Don't indenture employee nr. 4

Published February 21st, 2008 edit replace rm!

I wouldn't want this falling down over me

I see Google is creating a Alumni Relations Program to help create a informal network of ex Google employees.

I think this is a great idea. I’ve always thought that current employees should be (but rarely are) thought of as potential future ambassadors, business partners and clients.

Alumni such as the PayPal alumni, often go do great things together based on their informal network. Rarely does the originating startup benefit at all from these often very strong networks.

I think the following 2 problems are what causes this.

Tight knit startup cultures and traitors

Good startups have a very strong team culture. We’re all in this together, we’re taking the same risks, working the same hours, living the same dream.

This culture is great and important but it also has the very natural side effect of turning people who leave to pursue other dreams into traitors.

There are these awkward moments before the traitor leaves, where no one really wants to talk about it. After the person leaves, he is a natural scape goat when the server crashes as an after affect of that 3am hacking session a few weeks ago.

All in all it’s about as uncomfortable as a divorce, with many of the same symptoms.

I’m not quite sure how to avoid this. But one way would be to actually discuss these things when the employee starts. Lets realize that it’s a real possibility that employee nr 4 in a hot San Francisco Startup might get a more interesting offer or start his own shop in 6 months time. It has been known to happen.

Rather than all the uncomfortable silences you should rather look at this as an opportunity. Talk openly about where they employee is going and what he’s going to be doing. Encourage him to stop by for lunch in the future, who knows there may very well be something that the 2 startups involved can do together in the future. Even informally.

He should be your ambassador and a potential future partner. You might even want to pay a small monthly retainer for him to help out an hour or two a month in case a problem comes up only he knows how to do.

How stock option vesting affect alumnis

Traditionally startups have been desperate to retain employees for as long as possible. One of the ways this is done is by offering stock options with long vesting periods. This means you would have to stay in the company for say 2 years before you could exercise (sell) your stock options.

This I think is a mistake. I have known many people who really want to move on and do something else often for them selves, but who have felt stuck and bitter due to this contract. You often hear the term indentured servant being thrown around.

What happens is one of 3 things:

  1. The employee sticks out the vesting period, making money from the options. He’s a happy man. However he still might leave shortly after he is able to exercise his options.
  2. The employee sticks it out for the vesting period. His stock options are fully vested but worthless. He is bitter that he wasted 2 years of his life on this, when he said no to other offers or he could have started his own shop.
  3. The employee leaves early for a better opportunity feeling bitter that he left the stock options. Often this kind of employee starts bad mouthing the old startup. The founder was a fool, the VC’s destroyed it whatever. Typical drunk bar talk in the Bay Area.

Now the Alumni program Google has fits well with them as their alumni probably come under the first item above. Their alumni are happy, they made out well and now want to experience new things.

A better solution

I know nothing about stock option law etc. But I can’t help thinking that a more flexible approach to stock options for employees (and freelancers even) might hold part of the solution.

Is it possible to vest someone bit by bit on a quarterly basis? Maybe vest entirely within a year, but from the outset offer bonus stock options if you make it to year 2. That small change itself might make stock options feel more like carrots than shackles. Less bitterness.

Once an employee leaves, why not allow some kind of limited stock option plan as part of being part of the informal alumni network and/or being on retainer.

I know there are all kinds of solutions to this. However I feel that too often very innovative startups keep doing things the way they always have been done in the valley. Without questioning why.

This has been another piece in my blog series Think outside the Rounded Box.


Alicia February 22nd, 2008

Companies nowadays have lost their drive to keep their employees intact. They’re given less benefits that make them want to stay for long.

gina February 22nd, 2008

Nice of Google to do a program like that. Being an employee myself, sometimes I have this feeling that companies don’t really care much about people who work for them. I think we deserve some good treatment.

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My name is Pelle Braendgaard. Pronounce it like Pelé the footballer (no relation). CEO of Notabene where we are building FATF Crypto Travel Rule compliance software.

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