The Power Law of Startup Employees

Today is Facebook’s IPO and on Hacker News, Techmeme, Twitter, and… Facebook, I can expect all sorts of messages about Facebook new riches, their new mansions, the rising prices of houses in Palo Alto, Menlo Park, SOMA, or Noe Valley!

When you are an entrepreneur, giving away stock option is both a source of pride and a source of loss because in your heart, they are worth a lot. Yet few employees actually care about stock options (how much they get, what it means, etc…) when they join you.  

And should they care about it? In the heydays of the Internet 1.0 bubble, everybody became crazy because of these stock options and hopefully we are not facing similar craziness this time.

So I decided to do some research on early employees, asking myself the following rhetorical question: for different Company outcomes,

 how many people in the Company (founders included) get  a life changing outcome (=make $1M or more). I surveyed people at 10 Companies of different sizes, including Google, Facebook, Pandora, LinkedIn, and a few smaller Companies that got acquired in the 100M+ range, and in the 10M+ range.

Assuming there are two founders, here is what we have:


For the Maths buff, a power law:What do you see?

You also see that for the once in a decade whale IPOs (like Facebook or Google before them), you can join these Companies pretty late in the game and become a millionaire. For example, you could still join Facebook in 2010, when Facebook had roughly 1200 employees, and be theoretically worth $1M tomorrow morning. And yet, in 2010, few would argue that joining Facebook was a risky proposition. On the other hand, if you look at all Companies that get acquired for less than $1B (which is 99.9% of them), you see that beyond founders and executives, only the first 1-20 employees actually make some money off the sale (Note: this was not true during the first bubble, when Companies went public at a low valuation but grew into very high valuations over time as a Public Company. eBay was a great example of that).

The conclusion is that behind the hype, very few non founders/non execs actually make significant money from joining startups, especially if you join beyond the first 20 employees. As entrepreneurs, it re-emphasize our need to create a great place to work, where the stock option upside is really an afterthought. As employees, it shows that beyond anything, working on a great project with people smarter than you is the only thing that matters. And then, you can always be lucky!

(Human) Investment

Silicon Valley is full of myth, and one of them is around persistence.

These scrappy entrepreneurs who were facing low initial traction or success, and who, with their smarts and persistence, succeeded against all odds. AirBnB, the website for short term rental, now valued in billions of dollars, is the symbol of persistence among 2011 entrepreneurs. “Be a cockroach” as they say.

I have thought numerous times about this concept of “being a cockroach” and it seemed obvious to me in many ways. With the hindsight of my most recent experience, I realize that it is not that common, and it is pretty remarkable to find that tenacity for a pre-investment Company.

Why isn’t that common? Because it would be very easy for at least one of the founders to question the idea a few months in when they see no traction in sight. How can they be so sure after all… After a while (nine months, a year, etc…), even scrappy entrepreneurs can reasonably decide to move on or to “pivot”, especially when they are not accountable in front of other shareholders….

Today, I believe that beyond the faith of the founders in their concept, the main reason why they kept at it and did all kinds of crazy stuff to sustain themselves, is their relationship as friends which changed the whole dynamic. They were having fun working among friends on a concept they cared about. What can replace that ?

As I continue meeting potential cofounders who “like me” but “want me to come back when I have an idea they like more”, I think about the AirBnB founders, and wonder: how long would they have lasted if they perceived relationships between founders like that?

My guess is that AirBnB would not be a billion dollar Company today…

(Cofounder) Dating

On January 1, 2011, I had just left a Company I co-founded, VirtuOz, and went on a quest to find a co-founder to start another Company. Boy was I not expecting the ride it has been…I think I could write a book about it.

The dating sites and dating events, the dates themselves where everybody is bragging but keeping their game close to their chest. The one night stands (a.k.a startup weekend or hackathons), the short term stints (a.k.a “side project”), and then, big leap of faith, you find somebody and you settle – you are not dating anymore, you have a boyfriend/girlfriend (a.k.a “partner”). You move together (in a coworking space of course). You brainstorm. You build a few things that can be ambitious or not, you can put yourself through challenges (a.k.a incumbator application)… and then something comes out: a baby (a.k.a “a product or Company” depending on how traditional you are).

In my case, I did all that and much more, “dated” several potential partners at the same time, did multiple side projects, and … big hope…found my partner. We applied to an incumbator, build a few things that sounded interesting but never got there… and then, bad communication, different life goals, and our path diverged.

We split before celebrating our 6 months together.

That’s where you  understand why Founder dating…is really like dating, after all.

(And I am lucky enough to have forgotten what it was like!)

Lego

When I was in college, I remember reading an article where Bill Gates was talking about the time that would come where software developers could use other programs developed by complete strangers so that something that would have taken them forever to build would be built like a Lego with bricks created by others. That idea fascinated me – the non CS guy who loved the Internet and its power.

Today, as Erik and I were testing out  our new start up idea, we were able to put together a product that is quasi similar (at least in terms of main features) to what we envision the minimum viable product would be, yet without writing one line of code ourselves. We just used existing web services, javascripts of widgets, etc…. and without paying (thank you freemium model!).

So Bill Gates was right.

But he was not ambitious enough (for once). Now, Lego bricks are not only for developers. Non programmers (like me), can now put together a professional looking web application without writing a single line of code,  just using drag and drop tools,  embeddable widgets….and even advertise it to thousands of targeted people, start building a CRM database, etc…

The web is a Lego after all.

I just cannot wait to see what my daughter will be able to build, 20 years from now, with the Lego bricks of her time.

Birth

I’ve wanted to blog for 8 years but never did.

Sure, I blogged for two start-ups 5 years ago… but never in my name. Now, after cleaning up the 7 different blog names in my WordPress account, this is the birth of this blog, and hopefully of a long lasting story.

Why now? Well… my favorite excuse not to blog was that I was too busy growing the different Companies I had founded. But now that I am not (yet) growing a new Company, it’s time to act with words, also.

The day when a baby is born is not the most glamorous for her: she has blood all over, she cries, she doesn’t really know what is going on, even though she has prepared for it for a while, and yet, she need to go through it so that the rest can happen.

So may birth be!

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