Take One for the Team
You've sacrificed a lot to get your company going. But now it's
time to do more to keep your dream together.
Notwithstanding the absolutely stupid and
fundamentally inexplicable performance of the stock market these days, the employee and
management options of probably 95 percent of
the venture-backed startups are way underwater. That is to say, their
option-exercise prices are substantially higher than the current value of the
company stock they'd be buying if they exercised their vested options.
And, for better or worse, they tend to blame the boss for this situation,
because that's the person who talked them into the whole thing. The math is
awful, the incentive component of the grants has been largely dissipated, and
the future of the business at the moment is pretty bleak. This kind of stuff is
never happy news for anyone, but it's absolutely horrible news when it's
accompanied by realistic estimates and expectations (unlike those emerging from
the White House) that the likely period for any material recovery of the
economy is several tough years down the road.
Add to this depressing prospect the fact that,
in most cases, the funds needed to exercise options are borrowed either from
the company itself or third parties, and that there may be immediate tax
consequences, and you see the risk/reward calculations go off the deep end and
into some very dark places--regardless of anyone's remaining enthusiasm for the
company's ultimate prospects. It's easy to blithely say that "life's not
fair" until it's your life that's hanging in the balance and your family
that you're worried about feeding. And it's also human nature to look for
someone to blame even when no one could have foreseen the scale and duration of
this debacle.
It's at times like these that the CEO really
earns his or her keep and the decisions that are made in these toughest of
times really dictate the long-term future of the business. It's not only
the CEO's job -- it has to be a team effort to succeed -- but it's the CEO who
sets the example, renews and restates the company's vision, and defines and
directs the hard choices and changes that need to be made. Good people need to
be let go, exciting initiatives are abandoned, big dreams are shelved, and
survival is all that anyone's talking about.
While sturdy teams can certainly be nurtured
in good times, the way you really become a team that's gonna last is when you
share the most challenging tests and learn just how much you depend on each
other. The danger now is that it's so easy to get down, and down on each other,
which risks fracturing the whole "family."
Holding everyone together starts at the top.
But let's be real, too. Not everyone -- even in the best of times -- is as
crazy and dedicated as the founder. That doesn't mean they don't care about you
or that they're bad people. They're not against you--they're just looking out for
themselves and their families first. Being the boss is both a great privilege
and a sacred responsibility and never more so than in the most difficult
periods. Every change, every step, and every achievement involve painful and
personal sacrifices as well.
You also learn just how lonely the process can
be and how distant so many others can seem. You find out quickly how
"outsiders" are surprisingly indifferent to the fates and futures of
the many employees whose jobs and livelihoods are on the line in part because
it's you (and not them) who has been working daily with these folks, seeing the
sacrifices they've been making, and developing deep and personal connections to
them as individuals rather than headcount.
Board members are free and happy to give you a
wealth of opinions, ideas and suggestions. But they're a lot more reluctant to
part with additional cash and it's generally not their money anyway. Remember
that VCs mainly get paid to say no. The positions and choices of your early
investors and board members may be stressful and enervating, but yours are
existential. Lenders, lessors, and landlords are even less inclined to help or
be there when the going gets really tough. In the end, it always comes down to
you. And, just when you think it can't get any worse, all these folks come to
you and ask you to help make things better by taking one for the team.
And that's exactly what you're going to need
to do in most cases.
Hanging onto and reassuring your team can take
a fair number of forms (cash payments aren't one) and, with a particular focus
on options, which are really the central currency in startups anyway, you're
gonna need to get your board and your backers to agree to reset, reload, and
replenish the option packages of the key management players. The only real way
to get that ball rolling is to make clear to them that whatever you're
proposing doesn't include any adjustment or benefit for you personally.
I'm not sure it's realistic to talk about
redoing companywide plans at this juncture, but those aren't likely to be as
important right now and, frankly, because so many people are being fired,
reallocating those recouped options to the broader workforce sometime down the
line isn't going to be that hard a deal to sell. Right now, you need to keep
your top players motivated, focused, and re-incented to the largest extent
possible given all the other constraints. Here are a few key considerations to
keep in mind.
1. Don't diddle around and don't do a halfway
job.
And do it one time only -- no salami slicing
and little bits at a time. For the most part, the direct gesture and the
acknowledgement are far more important than the exact numbers, which, almost
always, can't really be big enough to be life changing. They're more about
morale and attitude-changing than dollars and cents. People feel good or bad
about an offer or a deal -- not because of the money -- but because of how you
arrived at the deal. Quick, clean, no painful back and forth, and try to treat
the group (apart from you) as equitably as possible, taking into account their
individual ownership positions, but not their financial or other
circumstances outside of the business.
2. Demonstrate that you are putting the
business first.
It's okay to explain that you aren't
participating, not so much to brag about the sacrifices you are making, but
because real leaders demonstrate to their people and everyone else that they
are putting them, and the business, first. Whether it's more options, making
payroll out of your own pocket, or keeping the whole team together even when
the smart move might be otherwise, the main thing is to make it clear to the
team, your board, and your investors that taking care of the key players is the
most important priority and the best bet for the business as well.
3. Last, but not least, don't make it into a
transaction.
In times like these, great leaders give
unreservedly and without any expectation of reward, return or anything in exchange.
Anything less than that is just trading -- not giving -- and it radically
changes the nature of the gesture and the conversation. This isn't
about quid pro quo or bribes or stay bonuses; it's about demonstrating as
best you can under the circumstances the importance of these individuals to the
business, your continued support and commitment to them, and the fact that
their loyalty isn't something that anyone can buy or negotiate for. Loyalty is
something that's earned every day, not by words but by actions. In the toughest
of times, we need loyalty beyond reason. This is not necessarily the smartest
choice for everyone, just the right one. An ounce of loyalty is worth a pound
of cleverness.
Bottom line: This too shall pass. Keep your
head up, do what needs to be done, and do whatever it takes to keep the doors
open. As the noted philosopher Bob Marley used to say: "You never know how
strong you are until being strong is your only choice." Reggae forever.
JUL 7, 2020
