Category Archives: Hiring

Should I pay my lawyer or advisor in stock?

I had 3 founders who had questions about compensation in Indian startups last week. One founder is building a mobile application for social TV, another a SaaS marketing application and the third a retail loyalty program using mobile phones.

They had multiple variants to the same question:

1. One was trying to figure out what percentage of stock to give an “active” advisor who was promising connections and a deal with a top customer.

2. Another was trying to see if she should pay for legal fees with stock (this is a US entrepreneur). Indian lawyers rarely accept stock as payment.

3. The third had a MySQL consultant who wanted to be paid only in cash.
Startup Compensation FrameworkTo address these questions and more I am sharing a “compensation framework”, that I have used consistently for figuring out “how do I pay” for startups.

On the x-axis I put part-time and full time commitment. On the y-axis I put the payment methods – stock and cash.

For most parts, before getting funded, founders of the company get “paid” only in stock. So if your company is not making money or is making “not sufficient” money to pay the founders full salaries, then stock is the only compensation for founders. Usually most founders will get their stock vested over 4 years, or they may own  the company outright. On funding (institutional or seed), most founders still tend to take a small amount of money (not full opportunity cost salary) since their motivation should be to grow the company and use the investment towards growing the company’s value instead of growing their own bank accounts.

Full time employees get paid mostly in cash (and some stock). The Silicon Valley model is to pay 20-25% less than market rate for key full time hires, and “make them whole” with stock options which will have more value than current cash, if there was an exit in 2-5 years. Most Indian employees however do not like stock options and view them as “gravy”. I agree with their view for most parts, since exits are far and few between in Indian startups. Since key engineers, marketing professionals in India expect full pay or close-to-full-pay (some actually expect a pay hike with a startup because of the perceived risk), I am of the opinion that you dont give everyone stock options until you have proven that the company has market momentum. You can always accelerate their vesting pro-rata based on their tenure with the company when you believe there’s a strong potential for an exit for the company (i.e after 2-3 years).

Consultants of every kind (sales, lawyers, accountants, UI experts, marketing consultants) who work part-time should get paid only in cash is my perspective. They dont add long term value to any startup and while they are valuable in the short-to-medium term, their commitments are rarely with the startup alone. If you cant afford to pay the consultant market rate, I would offer the deferred compensation, or “true up” compensation on growth, but not stock.

Finally advisors and mentors, should only be paid in stock. How much equity you pay the advisor in a startup depends on a) the quality and market-worthiness of the advisors b) the amount of time they spend with the company and c) the expected objective you get them on board as advisors. E.g. If you are getting a mentor to open doors to potential customers, they would be given stock corresponding to the type and number of doors they open for your or the number of customers you close because of their help. Usually advisory positions are awarded stock vesting over a 18 or 24 month period (tenure of their position with the company). I know most entrepreneurs in India use US metrics (0.25-1% of stock in the seed stage, less in follow on stages) for percentage of stock to give advisors, but that’s not going to get you quality advisors in India. Since exits are fairly rare, you have to double the US (Valley) advisor stock options percentages and motivate good, high quality advisors to help you get achieve your goals.

Love to hear if you guys think differently.

P.S. Friend and investor Rohit has some datapoints around active angel investors data points.

 

Advisor stock compensation

 

How to A/B test your job description and hack your way to hiring success

The last post on hiring for startups touched a nerve with many recruiters, many who emailed me on why I was negative about their profession. I did not intend to throw them under the bus, but the post came off reading that way. So, to my recruiter friends, apologies. I could have been more judicious with my choice of words. I assure you though that my words are not worth their weight in gold, so many startup entrepreneurs will still call you to help them with their recruiting. To those that claim spamming is helping, please stop.

Onward and upward.

This post is about hacking your job description. Or in the new age way of putting it – A/B testing it.

I had to hire 3 engineers for our new startup. The first step I took was to send an email to a few good fellow entrepreneurs and friends.

Version 1.0 < or bachelor #1>

I told them:

“Ideal candidate will have 3+ years experience in web or mobile technologies. Should be a hands on developer (PHP, Ruby, MySQL, Java or Python)”.

After 2 weeks and 30+ emails later I got 4 resumes from friends of friends. They were “technically sound” according to my network and within my budget but were mostly out-of-towners.

I phone screened two of them to find them fairly challenged in terms of their communication skills, and the remaining two wanted me to assure them a job before they made the trip to Bangalore (I was willing to pay for their trip, but not assure a job until I met them and interviewed them).

Version 2.0 <or bachelor #2>

I added “Good communication skills required. Position is in Bangalore.” And posted it on my twitter profile, LinkedIn and facebook account.

3 more resumes landed on my inbox, but none of them were even a close fit. One person said in their email, he was a test engineer and wanted to move into development and the second was a ASP/.NET developer who “could learn PHP quickly”, but had been in Windows development for the last 3 years. The third sent me an email, saying ” I am currently 25K salary, looking for 40% hike”, in his 3rd sentence, without any questions about either the job, the company or the technology.

Version 3.0 <or bachelor #3>

I decided the simple useless job description I wrote was just that – useless. I had forgotten the cardinal rule – Sell yourself, sell the job, sell your company.

So I did a ginormous makeover. I posted version 3 on hasgeek – I titled the role “developer in residence” not tech lead.

Worked like a charm. I got 4 very high quality candidates asking for what a “developer in residence” meant. Two were very qualified, professional and very good fit for the role.

I did not stop at version 3, but went to a refined “pitch the value, not the features” version.

Version 4.0 or <bachelor #4>

I added the following and posted version 4 on hasgeek.

“We have a complete 12 quarter hands-on program outline for you to feel ready to start your own company, which we will invest in to get you best prepared for entrepreneurship.

Job perks

  • Catered lunch every friday.
  • Ability to network and meet venture investors and angel investors in special invite-only events each month
  • A working 12-quarter program to give you all the experience necessary to be an entrepreneur”

Worked even better. The posting intrigued enough people to deliver even higher quality resumes. I thought I was overreaching because and got 2-3 over-qualified folks for a “lead developer position” re marketed as “developer in residence”.

What I learned:

1. The most important part of your job description is the Job Title. Its obvious, but I see far too many “PHP developer needed” or “Web hacker wanted” and “Javascript Ninja Hatori” titles, which gets you a certain type of person. Usually that person is not the first 25 developer hires in your company. Be creative, but dont overreach.

2. Your job description is the first impression for 90% of your potential candidates. The next impression is a Google search with your company’s name. You control the first a lot more than you control the next impression. Realize that people will read your job description and decided quickly if its worth Googling your company. What you say and how you word it says a lot about your culture. Does it have many typos? Are you using cliche’s like Ninja, hacker, Superman, etc. because you cant really describe the person with a simple engineer title, etc.

3. Dont say too much, because people dont read too much. Most job seekers I found, only read keywords like PHP and sent me their resume. They did not read anything else. I mentioned “should have worked in a product company (not services company)” before in a branch version of the JD, but I ended up getting many resumes from folks who worked only at services companies.

4. Each version of the JD attracts a different crowd from a different job board. If you are posting on hackerstreet, or hasgeek – think and focus on being a little more creative. If you are looking for technical marketers, pluggd.in is pretty good and for fresh grads, yourstory worked best for me.

5. Describe the perks of the job. If possible please make it human by adding a P.S. at the bottom. People read the P.S. More people read the P.S. than you think. Make the P.S. memorable, or make it sound like a prize given for the one that had the patience to read the entire posting which you spent hours writing (or a few minutes copying and pasting from some other JD).

Next post – how I phone screened and what worked, what did not.

P.S. I do read and reply to every email, and I do like getting email, but I always prefer comments on this blog.