a little bit forceful with prospective hires
At various points in our history, Bleacher Report provided new employees with two different offers — one that was “equity heavy” and one that was “salary heavy.” In most cases, people picked the latter.
While this is a somewhat dramatic way of addressing the situation, most negotiations get to this point anyhow. You make an offer, and a new hire is in a position to get a little bit more out of you.
This is where you can actually be helpful.
If they want another $10,000 added to their salary — tell them to really think about getting it in the form of shares instead. Early-stage companies can justify giving away quite a few shares if it means keeping their cash plentiful. In fact, a small startup is incentivized to give shares rather than cash, as the former is already carved out in an ESOP, and the latter is the scarcest of resources.
There are a few technical guidelines and laws in place that prevent you from overly-hyping future success, but you can dance around those if you are thoughtful in your word choice. The bottom line is this — get them to take the equity.
If they wanted a high salary, then they should not have taken a job at a startup. It’s your job to remind them of that and structure their offer letter to reflect it.
Every time I hire an employee at my new company, I take a minute to tell them about what that “final day” at Bleacher Report was like. I don’t tell them to presume a similar performance, but I do let them know that beyond-your-wildest-dreams outcomes are possible. And if they weren’t, then we wouldn’t be starting a company in the first place.