SoCal CTO

Los Angeles Startup Events

2012-05-22T08:22:00.001-07:00

I recently posted about the Increase in Early-Stage Startup Activity in Los Angeles. In that post, I mentioned how one of the signals is the big increase in number of startup events and the number of attendees at those events. I realized that it has been a little while since I posted about the Los Angeles Startup Community and so needed to update my list of startup events that will be out of date almost before I finish publishing it.

SoCal Startup Event Calendars

The following three sources are great at finding a lot of the startup events going on in Los Angeles and SoCal:

Even with all of those, they still often don't have all of the different meetings, especially smaller events listed. So, you may also want to go look at:

Los Angeles Startup Events

Here are some of the events and meetups that I've spoken at, attended or at least interest me. Of course, given the size of this list and having kids, I really can't attend a lot of these. So, if you happen to read this and want to meet me, just reach out directly.

Startup CTO Speaking

2012-05-21T08:47:00.000-07:00

Over the past several years, I've done lots of presentations around a wide variety of topics. I was recently asked by an organization, "Tony, what topics can you cover?" I realized that I've never captured topics that I've covered (I'm always willing to look at other topics), nor have I put up my speaker bio. So, here goes:

Dr. Tony Karrer

Over the past 15 years, Tony has been a part-time CTO for more than 30 startups. Most notably, he was the original CTO for eHarmony for its first four years making him partly responsible for more than 4% of the marriages every year. He's also led significant technology projects for a very impressive list of companies including Citibank, Lexus, Microsoft, Nissan, Universal, IBM, HP, Sun, and the list goes on.

Tony has a Ph.D. in Computer Science and taught computer science for 11 years. He is a frequent speaker at trade and industry events.

Select Startup CTO Speaking Topics

Ten Lessons from Working on 30+ Startups Over the Past 15 Years

Tony looks back over his experience working with startups and extracts elements that have led to success or failure. Many of the factors are not obvious and include building mystery to drive margin, why boring B2B companies often win but are challenging in other ways, how bootstrapping wins, integrating metrics from the start and many other similar lessons.

Startup Feedback Panelist

Tony has participated on many panels where he can provide real-time feedback to startup founders. Startups provide introductions and Tony and fellow panelists provide feedback in real-time. These are exciting and fun experiences for everyone involved.

Evolving Role of Social Networks for Startups

In this talk, Tony traces the evolution of how startups have leveraged social networks and social media as part of their solutions over the past ten years. Tony provides specific models and suggestions for how startups can leverage social networks for viral growth yet maintain their independence so as not to limit themselves long-term.

Matching for Startups

Having been involved in eHarmony from the start, Tony has naturally consulted with startups who are making matching a core aspect of their product including matching for social networks, careers, clothes, jobs, projects, college, tutoring services, doctors, service companies, investments, and many more. As the web has led to exposure of every increasing numbers, people need ways to filter the possible options. In this talk, Tony looks at where and how matching algorithms can be applied to give significant value to startups.

How Startups are Winning by Wiring into 3rd Party Services and Data

Probably the biggest change over the past 15 years in working with startups is the availability of 3rd party services that can be leveraged as part of a solution. Its common for startups to think about services like hosting/computing, storage, analytics, maps, email delivery and tracking, and eCommerce. However, there's really been an explosion of services over the past few years that gives even greater leverage and opportunity. Possibly even more interesting is the rapidly growing data sources. In this talk, Tony first looks at the landscape of 3rd party services and data. Then, he explores how several startups have leveraged those services and data in interesting ways. He ends by looking at how this might help startups in the room.

Why Software Development Goes Bad So Often and What You Can Do About It

Most likely you've heard the staggering statistics on failure of software projects with different reports showing 28% success rates. Tony is often called in after projects have reached a critical situation to try to help fix the problems such as blown budgets/schedules, poor quality code, never quite getting the last 10% done and other symptoms. Unfortunately, for startups, the situation is often dire. Development dollars have been spent and the system is not going to be able to be used for the business.

As a Startup, you have one shot. What are you going to do to reduce your chance of problems and maximize your chances of real success? What is the root cause of all of these problems? How do you know if you may have issues? What parts Agile addresses and the big problems with Agile for early-stage startups?

This presentation may make the difference between success and failure in your startup.

Metrics-Driven Startups

Virtually every startup has a model that has critical aspects to it that will make or break the business. What is our lifetime customer value and how can we drive that up? What does it cost to acquire a new customer? What is our viral spread coefficient?

The key for most early-stage startups is to understand the core metrics for your business, ensure you have visibility into those metrics, and then optimize the business around those metrics. In this talk, Tony talks about the importance of these metrics for you and your possible investors, how startups typically gather these metrics without spending a fortune on reporting, and provides examples from eHarmony and other startups that may surprise you.

Stupid Things Founder Say - How to Work More Effectively with Techies

Software developers and other technical people are part of a very interesting club that has its own language, very specific rules, secret handshakes and, yes, they definitely talk behind your back and laugh at things that you say. Unfortunately, once you've lost the respect of your technical team, it makes it hard to get work done and frankly becomes frustrating. If you are not part of the club and don't speak the language, how can you work effectively with them?

Tony has been bridging that gap for 15 years with companies of all shapes and sizes. In this talk, he helps you understand what you might be doing wrong today and how to change things to work with techies more effectively by understanding their motivation and getting yourself smart enough on critical items.

Startup Surge in Los Angeles

2012-05-14T08:47:00.001-07:00

Ben Kuo just posted on SoCalTech:

Are the good times for startups back?

That seemed to be the mood running through the cloud at the more-than-sellout crowd at the Fairmont Miramar in Santa Monica Thursday at the first LA Demo Day. At the event, the enthusiasm for startups was palpable. The crowd of more than 1,500 spilled out into hallways, and would-be investors were turned away from the doors, as a crush of entrepreneurs, investors, service providers, wanna-be entrepreneurs, and others looked to be part of the surge of startups emerging in Los Angeles.

Certainly it feels like there's been a recent surge in Startup activity here in Los Angeles and as well nationally. My two big data points are:

What's happening in the Los Angeles Startup Events such as popular events like LA Demo Day.
Increase in the number of inquiries I've been getting for: Free Startup CTO Consulting Sessions and/or other similar kinds of inquiries.

It has gone from 2 or 3 a week about a year ago to more than 5 per week.

A lot of this action is early-stage startups and it's not clear to me how all of this will shake out given how hard it is for VCs to raise capital right now.

Are others seeing this as well?

CTO Salary and Equity Trends 2009-2011

2012-04-18T09:00:00.008-07:00

Todd Gitlin of Safire Partners - a go to resource here in LA for recruiting C-level positions at startups - was nice enough to compile some data again this year (see last year's Startup CTO Salary and Equity Data). Even better, my good friend and data visualization guru Steve Wexler of Data Revelations was able to create visualizations of the data.

Here's a live version of the data and below it is a bit of analysis of the trends.

I'm showing snapshots below. I would be very curious to get reactions to what people find in the live data.

CTO Salary and Equity Comparison

My guess is that most people who come here are going to be Founders, CEOs and CTOs who want to compare salary and equity of the CTO Position in their organization vs. their peers. Or they are looking at Hiring a CTO and want to see what salary and equity ranges look like.

Well the easiest visualization to use is to go to the Benchmarks Tab.

You then make selections around aspects like Founder Status, Job Title, Headcount, Revenue, Development Stage, Capital Raised, Funding Round, etc. If you get too specific, then the counts will get very small and may not be the best comparison. You can also enter salary and equity data to see where you stand.

As was pointed out in last year's post, generally there's as companies get older, have more funding, revenue, headcount, maturity:

Salaries go up
Equity percentage goes down

Trend #1 - Sizable Salary Increases

I've been talking for a while about the increasing demand for CTOs the past few years and a similar challenge in finding developers in Los Angeles. What I had not realized is that this had translated into escalating salaries for CTOs and VP Engineering. I was expecting that over the past few years, the pressure on VCs maybe had translated into lower salaries. It has not.

I tried slicing this a few different ways, but in virtually every case the trend is clear. CTO salaries are escalating quickly.

Trend #2 - Early Stage Companies Lower Salary and Higher Equity (for Founder CTOs)

The one exception to Trend #1 seems to be for Startup CTOs at earlier stage companies. If you look at the year-over-year trends from 2009-2011 for companies that have raised less than $10M:

and another chart that is only startups with Seed or Series A according to development stage:

To me this is a very interesting set of trends that I would not have guessed without seeing the data.

Anyone else a little surprised? Or seeing something else that's interesting?

Hiring Developers Before Product/Market Fit?

2012-04-02T07:52:00.000-07:00

Using my StartupRoar as a radar, I came across a great post by Gabriel Weinberg Do you really need a full-time hire for that?

Hiring seems to be the preferred use of seed funds (by investors and founders), whereas I'd prefer a focus on customer acquisition.

....

The problem is you don't yet have product/market fit, and until you do, you don't really know what to build. And that should be the focus of the founders -- to find the special fit that will make your company take off. When product vision is truly clear, then it makes sense to execute it, and hiring follows.

In the mean time, if you need some extra help, get some contractors to test out specific things. You may end up hiring these people eventually and you'll know more about them when you do.

I'm not sure I'd carry the argument quite as far as Gabriel does, but I completely agree with his central premise. When I talk with early-stage companies, often the discussion starts with them asking me about Hiring a CTO for Your Startup, or Finding a Technical Cofounder for Your Startup or How to Find Programmers for Your Startup. In other words, they come in asking for help with sourcing and hiring. These companies are very early-stage and definitely have not shown product/market fit. Far from it.

In many cases, during my Free Startup CTO Consulting Session with them, we discuss where they are in in the process. They are very early. They need to determine product/market fit. They need to conserve cash.

The startup founder is definitely not ready to hire a CTO. And in most cases they are not ready to hire developers either.

Instead, what they should be considering is how to bridge the Startup Founder Developer Gap and exactly what they need in terms of Startup CTO or Developer.

They most often really just need either a Part-Time CTO or Technology Advisor, and then some combination of hiring and/or outsourcing (on-shore or off-shore). The Part-Time CTO or Technology Advisor will be able to help make that determination.

Of course, there's still hard work to be done to as the bad news is that its hard finding good Web Development in Los Angeles and certainly its tough Finding Developers Here in Los Angeles.

Great post Gabriel!

Finding a Technical Cofounder for Your Startup

2012-03-12T11:00:00.001-07:00

I've recently received several emails from people looking for a technical cofounder for their startup. I promised I would write this post with some thoughts and ideas on the topic. Here's an example of that kind of email.

"I'm looking for a partner / cofounder who can not only head the technical aspects and build a working model of the site, but someone with the connections to put a great development team together when we need it. "

Typically, this requires quite a bit more information for me to be able to respond and provide real help. I've talked about that in lots of other posts, so you can visit some of these to help determine what you specifically need:

Key ingredients in the equation are:

How complex is the system? - Make sure you go through the 32 Questions Developers May Have Forgot to Ask a Startup Founder.
Do you have dollars to pay for development?

Okay, so now you have it narrowed down and have determined that you need:

Part-Time CTO or Technology Advisor to help guide you and close a bit of the Startup Founder Developer Gap, and
Equity-Only Cofounder Developer - the first real developer that will work for equity and produce the bulk of the application.

Of course, you will want to figure out a bit more about the specifics of what this developer needs to know vs. can learn. Your technical advisor can likely help.

Before you go out looking for your Cofounder, you should also be thinking about what will motivate them as I talk about in How to Hunt Programmers for Your Startup - A Field Guide.

The bad news is that Finding Developers is Tough Here in Los Angeles and even people willing to pay have a hard time finding Web Development in Los Angeles. Of course, you are looking for something a little different - a technical Cofounder. The bad news is that they can get a good paying job anytime. The good news is that likely is not what they want.

Where to Search for the Technical Cofounder

So where might you run into the right person? Here are some ideas:

In your company or other companies. Find the developers in your current company and other companies that you can get inside. Get to know the developers. Find out who is good. Ask your friends to do the same. Take lots of them out for free coffee, food, beer. Ask them about your concept.

Tech Events / Meetups - In Los Angeles, There are lots of Networking Events in Los Angeles and Southern California that are techie oriented. You should definitely hit up the Startup Weekend events as well. And look at StartupDigest.com for lots of startup oriented events.

Make sure you meet the people who run these events. They often can help a lot in navigating to expertise and to possible resources.

Student Groups - Go to the local university and find out what student groups there are for programmers. Ask around for ideas on where they hang out.

LinkedIn - This remains one of my primary tools. It's a bit hard to use to find a cofounder, but I would certainly go ask everyone I know to introduce me to programmers they know. And then use them to get to even more.

Twitter - You can run searches for various types of techie terms being used in a given geography. Follow them and reply to introduce yourself.

Befriend Recruiters - Most recruiters will not be happy I say this as they generally don't like talking to people in this situation, but they still often will have lots of ideas for where technical people in your geography hang out.

Sites - There are a bunch of sites out there aimed at this or similar issues. Most of them suffer from lack of activity, but it's worth a shot. Some sites to check out:

CoFounderNetwork.com
PartnerUp.com
Namesake.com - more of a social network, but still a good way to network
TechCofounder.com
Foundrs.com
Startuplinkup.com
Cofoundrs.com

You can try finding folks via

Oh, and often there are forums for particular technologies where you can look.

Here are a few perspectives on the topic of finding technical cofounders:

In Building a sweat equity team, Joel on Software tells us:

You simply need to network. Go to user groups. Go to tech (or other relevant industry) events. Refine your elevator pitch. Eventually you'll catch the ear, the vision, of someone who would like to jump on board, and has something you need in return.

A great post by Elizabeth Knopf , FounderDating: How I Found My Co-Founder where she breaks down the process much like how you think about a sales process. I'm focusing on the sourcing ("lead gen" on her slide) aspect.

In Please, please, please stop asking how to find a technical co-founder, Jason Freedman tackles this a different way and suggests how you "earn a technical cofounder" along the lines of:

Learn to Code
Build the Front-End
Test on Paper
Build a Following
Spend Some Money

Here are a bunch of other articles on the topic of Cofounders.

How Much Equity a Technical Cofounder Should Get

6 Ways to Find A Technical Co-Founder

Places to Find Developers in Exchange for Sweat Equity

How To Find A Programmer To Build Your Startup Idea

Bootstrapping a Lean Startup

Finding a Technical Partner for Your Startup

Finding Your Co-Founders

CTO Equity - Negotiation After Funding

Startup CTO Salary and Equity Data

Hiring a CTO for Your Startup

How to Hunt Programmers for Your Startup - A Field Guide

How I Found a Great CTO

We have a CTO, and so can you!

Why Your Startup Can’t Afford To Hire a CTO

Advice for CTO Founders: Don't Let Business Kill the Business

The Different CTO Roles

Why Your Startup Can’t Afford To NOT Hire a CTO

HOW TO: Hire the Perfect CTO

Finding a technical co-founder: You’re doing it wrong

How to find a technical Cofounder

Technical Cofounders are Overrated

A Minimum Viable Team is more important than a Minimum Viable Product

7 Startup Co-Founders That Can Lead to Conflict

What is the best way to divide up ownership in a startup?

Ten Steps in Choosing the Right Startup Partner

Lockboxer CEO: You Don’t Need A Technical Co-Founder To Start A Web Business

How to pick a co-founder

The Co-Founder Mythology

Finding Your Co-Founders

Spencer Fry — Picking Your Co-Founders

Do I Need a Co-Founder: The 90/50 Rule of Startup Founders

How To Work Better with Your Co-Founder

How Do I Know You Are Mr. Right (Co-Founder)?

Why you can('t) recruit a technical cofounder

AskBob: Where do I find developer cofounder?

Things to Avoid When Recruiting Co-founders

Finding Technical Cofounders Is Hard

Need a Technical Co-founder? Hire a Product Design Lead First

Nailing that elusive technical co-founder

StartupRoar Adds Personalized Subscriptions

2012-01-05T14:33:00.001-08:00

Aggregage, the platform that powers StartupRoar has added a powerful personalization engine. That means that the site now allows users to sign-up and have their content personalized based on their interests.

You can sign-up via the "Personalize Your Content" button on the right side of the interface shown to the right of the red arrow below.

By the way, I should point out that the four top articles on the site when I took the screen shot were all great:

The Long Grind Before You Become an Overnight Success- Vinicius Vacanti, September 12, 2011
Hacking Angel List | VentureArchetypes Blog: Seed Stage Capital- Seed Stage Capital, July 13, 2011
Hiring a CTO for Your Startup- SoCal CTO, April 27, 2011
Competitive Research 101 for Startups- Instigator Blog, August 30, 2011

It's what I love about the site. It always has great, fresh content from a wide variety of industry professionals. Every time I visit it, I find something that I missed that was really good content.

Now with personalization it's even better. The picture below gives a sense of what's happening:

Curators handle finding the best sources of content. The system then uses social signals such as those coming from Facebook, twitter, LinkedIn, delicious as well as clicks and views. These are compared to averages for the source and also looks at who is providing the signal, how often they signal things, how often they signal for that particular source, etc. Those aspects existed before and it does a good job of finding great content.

What's new now is that the site allows you to sign up and provide your Twitter and LinkedIn information. The site will look at your activity on these sites and the content of what you share. It will use that to find interests as well as to cluster you with other users who are like you based on interests and sharing. You can partially control your interests via the Subscription page as shown below:

This will change over time based on your LinkedIn and twitter activity. You can always visit and manually select interests as well. You can read a bit more here: Personalization Explained.

The system then can combine three pieces of information to figure out what will be most interesting to you:

Social signal score – are people in the audience finding it interesting
Topic match – does it match up with your interests
Like sharing – are individuals who are like you sharing this

The system uses these to both rank things on the site and to generate Daily and Weekly newsletters.

The reason that I'm most exited about this is that I partly use StartupRoar to make sure I don't miss things that is good content that is relevant to me. Now with personalization, it is even less likely that something will sneak by.

I also personally like the format of the new newsletter.

Give it a try and let me know what you think.

Registration Form Design with Facebook, Twitter, LinkedIn Authentication

2011-10-24T10:39:00.001-07:00

I continually face the challenge of designing and building registration / sign-up pages on a wide variety of different web sites and mobile applications. Back in January 2010, I wrote a post that's one of the most popular on this blog:

When to Use Facebook Connect – Twitter Oauth – Google Friend Connect for Authentication?

That post looked at when and why you would use Facebook, Twitter, LinkedIn, etc. as part of your registration and authentication mechanism. While some technical aspects in the post quickly changed (e.g., Facebook changed its data caching policy), many of the issues remain the same. It's definitely worth a read if you've not seen it before as background for this post.

Design Challenge

In this particular web site, we needed to get the user's email (and password). We also wanted users to provide information about twitter and LinkedIn to help personalize the application. At first it seems like this should be pretty easy to design - think again.

Here's a classic example that illustrates the issue - the sign-up page from Mahalo.

Mahalo offers you the choice of sign-up / registration via a host of social networks (powered by JanRain). They tell you the other option is to provide your email and password.

At the heart of this is two main advantages of having social network sign-up / registration.

Allowing the user to click on the Sign-Up / Register via a social network such as Facebook, Twitter, etc. means faster, easier sign-up and increases the likelihood of sign-up.
By having the user sign-in to twitter or Facebook, we can ask for permissions to tweet or post to their wall or other social actions on their behalf. We also can get access to their social graph.

For some solutions, it's sufficient to just have authentication via the third party, but in my experience it's pretty rare to have that be the only mechanism used during a sign-up process for a startup.

In my prior post, I point out two major downsides of relying only on registration via a third-party social network:

Multiple Social Networks. If there are multiple social networks offered, returning users may not be recognized if they click on a different social network. In other words, the first time I sign-up with Facebook. At a much later time or on a different computer (no cookies), I come back and try to sign-in with Twitter. The system won't recognize me.
Email Address. The other problem is that only Facebook currently allows us to grab an email address. If you want an email, you will need to either limit your sign-up to be Facebook only, or you will need to ask for an email address after their initial sign-up. In other words, you are likely still going to go through the registration that's on the right side of the Mahalo sign-up page.

This is exactly what Mahalo ends up doing. I signed into my twitter account and gave them permission. But now Mahalo must come back and ask me to either establish my account (New User) or sign-in as an existing user.

As a user, this feels a little strange. I first click on the register or sign-up button. I am presented with a choice of using a social network to sign-up OR providing my email and password. I choose a social network, but then I'm forced to put in an email and password anyhow. Huh?

I've tried a few times to design around this and do something else, but it doesn't really work out in practice. And you will certainly see this design pattern all over the place. Here's XYDO's sign-up box:

It's behavior is a little different, but also a bit funny. At first it seems like I can sign-up with Twitter or Facebook. However, if you sign-up with twitter, it puts a check mark next to it and leaves you on this page still requiring you to enter your name and email address. Even with Facebook, where you can get a name and email, it still needs to ask you for your user name and password.

StoreEnvy has a sign-up with Facebook option on it's first page. It grabs your email. But it still is left asking you for more.

Bottom Line

In our case, we were designing an application where we needed to get the email and password, but we also wanted to get users to authenticate with LinkedIn and Twitter in order to get information about them and their social networks.

At first we tried down the same path as Mahalo. We provided a sign-up page that had an alternative of signing up with a social network (twitter or LinkedIn) OR signing up by providing an email and password. However, we ran into the same problem as Mahalo where our second page was then asking for more social network information and the email and password. The confusion factor was just too high. So, we went back to a more basic design.

Up front, we have a well designed sign-up / registration form. You can see a bunch of great information on designing these forms in the following posts:

The second step of the sign-up process asks the user to authenticate to their Twitter and LinkedIn accounts. This is more along the lines of a multistep sign up using a progress tracker.

In our case, the steps are:

Step 1 - Get email and password
Step 2 - Get social network information / authentication
Step 3 - Confirm additional information

I personally think this is a more "honest" approach and makes it much more clear to users what is going on.

Customer Validation - 33 Great Articles

2011-10-06T12:31:00.001-07:00

I saw a great post from Tristan Kromer Pivoting on Investor Feedback a.k.a Beware of Mentors. It was a top post on StartupRoar on Tuesday. His basic point was:

If someone, including me, tells you something isn’t a great idea and there’s no market for it there are only two acceptable responses. Either:

"That’s interesting. I’m going to take that thought out into the field and validate it with my customers."

OR…

"You’re wrong. I’ve spoken to dozens of customers, I have a validated customer persona, built an MVP to test key behavioral hypotheses, and the data doesn’t back what you’re saying."

Today I had two conversations with early stage startups (see Free CTO Consulting). In both cases, I was the mentor telling the person that the idea, as I understood it was "not great." One was an enterprise software product. The other was a consumer play with possible viral growth. Neither felt like a slam dunk. Would it take more work to sell the enterprise product than they could make on it? Would the consumer one get traction and be viral? In both cases, my gut said that as framed it needed work.

In both cases, the founder and I brainstormed on ways to shift the product in order to get closer to what I perceived as something that would be great.

Neither had done enough customer validation to be able to say the second line that Tristan suggested. There certainly had not been enough validation of the concept as it stood. I would guess that most people who are providing feedback on your idea have a pretty good filter for what you have done to validate the concept. If you've not Done Your Homework, it will be obvious.

In both cases, the answer was that the founder would go to find other ideas, turn those into paper descriptions and validate it with customers. Customer Validation 101. And that's the first response that Tristan suggests.

Now some helpful articles on Customer Validation, Customer Development, Lean:

Equity for Early Employees in Early Stage Startups

2011-09-27T07:03:00.000-07:00

I was asked by a reader how much equity he should give out to early employees and to service providers in a very early stage startup. I'll get to service providers in a later post.

Founders vs. Early Employees

To help with this discussion, let me start with a definition of "early employee." Steve Blank divides the individuals associated with startups as:

Founders
Early Employees (Employees # 1-25)
Later Employees (Employees # 26-125)

The reality is that the definition of founder and employee is not clear. The first few people into a startup are on a spectrum of founder vs. early employee. Founders are likely not paid for a long time and have a sizeable equity percentage for early risk and having the concept. An employee is later, has a greater portion of compensation as cash, has lower risk, and generally does not bring as much to bear in terms of the concept.

Early Employee Equity is an Art

I somewhat agree with Fred Wilson in Employee Equity: How Much?

For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula. Getting someone to join your dream before it is much of anything is an art not a science.

Equity Formulas

While it's somewhat an art, there has been a lot written about how you can look at equity compensation.

Paul Graham provides what is roughly the core formula for equity at any point in The Equity Equation:

You can use the same formula when giving stock to employees, but it works in the other direction. If i is the average outcome for the company with the addition of some new person, then they're worth n such that i = 1/(1 - n). Which means n = (i - 1)/i.

For example, suppose you're just two founders and you want to hire an additional hacker who's so good you feel he'll increase the average outcome of the whole company by 20%. n = (1.2 - 1)/1.2 = .167. So you'll break even if you trade 16.7% of the company for him.

Let's run through an example. Suppose the company wants to make a "profit" of 50% on the new hire mentioned above. So subtract a third from 16.7% and we have 11.1% as his "retail" price. Suppose further that he's going to cost $60k a year in salary and overhead, x 1.5 = $90k total. If the company's valuation is $2 million, $90k is 4.5%. 11.1% - 4.5% = an offer of 6.6%.

Of course, to be able to use this kind of formula, you will need to be able to determine how much impact the person will have and figure out a valuation. I've talked about this topic before in How Investors Think About Valuation of Pre-Revenue Startups. You can also take a look at StartupRoar's topics: Startup Valuation, Pre-Money Valuation, and Early Stage Valuation.

Same Value for Sweat Equity as Investment Dollars?

Jason Cohen in How to think about cash vs. equity compensation (definitely read the comments) provides similar kinds of formulas. The key in his approach is that equity compensation should be viewed the same way that you view investment. In other words, the loss of compensation for the early employee as compared to market rate should be viewed as equivalent to the equity for that same dollar amount from an investor.

Logically, that's correct, but I personally would put a risk premium on equity compensation. I also believe that early employees should be bringing higher value than early investor dollars as they can and should contribute to the concept greater than an investor. They are partially rewarded by the increase in value of their equity. But their contributions raise the value for everyone. I believe that Paul Graham's core formula takes that into account.

Ben Yoskovitz gets to a similar point In Changing Equity Structures for Early Startup Employees:

The more that those first employees feel like founders in terms of their ownership, emotional attachment, responsibility and overall understanding of the startup process (including financing, running day-to-day activities, etc.) the better the startup will be.

David Beisel puts it another way:

Being an early hire at a startup gives an individual the ability to make tremendous impact on an organization as it grows – and both the founders and those hires should know it.

Of course, all of that assumes that the early employee does make an impact.

Risk Premium on Equity Compensation?

While Jason Cohen suggests that investment cash and sweat equity should be viewed the same, quite a few people suggest that there should be a risk premium for early employees at early-stage startups. A risk premium is a multiplier that says that any equity compensation should be viewed as being worth less than cash for that employee because of the risk.

The risk premiums that I've seen vary widely with seemingly camps of:

None - like Jason
20-50%
3x - 4x

In a way, suggesting there should be a risk premium is just arguing over valuation and expected return. There's also the aspect that the equity that you typically get as part of equity compensation is behind other equity in preference and thus effectively has lower value.

But the more important rationale is raised in the following about why employees most often do not have significant outcomes even in fairly positive liquidity events.

Memo to CEOs And Founders: Share The Love

Consider the proceeds of a $50-million acquisition for a 100-person company that has raised $14 million with a typical liquidation preference:

Because of the liquidation preference, the investors get $14 million right off the top. The remaining $36 million is divided according to equity ownership.

Investors own 50%, and get $18 million, split between two firms

The two founders own 33%, and split $12 million

The 3-person executive team, including a CEO if one was hired, owns 10%, and splits $3.6 million. The team gets another $3 million as a severance payment or an earn-out, to sweeten the acquisition offer.

The remaining 95 employees split 7%, each earning $27,000. Unlike the founders, the employees have to wait until their grants vest, working at a company no longer of their choosing for two years.

Is it Time for You to Earn or to Learn?

You get 1%, you sell for $150 million and it’s in 3 years (e.g. you won the lottery). That’s an after-tax gain of $287,500 / year for 2 years. Not bad. Doh! Wait a second. Stock vests for 4 years. You didn’t get acceleration on a change of control? Sorry bud. We’ll have to either cut your earnings in half to $143,750 or you’ll have to complete 2-years at BigCo that bought you making the money spread out over 4 years so it’s $143,750 / year for 4 years.

The reality is that an early employee in a pre-funded startup that eventually raises a few rounds of capital will be diluted significantly, is down the line in preference, and will likely be locked up for a while to harvest it. And that's assuming that it's a fairly positive outcome. If it's anything less that positive, preferences will mean they get nothing other than what's required to keep them working if that's needed at the acquiring company.

Sample Equity Numbers

I personally always like to see some actual numbers rather than basing things on formulas. Because of the Art aspect of early employee equity, I had trouble finding much in the way of numbers for that specific aspect. I did find a few things for later points.

Wilson Sonsini and DFJ Gotham Ventures:

The Option Pool Shuffle:

Title Range (%)

CEO 5 – 10

COO 2 – 5

VP 1 – 2

Independent Board Member 1

Director 0.4 – 1.25

Lead Engineer 0.5 – 1

5+ years experience Engineer 0.33 – 0.66

Manager or Junior Engineer 0.2 – 0.33

It's important to note that this is all post Series A. If the company is pre-funding or only has a small friends and family seed round, then the numbers should go up from there based on expected dilution and greater risk.

You can also look at some data around this in Startup CTO Salary and Equity Data at some specific numbers at different stages

Where I Come Out

Again, like Fred Wilson says, early employee equity is more art than science. I would look at the individual involved and factor in:

Domain expertise
Connections
Experience with related ventures
Ability to make significant contributions
Replaceable - are there lots of other people out there who can do the same thing.
Part-time vs. Full-time - doing something on the side is less valuable

In other words, if I find someone who's willing to dive-in, who's going to significantly contribute to make the company a success and it would be hard to get anyone else, then I would provide significant equity, most likely an equity premium. If this is a junior level developer, then likely you can provide significantly less equity. The example numbers above bear this out.

Oh, and one last thing, make sure you figure this out upfront, you have it vest, you have ways to get it back, etc. There's a lot of advice out there on structuring equity compensation agreements. Go read up on that and do it right.

More Resources

There's a lot out there on this topic that's well worth reading.

Equity Compensation at a Startup is a Big Gamble

The bottom line is that you shouldn’t even think about joining a startup, stock or no stock, unless you believe in it and are ready for the adventure of your life.

Splitting Startup Equity for Your Piece of the Pie

Equity-Only CTO and Equity-Only Developers

CTO Equity and Compensation at Venture Backed Companies

Visualization of Startup CTO Equity and Salary Data

CTO Equity - Negotiation After Funding

What is the best way to divide up ownership in a startup?

How To Calculate Sweat Equity

Startup Equity For Employees

A VC: Employee Equity: How Much?

How to figure out what those VC terms mean for your equity

Make Sure Sweat Equity Vests

How To Allocate Founder and Employee Equity

Is Dilution Considered When Talking About Equity Ranges?

How much equity for investors and employees?

NDA Stealth Mode and Sharing Your Startup Concept

2011-09-20T07:26:00.000-07:00

One of the readers asked my opinion around sharing your startup concept:

My first question has always been - how do you protect your idea while shopping around for feedback, partners, developers, etc.? Especially if the idea could be whipped-up by a few 24-year olds in a few weeks?

Lots of thoughts here. First, if your idea really is something that a couple programmers can whip up in a few weeks, then you may not have much of a business here. But let's leave that aside for a minute.

My basic claim is that you MUST HAVE LOTS OF EARLY CONVERSATIONS. As Chris Dixon says in Why you shouldn’t keep your startup idea secret. He tells us you'll get the following benefits from talking to lots of people:

There are lots of benefits to talking to people. You’ll get suggestions for improvements. You’ll discover flaws and hopefully correct them. You’ll learn a lot more about the sector/industry. You’ll learn about competitive products that exist or are being built. You’ll gauge people’s excitement level for the product and for various features. You’ll refine your sales and investor pitch. You might even discover your idea is a bad idea and save yourself years of hitting your head against the wall.

Niel Robertson in The Stealth Mode: Trada’s Position on Staying Stealth captures the basic communication needs of early stage startups pretty well:

In the beginning there are three basic things every startup needs: experts to give you input on your product as you’re building it, users to help you beta test your product in a real-life setting, customers who will give you real money for what you’re building and take real risk in doing so. You need all of these people to bake the cake.

He left out capital sources, but it's still a pretty succinct list of the types of people / communication you should be having early stage.

What is Stealth?

What's also interesting in Niel's piece is that he defines Stealth Mode not as not having conversations, but rather he says it's not make public pronouncements. Seth Levine in To stealth or not to stealth says this pretty well:

There are varying degrees of stealth, ranging from companies that won’t tell anyone what they are up to, to companies (like the one I’m referring to)that don’t have a web site and haven’t made any announcement of their business intentions or funding but aren’t hiding what they are doing in daily industry conversations, etc.

The reality is that Stealth is defined differently in each case. What we are talking about is a spectrum of how you restrict early communications around your business:

Who you will talk to including the public / press / etc.
What you will convey in your conversations
What protections you will place on those communications

For example, you might decide that portions of your concept will be controlled more closely (a secret algorithm). This will only be disclosed when there is an NDA in place. But you will be able to convey other aspects freely, even publicly.

How Stealthy Should You Be?

This is going to be fairly specific to the company. I would suggest that it's best to be as open as possible. My general take is similar to Chris Dixon. In that same post Why you shouldn’t keep your startup idea secret where he argues to make things open, he defines only one group of people that you may want to avoid having a conversation with:

The handful of people in the world who might copy your idea are entrepreneurs just starting up with a very similar idea. You can probably just explicitly avoid these people, although by talking to lots of people your ideas will likely seep through to them.

I might also be concerned about taking my idea directly to a large, well funded competitor who is know for innovation. And I probably will not announce detailed specifics publicly prior to creating them. Beyond that, I want lots of conversations with experts, users, customers, VCs, partners, etc. I may decide to hold back some detailed specifics around algorithms. But generally I'm going to favor being open.

Since I fall into the expert category, my belief is that you should be pretty open with me. Startups that come to me and ask me to sign an NDA in order to get Free Startup CTO Consulting really are missing it. And getting into a discussion but not being able to tell me about your business also hurts you. "We are doing something in mobile advertising." Ummm ... "Good luck with that." What can I say.

I like how Mark Suster handles the question in 10 Marketing Lessons for Early-Stage Tech Startups. Definitely take a look at he suggests you balance the choices.

I also will point out that in the The 15 Mistakes of First Time Entrepreneurs:

9. I don’t want to share my idea because someone might steal it – the benefit of sharing is greater than detriment- investors won’t sign an NDA.

And there's more via StartupRoar in Stealth Startups including:

NDAs or Other Protection

So you decide you want to be able to share with experts, users, customers, VCs, partners, etc. in order to get the benefits that come from those conversations. You decide what you will convey in those conversations (and what you will not).

Again, relying on StartupRoar this time looking at NDA for Startups, I found some good stuff that you should definitely go through in more detail.

Startup Reality Distortion #3: The Fallacy Of the Non-Disclosure Agreement (NDA)

Don’t rely on an NDA to protect the truly “secret” stuff. It’s likely not going to give you the protection you think it is.

More more via StartupRoar in NDAs for Startups including:

Don't Lead with Protection

I want to close this with one bottom line thought. Please don't make protection of your idea a major topic early in conversations. This is much like condoms. You don't bring the topic up early in conversation. Condoms like protecting your idea can come up naturally later in the conversation. Instead go in knowing what you will share and won't share with this person. Try to be as open as you can, but be prepared when questions reach the border. Simply say that you have some secret sauce in that part of it and aren't prepared to share it. And make sure that does preclude you from sharing enough to make it an effective conversation.

You really should go read Brad Feld's Implied Suspicion Versus Implied Trust. It captures the typical scenario and some of the logic and emotion that goes along with early conversations.

Entrepreneur: Following is an email describing my idea. Since you won’t sign an NDA, you agree that by reading beyond this paragraph you are agreeing not to share my idea with anyone, forward this email to anyone, or discuss the idea without my consent.

....

Feld: You seem to be operating from a perspective of “implied suspicion.” I don’t work this way – I much prefer to operate from a perspective of “implied trust.” Since you clearly don’t trust that I’ll behave responsibly, then I don’t think I’m a good match for working with you.

Definitely read the whole thing.

Startup CTO Resources

2011-09-19T11:39:00.002-07:00

I've posted quite a few things on the topics associated with being a Startup CTO. I've tried to collect them together here as a starting point for this topic. And here are my CTO Speaking Topics.

Free Startup CTO Consulting Session

You can find more here: Startup CTO. And you may also want to review Startup Development.
If you are interested in this topic, I post on it frequently. You can sign up for free email updates using the subscribe box on the right side.

How to Hunt Programmers for Your Startup - A Field Guide

2011-09-14T07:38:00.001-07:00

This post is admittedly the outcome of a conversation with a few people over some beers. Some of it is a bit tongue-in-cheek and certainly we are greatly simplifying things. The people around the table included a bunch of us who would be prey in some situations. So, please take this in the spirit intended.

The conversation centered around a founder who's key question is "Where Do I Find a Developer for My Startup?" In this case, he had a pretty compelling idea, had very little money, and didn't have the capacity himself to build it. His goal was to find a programmer who would come in as an early partner and work as an Equity-Only Developer. The situation is pretty common it got us to riff a bit around how to get programmers to help him build out a proof-of-concept version for his startup. Along the way, this gradually turned into hunting programmers in the wild.

Before You Hunt - Be Prepared

But before I answer the core question, let me address a few up-front questions. Don't go hunting for programmers until you've answered these.

1. Have you done all you can on paper?

Do you have wireframes? Have you tested the concept with customers using paper? Have you signed some test customers? Have you tested what you can without development? Don't try to hunting programmers until you've pushed this as far as you can on paper and get early customers.

2. Do you know the relative effort to build your prototype or minimum viable product?

The relative size of the development effort will make a big difference in your strategy. There's a cutoff point once you reach roughly 3 person months of development time. At that point, you can't really just try to find someone to build it on the side, do equity only, etc. It needs to be funded to be successful. The grind is too much and too long if it gets beyond that size.

What do you do if you don't know the size? Ask a few CTO type people. Or ask me Free Startup CTO Consulting Sessions.

3. What are the key developer skills that are needed?

Is this a Wordpress hack? Is it big data? Deep algorithms? Have a rough idea of what you are looking for in terms of talent. Again, if you don't know you should ask people who will know.

4. Is this compelling to a developer?

Be prepared to sell this to the developer. More on this below.

In the case of the entrepreneur that was the genesis of this post, he had done a lot on paper. He had a few early customers ready to go. The size of his initial build was roughly 3 person months and it wasn't particular complex. It was a mobile app, so he ideally would find someone who had experience with mobile development or someone who could pick up a mobile framework. And generally, it seemed pretty compelling for a developer.

In this particular case, because mobile development is hot, it was pretty unlikely that this founder would find someone with experience with mobile development willing to jump on this. So, instead he was really looking for two people: (1) someone with experience who could spend an hour here and there guiding development, (2) an up-and-comer who wanted to get into mobile development. Did we just make his problem twice as hard? Not really. This will still work if you run into exactly the right person.

Getting to Know Your Prey

At their core, programmers are often motivated by a few specific things:

Solve a problem, create something neat from scratch - basically all of us technical people love to tackle problems. The beauty of programming is that you take a concept and turn it into reality with just typing some stuff into the computer. It's about creation. It's really an amazing beautiful thing.
Learn something new - most programmers love learning new technologies or solving new kinds of problems. They don't want to do the same old thing again.
Food and other Rewards - Programmers (like most people) love to be treated nicely. Most days, they toil away and no one really seems to appreciate what they do. If you buy them food (pizza, donuts, coffee) or free stuff (tech gadget, big monitor, t-shirt), they will love you for it far beyond the cost of the actual item.

There are also a few things that programmers really do not like, make sure you avoid these:

Salespeople / Being Sold - Does anyone like this? You are selling them, but be subtle. Ask for help. Enlist them. Don't sell them.
Pretending to Know More Than You Know - When people are speaking a non-native language, they often miss subtle things. I remember how my Swiss German colleagues would say "his English is perfect." No one who grew up in the US would ever say our English skills rise to the level of perfection. That's just too high and there's always more. It tips you off that the person doesn't quite get the nuance. Speaking tech to programmers is the same thing. Programmers will hear your little mistakes and if you pretend you "speak perfectly" - it will immediately lose respect with them.
Not Knowing Enough - Unfortunately, you also cannot get into a conversation with a programmer and not know the first thing about the technology. If you don't understand the basics about mobile technology, then read up on it. Admit you don't know the details, but at least get to a 101 level before you talk to a programmer.
Time Wasters - Don't talk too much. Stay on point. Only go social when they go social.

If you need more help on really getting inside the mind of programmers, two great resources are Dilbert and Foxtrot (the little kid is a budding rock star developer).

Find Your Prey

Urban Legend - Willie Sutton, the bank robber, is known responding to the question "why he robbed banks" by saying, "because that's where the money is." Turns out that's disputed, but it's still the basis for Sutton's Law.

Where do programmers hang out? The answer is that programmers are hard to find. They are generally less social creatures. They tend to cluster and don't like to talk to people who have lesser abilities (i.e., anyone who doesn't program).

Some places you can find programmers locally:

In your company or other companies. Find your dev shop. Find out who the programmers are. Visit your friends and ask them to bring you to their dev shop. Ask your friends to visit their dev shop/programmers on their behalf.

Tech Events / Meetups - There are lots of Networking Events in Los Angeles and Southern California that are techie oriented. In this case, looking for mobile developer events in the local area makes a lot of sense. But it would also be good to look for developer oriented events aimed outside mobile to look for people who might want to get into mobile. You should definitely hit up the Startup Weekend events as well. And look at StartupDigest.com

Make sure you meet the people who run these events. They often can help a lot in navigating to expertise and to possible resources.

Student Groups - Go to the local university and find out what student groups there are for programmers. Ask around for ideas on where they hang out.

LinkedIn - This remains one of my primary tools. It's a bit hard to use for this kind of request, but I would certainly go ask everyone I know to introduce me to programmers they know. And then use them to get to even more. You can certainly do this through Facebook as well, but I would use LinkedIn.

Twitter - You can run searches for various types of techie terms being used in a given geography. Follow them and reply to introduce yourself.

Sites - There are a bunch of sites out there aimed at this or similar issues. Most of them suffer from lack of activity, but it's worth a shot. Some sites to check out:

CoFounderNetwork.com
PartnerUp.com
Namesake.com - more of a social network, but still a good way to network
TechCofounder.com
Foundrs.com
Startuplinkup.com
Cofoundrs.com

You can lookup also on this Google spreadsheet: https://spreadsheets.google.com/...

You can try finding folks via

Oh, and often there are forums for particular technologies where you can look. In this case, these sites didn't pan out all that well for the entrepreneur. Part of the issue was that he wanted someone local.

Approaching Your Prey

Actually, before you approach any programmer, please keep in mind to use caution. Don't scare off your prey. Remember that programmers generally are skittish and don't trust outsiders. You are an outsider. If you come up to a programmer and just ask them to help you build your product. Game over. They will be thinking at that point - "How can I gracefully exit this conversation with my limited social skills?"

Instead think about what will motivate them. If we take the example that was the genesis here, the founder wants two types of people. He wants a person who knows mobile development pretty well who can help direct the action (the expert), and he wants someone who is a good coder who can learn to build out the needed mobile application (the developer). What will motivate these two people?

The first person (the expert) will likely be motivated by being involved in a fun, exciting problem/venture, lots of immediate rewards, not too much time commitment.

The developer will be motivated by getting involved in a fun, exciting problem/venture, lots of learning opportunity.

So, if I'm at an event that's full of prey, I will go around the room introducing myself to people (probably starting with the host) and roughly say:

"I've got a concept defined and some early customers, but I'm not sure if using a mobile framework, building native apps directly, or maybe even doing an HTML 5 app is the right way to go. Who should I talk to here who I can buy a coffee and tell them about my concept and get their input on the concept and especially on technical direction?"

This is intended to find the experts in the room. A few notes about this:

Make it clear that you've done your homework: I already have some people who want this, but I need to get it built.
Present up an interesting question: I need to figure out what my technical approach will be.
Show you also want their input on the idea.
You are willing to buy coffee, pizza as an immediate reward.

By the way, this works just fine if you happen to already be talking to the expert. By the way, if the person tells you that you should talk to a particular person then please say, that's great, "could you introduce me?" and start leaning to prompt them to start walking with you. Most often people are happy to do it and it helps with immediate rapport with the prey.

Once you are talking to a person who's been introduced as a likely expert, the language is pretty much the same as above, but you likely will get into a bit more detail and then ask them if you can get them coffee sometime. They likely will want to try to solve your problem right there (did I mention us techies like to solve problems). Resist this a bit. It would be much better to build more rapport with them.

When I'm looking for the developer, my approach is pretty similar.

"I've got a concept defined and some early customers and have someone who's helping me from a technical strategy perspective, but I'm looking for someone who's a good developer and interested in getting into mobile development."

More Resources

You can find a bunch more resources in this post: Startup Development

32 Questions Developers Should Ask a Startup Founder

2011-08-04T09:48:00.002-07:00

Almost every day I'm talking to early stage startup founders (see Free Startup CTO Consulting Sessions) about what they plan to do. I tend to ask a lot of questions, challenge aspects, make suggestions. But I've often been very surprised by one aspect of these conversations. Many of these founders have talked with several developers or development firms about their plans. Yet, I'm often the first person who's asking them questions that I consider to be pretty basic. Of course, it's way more complex than just these questions. It needs to be a conversation. There's just too much variation. Still, if you've not heard these questions from a developer, they are not helping you as much as they should.

Before I jump into the 28 questions, let me start with 14 questions that I will want to go through first so I know a bit more about what we are talking about. Think of these as the big upfront questions:

Who are the customers? What’s their specific need / pain? Please be able to provide me with a few specific examples of different types of customers, what they need, what the system will do for them.
Tell me about the business. How are you funding this? What level of funding do you currently have? What are the big milestones you have as a business? Do you have any specific deals done that are a basis of this? Where are you today and what's happening right now?
What have you done so far to validate the concept?
What’s different, special here? Where’s the mystery (see Matching Algorithm)?
Who are the other stakeholders involved? Other types of users? Partners? Administrators?
How will you be taking this to market? What channels will you use (e.g., SEO for Startups)?
What are your key Startup Metrics? How do you make your money? How do you measure success?
What already exists in your space? Who are your big competitors? What are some good examples of similar sites? How will you differentiate from these?
What special data, content, APIs, etc. are you going to leverage? What’s the state of the relationships that brings you that data? What’s the state of those systems?
Where do you stand on your brand, name, logo, positioning? Examples of other brands/sites that are similar from a brand perspective?
Are there any specific hard dates or important time sensitive opportunities?
What do you see as some of the bigger risks / challenges?
Major Phases / Major Features - What are the major features in the major phases for the product? What set of functionality would make your company launch-ready?
What has been captured so far? Are there specs? Mock-ups? Wireframes? Comps?

Questions Developers May Have Forgot to Ask

So here are some of the questions that developers may not have thought to ask and a little bit of commentary around each question.

1. eCommerce - Is this subscription? If so, how many kinds of subscriptions? What are the rules for subscriptions? Discount support? Free-trials? Bundling? Coupons? Often this ties to marketing support. In other words, you want to offer a discount to a given group to provide incentive. Is it pay-to-play? Do you transact immediately or on delivery of some product or service? Do you have a merchant account already set up? Do you have a payment gateway?

2. Targets - Is this browser only? How concerned are we about design for mobile? Which devices? Native mobile apps? Obviously, it's far simpler to aim for browser-based systems and basically aim your design to work okay on mobile devices with some additional effort on the part of the user.

3. Registration - will you support Facebook Connect or similar authentication? Will you also have a separate login? See also - When to Use Facebook Connect – Twitter Oauth – Google Friend Connect for Authentication. Do you need to round trip an email to validate the email? Captcha? How much member profile information do you need before allowing a user to login?

4. Member Profiles - What data is included? Is there a step-by-step wizard? Pictures?

5. Social Integration/Viral Outreach - are you integrating in some way with social networks? Is your integration limited to login and “like” buttons or are you building a presence within the social networks themselves? Messaging? Any other kind of viral outreach? See Branchout an Example of Viral Spread Opportunity for Startups. Refer a friend? Cloudsponge for email invites to large group?

6. Communication/Forums - are there discussion forums? Commenting? Messaging? Flagging? Moderation?

7. Social Interaction - how do you represent users/members to one another? Is there interaction? What kinds? Friends? I would actually suggest that asking if you want friending/connections is a bit of a trick question. Generally, the answer should be "no." How, if at all, are users grouped by the system? By background (employer, university)? By preferences?

8. Location/Geography - are you using geographic information? How? Is your application location-aware? Will you tap into geolocation services provided by the browser or license a third-party lookup table? How does the application behave when location data is not available?

9. Gamification/Scoring - any kind of scoring and/or gamification to encourage participation? Are there achievements and badges? A leaderboard among users or groups?

10. Video (and Audio) - if you have video, are you hosting it or can we use YouTube, Vimeo? Do you need to process user-contributed media? What about reporting and moderation? Do you want Flash video, HTML 5 video, or both? Does it need to playback on mobile devices?

11. Notifications - what notifications are needed in the system? Dismissable? Do they generate emails or other external notifications? Do you need to provide RSS?

12. Email - are you sending out emails periodically? Are these blasts manually created? Are there complex rules for when emails go out? How often are emails updated, i.e., do you need to be able to edit the email easily? Do we want to use something like SendGrid in order to help with delivery? Do you need to track views and bounces? What are your privacy rules?

13. Marketing Support - what will the system need to do in order to help track with marketing and tracking marketing effectiveness? Are there specific landing pages? Tracking URLs? Referral sources? Affiliate tracking?

14. SEO Support - will URLs need to be well formed? Will back-end support for SEO be needed?

15. Content Management - do we need to allow easy editing of content in the system? How robust does this need to be? Arbitrary new pages? Lists of pages in the interface? Dates/times for posting? Content access controls? Are regular users contributing content or only system administrators?

16. Dates/Time Zones - Do we need to handle multiple Time Zones and do conversion automatically?

17. Search - is there search? What is searchable? How advanced does it need to be initially?

18. Logging/Auditing - do we need to log certain operations in order to help with customer support or for auditing?

19. Analytics/Metrics - what are the key startup metrics that you will need to track? Are there specific metrics needed for future funding rounds or for operations? Beyond simple web analytics, what is needed?

20. Administration - what will you need to be able to do from a back-end? Administer users? Dump out data?

21. Reporting - What needs to be reported? Are data dumps (CSV for Excel) sufficient? Important note here: reporting can be endless, keep it small.

22. Accounting - Do we just need to dump out transactions or is there more to it? Are you tracking inventory? What does the system need to provide to support fulfillment?

23. Customer Service Support - Do you need specific interfaces and support for customer service? Ticket tracking? Are customer service reps heavily constrained or free to make arbitrary changes (and run arbitrary transactions) on behalf of users?

24. Security - are there any specific kinds of security risks? Is the whole site SSL/HTTPS, only the login process, or something in between? Does the site need to throttle potential malicious activity?

25. Scalability - what do you expect from a scale standpoint? What kinds of spikes in traffic could we have? How will we address these without significant cost?

26. Integration Points - are there any third-party systems that we will need to be able to integrate with?

27. Existing People Capabilities - what capabilities such as graphic design, user interaction, product manager, QA do you already have access to? Who? How much availability?

28. Hosting - is there anything in place for hosting? Any preferences? Do you need help getting hosting going?

29. Site Management - what will be needed in terms of site management?

30. Platform – are there pre-existing technical platform decisions that must be considered?

31. Team – is there or will there be multiple segments in the development team? If so, are specific software development processes necessary?

32. Product Management – Do you have a clear vision of the initial product and a plan for sequencing changes after the initial launch? Do you have the internal staff to manage changes?

StartupRoar - Great Content for Startups

2011-07-13T07:11:00.000-07:00

Today I join Ben Yoskovitz, Vinicius Vacanti, Jill Hubbard Bowman and Steve Blank and others in announcing the launch of StartupRoar.

This site aggregates and filters content from thought leaders who talk about topics such as Marketing, Sales, Design, Revenue, Hiring, Social Media, Business Models, Metrics, PR, Venture Capital, Angel Investors, Bootstrapping, Incubators, Agile and many others.

As you might imagine, when you go to the page on Customer Development, you find the best and the latest content from people like Steve Blank and Vinicius Vacanti. For example:

Similarly, when you look at IP / Intellectual Property for Startups, it's dominated by Jill Hubbard Bowman's wonderful content. Or looking at issues around Founders you find the great post from Ben Yoskovitz on Founder DNA – How Investors Evaluate Startup Founders. Click around on the various topics to find some amazing resources.

The home page always shows the latest and greatest content coming out. You can also “change edition” to focus on content written today, yesterday, this week, this month, this year, or other date ranges. The top items from StartupRoar This Month are some really great pieces:

You can subscribe to a daily or weekly feed of content and you can follow StartupRoar on Twitter.

One thing to make clear, StartupRoar is a jump off point. All content is shown as a snippet and links directly back to the source. The site aggregates content but doesn't own it or try to copy it. The goal is to bring together very high quality content selected by curators, provide a way to navigate through that content, help surface content that might be missed, and be a jump off point to the rich, vibrant startup content community.

Visual Basic Reinvented

2011-06-22T08:14:00.001-07:00

Back in 2006, I posted about the Promise of Web 2.0 - Comparison to Macros, IDEs, and Visual Basic and pointed out that Visual Basic was a huge innovation that allowed many new developers to build applications.

We've been using Google Apps as the basis for developing some very interesting online applications. The announcement today Building UI in Apps Script just got a whole lot easier that shows how you can use a drag and drop - Visual Basic like. It's very crude, but interesting to see.

This is a long way from what you can do with Microsoft Office, Scripting, Visual Basic. However, because of the cloud nature, this is interesting to see. That said, it could very well be that Microsoft is able to beat Google to this.

Branchout an Example of Viral Spread Opportunity for Startups

2011-06-15T10:16:00.001-07:00

Branchout, often called LinkedIn meets Facebook, has done a lot in their application to provide users motivation and opportunity to spread the word about the service. The purpose of Branchout is helping people to network their way to jobs. However, funny enough, I don't see the job search and showing you who you know at the company as being particularly well done. As one review put it:

Searching by company to find connections you might have is arduous at best, and in my mind, basically useless.

But that's not the focus of this post. Instead, I want to look at how they've integrated themselves with Facebook and particularly how they engage users to help viral spread. And it certainly seems to have worked with reports of:

Branchout has seen explosive growth in January 2011, growing from 10K to 250K monthly users, with a total usership now in the hundreds of thousands.

That's impressive growth! How did they do it?

Getting Going Is Easy

Branchout has done a great job making registration easy. You connect with Facebook. They ask for a little bit additional information and that's it, you are up and going.

They've also done a nice job of importing LinkedIn background information. It brings in Work History and Education. It allows you to easily edit items.

You are up and going in just a few clicks. Of course, there's a lot more on any kind of application like this to really get things setup, but Branchout has done a good job making that happen incrementally.

As an example, they walk you through getting your profile more complete.

and as part of completing your profile, it helps you spread the message around Branchout.

But the next step is a bit questionable. Is it even acceptable as part of Facebook's Terms of Service to require someone to Like something in order to "complete" it? This one pushes maybe just a little too hard. Later in this post, I'll talk about some of the downside of how they've made this viral.

One thing I liked in the design is how they treated completion of the profile:

It's now complete and you just dismiss it from that area.

Primary Interaction - Social Interaction

Okay, my profile is complete, now what? Well it's interesting that when you look at the home page interface, most of the interface is really about social interaction. Everything on the left side below your picture is an opportunity to build your network, I've got some details below about a few of them. The right column also contains opportunities to expand your network. It does have jobs and companies a little bit, but it's much more abut social interaction.

I'll explore a few of the social interactions that help with viral growth.

Endorsements

I think they did a good job on endorsements. They use the profile completion to get you to do your first endorsement, so it's more natural to do them in the future. They have the following information on your home page about what's happening with endorsements to get you into it more often.

When you go into the process of endorsements, they show you your friends and allow you to filter to those who are members and those that have career info. Once you select someone, it's very easy to add an endorsement. And, of course, that person gets notified and you can tweet or post your endorsement as well. When you are done, it asks you to endorse more people.

People can also request endorsements which further promotes this and the interface to provide an endorsement for them is very easy to use.

Network and Connection Statistics

Possibly Branchout focuses too much on your network. It feels a bit like the early days on LinkedIn. They definitely push you to be a heavily connected user and give you lots of data.

When you drill down a bit:

Badges

I actually think they did badges pretty well.

They give everyone a badge "Early Adopter" and give you an opportunity to post it. You can also post a Badge Request.

They've made it super easy for you to send badges to other users. Possibly too easy as it likely devalues them a bit. More on this below. You can either first choose a badge and then award it or choose a user and award a badge.

Notice also that on the user screen (Alan Edgett), you can give a badge, vote for Alan, request an endorsement, send a message or give an endorsement. All of these generate social interaction.

I actually think that this particular implementation of badges is a bit weaker than what I've seen in other applications. If you are looking at how your application can/should use badges, it might be good to review a few other sources.

5 Reasons Why You Shouldn’t Just Add Badges To Any Old Game or Website talks specifically to the issues of being careful about adding badges appropriately and not rewarding just any old action.

A lot of games and services are now copying foursquare to offer badges for actions, and in their rush to get ahead they are offering badges earlier and more often, to make players feel more rewarded. As a reviewer, I play with these services every day and now feel as if a badge has zero positive value, and is just an annoyance.

4 Reasons Marketers Should Add Badges to Social Apps - gives several reasons, but also points out that it's important to show how badges are "earned." In the case of Branchout, they really are just votes, not as much earned. There are a few other badges, but it's not clear how you obtain them.

Influence user behavior If users are clear on how badges are earned, badges drive desired user behavior. In our app, unearned badges are obscured visually and accompanied with instructions on how the badge is earned. In the Intel Phone of Tomorrow Challenge, users learn that the Ethernet Badge is earned by successfully inviting three friends to play and the Pocket Protector Badge is earned by commenting on 10 different ideas.

Quizzes

At first when I saw quizzes, I didn't think they would be viral. Turns out they've done a couple of things to make them viral.

Within a quiz they have a question or two that asks you about your friends and when you choose one, it defaults to sharing this on their wall. I have no idea how it chose these friends.

They also give you the opportunity to share your results. They push pretty hard on this by making the little tiny "x" to dismiss and the BIG blue Post to My Wall where you would normally find the default interaction.

They also allow you to invite your friends to take this quiz. I'm not sure if that really sparks that much interaction, but worth a try.

Hot or Not

As long as we are trying everything to go viral, let's also add in a proven winner - Hot or Not. In this case, it's in the context of who you would want to work with.

See the little check box on the bottom left. It's on by default and it shares the result with the winner. If you uncheck it and begin to go through and choose people, pretty soon you get the following pop-up. And the word "ignorant" is used to dissuade you from choosing that option. Having it come up every few times is a bit annoying.

Once I was done going through 30 votes, I then understood what it mean to "vote" for someone which we saw in the interface associated with the user. I get to see my "Friends with the most Votes". Of course these are the people who are most connected hence they get the most votes. So, this is really not quite the same as Hot or Not, but still similar and another way to provide viral growth.

Too Much Social Interaction?

There's been a fair bit of discussion that Branchout is a bit too aggressive in its push for social interaction. From a post BranchOut, Inherently Viral Services And Customer Acquisition On Social Networks they point to the following kinds of responses that being overly aggressive in pushing viral can cause:

Choosing a Programming Language and Framework for Your Startup

2011-06-13T11:54:00.001-07:00

We had an interesting presentation at the LA CTO Forum by the CTO of a startup who chose Groovy / Grails as the framework for their startup. t prompted a good discussion around how CTOs go about choosing the programming language and framework for their startup.

Some common themes from the discussion:

Know Where You Are Going

Before you can possibly make a choice around language and framework you need to ask all the important questions that are talked about in Startup Software Development – Do Your Homework Before You Develop Anything and Startup CTO or Developer.

Closely Aligned Functional Needs

The most common reason that a language and platform is chosen is because there's an existing set of (often open source) functionality that you can tap into that aligns closely with your functional needs. For example, you may have content management and community needs that closely align with Drupal. There are some cautions around these choices, but it is often the basis of a choice.

Similarly, you may also have an existing code base or set of libraries written in a language. This may push you in that direction.

Of course, if you are developing native mobile apps or building something on top of a particular code base or you need to integrate tightly with something, all of those factors may push you directly towards a particular language and framework. For example, you might choose Sencha if you are building apps that run natively on several platforms (e.g., desktop, mobile, browser).

Existing People

In many cases, the choice comes more out of who's involved and existing code than based on what the "best choice" would be. Most of the time, there are people / stakeholders who have a particular skill set. Or you might have an investor (or founder) who's convinced that you need to work in a given language (some VCs love Ruby right now).

Misconceptions

When I talk with founders and VCs there are often quite a few misconceptions around the choice of language and framework.

Misconception #1 - "You can build things 10x faster in Ruby."

With Ruby/Rails, Groovy/Grails and many other language/framework choices, some aspects of development are significantly faster. It's way easier to get your pages setup in these languages than by choosing Java alone. Of course, I'm not sure that anyone chooses Java alone. They start with lots of other things. Still there's no doubt that some aspects come quickly. But if you are building anything with significant functionality to it, then first, don't believe the 10x. You may get 3x improved speed for roughly 10-20% of the effort of building your site. The rest is just down and dirty algorithmic programming. It won't be significantly different in most languages. Bottom line, you really are not seeing that much different between Ruby/Rails and Groovy/Grails in terms of development speed.

Misconception #2 - "Ruby is the obvious choice."

From Groovy/Grails :: Ruby/Rails :: 2011 State of the framework:

Rails and Grails are both excellent frameworks with their current releases. You really can't go wrong with either. Here are some things I find interesting about them though:

Rails (Ruby) does not scale as well as Grails (Groovy).

Rails is slightly better with NoSQL alternatives currently, but Grails is catching up quickly

Rails has more plugins.

Rails is more mature and has more features at this point in time because it's been around longer

Rails REST support is amazing

There are many more "big" Rails websites than Grails

Grails integrates with the JVM better than JRuby

In addition, I'm not quite sure why Ruby has become such a strong brand. There are LOTs of language and frameworks to choose from. If you don't believe me, take a look at some interesting data on what programming languages TIOBE Programming Community Index for June 2011 are in use and the current trends.

Position Jun 2011	Position Jun 2010	Programming Language	Ratings Jun 2011	Delta Jun 2010	Status
1	2	Java	18.580%	+0.62%	A
2	1	C	16.278%	-1.91%	A
3	3	C++	9.830%	-0.55%	A
4	6	C#	6.844%	+2.06%	A
5	4	PHP	6.602%	-2.47%	A
6	5	(Visual) Basic	4.727%	-0.93%	A
7	10	Objective-C	4.437%	+2.07%	A
8	7	Python	3.899%	-0.20%	A
9	8	Perl	2.312%	-0.97%	A
10	20	Lua	2.039%	+1.55%	A
11	12	JavaScript	1.501%	-0.58%	A
12	11	Ruby	1.484%	-0.61%	A
13	9	Delphi/Object Pascal	1.070%	-1.50%	A
14	16	Lisp	0.935%	+0.28%	A
15	15	Pascal	0.731%	+0.00%	A
16	-	Assembly*	0.673%	-	B
17	21	Transact-SQL	0.651%	+0.16%	B
18	25	RPG (OS/400)	0.637%	+0.22%	B
19	23	Ada	0.606%	+0.17%	B
20	-	Scheme*	0.579%	-	B

If you look at Ruby's numbers it shows decline which I'm not sure I believe, but I also don't buy into the hype that surrounds it either. It's a good language/framework, but it's not that savior that some believe.

I would also suggest that languages and frameworks have come and gone for many years. Right now happens to be one of the most innovative times I've personally seen with new languages, frameworks, etc. coming around pretty much non-stop. Not all of the newest languages are going to be winners. If you are planning to build something that will last, I would claim there's risk in choosing something that's the newest thing.

So what's the bottom line? This is a complex decision. Get get help (see Free Startup CTO Consulting Sessions). Get a few different perspectives. And when a VC asks if you are building it in Ruby - be prepared with a smart answer.

Los Angeles Startup Community

2011-05-17T08:27:00.001-07:00

I was just talking with someone who's new to Los Angeles and wanting to connect into the Los Angeles Startup Community. I told them that I had recently seen several posts/articles talking about how vibrant the community has become. As is usual, I couldn't remember where I had seen those posts. So, I promised I would create this post to help point them in the right direction. I will do my best to keep this up to date.

Los Angeles Startup Community Posts/Articles

Here are some interesting articles and posts on the ecosystem around startups in Los Angeles.

Los Angeles Startup Networking

Here are some guides to many of the different networking events around startups, technology, etc.:

and if you want to find informal networking, you might head over to CoLoft, in Santa Monica.

I'd also recommend you subscribe to So Cal Tech Central. It brings together events and content for Los Angeles.

Venture Capital

As long as I'm pulling this together, here are some venture capital firms in Los Angeles that can help get you wired in.

Los Angeles Startup People

Some people to meet in the Los Angeles Startup Community in order to get wired in:

Tony Karrer (me) - organizes LA CTO Forum private group of over 150 web/software CTOs
Jason Calacanis - founder Open Angel Forum, long-time startup guy
Jason Nazar - founder DocStoc and organizes Startups Uncensored
Mark Suster - VC GRP Partners and one of the bigger voices in LA Startup world
Tyler Crowley

I wanted to put a bunch more, but was hoping I could get some help. Who are the people you should meet in the Los Angeles Startup Community to get wired in?

Visualization of Startup CTO Equity and Salary Data

2011-05-10T06:37:00.000-07:00

A long-time friend and colleague, Steve Wexler, who is great at visualization took my Startup CTO Salary and Equity Data and produced a really need interactive visualization via Tableau. You can find it here:

Interactive Version: Startup CTO Salary and Equity Data (US)

Explanation: CTO compensation and equity at venture-backed companies

Probably the best thing for someone to do is to go to the Interactive Version and look things up using their specific situation. You can click on the filters such as Founder Status (#3) and Job Title (#4) to filter to that particular data.

You can also glean additional information by hovering over a mark. For example, if you hover over the big circle in California you can see that there were 303 responses for the San Francisco Bay Area.

The larger the circle, the larger the number of responses.

For example, let’s say you are only interested in seeing non-founder CTO compensation for West Coast-based organizations with 50 or fewer employees that have been in existence for seven or fewer years. By selecting different marks and applying the “years” in business filter, you can glean that the average compensation for a respondents fitting into these categories is $201,495.

You will definitely want to choose some of the other tabs to visualize the data in different ways. One of the more interesting to me was the equity bin analysis:

It shows the dramatic difference in equity for Founder/CTO vs. Non-Founder CTO for startups that have raised <$10M and are Series A or B. Most non-founders have less than 2%. Most Founders have greater than 5%. It makes sense and what I suspected, but good to see the numbers are backed up.

Of course, as you would suspect, equity percentages dilute based on years in business.

Give it a try and let me know if you find anything interesting.

Hiring a CTO for Your Startup

2011-04-27T07:01:00.000-07:00

Several people have recently come to me to help them source and/or hire full-time CTOs for their startup having found me through my post that looks at: Startup CTO Salary and Equity Data.

The first thing I do is suggest they explore if they really need to hire a full-time CTO for their startup and if so, what kind of CTO they need. There's a lot on my blog already around this topic. I'd suggest: Startup CTO or Developer, Startup Founder Developer Gap, Part-Time CTO, Technology Advisor, CTO Founder, Acting CTO. In some cases, this changes the conversation from "I need help hiring a full-time CTO for my startup" to "I need help finding a part-time CTO who can direct a full-time developer."

But let's assume you really do need a full-time CTO for your startup and you've done the homework so that you know the specifics of what this CTO will be doing for you. You now have two issues: sourcing and hiring.

I'm not going to spend time on sourcing because I'm really not in that business. I have a great network of fellow CTOs, especially in the Los Angeles area. I've organized the LA CTO Forum (a private group of 150+ CTOs in Los Angeles) for 10+ years. I often will tap into that network to try to help find people for startups. But that's a pretty small pool and it's really the top end of the spectrum. There are also a few recruiters that I recommend. But sourcing candidates is tough.

Interviewing them is also tough, especially if you are not yourself technical. Get a Technology Advisor that can help. Even with that help, there's a lot you are going to need to do. And I've talked about lots of things you can listen for as a non-technical person to determine if this will be a good CTO candidate. There are a bunch of questions in Startup Software Development – Do Your Homework Before You Develop Anything, Startup Founder Developer Gap, and in Startup CTO or Developer. You should be hearing many of these questions coming up from your CTO candidate.

Interviewing and Hiring Process

Get a resume and LinkedIn profile and review both closely:

Do they know the world of startup technology? It's very different than at large organizations. This is a must.
Do they have a solid development background? A must if you are going to lead developers.
Do they have experience leading developers? Several years, ideally in a couple organizations.
Have they found and hired developers? Have they worked with outside developers?
Have they switched jobs too much? Not enough?
Be on the lookout for words that suggest they were there went it happened, but not really doing the work. This happens A LOT among technical people. Words and phrases like: led, directed, knowledge of, assisted with - all suggest that they didn't really do it. Make sure you plan to drill down to what they really did.

The next step is a phone interview. Often it's only about 20 minutes. It will be spent:

Finding out more about the reality of their background. It's often hard to tell from a resume and LinkedIn profile.
Finding out what skills they think they have and how they match with what you need.

If this will be a hands on role, then you need to conduct some kind of Technical Screening/test. If you are a non-technical founder, you will definitely need help to do this. If this is not a hands on role, then you might be able to get away without it. But I'd recommend someone technical still interviews them.

Then comes the in-person interviews. There are lots of good resources on this, especially for hiring technically-oriented people where intelligence and problem solving is a key ingredient:

Just be warned - asking these kinds of hard questions (and doing technical tests) can result in VERY uncomfortable situations. The candidate clearly doesn't have a clue how to answer the questions. You can nudge them along to help them get to the answer. But it becomes pretty clear when things are not working out. I've seen flop sweat, people who just want to run from the room, and other similar reactions. You need to be ready to help the person out of an uncomfortable situation.

I do have a question though - how long should the interview continue once it's become clear on both sides that the candidate has completely bombed? Is it fair to continue? Should you look for an early exit? I most often look for a graceful, early exit. But it can feel like it drags on a bit even in that case. Any suggestions on what to do?

Make sure you do all the normal things during an interview:

Give them lots of opportunity to ask about the business and any other questions they have. Listen for the right kinds of questions (see above).
Make sure you take notes during and after the interview. It sometimes is hard to remember the details otherwise.
Cover all the different aspects of the job: technical, smart, analytical, able to inspire, lead, direct, manage, good communicator, good decision making, etc.

Now you have a couple of good candidates. They are bright, eager, a good fit. Make sure you do reference checks. Most often I ignore the list of references they provide. If this person is from Los Angeles, I know I can easily find a few people who have worked with them. Even if they are from somewhere else, I likely can navigate LinkedIn to find people to talk to. The references they provide are often a last resort.

Okay, they check out. Act fast. If they are good, the market right now is HOT for CTOs. Have your offer together in a formal letter, but call and make the offer by phone.

Once you have an acceptance, please be nice to the other candidates and let them know that you've hired someone else. Don't burn bridges. You never know when you will run into those same folks again. In Los Angeles, the answer is "often." I personally do this via a quick call and follow-up with email/LinkedIn connection, etc.

I will close with one last thought. Trust your gut. Any time I've hired someone who somehow didn't quite feel right, I was sorry later.

Free Startup CTO Consulting Sessions

2011-03-03T06:40:00.001-08:00

I talk to roughly 2 or 3 new startups every week who need advice from an experienced CTO. Many of the founders of these companies are surprised to learn that I'm willing to review what they are doing (maybe an hour) and get on the phone for an hour with them and provide free advice. Generally I can provide quite a bit of help in that brief time. And I try my best to point them to resources that can help them longer term. Of course, I provide part-time CTO services. But the reality is that I engage with about 5 new startups each year which means that I end up working with less than 5% of the startups where I provide these free consulting sessions.

In talking with a colleague who also does Acting CTO work, he said that he also does this kind of free consulting sessions and offered to help me if I didn't have enough time - which sometimes happens. As soon as I posted this, I was contacted by two other colleagues also willing to jump in as needed.

So, I wanted to use this post to make it official - we are offering free startup CTO consulting sessions.

What Is This?

The simple answer is that there are ~~two~~ a few of us experienced CTOs ready and willing to:

Spend an hour reviewing what you are doing
Spend an hour on the phone with you to try to answer key questions

We can help answer a lot of different questions. Sometimes it's just a reality check on your current situation. Maybe you are wondering if you have a Weak Development Team? Do you have a Startup Founder Developer Gap? Is there some key Homework you need to do? Is it a sourcing question around whether you need a Startup CTO or Developer or both? How can you more effectively work with your developers? The list is very long.

The couple hours of our time is free with no obligation.

If answers will take more than this time, we will do our best to point you in the right direction.

How Does it Work?

You need to send us an overview of what you are doing. This overview (executive summary) needs to include:

Product and Business

What is the product?

Who's the customer? How does the product solve a pain?

What's the business model short-term and long-term?

Who are the main competitors? How are you different?

What are related products/companies? Who might be partners?

What's you believe is your biggest technology risk, if any?

Team

Who's involved? Send brief bios. Part-time, full-time?

What's your experience in this space?

Current State of the Business

What have you done to date?

What do you see as you next big milestone? What do you need to achieve to get there? When do you need to have it done by? What do you expect to get out of it?

Are there specs?

What product, market testing have you done so far, if any?

Have you raised capital? Or how are you funding the next few milestones?

Key Questions

What do you want to achieve in talking with us?

Do you have specific questions?

Send your overview to me (Tony Karrer): akarrer@techempower.com

Based on the type of business, we will distribute it to someone who is most appropriate. You will get a response via email to schedule a time to talk.

Frequently Asked Questions

Will we sign an NDA?

No. You need to be able to share with us without an NDA. If you can't tell us the details of what you are doing without an NDA, it won't make sense for us to talk. If we were to engage in paid services with you, then issues about disclosure, confidentiality, work product, etc. will definitely be handled.

I'm looking for free (equity only) development, should I contact you?

No. We can likely provide technical strategy help at little to no cost, but hard core development generally requires that you have found someone to do it for you for equity or that you have some capital available (think $50K+). See Equity-Only CTO and Equity-Only Developers for more on this.

I need a life-sciences CTO, can you help?

No. Unfortunately, we are web, mobile, software, database guys. We can help across a wide variety of types of systems, but once you get into hard core sciences (designing a new compound, bioengineering, etc.) or hard core engineering (new devices) then the CTO (Chief Scientist) means something else entirely.

Do I have to write up the overview?

Yes.

Can you help me get funding?

If you primary questions right now are how to raise capital, that's not us. Longer-term we likely can help with that as we can help evaluate your technical approach. However, there are lots of other people who help companies raise capital.

Startup CTO Salary and Equity Data

2011-02-22T08:06:00.001-08:00

An update of this is available: CTO Salary and Equity Trends 2009-2011

Todd Gitlin of Safire Partners was nice enough to compile some data on Start CTO Salary and Equity at Venture Backed Companies for the LA CTO Forum and present last year. He agreed to make this data public which is awesome. Todd is a go to resource for people looking for talent in startups. He was a great presenter to our group. I highly recommend getting to know him.
The data is a bit tough to deal with via a post, so I've shared it two ways:

You can find a PDF with some analysis at: CTO Equity Compensation PDF.
You can find a public Google Spreadsheet with the data: CTO Equity Compensation Google Spreadsheet.

And you should also take a look at Visualization of Startup CTO Equity and Salary Data.

There's a ton of great data in there that will give you a sense of comps for your particular situation. Here are a few slices of it. Of course, this doesn't really apply to the situations where I'm often involved Part-Time CTO, Technology Advisor, or Acting CTO, but this is still really good to have.
I would be very curious to hear what folks think about this.
Anyone concerned that this is above or below their expectation?
I was recently asked specifically about these kinds of numbers and I'm a bit worried that expectations between CTO candidates

Startup CTO Salary and Equity based on Stage of Company

Note: the rows are a bit out of order.
I'm a little surprised that CTO Founders with growth capital funding only have 15% of their companies. It is interesting to see the salaries of CTOs of pre-Revenue even pre-Launch companies.

Total Funding

Revenue

CTO Compensation and Equity based on Location

A few items jump out at me in terms of CTO Equity and Compensation relative to geography. Caution - there is not much data for many of the geographies.

CTO Founders in India, have a very low equity stake.
CTO Founders in UK, US Mid-Atlantic, US Pacific NW, US Northeast, France, Australia have a higher equity stake.

Southern California - my primary location - looks to be about the middle of the pack.

Poor Software Developers - Pull the Plug Early

2011-02-17T08:31:00.001-08:00

There's an old adage in software development that I refer to all the time:

The first 90% of development takes 90% of the time. The remaining 10%, takes the other 90% of the time.

I used this when I taught software engineering. And I use it all the time now when I get the kind of message that I received:

I'm looking for a web developer to continue work on my website. It's currently in beta. I used a company in India to develop the site, and it's mostly done. But they weren't quite able to get it finished. Then I found a local developer but it was a truly awful experience. At this point, I have very little money left, which makes finding someone even more of a struggle.

My experience is that most often you will find that the project has gone through many of the Symptoms of a Weak Development Team in these situations. And I say that the most common symptom is:

The team seemed to get a lot done early on, but now it just seems like it is taking forever to get it “done.”

So when you get a note about a project that's "mostly done" - you immediately get worried. Usually, once you begin to look at what's really going on, the code is a bit of a mess and the system has a lot of work left to get to an actual "done" state. You may even have as much time left to get it "done" as it took to get it "mostly done".

Normally, when I get this call, it's pretty far downstream (as in this situation). The funds have been used up on the existing development. And the person is trying to get it from mostly done to done with little additional cost.

The problem is that doesn't match with reality and likely they need to find more dollars. Recovery from this situation is hard. I wish I had a better answer.

But I thought I at least needed to do a post that made a few suggestions on how to avoid this situation:

Keep your Eyes Open for the Symptoms of a Weak Development Team
Hire a Part-Time CTO, Technology Advisor, or Acting CTO to help you keep an eye on what's going and increase your chances.
Pull the Plug Early - poor developers who exhibit symptoms of weak development will not become good.

This actually reminds me of another adage:

No one ever tells you they fired someone too early. They often tell you they fired someone too late.

How Investors Think About Valuation of Pre-Revenue Startups

2011-02-02T08:13:00.000-08:00

A lot of my time is spent helping early-stage companies get to proof points so that they can raise capital. They might have some seed money and are thinking or raising a Series A based on success of an early release (MVP). Because of this, I've always tried to stay up-to-speed on how early-stage investors look at valuation of companies. What are they really looking for? What do you really need to prove?

There's a lot out there around Customer Development - read Steve Blank:

Entrepreneurship as a Science – The Business Model/Customer Development Stack- Steve Blank, October 25, 2010

Checklists for Chaos, The Path to Success- Steve Blank, October 28, 2010

and reading about Lean, MVPs, etc. is a requirement. Think about how you can prove your business model with an MVP. I should try to come back and write about this more, but the point of this post is that it's important not to only think about this aspect.

Bill Payne is an expert on how early-stage investors should look at valuation. He just post: Establishing the Pre-money Valuation of Pre-revenue Startups. It's required reading. Especially interesting is the Valuation Worksheet towards the end. He has a bunch of factors that investors should be considering (and generally do).

A few things jumped out at me:

- Experience in sales or technology - considered a minor negative? If you've not had a C-level but have had experience in sales or tech. Not sure why.
Size of target market $100M is okay. Interesting that they don't need to see really large markets.
- > $100 million (will require significant additional funding). In fact, really large markets are possibly a downside.
-- need venture capital - a significant negative effect

Key hurdles that you really should be going for in the early-stage:

++ Good feedback from potential customers - that's the key hurdle
+++ Orders or early sales from customers
++ Key beta testers identified and contacted
+++ Channels secure, customers placed trial orders

Title	Range (%)
CEO	5 – 10
COO	2 – 5
VP	1 – 2
Independent Board Member	1
Director	0.4 – 1.25
Lead Engineer	0.5 – 1
5+ years experience Engineer	0.33 – 0.66
Manager or Junior Engineer	0.2 – 0.33

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