By Alex St. John – CEO WildTangent
I started my career in Hell. Hell Graphic Systems was a German owned subsidiary of Siemens Corporation in Boston, Massachusetts, where they made “High end” publishing systems. I was 20 when I joined their customer support team. Hell was a big, old, slow company with a lot of gray-haired people ponderously going about managing a well-established business. Most of Hell’s income came from its portfolio of patents on imaging technologies, which generated over 600m/yr for the company in license fees. Its second largest source of income was support and maintenance for ancient mainframe solutions they had sold to giant customers long ago. Nobody worked particularly hard at Hell, there were no dire consequences for failing to get something done in any particular time frame, and everyone generally had a strong sense of job security. Within eighteen months of joining Hell they were all gone.
I have always been a workaholic, so in spite of the environment at Hell, I spent over 100 hours a week at work. If the product Hell was shipping had a bug and I couldn’t get the German engineers to fix it, I’d do it myself or build a work-a-round. When I found or created new solutions I trained the other support engineers in them. When a new product line they built failed disastrously, I took it upon myself to get a new solution made. When the layoffs came, I was one of eight employees left standing. One hundred forty of my highly experienced, entrenched colleagues were gone in 1 day. I used to roller blade around the empty offices and wonder at how strange it was that all of these people who had seemed so important and powerful were gone. You could have heard a pin drop.
Lesson 1: Job security, even at a big entrenched company, is an illusion. Lesson 2: An empty bank account has no mercy and is not impressed by big job titles, achievements of the past, office politics, ivy league degrees, or blustering.
I joined Harlequin Ltd. In the UK when I was 21. They had 30 employees and missed their first payroll when I got there. There were no “VC’s” with bottomless supplies of cash. At that time, if you wanted to be an entrepreneur you got a loan from a bank. During the two years I worked for Harlequin they built their business from 30 people to 300 on pure sweat and revenue. It was built on pure will power (mostly Jez’s). Harlequin’s Managing Director (CEO) was a very stubborn, very rigid man. He wasn’t well liked, but the company thrived for a short time because we built a very superior product, and he was, for better or worse, a draconian businessman.
Some years after I left Harlequin, the company began to fail. They stopped innovating aggressively, diverted their resources from a successful business to a failing one, and alienated their biggest customers. Jo (the CEO) failed to raise money even in a booming VC community, refused to sell the company to many large suitors for reasons of pride, and ultimately the bank called in “receivers” to liquidate the company. Jo was unceremoniously thrown out of the company he had created. 70% of the employees were immediately laid off, and nearly all of the rest shortly thereafter. The ones that remained were essential to Harlequin’s core money making business. Again the bank had no mercy. Only the money survived.
A lot of Harlequin’s employees were good friends of mine and had been given a paltry sum of Harlequin stock options on the promise that they might be worth something one day. They had invested years of their lives in a company that ultimately become worth nothing. A certain degree of bitterness about the whole experience was to be expected. Ask Jez about it.
Lesson 3: Focus on the businesses that make money.
Lesson 4: An empty bank account has no mercy.
I joined Microsoft when I was 25.
During my time at Microsoft it never failed to amaze me how disassociated the employees were from the company’s business. Customers were a nuisance, everybody was “brilliant” by virtue of working at Microsoft, and everyone felt highly entitled to every perk they were given. The vast majority of people’s time at Microsoft was often spent politicking, arguing, and meeting to resolve “conflicts”. It reminded me of what Hell Graphics might have been like years earlier when they were still rolling in money and just beginning to feel complacent. The correlation between what we did at work every day and how Microsoft made its money was so abstract that most people seemed to assume that the wealth was just their natural reward for being such a clever bunch of people.
While I worked at Microsoft I met with literally thousands of companies – young, old, big, small, US, Israel, Japan, London, you name it. I saw a thousand puffed up presentations about how cool their businesses were, how important they were, the customers they had lined up, the brilliance of their management teams, and I saw a thousand resumes from the same folks a few years later. Some would entreat Microsoft for business; some would insist that they would crush us if we didn’t support them. I used to wonder if their bank accounts were very impressed with all of that stuff. I can think of three that I had dealings with back then that are still around enjoying some modicum of success today. The rest are long gone.
Lesson 5: Bank accounts don’t care how smart, articulate, or promising you are. They just go empty.
Internet insanity hit while I was still at Microsoft. Billionaires were minted overnight. VC’s went insane and funded every absurd thing imaginable. The market went through the roof, and everybody got that Microsoft feeling… “We’re rich, therefore we must be brilliant!” Lots of those self-declared geniuses that had never worked anywhere else left Microsoft to take advantage of the boom. They raised money, hired their friends and went to town. Three years later and all those companies, with few exceptions, are gone or on their way out.
Lesson 6: It really sucks to learn the hard way that your bank account doesn’t give a damn about you.
It’s 2001; I’m CEO of a three-year old technology company called WildTangent with 160 employees. We are not generating a lot of revenue yet. I liked Microsoft’s great work environment, I didn’t like its arrogance or the sense of entitlement that people developed for resources they hadn’t really earned. The money in our bank account is not ours. We haven’t earned it. We aren’t entitled to spend it. It’s a loan from investors who believe in us… specifically, they believe that we will create much more wealth than what they have given us. Our bank account feels merciful for the moment because it has other people’s money in it. That won’t last, and the consequences of letting it run low are very ugly. Friendships, good will, fairness, loyalty don’t matter to an empty bank account.
The people who have lent us million of dollars have done so because they believe they will get 10-30 times that in return. We are entitled to nothing until we have delivered on that promise. We may spend their money as we NEED to, not as we want to. We are also investors in the company, but we are investing our time and our sweat. The rewards we are entitled to come from our success, not from our investors. We have done some good things, but we have not succeeded yet.
A startup is a pirate ship. The pay is negligible, the work is tough and dangerous, and only the really courageous have a chance to get rich. Pirates who can’t accept the risks they must take to get the rewards are eternally disappointed. It’s not a lifestyle for everybody. Microsoft stock options don’t make many millionaires anymore, but they can pay a decent salary to folks who don’t like taking risks.
I have personally promised ALL of this company’s investors that we will return their investment to them with substantial interest. That means that I will take the lessons I’ve learned along the way to heart. Our reward is enjoying what we do, and the value we create in our stock. Neither your managers nor I actually have the power to reward you for your effort. That can only come from real success. If I choose to pay each of you more money, I hasten the day that I have to lay people off because we ran out of time to build our business. If I give away too many options then I cannot recruit more risk-taking talent. None of these things are easy choices, but I’ve clearly seen the very unpleasant consequences for the companies that have failed to make them well.
At a startup company we are not paid what we deserve. We are paid exactly what we earn from our customers. If it were not for the faith of our investors, our average salary would be about $3,000/yr right now. Everything we get above that sum is a loan.
Every dollar we borrow against that loan reduces our share of the reward when it comes. It is a harsh reality of the bank account, no matter what we may think about the fairness of it. We have closed three investment rounds and employees are still the dominant shareholders in this company. (That’s often not the case after the first round.) I turned down half of the first 4 million dollars we raised to maintain our ownership in the company. We spent four months negotiating a good valuation in the worst market conditions in Internet history. At each step I’ve fought to ensure that the upside, the reward, for everything we do here is as large as possible for us. Each dollar we spend or pay ourselves sells a slice of that upside to the folks who lent us that dollar.
We work very hard here, so hard that no salary can ever compensate us for the time we may have given up for this company. The only rewards that can justify the demands we are placing on ourselves are immense personal satisfaction and immense wealth. We can only get those by achieving immense real success. A profitable company like Microsoft can afford to pay above average salaries and provide benefits we can’t afford, but then their stock isn’t growing at 300% annually anymore either.
Now that I’m almost done being brutally practical, the punch line is: Scream, cry, pull out your hair, shout at the gods, threaten, whatever- the bank account just doesn’t give a damn about what we think, and it writes the real reviews, including mine. If you want a safe salary, Microsoft is just up the road. Or you can join another startup that will tell you something different, and you can be shocked by the whole revelation when they mysteriously lay you off one day. I know of a dozen people we offered jobs to at this company who accepted “better offers” and are currently unemployed or have a huge pile of underwater stock options as a consequence (-$60/share in one case). For those of you who understand what it means to be a startup, and who can accept some personal sacrifice for greater rewards in the future, this company is the place to be!
We are a pirate ship. All we have on board is bread and rum. If you want more, please direct your cannons at the Spanish merchant ship yonder.
Finally, and most importantly, you are all good people who are creating the foundation for a great company. Good people always have the opportunity to take good jobs at good, established companies. A startup is an opportunity to test yourself and find out if you are great. A startup is not a place to feel secure or comfortable or generously treated. I don’t expect everyone to share my perspective on things or be able to fully appreciate what it means to commit yourselves to a startup mentality if you have never been through it before. If you’ve never gotten rich on stock options then it can seem like a distant fantasy that such a thing is possible, and if you have never been at a company that failed you may not know how grim an experience it is for the people who lose everything they’ve worked for.