Equity: Three Mistakes Founders Make

Shareholders' Equity

The Equity Mistake They Make With Each Other:

If you’re founding a company with other people. All founders should vest in their stock over time. Typically, you should use a one-year cliff and 4 year vesting period. The one year cliff solves the problem where one founder drops out because of changing life conditions or lost interest. If you don’t vest into your own company, you often end up with a big chunk of equity you can’t sell or redistribute to other parties who are going to add value to the company. Secondly, they tend to split up the company equally, instead of based on people’s abilities to contribute and relative scarcity of the skill sets they provide. Fairness is setting percentage ownership based on the amount of lift each Founder provides to the company’s valuation, not splitting it equally per capita. If you’re too afraid to discuss how much value different activities, backgrounds, and networks, add to the company – you should reconsider your co-founder relationship; the conversations are only going to get harder from here.

The Equity Mistake They Make With Outsiders:

You’re not going to know everything about your business, your market, or your team. That’s OK, but you should seek out Mentors, not Advisors. Mentors give of their time and their talent freely, knowing that they will learn from their mentees. Advisors require an equity stake in the company. I’ve seen some insane term sheets offered to early-stage founders with advisory fees between 5-10% of common stock. That’s predatory, unless that’s contingent upon a huge investment, international brand recognition through celebrity influencers, or some other exception to the rule – I would run for the hills if I saw something like that. A reasonable advisory fee for an advisor/firm who is working unpaid for you in an early stage startup is somewhere between 0-1%. Founder’s Institute Founder / Advisor Standard Template lays out a great table to align close to market value.

The Ownership Mistake They Make With Insiders:

We all hear about how hard it is to be an early-stage founder. But what about the first few hires on the founding-team? They tend to get significantly less equity than founders and even later stage C-level hires, but they’re taking the risk with you because they believe in the company. You should treat your first employees like Angel Investors. They accept the biggest risks early on, so it’s only fair to provide them a multiplier on their ownership stake. They help to set and reinforce the culture of your organization and deal with all the chaos you create while thrashing around trying to find product/market fit and funding. Your first employees end up being friends and family, so treat them well.

What other distribution mistakes do you see repeatedly?

Let’s chat about it in the comments!

Last Chance to Start 2019

"This is fine" Dog riding the S.S. Ship It!
Let’s do this!

With four weeks left in 2019 it’s time to start your new years goal setting. Unless you have a bias-for-action, which you should — if you’re a founder.

Four weeks is enough time to define and test some hypothesis around the business that you’ve been noodling since January 2019. Let’s get together and turn thoughts into deeds. I’m putting together a workshop series to drive your “idea stage” startup to “early stage” before January 1st, 2020.

As a group, we’ll help you determine the Who, What, and Why of your product and provide an operational plan and the tactics you need to validate your hypothesis before the end of the year. Register to attend each week individually.

The content will build over the course of the month, you will be assigned homework in advance and the in-person time will be a group review to ask and answer questions. The goal is to create a cohort of new founders who can peer mentor each other. I will bring different experts in to cover the content from the homeworks. Want to know more? Sign-up below.

Mornings (Free coffee and breakfast, in meatspace only):
Thursday 12/5 – 7:30 am – Register for Week 1
Friday 12/13 – 7:30 am – Register for Week 2
Thursday 12/19 – 7:30 am – Register for Week 3
Thursday 12/26 – 7:30 am Register for Week 4

Can’t make mornings? Stuck in the cubicle but want to give this a try? Hit me up, if there’s enough demand we’ll create a virtual lunch and learn series.

Employee Heatmap – The Simplest and Most Effective Tool in the Management Arsenal

One of the hardest things for senior managers to maintain Situational Awareness across their entire organization. Ego and averaging often obscure the reporting up through your hierarchy.

Mid-level managers don’t ask for help because they don’t see how their team’s problems are impacting the organization as a whole. This lack of reporting or “the blame game” can hide the root causes of cross-functional problems.

Whenever I face uncertainty, I collect and visualize data to gain a deeper understanding of the problem.

Capturing Data Efficiently

Every week, managers are required to report their individual team members “stress load” in a shared google sheet. In aggregate, over-time, this Employee Heatmap data becomes immensely valuable in understanding your teams’ performance.

This quick report (~2 minutes for a team of 5) allows both you and your managers to visually see changes in employees status across your entire organization. This insight allows you both to determine where to focus your analysis and assistance as leader.

The Employee Heat Map

Spreadsheet Heatmap of Employee Stress over time.
A quick review during the weekly management meeting visually helps you determine where you need to ask questions and assist.

Download the Employee Heatmap Example.xls

What is Stress Load?

The Employee Heatmap is built on a quantitative value that we call “Stress Load”. “Stress Load” is defined as Workload + Familyload.

As a Human-First leader, I view my employees capacity as the combination of two things. The 8-hours they spend on the clock and the issues they’re facing during the 16-hours a day that I don’t pay them for.

My managers collect these data points during their monthly 1-on-1s with their direct reports. They adjust the monthly self-reported “stress load” number based on their direct observation when reporting it in the management review weekly.

What is Workload?

Workload in the Employee Heatmap is quantified on a scale of 1-10. 1 being almost completely unsaturated to the point of boredom and 10 being complete saturation at an unsustainable pace. 4-6 is the Goldilocks Zone.

Depending on your team composition, you may regularly see 6-7 . Challenging workloads tend to keep Type-A employees more engaged and therefore might not be a negative indicator. Sustained values in the 8-10 range usually indicate an underlying issue that needs attention.

I encourage my managers to restate the number and ask “What does that mean to you?”. If the self-reported number is out of the Goldilocks Zone for that employee, I instruct them to ask “Why do you feel this way?” It’s important that the direct manager understands what is driving the stress level of their employee’s workload numbers.

Qualitative reasons often drive higher workload numbers. Employees doing work that they don’t enjoy or having to work with someone they dislike is more often the culprit than being overwhelmed by volume. Managers tend to be better at recognizing tasking issues than rooting out qualitative drivers.

My astute friend Mike Canzoneri solves this problem by breaking down his version of this process into 3 values: Workload Emotional, Workload Quantity, Family Load.

What is Family Load?

Family Load is also measured on a scale of 1-10. 1 being almost completely stress-free to the point of boredom and 10 being overwhelming stress that detracts from the employees quality of life.

We respect our employees’ privacy as a cultural value at my company. Managers are instructed to not ask for the “Why?” with this number. If their employees volunteer the information, they are told to keep it in confidence. This qualitative input can help the manager to bias the monthly number appropriately for the weekly reporting as the employees life-situation continues to develop.

Long Term Value of the Employee Heatmap

Trend Analysis of Employee Heat Map
The trend, leading, and trailing, indicators all provide valuable insights on your process and people.

If you graph the data in the Employee Heatmap, you can start to determine leading and trailing indicators as well as recurring trends in your team’s functioning.

I’ve used this data to make staffing plans, deconflict teams before they were in a negative feedback loop, and change how we schedule work. It’s pound-for-pound the most powerful tool in my personal management toolbox. I highly encourage you to try it, modify it, and share the results.

Questions of the Day

What’s your favorite tool for managing your employees? Do you have any other tricks for keeping a pulse on in-direct reports?

Premature Optimization is the Root of All Evil

"We should forget about small efficienceis, say about 97% of the time: premature optimization is the root of all evil" - Donald Knuth
H/T: @lpolovets

Donald Knuth was specifically talking about algorithms in computer software, but the lesson applies broadly to product development, startups, and self-improvement.

Perfection is the Enemy of Progress

Wikipedias worth of man-hours have been spent building features that the customer never requested and rarely use. Companies have spent millions on inventory to achieve economies of scale on products that crater in the market. They should have shipped first and asked questions later.

Stop futzing around and ship it! Premature optimization is often procrastination in disguise. If you’re “making it better” before someone has used it, you’re letting fear of judgement keep you from learning.

Don’t worry about scaling, don’t worry about “nice to have”, just start! Start going to the gym, spearhead a new process at work, ask someone to buy your barely functional prototype. Even if you fail, you’ll be at the same place as if you were still planning; the only difference is, you’ll have a data point from the real world. Now you can adjust, incrementally better, then ship it again.

Questions of the Day

What aspect of your life should you be shipping instead of optimizing? Is there a feature in your product or startup that’s a good idea but you haven’t had a customer ask for it yet? Tell me about the time you sunk days of oyur life into solving a problem that didn’t exist.

Discipline is Freedom

Jocko Willink is my spirit animal.

Falling Victim to Entropy

Since 2009, I had made a series of choices to focus on my career and entrepreneurial ambitions instead of my health. I put on about 50 lbs of fat and atrophied significantly during that period. I had given up on taking care of myself in trade for trying to build my company and my city’s entrepreneurial ecosystem. I kept telling myself that I’d get myself together later after I had found success.

When my first child was born in 2016, I need to determine if I was going to be a good Founder or a good Father. I left my operational role as CTO of my startup and I derisked my career a bit. But I wanted to be more than just present with my son, I needed to be a role model for him. I searched for role models for myself and found this great series of essays by Jocko Willink on Spotify.

Discipline Equals Freedom Field Manual, Pt. 1

Finding Discipline

Through many iterations over the next 3 years, I began to rebuild my health. I started training Brazilian Jiu-Jitsu, stopped drinking alcohol regularly, started lifting weights (3x a week), and worked to refine my diet.

I made these changes one at a time, about three to six months a part. It takes about 90 days to lock in a new habit and it’s much harder to actively control more than one thing. So I focused on not making a new habit until I didn’t have to work to maintain the current habit I was developing. The most important part of this process was to figure out the failure modes in each new habit during that startup period and put controls in place to correct for them.

For example, I kept missing my weight lifting workouts because I would have meetings or family obligations. So to control for this, I found a time no one books me; 4:30 am. By taking ownership of my failures; I can’t blame anyone but myself for not getting to the gym before everyone is awake. Discipline is Freedom.

You only fail when you quit.

This process hasn’t been linear, it’s riddled with short term setbacks; mental, physical, business, etc. But all of these setbacks have proven to me that you never fail until you quit. I’ve missed lifting or training BJJ for months at a time (see graph above). The trick is to kill your ego and start training again. I am a human, I am fallible, but I refuse to quit.

Questions of the Day

What keeps you from making the changes in your life that will make you healthier? What controls do you use to help you maintain discipline? What did you think of Jocko’s essays?

Why you should build wireframes in Powerpoint.

Wireframe for ClarkDever.com in Powerpoint

There are dozens of tools for building user interfaces, some of them are web-based, some require specialized skills and software (looking at you Adobe). They all have their place, but I routinely recommend people user Powerpoint for their wireframing needs.

Here’s why you should use Powerpoint for wiring framing:

  • You build them faster
  • It forces you to focus on Information Architecture, not details
  • Everyone knows how to use Powerpoint
  • You can fake interactions and test process flows
  • It allows you to quickly get feedback from real humans before a single line of code is written.
For clarity: I'm going to say Powerpoint for the remainder of this post -- but Powerpoint, Keynote, LibreOffice, Google Slides are all acceptable alternatives. 

Increase your Velocity

I train my teams to use the simplest/fastest prototype or tool that gets them the feedback they need to advance the product down the development pipeline. The best tools are the ones that reduce friction and allow you to increase your development velocity.

If you have to learn a new UI in order to implement a test, you’re reducing your speed to market. That amount of friction may seem small, but it adds up. Experienced product managers will tell you that more deadlines are missed as the results of hundreds of small inefficiencies than one-off catastrophic events.

Right Level of Fidelity

More powerful tools have more features, more feature means more complexity and time wasted on irrelevant details. You shouldn’t be concerned about anything but information architecture and block level elements when wireframing.

As a simple guideline: When you’re building a wireframe, it should be no more complicated then what you can personally draw on a whiteboard. So in practice, you should be creating the digital version of your crappy illustration.

This is important, because design should be left to designers. The purpose of a wireframe is to identify the functional units on a page (and maybe their relative priority/weight). Primarily, you should be concerned with content at the “block” level. Instead of worrying about design, you should be asking yourself if all of the objectives of the page/view are being met.

It sounds trivial, but I can’t tell you how many e-commerce wireframes I’ve reviewed that didn’t have contact information in the headers or navigation, and/or didn’t provide a direct link to the cart page. Every page should have one job, make sure that you have the content blocks that support the page’s goal.

Non-technical people know Powerpoint

You friends, family, business analysts, content marketers, and pilot customers, all know Powerpoint well enough to wireframe. They are the Subject Matter Experts on their needs, not your designers. You wouldn’t ask your Plumber to architect your home, so why would you ask a Web Developer to determine your information architecture?

Getting the right team members engaged with the wireframing process will improve the quality of the output. Wireframes are the foundation that your product’s usability is based on.

This part of the design phase is also the cheapest, and fastest place to make changes based on user feedback. No one has spent hours in photoshop, no one has written a line of code, there are no dependencies – enjoy this agility while it lasts and try wireframing different variations of your screens.

Interactions and Navigation

You can emulate interactions with your product by building different slides to represent different states. By having clickable areas load specific slides, the wireframes can show a user the result of their actions.

This functionality allows you to test different funnels and begin to understand how novice users interact with your product. The biggest benefit of this entire process is that, you can perform interactive user testing without engaging a designer or software developer.

Universally Accessible

Powerpoint is ubiquitous, you can share files and get quick revisions from several stakeholders remotely and asynchronously. Additionally, you can export the final product as a PDF for easy user testing.

Load that PDF on your mobile device and ask random people at a coffee shop to accomplish a task on your site, BOOM!, observable user testing for the cost of a cup of coffee.

Questions of the Day

What other tools have you used to quickly build prototypes? What were the benefits and drawbacks?

How to Solve Ambiguous Problems with Simple Data Visualization

Visualization of data often yields better insights that just looking at the numbers.

I routinely encountered optimization problems and I struggled to solve them effectively until I developed this simple framework.

In this post, we’ll work through the example “Where should I live?”
Click here to access the example spreadsheet.

Optimizing for real-world problems is usually challenging because they tend to multivariate. They also tend to impact more than one stakeholder, which often means there are different priorities that should be considered. Additionally, variables can often inversely correlated, qualitative in nature, and/or unique solutions have wildly different values.

Whenever things get complicated in my life, I try to develop a process that I can tune as I gain more experience. Here’s my current approach for optimizing complex decisions.

Steps to Resolution:

  1. Determine Variables
  2. Weight Variables
  3. Collect Data
  4. Visualize Data
  5. Discuss quantified result

Determine Variables

Create a list of all meaningful values to consider when evaluating the problem. Then, ask other stakeholders about what factors they would consider when determining a solution.

As these conversations occur, you should document the entire list of concerns in a spreadsheet.

Example Variables for “Where should I live?”:

  • Proximity to Work, Family, Friends, Food, Activities
  • Rent/Mortgage
  • Pet/Child-Friendly (Booleans)
  • Cost of Living Adjustments
  • Additional Income Possibilities (Rental units, access to a better job market)

Weight Variables

Have each stakeholder (including yourself) put a weight on each variable privately. Then gather together to discuss the reasons for each weighting. Based on the discussions, work as a group to determine your final weightings. This socialization of concerns often helps me achieve a deeper understanding of my own goals, while also getting buy-in from people who will be impacted by the decision. Lastly, generating these “shared ideals” weightings allows you to focus on the most important aspects of the data when evaluating the visualization.

Collect Data

Aggregate your data in your spreadsheet. Sometimes it helps to normalize data if the options are very disparate in their values. One way to normalize is through the use of ratios between two of the variables from the same option.

In this example, we create a ratio of Total Cost of Residence / Take Home Income in order to normalize the Total Cost of Residence for different geographic areas.

Visualize Data

Use conditional formatting (tutorials: google sheets / excel ) to heatmap cells or simply turn cells red/green for boolean answers.

Implementing this visualization technique will usually highlight one or two prime candidates from your data.

While I’m building my visualizations, I also highlight the top three column headers, based on the outcomes of the variable weighting discussion. This additional step highlights the “deal breakers” that sometimes exist in candidates that otherwise look great on paper.

Spreadsheet showing highlighted cell that is a "dealbreaker"
In our example, “Middle of Nowhere” looks like the best candidate, until you realize that it’s the worst candidate in regards to our “shared ideal” distance to family.

Discuss quantified results

Last but not least, bring the visualized results back to the group. They provide a great starting point for discussion among stakeholders. Since you determined your “shared ideals” before you gathered/evaluated your data, it allows you to have a more candid discussion of the options.

One last thing, It’s important to remember that all tools have flaws and the winning result in the rubric isn’t always the best solution qualitatively. You’re not bound by the tool that you created, often the discussion it generates is worth more than the data it provides.

Question of the Day

Do you have a similar process? Where have you applied it in your life?

Why do Navy SEAL candidates quit BUD/S?

Andy Stumpf former BUD/S instructor

“I wanted to make more people quit.”

In Episode 3 of “Cleared Hot”, Andy Stumpf talks about his time as a Basic Underwater Demolition School (BUD/S) instructor. According to Wikipedia, “BUD/S is a 24-week training challenge that develops the SEAL candidates’ mental and physical stamina…” and according to Andy, one of the instructors’ jobs is to eliminate candidates from the program. Specifically, those who do not have the mental toughness required to be an operator.

Cleared Hot Episode 3 – Sean Hughes

“Nothing lasts forever, this sucks now, but it’s going to end.”

Andy interviewed many candidates who quit. He wanted to know what lead to their decision, so he could develop techniques to exploit the weakness in others. Their most frequent response was that they were overwhelmed by the duration of BUD/S. They were experiencing discomfort and multiplied it by the time remaining in the course. Psyching themselves out.

One Foot in Front of the Other.

Successful people focus on breaking down seemingly insurmountable tasks into smaller objectives. Achieving each smaller objectives creates a momentum that allows them to blast through the larger obstacles.

Although I’m not a SEAL and never will be. I’ve personally experienced this in Marathon Training, Weight Lifting, and Entrepreneurship. The first mile, squat, and pitch — those moments felt overwhelming because I knew how tiny my current output was compared to the end goal. But each day I put in the work. I focused on following the plan and completing today’s objectives, not worrying about the end state. When the time came to complete the mission I had been training for, my body and my mind were ready.

Show up, do the work, rest, repeat.

Questions of the Day

What’s the largest goal you’ve succeeded at? How did you break it down into smaller pieces that you could accomplish? What in your life today is stressing you? What’s the next incremental step towards fixing it?

How do you leave Social Media without losing your network?

I’ve spent the last six months weaning off of Facebook’s suite of apps. Their lack of ethics finally outweighed the value of their ubiquity. Because of this, I began the process of deletion (Facebook, Instagram, Messenger). Almost immediately, I felt a notable change in my overall level of happiness and contentment.

Trending topics and outrage focused feeds may have been overloading my psyche. My brain is only able to effectively deal with the level of stress generated by the happenings of a small community (See: Dunbar’s Number). I was genuinely surprised by how much better I’ve felt once I removed awareness of the continuous-crisis news-cycle from my life.

The major downside that originally kept me from leaving was FOMO. I didn’t want to miss out on dank memes and interesting dialogue. To counter this perceived loss, I’ve decided to start generating more original content and I’m working to develop deeper relationships with key individuals in my life.

Plan of Action

  1. Backup my data from Facebook, Twitter, LinkedIn
  2. Deactivate, delete, or refactor accounts
  3. Find a new messaging alternative
  4. Develop more active relationships with my network

Backup and Deactivate

There are plenty of posts on how to backup Facebook and Twitter data and deactivate your accounts. So I’m not going to cover Step 1 and 2.

Text Messaging

I decided to switch my primary messaging client over to Signal since it supports end-to-end encryption, is easy-to-use, and is cross-platform. It also supported encrypted phone calls. The only thing that I’ll miss is the video conferencing – which I plan to handle through Google Hangouts or Skype.

Activate My Network

I now block time using recurring appointments to make phone calls to key friends/family and to blog. I will be distributing my blog via mailing-list and I plan to put hooks into each post to start 1-to-1 conversations. By disintermediating my relationships, I hope that I can build a stronger network that involves more personal and meaningful interactions.

The Question of the Day

How do you feel about your social media usage? On average do you think it makes you happier and more content or does it leave you with feelings of insecurity and anxiety? What’s keeping you from disconnecting from the major platforms?

Faster more relevant blog posts PostHaste!

I’m beta testing PostHaste from ClearView Social – learn more about it through the video below:

 

What if you could assemble high performing blog posts in just a few moments? What if this content you create would also tap into a larger conversation automatically, piggy-backing off of interest in current issues in the news? What if you could do all of this in just a couple of minutes? Now you can, with Posthaste.

https://clearviewsocial.com/announcing-the-birth-of-our-new-product/