Equity Compensation for Top Talent
One of the pivotal decisions I made at CCAW was to hire other high-level thinkers in critical areas. We hired people to lead operations, technology, and product. CCAW was bootstrapped, so we didn’t have tons of cash available to attract the caliber of talent we needed. After much thought and many discussions, I decided to offer some of them equity compensation in the form of stock options. If we achieved certain milestones, their equity compensation would vest and they would have the opportunity to own part of CCAW. This was a good way to align all our interests. We worked toward the same goals.
Equity compensation is a very powerful tool. It can help you land high-caliber talent you otherwise couldn’t afford. When I chose to offer it, I created an employee equity pool. This meant that a certain percentage of CCAW ownership was available for the company to use to compensate employees. Before that, I was the 100% owner of the company. After creating the equity pool, I owned less of the company. I was OK with that.
Founders who want to build big companies will likely need to compensate talent with equity (unless they have substantial cash with which to offer market-rate salaries). Founders who are considering the equity route should research how much equity compensation is appropriate for the stage of the company and the experience level of each candidate. Offer too little equity, and the candidate might reject your offer. Offer too much, and you may not have enough equity left to offer other critical hires.
Company equity is complicated, but it’s something founders should consider understanding sooner rather than later.
The Office Won’t Be the Same
I’ve been having conversations with friends who’ve returned to the office. I was curious to understand what they’re experiencing and how they feel about it. One friend summed up what I’ve been hearing: “There’s no way I can go back to doing five days, but one or two feels good.” Going back to pre-pandemic office life isn’t resonating with friends, but neither is no in-person interaction. Face time for certain situations and just to stay connected in general has value.
I know the return-to-the-office situation is fluid, but I’m interested in seeing how this plays out. My gut tells me that decisions made during this period are likely to shape how we work for the foreseeable future. We’re in a period of change that will have a lasting impact.
Measure What Matters and Share Those Metrics Team-wide
As CCAW scaled, I began noticing issues. We were growing so much and had so many things going on that it was hard for the team to keep up. And we weren’t measuring their workload. Generic questions like “How are things going?” weren’t cutting it. Then one day a complaint reached my desk, which meant it was already out of control. Digging in, I realized we’d taken on too much growth. We were stretching the team too thin. We’d hit an inflection point.
We reworked our processes and added to our team to ease the strain. We identified the three or so top metrics for each team. We systematized the metrics so they auto updated daily and added them to dashboards accessible to everyone. And we took it one step further and had our system email the dashboards to the entire team every morning.
This all made a big difference. Other leaders and I were able to recognize, based on data, when we were approaching inflection points. We made sure to stay ahead of them and not stretch our team again. Other interesting things also happened. Metrics improved across the board in every area. Our team was more self sufficient and required much less management. Our daily standups got shorter and everybody was crystal clear on what they needed to do. The dashboards were giving everyone clarity.
Those metrics and dashboards did wonders for us. They helped align everyone with what mattered most to the business. It was one thing to communicate orally and another for everything to be reinforced regularly with metrics.
Understanding what matters, measuring it, and sharing those metrics will help a company of any size. Even if it’s just a team of two!
Deciding What to Do with Challenging Team Members
Today I listened to an entrepreneur discuss how to manage a challenging team member. This founder is seasoned and has a great grasp on his business. But even with years of experience, human resource issues still consume lots of his time and energy. A few thoughts on this topic:
- CEO multiplier – By the time a human resource situation gets to the CEO’s desk, it’s usually many times worse than what’s being communicated. It’s probably been a concern longer than people are acknowledging.
- Culture – Is the person a culture fit? Rank them against your core values to find out. If the person isn’t a good fit but your core values don’t indicate that, it may be time to rethink your core values. Getting core values right and incorporating them into the hiring process is preventive maintenance.
- Time and energy – If one person consumes a ton of leadership or management time and energy, that’s a red flag. Every time I racked my brain about what to do with a particular team member, they ended up leaving despite my best efforts.
- Custom roles – It’s usually not a good idea to create a custom role to placate someone. It’s a temporary Band-Aid and a horrible example for the rest of the team.
- Coaching – Listening to a team member describe what they think they need can be a productive conversation. Sometimes it highlights diverging expectations or a mismatch between the professional development the person needs and what the company can offer. But other times it suggests simple changes that can get the relationship back on track.
All companies, regardless of size, contend with human resource problems. It’s an inevitable part of managing people. How you handle these situations is important—it speaks volumes about the company to both outsiders and your own people.
Lessons Learned from Outsourcing
I was asked about my experience using offshore talent today. The use case we discussed was specific, but I think the things I shared could be helpful to others considering something similar:
- Nearshore vs. offshore – I have experience nearshoring in Nicaragua and offshoring in a few countries, including the Philippines and Poland. Both worked well. Nearshore talent may better understand American culture and usually the time zone difference is insignificant. Some of our team members in Nicaragua had lived in the United States for extended periods. For these reasons, nearshoring is good for customer-facing roles like customer service.
- Execution – Outsourcing works only if you have processes and systems already in place. What you do and how you do it need to be well defined. If every operational situation is a one-off exception or figured out on the fly, your operations aren’t consistent and your processes are minimal. This might work for in-office hires who can learn on the job. But it will be extremely difficult, if not impossible, to train resources in another country how to execute up to your standards. Without processes and systems, you’re setting the team up for failure.
- Education – Talented people are available for nearshore and offshore work. I worked with some intelligent men and women who had advanced degrees. They can usually do whatever you want if you help them succeed with proper training. If you want more-qualified or more highly educated people, just ask. Usually, firms can accommodate this kind of request if you’re willing to compensate these individuals appropriately based on their qualifications.
- Consistency – Most nearshore and offshore workers and firms value consistency. If you can provide steady work, it will go a long way toward earning loyalty. If you plan to dial people up and down constantly, expect turnover and inconsistent execution.
- Hiring – I initially let outsourcing firms do the team selection, but that didn’t go well. We got some people who weren’t well suited to their roles, and turnover was a problem. I eventually let the firms offer up candidates whom we would interview. The caliber of talent the firms offered went up. (I assume they had a better understanding of our standards.) I suggest sticking with your usual hiring process (with modifications) when you outsource. Misfires are time-consuming and costly with outsourcing, just like they are when you hire locally. Take the time to interview candidates and say no to bad fits.
I hope some of you find these points—which I learned through trial and error—useful. Tons of firms can assist with outsourcing and lots of information is available online. Outsourcing isn’t a silver bullet, but it can be helpful in scaling functions that have defined processes
Some Ways to Build and Reinforce the Culture You Want
Yesterday I shared my thoughts on how a focus on culture is propelling Atlanta start-ups to success. Today, someone asked me how to build and reinforce a great culture. Here are a few things I’ve seen work:
- Ask for examples regularly – It’s one thing to know and be able to repeat your core values. It’s another thing to live them. During reviews (quarterly, monthly, etc.), ask team members for examples of how they’ve exemplified the company’s core values. Knowing this will be asked will prompt people to think about ways to live these values.
- Celebrate – When someone does something outstanding that aligns with your core values, recognize them and make sure the whole team hears about it.
- Publicize your values – Post them on the wall. Write them on employee key cards. Whatever it takes for people to see them regularly. It’s an effective reminder.
- Office Vibe – This is a great tool to gauge the health of your culture. You can send weekly pulse surveys to your team and receive anonymous feedback. And the team knows they have an outlet for communicating any concerns that could affect culture.
- Best places to work – Building a great culture takes time and energy. Once you’ve done it, publicize it. Many cities publish an annual list of best places to work. You have to enter to be considered, and they’ll rank you based on your team’s feedback. If you’re recognized as a top place to work, people will notice and want to come work for you.
There are tons of other things you can do to create and maintain a great culture. This is just a quick list of things that can help.
So Much to Do . . . So Little Time
A thing I’ve noticed about entrepreneurs is how busy most of them are. They usually have a ton of things in their head. New ideas, current projects, you name it. I’ve been asked a few times how I manage lots of moving pieces. I’m human like everyone else and admittedly struggle with this sometimes, but here are a few things that work for me:
- Park it – I put my ideas somewhere in writing—often, in the iPhone notes feature. Parking lots let me catch and release. They get things out of my head and I don’t have to fear forgetting them. This frees up mental bandwidth and reduces stress.
- Visualize – When I get really busy or take on projects that involve lots of tasks and connected pieces, it helps me to visualize everything. Tools like Airtable are great for tracking and visualizing things in a variety of ways. Looking at something organized in a certain way makes it seem more manageable.
- Prioritize – I have only a finite amount of time and energy. I can’t accomplish an infinite number of things. I prioritize and try to work on the highest-priority tasks first.
- Slippage – Things will occasionally fall through the cracks and that’s OK. Everyone is human. The trick is to make sure the things that slip aren’t mission critical. I try to identify things that can and can’t slip.
- Think about it – I’ve been guilty of saying yes too often. Over time I would end up taking on way more than I could do. I now avoid giving an on-the-spot answer to big requests. I ask for time to think about it and then I figure out if it works with everything else on my plate. If it doesn’t, I politely decline.
- Strengths – When I have a task in an area where I’m weak, I try to find a specialist and ask them for help. Sometimes they’re paid. I’ve learned that completing something I’m weak at takes me five or ten times as long as it does a specialist. And the end result is only half as good most times. It’s efficient to leverage the strengths of others.
What are your tricks for managing lots of moving pieces?
Did You Create a Job or a Company?
When I started CCAW, I told people I was an entrepreneur. I had quit my job and created a company that had customers, and I controlled my own destiny (kinda). One summer when I was in New York with friends I tagged along as one of them visited his uncle in Connecticut.
The uncle was entering the later years of a wildly lucrative career. He’d worked in corporate America and then started a successful company with his wife. That company changed the family’s life. When I said I was an entrepreneur, he became more interested in me. He asked lots of questions about my company. Then came the most important question of the conversation: “How many employees do you have?” I remember thinking, Why does that matter? Little did I know that the answer would tell him more about my company and my mindset than anything else we discussed.
At the time it was me and a part-time contractor or two (I was bootstrapping so funds were tight). I proudly told him about my contractors, and he replied, “OK. Keep going; you’re not quite there yet.” What does that mean? I wondered.
In hindsight, I think he was telling me (politely) that I wasn’t an entrepreneur yet. I was on my way, but I hadn’t arrived yet. I had succeeded in creating a job for myself, not a company. I was a solopreneur, not an entrepreneur. At the time I didn’t know there was such a thing as a solopreneur.
Solopreneurs are workers. They’re usually the one and only full-time employee. They handle all aspects of a business and execute most tasks. With no full-time team, everything falls on this one person. If the solopreneur doesn’t work, the work doesn’t get done. They are the business. This setup limits how big the company can get because there’s only so much one person can do. Freelancers of all kinds, barbers, and massage therapists, for example, are often solopreneurs.
Entrepreneurs, on the other hand, are managers. A team conquers by dividing the work. The entrepreneur delegates so he can focus on growing the business. He usually has a larger vision for the company and realizes early he can’t do it all alone. The business has its own identity independent of the founder. If the entrepreneur doesn’t execute, the work still gets done. I like to think of an entrepreneur as the driver of a machine that does the work. Businesses from which you purchase a product or service without interacting with the owner are likely run or were started by entrepreneurs.
Over time I realized that I didn’t want to be a solopreneur because I wanted to grow. I had a bigger vision for CCAW. I eventually hired a great team and focused on building CCAW into a machine that didn’t need me. We went on to accomplish some great things. Looking back, there’s no way I could have done it alone. It was a team effort.
I’m thankful for the conversation I had with my friend’s uncle. Although we met only once, he left a lasting impression on me. His entrepreneurial wisdom was priceless.
If you’re thinking about starting a company (or you have one already), have you decided whether you intend to be a solopreneur or an entrepreneur?
How Lunch Saved Me
As I built CCAW, I wore multiple hats, especially in the early days. It’s part of the entrepreneurial journey and I was fine with it until we reached $5 million or so in annual revenue. As the team and the company’s complexity grew, I began to struggle. It was common to have back-to-back meetings, approve large payments, take calls, and talk to a steady stream of team members who wanted my feedback on an idea. Every day. I was mentally exhausted at the end of most days.
One day when I took time to reflect, I realized what the problem was. Not wearing multiple hats—I was used to that and often enjoyed the variety. The issue was constantly switching between mental modes. One moment I needed to think strategically and high-level. The next moment, tactically about a specific problem. And then back to strategic thinking. I’d often be working on something requiring deep concentrated thought and abruptly stop because someone had a question or I needed to run to a meeting.
Over time, I concluded that I couldn’t keep working that way. I was functioning, but it was wearing on me. I felt like the quality of my work had declined. I decided to address the issue and make a change.
I tried a few approaches that didn’t help much. Eventually I hit on something simple that worked. I realized that lunch was the most consistent part of my day. It also served as a natural mental break and change of scene. So, I segmented my days: before lunch and after lunch.
I could focus better in the morning, so I decided to work on things requiring concentration (strategic planning, presentations, new initiatives, etc.) before lunch. I’d find a quiet space in our co-working building most mornings and work until lunch. Just before lunch I’d join the rest of the team in the office. After lunch I worked in the office on tactical tasks, held meetings, and did everything else.
The difference was like night and day. My days were productive and proactive instead of chaotic and reactive. I was able to make consistent progress on all fronts. Because I wasn’t constantly shifting mentally all day long, I no longer felt mentally exhausted. I was back to enjoying the variety in my work.
I doubt if this approach will work for everyone, but it worked for me. If you’re juggling lots of things, consider: are you managing them proactively or reactively?
How Long Is Your Runway?
Today I had separate conversations with two friends who are entrepreneurs. The Paycheck Protection Program (PPP) came up both times. The program was just announced, so many things still haven’t been sorted out. We agreed, though, about the importance of understanding your runway so you can plan how to navigate the PPP process and communicate effectively with your team, your bank, and other important stakeholders.
At CCAW, I always knew the length of our runway. This equation gave it to me:
- net cash / average monthly fixed expenses = runway (in months)
Here are some inputs we can use for an example:
- cash bank balance: $200,000
- accounts payable (how much you owe others): $50,000
- monthly payroll: $50,000
- monthly rent: $5,000
- other monthly fixed expenses: $7,000
Here’s the calculation:
- Net cash: $200,000 (bank balance) – $50,000 (accounts payable) = $150,000
- Fixed monthly expenses: $50,000 (payroll) + $5,000 (rent) + $7,000 (other fixed expenses) = $62,000
- Runway: $150,000 (net cash) / $62,000 (fixed monthly expenses) = 2.4
This business has 2.4 months of runway left if things get really bad. Of course, this is a worst-case scenario. It assumes the business won’t collect any cash (accounts receivable aren’t included). And it assumes that fixed expenses won’t be reduced. It isn’t meant to be a perfect calculation. It’s just a snapshot to help inform decision-making.
This calculation was revealing to me, especially during difficult times. Every day, I knew how much time I had to right the ship before drastic measures would be required.
I encourage entrepreneurs to regularly calculate their runway and communicate it to key people, internally and externally. This simple metric is super-powerful. It can rally and focus people rapidly, which is critical during difficult times.