One of the hardest things about running a startup is you’re never sure who to listen to.
Your board members own big stakes in the company, but that doesn’t automatically align them with you. Your late-stage investors want low multiples on big numbers. Your early-stage investors want big multiples on small numbers. And they have their own specific needs driven by their funds and their partnerships. Your rank-and-file employees own relatively small stakes which, ceteris paribus, should make them want you to swing for the fences — but, in these days of decade-to-liquidity, you may have employees so jaded on equity compensation that they’d just like to keep their well-paying jobs.
Your executive team wants to hit their targets, earn their bonuses, and maybe some of them are deeply motivated by winning in the market, but maybe not. With a 0.5% to 1% share, a $500M exit can mean a $2.5M to $5.0M pop. Maybe some would prefer to take the early exit, upgrade the house in Menlo Park, and go do it again somewhere else, as opposed to riding it out for the long term.
The idea that giving everyone some equity is a good one, but as I wrote nearly ten years ago, it’s quaint to think that doing so aligns everyone.
So, if you can’t really look inside the company, what then? Well, if you’re like many, you look outside. You might read books, subscribe to blogs, or listen to podcasts. You might seek out advisors or create an advisory board.
In all such cases, you’ll be taking advice from business people who have gone before you, have had anywhere from some to considerable success, and interested in sharing their learnings with others. You know, people like me .
Look, I’m not going to argue that getting advice from successful people is a bad idea — it certainly seems preferable to the alternative — but I am going to point out a few caveats, most of which aren’t obvious in my estimation:
- Successful people don’t actually know what made them successful. They know what they did. They know it worked. They have hunches and beliefs. Causality, not so much. Some of them can be quick to forget that, so you shouldn’t be . There was no control group. If Marc Benioff carried a rabbit’s foot, would you?
- Too many successful people are rinse/repeat . I’m frankly surprised by how many successful people are chomping at the bit to do exactly what worked for them at their last company with total disregard for whether it applies to yours. Beware these folks. Interview question: so could you tell me about a situation where you wouldn’t do that? It’s not foolproof because most will catch the hint, so this is really something you need to listen for before asking. Do they diagnose-then-prescribe or prescribe without diagnosing?
- Their situation was likely different from yours. In fact, in the land of disruption, as Kelly Wright points out in this podcast, it almost certainly was. Are you creating a new category without competition? Are you in an over-funded next-big-thing category? Are you competing against a big company transitioning product lines? Are you trying to get people to buy something they don’t believe they need or pick among alternatives when they know they do? Are you disrupting technology, business model, or both? Are you filling a need that is in the midst of being created the rise of another category?
Should you listen to these people? I think yes . But try to find ones who have seen both success and failure, seen success in many situations (not just one), and who are thoughtful about a company’s specific situation, and approach the advisory process and their own prior success with humility.
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 While I’d characterize my own success as towards the left of that spectrum, I am advising and/or have advised over 20 startups, some of them stunningly successful.
 One of my favorite quotes of this ilk is from former Harvard marketing professor, Theodore Levitt: Nothing in business is so remarkable as the conflicting variety of success formulas offered by its numerous practitioners and professors. And if, in the case of practitioners they’re not exactly “formulas,” they are explanations of “how we did it” implying with firm control over any fleeting tendencies toward modesty that “that’s how you ought to do it.” Practitioners filled with pride and money turn themselves into prescriptive philosophers, filled mostly with hot air.
 By the way, “I made $1B doing it this way” is one of the more difficult arguments you’re probably wise not to take on.