Amazon buildings

The Amazon culture and its effect on Seattle area startups

There is a lengthy piece on the New York times on Amazon’s employee culture. It is largely negative on their push-to-the-max, dog-eat-dog world and stack rank nature of the company.

Having worked with, know of and learned from over a dozen employees at Amazon, I can tell that it attracts a certain kind of employee. It certainly is not as bad as the article indicates, but many over achievers love to work there.

While many ex-employees have talked about the “challenging” work environment, I have personally talked to ex Amazon employees who wish more companies were like Amazon after they left.

What are the parts that they like the best. Relentless push to do better when you believe you have hit the peak. There seems to be no real “peak”. It is a state of mind. Doing better is what we all strive for and Amazon’s culture pushes you beyond that.

The intense focus on numbers and customer metrics over going by the highest ranking person’s opinion. This happens in many companies, including the best run large technology firms. When the highest-ranking person enters the room, the conversations is about “their experiences”, “their interactions with customers” and their prioritization. Amazon’s not like that, is what people tell me. Data and analysis trumps opinions.

Disciplined experimentation is another area that most folks believe Amazon excels at. The willingness for people to be given the latitude to try multiple experiments over time prevents boredom.

Amazon’s culture may not be good for 80 or 90% of the folks who are seeking employment, and that’s okay since they dont need all the employees of the world to work for them. Just the ones that value work over everything else.

Now that I have explained the other perspective, I have an observation about the impact of Amazon’s inwards looking focus on the company and its customers on the local Seattle ecosystem for startups.

Amazon buildings

Amazon buildings

The impact is pretty significant. The number of ex-Amazon employees looking to start companies is far and few between.

There are a few, for sure, but most employees at Amazon work at a startup themselves (Amazon) and are either a) happy working there, b) are burnt out at the end and want an easier job at a larger company or c) dont ever have any time to engage with startups or have time for side projects.

What this means is that many ex Amazon employees make good employees at companies who are trying to reboot their culture, but not a good fit for starting companies.

Uber Platform for Hotels

Becoming Ubiquitous – How Uber “apps” are making it a platform – #UaaS

Most startups would believe that have “made it” when they become a platform. That’s usually when other startups depend on their underlying technology as an infrastructure and include it in their product. Given that most startups are now developing API’s so other startups can leverage this, it is not unusual to see many new startups developing on another startups’ technology.

In the last few months that’s the pattern I am seeing with Uber. Emirates already offers its business and first class fliers the pickup and drop off service from their home or office to the airport and now there’s a company that is partnering with other airlines to provide an app that users Uber as the car service for the airline’s top customers.

I read yesterday about an Uber based escort service as well.

There are many other apps that have been in the works to create a service using Uber. Since they have opened their API, many use cases have emerged.

Open Table has been considering integrating its app with Uber so before and after your table reservation you can book an Uber to pick you and drop you back.

Same for Museum apps – they are looking to offer a full service to provide an ability to use Uber to give the patron a seamless experience.

There are many bar apps that also have integrated with Uber. After a drink or two, or if you checkin to a bar at a given time (using Swarm or Four Square for example), you will be automatically prompted to use an Uber to head back.

In a few cases, I have heard of Ticketmaster and other ticketing apps integrating with Uber for event based taxi rides.

There are many other use cases as well, but all this means more data for Uber.

Where are people taking rides to and from, when are they going, and why (which can be inferred in many, but not all cases).

To become a platform though, you first need a reliable service. Then the ability to evangelize the platform to developers, which means someone that can be at hackathons, build initial prototypes, troubleshoot for other developers and also help them find a way to monetize.

That’s the path Uber is going towards.

Uber as a Platform

Uber as a Platform

I had a chance to meet a team of developers who are building a bachelorette party app last week. The 3 cofounders (all women) were building an experience platform for the entire party. From inviting the friends of the bride to selecting the venue and onwards, they can help plan the entire party.

A key part of their platform is to bring all the “friends of the bride” together to the same venue. That’s where they are hoping to use the Uber API to integrate into their app.

The incentives offered by Uber are pretty good. They claimed they had met with the Uber team and they were told they could get 10% to 12% of the fare as a commission. Which I thought was pretty high, but it makes sense to Uber only if it believes the folks coming to the party wont already take an Uber to the party.

Welcome to Uber as a platform.

Startup Partnership Business Development Process

Understanding the mechanics of partnering with “big companies” with a large channel

As exciting as it sounds, when a business development or partner sales representative from a large company in your domain calls you, it tends to, in most cases, generate more work than get customers in the short term for a startup.

The first part of partnering with a large company is to understand when you are ready to “sell with” or “sell through” the larger company.

In theory, partnering sounds awesome. The large company has a huge installed based, they may not have a product competitive to the one you posses and your solution fills a gap they may have in their portfolio.

In practice the mechanics of the partnership, the logistics, elapsed time and commercial terms are the things that wear you down.

First realize that they are multiple “players” within the large company – if it is a large technology company, they are very much engineering driven – so the internal engineering teams have a preference to build not buy or partner. While the product management teams might have a more outside-in view, it is also likely they will prefer to build internally (“I dont think the product will take too long to build” OR “We can build what that startup built in 3 months with 3 resources”).

Then you have the marketing teams, which tend to be consumed (in larger companies) with the current quarter’s lead generation or to focus on helping their sales team’s quarterly goals. While they would like to partner, it is with the intent to have their message be more “cool”, “relevant” or “credible” with potential customers or analysts / press etc.

The sales teams would like to partner if it helps them get the deal done. If they do not get credit for the deal, (or quota relief), no amount of convincing will get them to partner with your startup.

I am going to skip over the other incidental teams such as Finance, Legal and Services team, since they tend to get involved in the back end of most partnership opportunities and rarely lead.

That leaves you with the Business Development team – who reached out to you in the first place. In most large technology companies, they are chartered with “inorganic” growth – or the ability to generate revenue either by having other companies sell their products or helping revenues grow by selling other products the company does not build itself.

In larger technology companies, most BD organizations report either to the Sales team or the Marketing team. In less than 10% of the companies they might report directly to the CEO (via the Corporate Development organization or Finance in even rarer cases).

Most business development professionals are well meaning, have an outside in market perspective and are keen to make deals happen, but, in most companies, they tend to execute deals and influence the strategy, not come up with it.

Meaning, they can make the deal happen if the product or sales teams desire, or they can say no to a deal, but they rarely initiate the deal. There are exceptions.

So, what should you do when a Business development person reaches out to you to partner?

First, ask them to help you understand the dynamics of their organization and their process.

Typically, they will have a 3 or 5 step process.

Startup Partnership Business Development Process

Startup Partnership Business Development Process

Step 1: Layout the market scenario, including product fit, competitive roadmap, etc. and get buy in from Engineering and the product teams. Obtain an executive champion

Step 2: Layout the Go to market plans, with help from the marketing and sales teams. Secure the executive champion for post integration.

Step 3: Detail the financial impact – the investment to be made, the potential revenue impact, the opportunity. Secure the budget needed for the various teams for the deal.

Step 4: Get buy-in to start negotiations with your startup. This includes discussion with their legal team on the framework of the agreement, discussions with your startup on the roles, responsibilities and work each team needs to do to be successful. This includes defining success with milestones at each stage.

Step 5: Final contract completion and roadmap for the partnership with the outline of the announcements, etc.

This entire 5 step process usually takes months if not 2 quarters on average.

Startup Survival

How to survive a “funding round that fell through”?

Once a week, I get a panicked email from a founder who wants me to take a look at their startup and invest since they were looking to close a round, but a key investor or two decided to not participate.

Most investors (buyers) don’t like to be rushed. Whether that’s you trying to make a big purchase, or even waiting in line at the McDonald’s trying to decide what to eat for lunch. So, it is not surprising that I have not invested in a single opportunity where the need was to invest within a day or two.

I did get a chance later to talk to a few of the entrepreneurs and of the 5 I have spoken with, 4 shutdown their company because they were unable to raise their round. Most of them decided to move on and join another startup.

Even if you have good traction (growing 10% MoM) and a sense of product market fit, fund raising is very hard. In fact it is likely the hardest thing you will face as an entrepreneur. Some people claim building a product is harder, or getting customers is, but I think fundraising is tougher than either of those two tasks.

The main reason is that there is asymmetry and inefficiency in the market for information and opportunity.

In most cases investors do not know if a startup will make them money and founders do not know if an investor is ready to participate.

The best way to survive the “round did not close” issue is really to keep your burn rate really low or generate enough other income to survive longer. That’s easier said than done.

Keeping your burn rate low is the easier of the two things to do. Don’t hire would be my suggestion to most entrepreneurs. That’s usually the biggest cost in any startup. Payroll. So, if you and your co founder can make by without making the investments in people (or in inventory if you are an eCommerce company) then do it by all means. You might experience pain and longer working hours, but it tends to be worth it. Primarily because the chances of your company doing well after you experience a “almost funded, but did not” is low.

Startup Closed

Startup Closed

Generating enough income to survive is hard as well, but usually if you have specialized talent or skill, then consulting tends to be a necessary but good enough option. If you can get work in the area of your startup and get paid reasonable rates, then you can keep your dream going for that much longer.

If you will want to ensure your funding gets closed, then the first thing I’d advice you to do is to setup enough options with alternate investors (hope to have 10 interested and likely 3-5 might close) or have a way to keep things on simmer until your investors are ready. Since it will be a chicken and egg to get more investors until you get more traction, I’d recommend you focus on selling and getting more customers by focusing all your efforts on sales, instead of adding any more features.

It takes more than ideas to be innovative. Come participate at #Innofest

Ask most people who they think is innovative, they will likely name Apple, Amazon or Google. Some many even mention Facebook.

Innofest

Innofest

True innovations though have been coming from industries outside of technology for years. In the area of healthcare, medicine, drug delivery, education and mining for example, creating great outcomes to help improve the lives of humans.

The credit card for example is one of the innovations I value the most. Not having to carry cash and yet pay for practically anything and “actually” pay for it many days later. What’s not to like? Very innovative.

There are a few observations about innovation that I wanted to put forth.

First, most innovative ideas which have a lot of impact rarely seem to be so early on. I still remember many years ago when a friend, Mike Walsh mentioned Uber to me and I did not think it was very innovative. I actually thought it was an app for taxi drivers to get fares. Turns out it is an innovative way to avoid car ownership.

Second, you need help from many others to bring your innovation to the market. Almost always those people who you need help from are pretty busy or very tied up, so they will likely not have time to give you. Being persistent, taking any chance you get and keeping at it helps.

Finally being disciplined and meeting people from other backgrounds and experiences helps a lot. Getting ideas that worked in other fields and trying to solve problems you have with a different perspective helps make your idea stronger and more innovative.

I heard about Innofest from my friends Sharad and Avinash this week. The 1 day un-conference is an event to be held in 2 weeks (22nd Aug) at IISc Bangalore.

The event is an un-conference so you will have a chance to meet with folks and discuss ideas instead of just listening and leaning back to hear “speakers” talk. Also, the part that’s most useful is that you will get 10 min to talk to the awesome lineup of speakers – people like Alok from Saif partners and Bhavish from Ola Cabs among others. These folks have been through it before and will be there to help guide you through your problems and formulating your idea.

I think if I were in Bangalore, this would be a must attend event. #IndiaCanInnovate

The new age “conglomerate” – Alphabet

The dominant form of corporation in 1980’s was the conglomerate (pdf). By the 1990’s this form had become deinstitutionalized.

Why?

Diversified firms were taken over and the unwanted parts were sold.

The new age takeover firms of the 1980’s are activist shareholders.

Yesterday’s news of the new alphabet is indicative of multiple long running trends:

  1. There was a need for ultra long range investments and Larry Page and Sergey were willing to make those bets.
  2. A cash generating business can help fund many other risky investments over time, which may or may not pay off, but will help move humankind forward.
  3. The limitations of a few activist shareholders need to be put aside for the greater good.
  4. Conglomerates allow for one idea from one portion of the business to help another in a different field innovate.
  5. Different business models in the same “corporation” or entity causes people to get confused.

Welcome to the new age conglomerate.

Google, I believe is the first of maybe 3-4 potential conglomerates, which will emerge over the next few years.

Facebook with Oculus and WhatsApp will likely be another candidate. WhatsApp’s business model is not clear, but Oculus will not likely make money from Ads. So, there’s a need to have a holding company for sure.

Uber (taxi business model, delivery business model, fleet management and ownership) will be possibly another.

Alibaba should be yet another, if already not down that path.

The only thing that’s challenging for these companies is if their structure has not been already setup to support the dual class stock voting structure, etc.

When you have multiple businesses with different models of making money, and you still want to hold them together, this new structure makes a lot of sense.

I only wish more companies in technology would adopt this model. Welcome Alphabet.

Alphabet

Alphabet

The thing I do think that’s going to be a challenge is that there will be less transparency about the “Google” part of the business. I really think that there will be less information shared about how YouTube or other parts of the Google business are performing. I am hoping otherwise, since that was mentioned in the letter, but I doubt it.

Stock Option Negotiations

What to consider before you start negotiating your stock options package at a startup

After you decide which startup to join if you are considering switching jobs, one of the key questions becomes how to negotiate a package. I get a lot of questions on % of stock ownership, vesting schedule, preferred vs. common stock etc. I am not a qualified lawyer, so take this as pointers and suggestions not as advice.

Depending on the stage of the startup you are considering, the “complete pay package” may be skewed more towards cash or more towards stock. Most startup founders have realized that to hire great talent, there is not just one thing you need any more. There is a need for meaningful work, great pay and benefits and an awesome culture.

I am going to skim over culture, and meaningful work for this post and assume you have figured out a company that offers both, but now need to negotiate your pay package. Most startups are not going to offer great benefits that bigger companies offer, so you are going to work with a fewer set of variables such as pay and stock options.

First, the pay. There are 3 stages that I am going to consider at startups. First, the pre-seed or seed round, second, post some seed round, before the series A and third, post series A.

In almost all of these cases, I have seen that good startups will end up offering a lower base and salary (80% of the chances are it will be much lower than your current pay) but “try to make it up with stock options”.

In many startups, salaries tend to be a fixed range with little room to negotiate. If you are making a lot of money at a larger company, expect to take a cut in pay. If you are working at another startup, expect to be marginally in the same range.

There are exceptions for extremely well funded companies and the post series A stage, but that’s rare. There are fewer than 20 companies in India and about 100 in the Silicon Valley who can offer salaries that match Google or Facebook, Microsoft or Accenture.

There are 3 important elements to the stock option package – The number of shares, the exercise price and the vesting schedule. The secondary negotiable elements are the type of shares – common vs. preferred, change of control provisions for early vesting and early exercise to save on taxes.

Stock Option Negotiations

Stock Option Negotiations

If your startup is at the pre-seed / seed stage, and you are fewer than 20 employees, you can ask for the total outstanding shares of the company, so you can determine the % ownership. A senior executive (VP Engineering, VP Marketing) can expect in the 1-7% range and folks more junior can expect 0.1% to 1%. This is likely the only element you can negotiate in most startups. If you are looking for unreasonable percentage ownership relative to contribution, expect to get some push back.

The earlier you are at the startup, expect a larger % relative to later stages.

The price of your stock is determined either at the previous round or in some cases at the board meeting (exceptional cases) when an inside round has been completed. After the backdating stock option scandal of the 2005’s no CEO will help their new employees get stock at a lower price, so there’s not much to negotiate here, other than to know the price.

Finally the vesting schedule tends to follow a pretty standard pattern – usually 4 years, with a 1 year cliff. Meaning, after one year at the company, your shares will vest monthly. What you want to learn about is the option to buy your shares and if there are “claw-back provisions” if you leave before an exit.

Most employees dont stay until the exit of the company (or rarely do) and if there are claw-back provisions, you want to be aware of those.

The secondary considerations are important as well. If your contract can specify that your shares will fully vest in the event of a change of control (meaning your startup gets bought) you should seek that.

If your company offers early exercise I’d ask for that option. You might not want to exercise early (since you cant tell if your company will do well or go bust), but it is a good option to know about and negotiate.

Finally, most employees are usually given common stock. You want to know if the founders have as well, or have they, like other investors for example, been given preferred stock if that exists and what the benefits associated with preferred stock (in terms of what the liquidation preferences are).