The Rabid Pack

I am a member of the Jason Nation and over on the Launch blog Mr. C has a nice article. The overall post itself is about management misdirecting employees. While I don't always agree with everything Jason says or does he nails the startup sales equation. 

Dealing with a rabid pack of sales wolves is perhaps one of the hardest management challenges in business.

Sales people are an odd group of mercenaries, and the best ones seem to have a perverse sense of competition and drive that is unique in the employment landscape. They are very aware of incentive structures and seem to love being put in them.

They like having a percentage of sales targets to hit, and levels and bonuses associated with certain milestones. The more complicated a structure and game, the more turned on and tuned in they seem to become.

Great sales folks seem to look at life as this huge casino or Zynga game, where they are placing 20 bets on five different tables.

I've long learned to embrace this dynamic at new companies by setting

a) absurdly low base salaries (think $30K to 60K)

b) absurdly high commission structures (10% to 25%)

Why?

It's a filtering mechanism for me to get the most insane, rabid and self-confident sales folks -- and filter out the lame "professionals." The times I've put up six-figure bases and the standard 3% to 5% commission structures, I've gotten the weakest, non-rabid, meek sales executives who are more concerned with driving almost fancy cars, wearing fine clothing and having lush expense accounts than their actual commission structure.

Those sales folks are death at startups. They lack the drive and creativity to sell new products  because they are -- largely -- old, fat dogs.

At some big company with 300 sales folks, they're great for managing existing accounts. At a small company with under 10 sales folks, those "professional" sales types are the kiss of death. They need everything handed to them on a silver platter, and they can't close deals because of the product, the marketing kit or the fact that we're doing something new.

In fact, two sales folks I gave the low-base-and-high-commission structure to easily broke $500K in *commissions* for me in the first two years of the Silicon Alley Reporter and Weblogs Inc.

They both made fives times what I made as CEO -- and I loved it.

Startups need hungry hunters that want to kill.

Moving Forward At All Times

Part of a email to everyone at Half Off Depot, a growth phase startup where I work.

Here is my offering for the day. This one pertains to the lesson of General George W. Patton, and I'll call it: "Don't be a jackass!"

To paraphrase one of Patton's standing orders, he told his troops, "I never want to hear that we're holding our lines. We will be moving forward at all times."

Well, soon enough, his army was in battle and on the march. Suddenly, it came to a grinding halt.

Frustrated, Patton ordered his driver to take him to the front of the column to see what was holding them up. When he arrived, he found that the troops and all their tanks and vehicles had been stopped dead in their tracks by a peasant's donkey and cart that were blocking a one-lane bridge. To his utter disbelief, Patton found that several of his men were struggling with the donkey, trying to get it to move. Without hesitation, he drew his pistol, shot the donkey and had his men throw it over the bridge.

As a General responsible for the lives of thousands of men and tasked with winning a war against an evil foe, Patton knew that he did not have one minute to spare.

How does this pertain to us? We will be moving forward at all times. Don't be a jackass.

Pretty good story if you ask me. I for one will indeed be moving forward at all times.

ScoutMob Invasion

Nice profile over on Patch about my friends at ScoutMob. Fun folks.

If they could only stop the embed autoroll...

Update: That autroll was getting to be too much, you can view the vid here.

The Half Off Depot Team

I have a little rule of thumb. If you are working with the press on a story you can expect the finished article to be about 80% correct. Nothing against reporters. They are working on tight deadlines in areas where they do not necessiarly have domain knowledge.

Urvakash Karkaria of the Atlanta Business Chronicle deserves some props. When he wrote the story on Half Off Depot's funding (sorry for the paywall) he got most of the facts right. The only mess up was the photo caption. The people in that photo were not really "my team." They are cofounders and coworkers. And the picture that I wanted them to use is more like the one below. It included the full team that was in the Atlanta office that day. 

These are the folks, along with CEO Brian Conley who was out of town, that deserve the spotlight for getting Half Off Depot to where it is today.

Joining Half Off Depot

Well I took my own advice. I am joining a startup. It is Half Off Depot.

Half Off Depot is an Atlanta based social commerce company. We enable merchants to harness the power of social media and the appeal of deal driven commerce to attract and retain customers. Half Off Depot currently operates in two markets. Atlanta and Knoxville. Our revenue run rate is more than $10 million annually. We just closed a $7 million Series A round led by Noro-Moseley Partners. I wrote the biggest check I have ever written as part of the deal.

I am running business development and sales. Employee 21. The short story is I am in charge of meeting some pretty aggressive revenue growth goals. We will get to the longer story later. 

During my time at ATDC I have looked at thousands of startups. Since last Fall I have had conversations with a number of interesting Atlanta startups. Half Off Depot is one of the most promising. It's certainly the most promising that I can make go faster right now. Brian the CEO is a stand up guy. It is going to be great to work with Alan Taetle again.

I couldn't be more excited to be back in the game.

It's perfect.

Join A Startup

Remember that post about FU Money? Here's another one.

I see a problem almost every day with people working their plan to get some FU Money. They only take one path and often time it is the wrong one. The way I see things there are five ways to get FU Money.

Marry it. Don't know anything about this.

Inherit it. Not that interesting to talk about.

Start a company that requires large outside investment. Much more interesting to talk about. But the brutal facts of reality are that your odds of success are really, really, really small. They are particularly small when you have no cash resources, domain knowledge, startup experience, or skills to make a product. People like this walk into my office every day. Many not only have small odds, they have no chance. I even have a term for them. NC. Don't be this person.

Start a company that does not need outside funding. Very smart path for the first time entrepreneur. Dave Wright did it with JungleDisk. David Cummings with Hannon Hill. Tim Dorr with A Small Orange. The Lacours with ShootQ. Ben Chestnut and the rest of the MailChimp team. Get a win. Have a great life. Go bigger.

Join a startup. It's not just the founders that get FU money, its the people that make things happen. Remember, SecureWorks minted thirty something millionaires. Be one of those. The number of people that have taken this path and then started their own company with cash resources, domain knowledge, and startup experience is countless. But with the exception of old dudes that want to jump into a funded startup at some high salary and run it or do strategy I do not see many people pursuing this path. This is the path that the majority of people need to be taking. Find an area of interest, find the startups that include equity as part of their comp package, figure out how you can help the startup, and join it as an early employee. 

Seed Stage Compensation

So we have been talking a little bit about startup compensation across the nation and in Atlanta. Today the subject is seed stage compensation. In particular for those companies that have raised a typical angel round, say $500k.

Before going there it is helpful to summarize later stage startup compensation. Abby and I had a brief text exchange this week to help her with some work at one of her startups. This is what I wrote:

Here is a general way to think about it.
$200 ceo
$150 vp
$100 director
$66 manager
$44 coordinator
Plus or minus 10%
Individual contributors with specialized skill set $50 - $120 depending on skill and experience.

These numbers are based on my experience at venture backed startups as well as discussions with venture backed CEOs. So what about the earlier companies? Those that are angel funded. 

There are no studies that I am aware of specifically on angel funded companies. But I know one thing, the numbers are lower than those above. A lot lower. That angel investment has to last a year or two. The spread between the CEO and the other people working at the startup is also a lot less.

While the standard deviation is huge, some founders take no money at all until their business can pay them or they raise a larger round, I venture to say that your average founder with significant domain knowledge and/or startup experience (its easier to just throw the titles away for this discussion) makes between $75,000 and $100,000. There is no bonus program. The employees, those with specialized skills, earn about 75% of what they might make at a venture backed firm. Sales people can earn full salary if they hit their numbers but the comp plan is highly leveraged. On a equity front the founders have whatever they agreed to and the employees have access to a 5% to 10% option pool.

These are my thoughts. I would love to hear yours.

Atlanta Technology Compensation

Last week FoG covered compensation at technology startups on the national level. Today we are going to get a little closer to home and talk about technology compensation in Atlanta.

The source for this information is the 2011 Atlanta Technology Executive Compensation Survey conducted by the Technology Executives Roundtable. This is the third year that TER has been conducting its survey. The survey is a bit different than the national CompStudy report. Here is the profile of the TER respondents:

• 74% have been around for more than five years
• 68% of the companies are angel or venture capital funded
• 85% had revenues of less that $25 million
• 67% had revenues of less than $10 million 

So all in all the companies are more mature than those surveyed by CompStudy. With that setting the table here are the results of the survey rounded for presentation purposes.

Interesting figures by themselves but even more interesting when compared to the CompStudy non-founder compensation figures. The differences are presented below. Using the CEO slot as an example the way you read this data is an Atlanta CEO makes $10,000 less cash salary, a bonus that is the same, and has 1% more equity than their national counterparts.

Keeping in mind that this is a little bit of an apples and plums conversation, from a cash comp point of view (aside from stinginess on marketing base and sales bonus) the figures are pretty much in line with the national numbers. On average folks in Atlanta make 3% less than their counterparts spread across the country.

The equity side is a bit of a different story, 16% less. I attribute this difference to three factors. The Atlanta companies are more mature, the national study reports equity granted at hire not percentage currently held, and the driver of the difference is the COO slot which you mostly find at more mature companies and thus less equity for the gig. If you remove COO equity from the equation the difference in equity held by those in Atlanta versus the national mean drops to just 2%.

The TER report is chock full of great information. The full report is available to members of TER.  If you qualify it seems like $400 well spent. You also may be able to get your hands on the study by reaching out to one of the report sponsors. They are Arketi Group, ExecuLinks, Frazier & Deeter, Morris Manning & Martin, Pritchard & Jerden, Silicon Valley Bank, and Wm Leonard & Co.

Next week FoG will have some thoughts on compensation specifically for seed stage angel funded companies. Until then would love to hear how these numbers compare to your experience as well as any questions you may have. It is a little challenging to present excel spreadsheet data on a blog.

Skribit Shutting Down ;-(

A notice that went out tonight to Skribit users this evening. Quite a few people have been involved with Skribit over the years. Thanks to everyone that helped create and grow the company and also to those that are helping to shut it down.

[Notice: This is the last email you'll ever receive regarding Skribit. I will personally nuke the 20,621 user email list. - @Stammy]

On July 31st, 2011, Skribit will be closing its doors. Skribit started several years ago at Atlanta Startup Weekend in November 2007 and has had a good run. As a refresher, Skribit aimed to aid writer's block by allowing bloggers to receive post suggestions from their readers, while helping readers keep track of what their favorite blogger's were working on. 

Unfortunately, Skribit traction was not as impressive as we had hoped and Skribit had become more of a niche solution for a small percentage of bloggers. Over the past few years, 45,162 blog post suggestions have been completed through Skribit, 2,346 of which were completed/blogged. The vast majority of Skribit users did not receive suggestions from their readers for various reasons. Only 1,214 blogs had more than 3 active suggestions. 

We stopped actively developing Skribit last Spring and decided to pursue other opportunities. Thanks for being part of Skribit! We are in the process of refunding current PRO users. We wouldn't have been able to keep Skribit running for so long if it wasn't for a seed investment from Georgia Tech's Edison Fund and lots of advising from Lance Weatherby of the Georgia Tech ATDC.

Follow us on Twitter to see what we're working on now!

Best,

Calvin, Paul & Lance

http://twitter.com/cyu
http://twitter.com/Stammy
http://twitter.com/lance

Startup Compensation

From time to time I get questions about startup compensation. To gain some insights into the matter I am planning to attend a special session of the Technology Executive Roundtable on Atlanta technology executive compensation tomorrow. To set the table I wanted to share some national startup compensation data.

Over the years I have found CompStudy to be the best source for equity and cash compensation for top management at technology startups across the nation. Respondents to the survey are spread out geographically pretty much like venture capital funding. Half of the companies have fewer than 20 employees and 70% had less than $5 million in revenue. For the most part these are early stage technology startups that have received institutional financing. And here, with some rounding, is what the survey said, broken into founder and non-founder comp.

No big surprise that founders made less money but have considerably more equity than their non-founder counterparts. The equity for the non-founders is at time of hire and is generally diluted over time. In my own experinece I have found that the people that report into the executive team generally make 30% - 70% less then these figures in cash comp depending on the stage of the startup, experience, and skill set.

Some other interesting tidbits.

About 70% of executives are bonus eligible led by the sales, marketing, and business development types. The sales folks had about a 60% of base bonus target while the marketing/bizdev people were at 30%.

About 20% of executives had severence packages. 

Just a third of the companies in later financing stages had the founding CEO in control.

The most common equity vehicle used are incentive stock options.

CTOs get diluted a lot more than CEOs.

While researching this I came across Noam Wasserman's Founder Frustrations blog. Nice resource for co-founder issues, compensation, board management, and investor issues.

Here is the latest complete CompStudy report if you care to read it. In a day or so I will post about Atlanta technology compensation and how it compares to the national numbers.