Silicon Valley Frontlines

How Not to Get Hired!

One of my companies, UsTrendy, is looking for a technical lead for the team. As always with a startup we want the best person we can possibly find. Someone who can be the focal point for development of our online store, our site and - down the road - our analytics services and more. He/she would also work with the founding team to expand the business strategy, platforms, evaluate in-house vs. outsourced alternatives and so on. And of course our new hire must be passionate about our fashion-related social networking business and a great fit with the team.

We posted the job on Craigslist to start with because a number of folks said they had great success through that site. The job requirements are pretty broad yet there are specific things we must have - hit the link to see the posting and I've also copied it below in case the CL listing expires before you read this.

So, what happened? We received perhaps forty responses so far, universally disappointing. Here are the high ... er, lowlights:

• Most obviously, it was very clear that many people couldn't even be bothered to write a cover note. Why would you not make at least some effort to say how you're interested in the company and why you think you're a fit. I'm going to give maybe 15 seconds to my first look at each response, so you'd better have something there to get my attention.

• Of those who wrote a cover note, only a few - perhaps three of the forty - even acknowledged who we are and what we do. I'm betting that many people didn't even go look at the site. How feeble is that?

• OK, we're basically looking for an engineer. So I expect some geeky stuff in the resume. But a whole page of programming languages as your starting point? Please! We're non-geeks looking for a tech lead. I have no idea whether your knowledge of BEA Tuxedo can help us (I suspect not) but please tell us which skills you have that can actually help a business like ours. By all means give us the full list in the resume if your cover note says which of those things will the key for u and why.

• Why do you think being illiterate - or presenting yourself as if you are - is a good idea? If you can't string together some basic communication in writing then why would I think you can sit in a room and articulate your thoughts clearly to the team?

• If I ask for prior startup experience it's because it's likely to be a core ingredient of a successful match between us and the right candidate. I'm probably not asking for it because it's irrelevant, so if you don't have it you should at least say why, despite your wasted years at Sun/IBM/Computer Associates/YouNameIt, you nevetheless are convinced you are right for a startup. If you can't convince yourself you certainly can't convince me!

• If you are a recruiter, why are you sending me resumes when I say "If you are a recruiter, sorry but please don’t send us unsolicited candidates!"? Not only will I not hire your candidate but if I have their resume already I might not talk to them anymore because I don't want you claiming a fee which I don't owe you. As a candidate you should never work with recruiters you don't know well and who don't discuss any approaches to potential employers with you first - and never contact the company on your own if you are working with a recruiter who has already established contact, even if unsolicited. 

• Show me you have some passion for something, anything. Please!!

Here's our listing for the opportunity as we posted it. If you know someone that is a GOOD FIT please let me know!!

UsTrendy is a new site allowing emerging and independent fashion designers to upload their creations, have consumers, fashionistas and others decide what’s hot and what’s not, and then market and sell their products. In less than a year we have more than 7,000 designers and 300,000 designs loaded, making us one of the largest sites in the space. We’re ramping up the consumer side of the business rapidly through initiatives to increase awareness, attract and retain visitors and keep people coming back.

Longer term we’re looking to create a fashion destination site, develop retail analytics services, targeted advertising and other revenue-generating opportunities directly through the site and through partnerships.

We have a ground floor, hands-on opportunity for someone to join us in a senior software engineering capacity. We are flexible on the right title – more important are the key things you would bring to the table. 

You will have a proven track record in software development in a rapidly growing start-up environment – with all the opportunities and challenges that brings. You will participate actively with the team to develop the vision and strategy for the business and translate that into the site, services, databases etc we need to make it happen.

You will be our technical lead and the primary interface with our small development team in Argentina (Spanish language is a plus but not mandatory).

You may be determining our architecture and platform approach one day – and programming the next! Key technical abilities include web development, ecommerce, database development and analytics. If you can tapdance while balancing a spoon on your nose, that’d be great!

At this stage of our development it’s important that we bring on people who are self-starters, highly motivated and a good fit with the team. We truly believe that the sum is greater than the parts and that a great, passionate team with complementary skills can achieve far more than we can even imagine. We are currently based in the South Bay and it’s important that you be located with us to achieve the chemistry and teamwork we seek. 

If this sounds interesting to you – and you meet most, if not all, of our criteria – then please contact us! We look forward to hearing from you. (If you are a recruiter, sorry but please don’t send us unsolicited candidates!)

Startup Staffing - How to get it Right!

A friend of mine asked me to given him some advice last week about responding to a job offer from a startup which he felt was too low. I was happy to do it and he just wrote to me saying he was able to get the cash side of the offer increased by 13% using my advice. One of my better returns-on-investment after an hour's work! Which got me thinking yet again about startup staffing, some of the challenges and how to get it right. In my friend's case the start-up was getting a good software QA manager but for a while really looked like they might blow it.

I've written many times about how this is a great time to start and staff a new tech business. Here are a few tips about how to get it right, culled from my own experience and talking with many entrepreneurs and investors. In no particular order:

• The right skills at the right time are important. But above all make sure who you hire is a great cultural and personality fit. In a startup there is no question that the whole is greater than the sum of the parts. Someone who is not a good fit can be toxic to the team dynamics and I can't think of anything that makes that worthwhile. The tone of the business and it's culture will be set by the initial team, so make sure that dynamic works well from the get-go.
• Even if you attract a founding team working for equity only to start with, you'll eventually have to start paying cash. These days, yes, you can get people for less cash than before. Whatever you're offering, make it equitable with other team members and pay people what they're worth (to the company - if there's a mismatch there then you're not right for each other anyway). Even if you think they will never find out, in a small company its not worth the risk of losing a good person who is inequitably compensated. Of course, thinking someone will never find out is the wrong philosophy anyway. Some (very few) companies post the compensation of every person in the company for all to see. Even if you're in the majority that don't, think about how people would react if they knew this information. Would they thing so-and-so was worth it or someone else was underpaid?
• A top notch software developer is worth 10 average developers. Unless they're not a good fit. On the other hand the really good developers will cost you - because among their many alternatives is the choice of working for themselves on the Next Big Thing, rather than for you. Of course you don't pay them 10x an average developer - but you do want to recognize your stars and, frankly, get rid of the average or below-average people. No, this is not contrary to my advice above. Done properly, recognizing stars can still be done in an equitable manner with the rest of the team. Don't confuse equitable with equal!
• Make everyone part of the team and incent everyone with equity via stock options. In one of my prior startups I found that the office admin in Prague was the only person in the company without stock options - so I got her some options as soon as I discovered this. Another executive said to me "she's just an admin, so why bother?" Well, I tell you, everyone plays a part in success. They cash compensation reflects the level of value but (in the long run) you would never dream of not paying them cash. Why wouldn't options work the same way? By the way, that executive I mentioned - prime example of the toxic employee ...
• If you have multiple locations, particularly outside your home country, then work hard to make everyone feel like members of the same team. At that same prior startup above I would insure that I made regular visits to Prague and each time I would do a presentation to the entire team (about 40 people) about the company's development, how their work was helping, etc. And we'd usually have a teambuilding event as well. That same toxic executive I mentioned wouldn't even join those meetings when he was there at the same time. What kind of message is that?
• Share information with everyone. The goals of the business. The key metrics and how you're doing. The issues. The more people know, the more they can take the initiative to fix things.
• Sales. If you don't get customer traction eventually you're dead in the water - you won't raise money or attract good people. Marketing is creating awareness and sales opportunities. Selling means closing deals. Getting the transaction over the goal line. In a startup everyone has to be selling and know how to sell. But be sure you have closers on the team. That could be the CEO or anyone else ...
• Outsource the stuff that is not core to your value proposition. Check my prior posts but, again, don't bring things like accounting, HR, etc. in-house unless you've exhausted the the capabilities of good outsourced services.
• Don't think that because you don't have cash you can't hire anyone. You'd be amazed at what a few founders and equity-based employees can achieve over a very short space of time if they truly believe.
• Finally, address problem situations quickly. That could be anything from compensation to work environment to a toxic employee. Yes, if I'd been CEO I'd have fired that executive I mentioned above - even if I was to lose the experience and other contributions I'd be gaining immeasurably in many other ways.

Tranched Investments Are Bad for You!

I've heard a few people talking recently about taking larger sums of money - lets say $3m - from an equity investor where the investor is proposing to tranche the investment (or where the entrepreneur thinks they might). Typically that means meeting certain milestones to trigger the next chunk of cash. I hate this idea. Why?

• Well, first of all the investor can be sending you a negative message about their confidence in you and your ability to execute by holding the money. And its distracting to everyone - you should be working with your investors closely anyway to get the right things to happen in the business and that's the real objective.
• Secondly, things change rapidly in the startup business and you need to change with them - so a milestone set today to be achieved in six months may be obsolete in three months because of some external event. Then what? Keep driving for it so you get the money? I don't think so.
• Thirdly, a VC could decide at any time not to put the additional money in. Lets say they committed the tranches before the recent market crash. Then with the crash their outlook has changed and investment plans rethought. Now they say they won't put in the next tranche even though you hit the milestones. Maybe they want to renegotiate the valuation down due to those external events. What do you do? Sue them? Again, I don't think so. Suing investors is never a good idea if you want to raise money in the Valley again.
• Worst of all, what's really happening is that the achievement of these milestones is in fact increasing the value of the company each time, but your investor's equity is all valued at the historical date when you signed the term sheet. So you just took more dilution than you would have if you took two smaller rounds of funding - one at the beginning and one new one later after achieving the growth.

What do you do instead? Well, you bite the bullet and take less now and plan on doing another, separate, raise later. With that $3m example above, take $1m or $1.5m now and raise more at a (hopefully) higher valuation in a year.

Back in March I wrote in a post that I didn't think financing a startup with debt rather than equity makes any sense unless its to bridge to an equity event you have a high confidence level will happen. Otherwise you just build a pier to deeper water.

In general I stick by that. But there is an exception (every rule needs one!) that I support. In a very early stage startup it can make sense to take initial money, perhaps $300k, from an investor in the form of a convertible note instead of equity at that time. A convertible note is a loan from an investor that is intended to get you going and to bridge to a later equity funding event. As part of the terms the investor can convert the note to equity at a discount, maybe 20%, to the subsequent round preferred stock price. Fair enough - they took the risk now to invest at that later valuation so they should get that break.

When would you do this? Typically, where you need some cash in to get to some proof point or milestone to then get a full equity round done. Your investor likes you and your ideas, but you have no customer traction yet although you're going into beta with a few prospects. You need six months to complete that process and covert the betas into paying, reference accounts. That is a big step because it gives your first real proof points of your value proposition - and makes you more fundable.

In this case maybe the $300k is sufficient to get you to a $1.8m equity raise (including the note converting) in a full funding round later at a $3m pre-money valuation. That's better than taking a $300k equity raise now at a $1.2m valuation and then another $1.5m at a $3m valuation later. A convertible note helps do that with less dilution. One other thing - it avoids the need to address valuation questions today. The company will be valued at the time you get a term sheet for the future round in six months. Its much harder to do two equity rounds six months apart and justify an good increase in valuation over that time. So delay that discussion with a convertible note! An investor will like it because it gives them more protection than equity, it's a smaller amount to risk initially, but gets you going and maybe proves their confidence in the overall opportunity.Of course, if you don't achieve your goal you will owe the money back - but with no ability to pay it off it will become another negotiation anyway.

HR Management Resources for Start-Ups and Trends in the HR Space

One of my readers asked me to talk about trends in HR, and about HR companies getting funding and M&A in that space. Very relevant for this blog as one of the great advantages of building a tech business these days is the incredible array of tools and services available to assist with that process - and there are a host of companies now doing this on the HR side.

For start-ups needing HR help, gone are the days when you needed people early to manage this function. Ten years ago in my first start-up there were very few tools to help, so people had to do it all. We had to use a broker for health benefits and do a lot of analysis ourselves on choices, costs etc.. We had to use an antiquated payroll service like ADP. We had gazillions of forms and reports and compliance things to address. We had to develop our policies and procedures from scratch or We had to use big excel workbooks for commissions, to develop compensation ranges etc. We had to buy salary data to see how competitive we were. In going from 25 to 175 people in a year and getting IPO-ready I had to have an HR Director, a manager, a comp analyst, an HR admin and three full-time, in-house recruiters to handle everything. All of which is not focused directly on developing the core value of the business. Yikes!

Today I simply turn to an outsourced service like Trinet (contact Carolyn Phelps at carolyn.phelps@trinet.com) orJose Montes at Nationwide HR (josem@nationwide-hr.com). With their help I don't need to hire any dedicated in-house HR person until I have maybe 100 people - or more. These folks will manage all of the things I mention above on a 100% outsourced basis. I get a far wider range of benefits choices for my employees, I get an HR person in my office to help when I need it, I get all my handbooks and policies, all my compliance issues handled - in the case of Trinet for $40 per employee per month. Employees enroll and sign up by themselves online. All I need to provide is a part-time person to enter payroll data twice a month. How cool is that?! You do need someone (a CFO, or Controller perhaps) to  manage the relationship, check things like Workers' Compensation rates etc. (watch this latter particularly carefully).

An IPO tip: expect Trinet to go public within the next 12 months. They're getting big (recently acquired Gevity) and keep building out their Board (Ray Bingham, Board member at Oracle and Board member at one of my prior startups, joined not too long ago. Ray is the sort of person you bring on as a financial expert to head up an Audit Committee for a public company).

One area that is still a huge problem is recruiting. If someone can find a better solution to match companies and candidates than the existing weak job boards like Monster and Hotjobs, or even DICE, then you will make a fortune. In this economy someone needs to find a better way. Recruiters are not the answer. Yet this is not insoluble with technology, surely. There are a bunch of startups trying to tackle this but nothing compelling that I've seen ... so far.

There are a number of other private or public companies that are very interesting in the HR space. SuccessFactors is a fabulous company that went public a couple of years ago that offers on-demand goal setting, performance management and other tools. Expect new product announcements from them later this month. Taleo is another public company focused on talent management. Xactly is a private, venture-backed company focused on sales compensation planning and management. As one who has had to deal with this area in many prior companies I can tell you that it's a complex management challenge and ususally hard to administer. Xactly has a good set of tools and recently rounded out their management team with the ex-CFO of Salesforce.com who took the latter public. Guess what he's at Xactly to do ...? Another early stage start-up in this space is IncentAlign which just recruited a good friend and former colleague, Bill Hunt, as CTO. All of these companies are SaaS-based - so its easy to get started and the solutions are scalable as you grow. Expect some of the public players to also look at acquisitions of the smaller players and a consolidation in the space.

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