Estimated Time

• Reading: ~10 minutes
• Video: ~74 minutes
• Activities: to be completed prior to next week

Insights

• Have a plan for when to make a hire and which positions you’ll need first
• Bring in senior-level talent at key positions by offering equity in your company
• Know your market in order to understand what is competitive and fair when hiring

Do you need a co-founder?

• Starting a company can be stressful and lonely
• Having a co-founder is helpful, especially if you are a first-time founder
• Although we are seeing more and more supportive communities grow for founders, like Founder.University, that can help with this
• It is nice to have a partner to divide and conquer the day-to-day
• This is especially true when you are fundraising
• Why do VCs want to see 2-3 founders on a team?
• Because if you quit someone else is still there to work on the idea
• As you know many startups don't work out
• Placing a bet on a solo founder adds risk to an already risky situation
• Investors like to see complementary founding teams so that your team can accomplish most tasks in-house
• If you have already started a successful company and have established credibility then it isn't as important to have a co-founder
• How do you pick a co-founder?
• Identify the skills you have and the skills you need to build a successful company
• You want a co-founder that has a complementary skill set to your own
• If you have a sales background - you want to find a builder
• If you are a builder you might need someone who is a marketer
• Some questions you should ask yourself before deciding on a co-founder:
• Have you worked with them before?
• Do you know how they work day-to-day?
• How do they handle stress when things go wrong?
• Do you trust them?
• Where do you find a co-founder?
• Start with your network and people you know
• Have you worked with anyone on projects that went well?
• Do you know anyone that has the skills and background you're looking for?
• Attend events, conferences, and network
• Expand to your network’s network
• There are several online communities and resources available also to look for co-founders
• It is usually better to go with someone you know and trust
• Finding a co-founder is essentially your first sell
• If you can't find one person to join you that is not a good early sign

Do you know when to make your first hire?

• When can you justify paying someone to do the job(s) you are currently doing as co-founders?
• Ask yourself - how much would it cost to have someone else do this?
• Will the quality stay consistent without your constant input?
• What else could you be working on as a founder with this time?
• Find out how much it costs for you to do the project
• If you are spending X hours of your time on project XYZ - actually do the math
• Formula:
• Hourly cost = salary*1.3 / 2000 (hours)
• Cost of project = hourly cost * hours working
• Why multiply by 1.3?
• This takes into consideration your "all in" cost with benefits
• What could you be spending this time on?
• Can you hire someone for significantly cheaper without loss of production quality?

Do you know which positions to hire for first?

• What are the priorities for your startup when building out your team?
• For example, a deep AI, machine learning application may require different hires than a fashion marketplace
• Do you know what qualities or skills are important in early hires?
• The general rule that Jason suggests:
• If you have less than 10 employees
• Hire generalists
• Once you have more than 10 employees
• Hire specialists
• What to ask in an interview:
• You want to ask questions that help you understand how the individual works & if they'll fit your team
• For example,
• What is a new skill you've learned in the last year?
• Do you think it's more important to be talented or hardworking?
• Teach me something in two minutes (The Chamath question)
• Highlights their passion, ability to be concise, ability to convey information, etc
• How do you handle having multiple assignments at once?

Break-even on a sales team hire

• Just like your bottom-up TAM, you can reverse engineer the hiring of your sales team to some extent
• Ask yourself:
• How many calls does it typically take to get a demo?
• How many demos does it typically to get a sale?
• How many sales will it take to hit our revenue goals?
• How long is the sales cycle?
• Once you have an understanding of these numbers you can start thinking about how many sales hires you’ll need to hit the goals
• Track your MRR to ARR (with margins) and how this leads to $100 million in revenue (and in what year)
• As your team grows, Jason is a big supporter of hiring 'Bar Raisers'
• This is an Amazon concept for hiring - from the book "Working Backwards"
• Have your employees involved in the hiring process, especially if they are not on the direct team you are hiring for
• Every person hired should be better than 50 percent of those currently in similar roles

Should you build a distributed team?

• When hiring in today's landscape, is offering remote positions a requirement?
• Finding talent is going to be one of the biggest challenges for your startup
• Startups can give themselves an advantage by offering flexible working situations
• This can help small competitors outrun larger companies who have sunk cost in real estate
• And if you aren't offering flexible options, you may put yourself at a disadvantage
• How can you build culture and accountability with a remote team?
• What we do at LAUNCH with a remote team:
• SOD-EOD reports
• Slack huddles
• Weekly team calls
• Quarterly team retreats

Do you know what to outsource to freelancers?

• What kinds of projects can you outsource as an early-stage startup?
• If it is strategic - keep it in house
• If it is administrative or repeatable - outsource
• How outsourcing looks to investors:
• Outsourcing product development or engineering is typically seen as a negative
• When you outsource your main product development you are at the mercy of the development team
• You may not be their priority and turning around updates is slower than if you are building it in-house
• Outsourcing sales is a big red flag
• Sales should be founder-led in the early days
• It is vital that the founder is talking to and delighting customers
• Outsourcing HR is typically a good idea
• Outsourcing other administrative work is also a good use of outsourcing
• Remember the startup flywheel: Product, customers, team
• Founders should be focused on perfecting these three things...
• And find ways to outsource things that do not impact the startup flywheel
• Utilize SaaS instead of contractors where you can
• Ask yourself, is there a SaaS tool that can simplify a process?
• For example,
• An HR tools or software rather than a firm
• This helps to create a repeatable and consistent process
• What are the pros of outsourcing?
• It frees you up to do other, more important tasks
• You can focus on the parts of building a startup you're best at
• Freelancers typically are efficient with their time
• What are the cons of outsourcing?
• There is a risk they don't understand your vision
• This can lead to loss of time and money
• Your project is likely one of several the individual/company is working on
• This means you are not a priority
• Communication can be a challenge
• Constant communication eats up your time
• This is the top thing you were trying to save by outsourcing
• Lack of communication can lead to unnecessary errors and delays

How much do you pay early employees?

• Jason often says, "Don't make compensation a conversation"
• In other words, be fair and direct with what you can afford to pay early employees
• To make this really work you need to have a plan early
• You should discuss with your co-founder and advisors at what stage of growth each key hire needs to be made
• VP of sales happens when you hit X [insert company goal]
• VP of marketing when you hit Y [insert company goal]
• Head of PR when you hit Z [insert company goal]
• This can be a bit of a moving target and you adjust as you gather more information but you need to have a plan in place
• This goes back to understanding your model
• You should have a general idea that “by year X we’ll be doing Y and need to hire Z”
• Do your homework
• Always know what is fair value for each major role
• Reward your key contributors
• Don’t give them a reason to be curious about other jobs
• How do you balance experience and high compensation vs. affordable and high potential?
• You probably can't afford the best developers on salary alone
• But you can sell them on your vision and offer equity
• You can also find mid/junior developers with the potential that you can groom
• Many startups will have a senior dev that helps to upskill more junior level individuals early on
• If you bring on too many junior-level employees you run the risk of
• Get creative with hiring
• With remote work - you can get more qualified employees more affordably

Do you know much equity to give to early hires?

• What percent makes sense to reserve when the time comes?
• It will vary depending on the stage your startup is at and the role the hire plays
• Some back of envelope numbers provided by Capbase may look like:

• You can find additional numbers in TechCrunch and Carta blogs
• Equity is limited - so be smart with it
• One major mistake of founders is giving away too much of their company early
• This will mess up the cap table - making it hard for others to invest later on
• Establish and communicate ownership with your team
• Set an employee stock option plan (ESOP)
• If you want to go super deep into employee stock options and liquidation preferences:
• Check out thisweekinstartups.com/basics and click on the stock options episode with Wilson Sonsini's Becki DeGraw!
• One major takeaway from that episode:
• Selecting the 83(b) provision is crucial for founder and employee stock options
• This is because it gives you the option to pay taxes on the total fair market value of your stock options at the time of granting
• If you don't select this option, you'll owe taxes on your stock after every new round of fundraising
• Implement vesting schedules
• A four-year commitment with a one year cliff is common
• This means you need to work at a startup for one year before any ownership is given
• At that point, you get 25% of your total equity
• Then 1/48th is granted each month (48 months over the 4 years) for each month after your first year

Do you know when to start thinking about culture?

• A culture will emerge regardless of if you intentionally focus on it — so you need to set and guide it intentionally from the beginning
• Value hard work and reward your high performers
• When your team is small everyone needs to carry their weight
• One way to do this is to allow multiple members of the team to interview new hires
• This goes back to Amazon's Bar Raiser method
• It is good to have a 3rd party (non-member of the internal team) sit in on interviews
• For example, a member of the ops team helps interview for a podcast role
• This helps give an unbiased view of the candidate
• And helps ensure cultural consistency across the organization
• SOD-EOD Report is one method of accountability at LAUNCH and an option previously discussed in this program
• As the founder, you lead by example and set the tone daily
• Do not wastefully spend
• You don't need the expensive downtown office
• You don't need swag
• No one is going to buy your product because of a t-shirt they saw at a conference
• If you want your team to take days off you have to take days off
• Your team will follow your lead as the founder
• Instill a culture of accountability
• Have the team hold each other accountable for their work
• Don't allow unsatisfactory work to slide
• Address it head-on from the first time you see it
• You may learn about blockers that make everyone else more efficient
• Remove cultural killers
• At a startup with 3, 5, 10 people you can't afford to have dead weight
• You have to fire people who aren't contributing and you need to do it as soon as it is obvious that things are not going to change with the individual

Do you know when to fire an employee?

• Create a performance improvement plan (PiP) if employees are not meeting standards
• Document everything in the process
• When did you meet to discuss improvements?
• What plan was put in place?
• How will you and the individual know if it was successful?
• What are the consequences if it isn’t?
• When will it be reevaluated?
• Be graceful and professional if you do have to fire someone
• Communicate the decision with the team so that everyone understands the standard
• Make sure you understand the employment laws of the state of your employee
• It is also important to note that "the one that got you here aren't necessarily the ones to get you there" and that is okay

Are advisors valuable?

• Advisors are not full-time employees but might offer ideas or answer questions a few hours each month
• Can you find experienced individuals who believe in what you are building?
• Will they offer you valuable insights?
• They are typically paid with equity
• Offering a few basis points to an advisor is fairly common
• Say 0.1% to 0.3% equity for an advisor
• See Founder Institute's FAST Agreement - (Founder / Advisor Standard Template)
• Are the insights they provide worth a stake in the company?

Additional Resources

• Lessons of Greatness: Hire like your life depends on it
• Lessons of Greatness: Why Finding Undiscovered Talent is the Winning Mindset
• How to Hire for Your Startup: The First 8 People You Should Hire
• People & Culture Toolkit
• Keith Rabois: Key lessons from Peter Thiel, Reid Hoffman, and Jack Dorsey
• Lessons of Greatness: Don't Just Be Resilient: How to be Anti-Fragile
• Scaling Your Startup: Sales
• How to Fire Someone
• Greg Miaskiewicz, CEO of Capbase, Cap Table 101 Presentation:

Activities