Another Silly Startup Analogy

When I was a teenager in Argentina in the 1980s, there was a weekly TV show called “Feliz Domingo” (Happy Sunday). It ran live for nine hours, between one and ten pm. It was a game show for high school students near graduation, who competed in events involving different skills. A typical event would have four or five individual students (or small teams), each representing a 30-40 person group from a graduating class. Students competed on national history trivia, blindfolded obstacle courses, performance art, etc. Some of the events were somewhat weird, it’s not easy to fill up nine hours worth of live TV (there were also live musical performances by all sorts of local bands such as Los Fabulosos Cadillacs, but I digress).

One of the coolest events was about memory and diction. You’d get a random trivia category such as Greek Philosophers, and you’d have to name as many as possible in ten seconds, no duplicates. I remember one girl who had memorized 25 items for each of 30 categories, and was capable of intelligibly reciting any 25 items alphabetically in 10 seconds. That talent earned her school one of 20 or so spots in the “final round.”

The final round went like this: there would be a locked “coffer” (El cofre de la felicidad) containing the grand prize: enough cash to send the contestant’s group (40 to 50 people) on a week-long trip to a ski town by the Andes. The host would put the key into a plastic cylinder and mix it with other similar-looking keys that wouldn’t open anything. There would be one key per contestant. Contestants lined up according to what event they’d won. The host would ask the next contestant in line his or her name, school, and number of people in the group. He/she would walk up to the cylinder and pick a random key. There would be five seconds of suspense while the boy or girl jiggled the key as it failed to open the lock. The process would repeat until one lucky contestant picked the right key, and… watch the video below, no subtitles needed.

I probably don’t have to spell out the analogy at this point, but I will anyway. You had to figure out how to participate in the show in order to have a chance to win. I’ll spare the details, but this wasn’t trivial (be in the right place at the right time). You needed skill in order to get a key (a chance of a good exit). And ultimately you needed dumb luck to pick the right key. If you didn’t get lucky… well, you might have one or more two shots before the end of your graduation year. Feliz Startup!

Hacker News discussion here.

 

Being the First Employee of a Startup Could Be Right for You

In SiliconValleyStartupLand there are memes that some repeat as if they were absolute truths. One of them is “the first employee of a startup gets screwed.” Sure, and the black guy always dies first in movies. While we are at it, you cannot get pregnant the first time you have sex (yes, some people believe this).

The truth is that being the first employee of a startup could be shitty, or it could also be a great investment of your time and effort. When I say “great investment” I’m not talking about outlier outcomes such as that of Craig Silverstein, Google’s first employee. That’s just winning the lottery several times. For the sake of the argument I’ll stick with the more common case; a startup raises a seed round or even a series A. They hire a few good people, operate for a few years, and exit for a number between 0 (failure) and maybe 100M.

In the worst case scenario, no employees (including the founders) receive a payout at the end of the journey. In the 100M case, the founders are set for life. Employee #1 (let’s call him Joe) makes a nice chunk of change but not enough to “solve the money problem.” If during all that time Joe had been working as hard as the founders while making a shitty salary, he will feel like he got a raw deal. This raises an obvious question: why did Joe take a shitty salary, a comparatively small equity stake, and then proceed to work as hard as a founder? Answer: Joe did not know what he was doing. He sold himself short.

So, without counting on riding a Google (or even an AirBnB or a Heroku), when/how/why is it good to be employee #1? Let’s describe one very specific case:

Bob is relatively young. He just finished college, and he’s working as an engineer for some boring corporation far from the coasts. He’s smart and ambitious, and he’d like to start a company. Maybe he even has an idea, a prototype, a potential cofounder named Pedro. What he doesn’t have is a few months worth of Bay Area living expenses in the bank.

Bob would like to move to the Bay Area with Pedro, make connections, raise money. They’d be burning their savings quickly while learning the Silicon Valley game. It may work, but it would be much harder than for someone who’s already been here for a while. Of course there are ways to solve that problem. Being accepted by an incubator such as YCombinator is one of them. However, most people won’t be that lucky.

In this particular case, being employee #1 of a startup could be the way to go. Bob (and maybe Pedro) could move to Silicon Valley for free, and make a reasonable salary. By reasonable I mean: you can rent an apartment in a decent location, live well, and have disposable income. Any startup with funding should be able to pay you a competitive Bay Area salary. If a startup cannot do that for you, then they need to make you a cofounder.

Bob will also get some equity, which could be 5% of what a founder has if he’s lucky. He should negotiate the best deal he can get, but not place any expectations in the potential value of his stock. He may leave before his first cliff, get diluted in subsequent rounds of funding, and of course the startup could crash and burn after a winter or two. The important thing is what Bob should try to accomplish while at the startup, namely:

1) Learning what being a founder means. He will have a chance to see the struggles of the founders up close, perhaps a window into their decisions and thought processes. He can take notes, imagine what he’d do differently, see how things turn out.

2) Making connections. Bob is in Silicon Valley, so he can attend all sorts of events. He can go talk to customers. He may work with potential partners for the startup. If the startup is doing well, he has all the time in the world to meet people who could become potential cofounders. If it’s not, then he’s getting a better deal than the founders from a financial perspective.

Bob is getting paid to get a crash course in startup life. He’s not committed to the company like a founder, so he has the option to abandon ship if/when things look dire. Also, he gets a lottery ticket as a nice bonus. Put this way, one or two years as employee #1 could be the best option for Bob.

If you’re not in Bob’s situation, then you may not want to take that gig. Just don’t go around preaching absolute truths about how stupid it would be to be employee #1, or about how black guys always die first.

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