Five Questions to Ask Before Joining that Start-up

This post originally appeared on Harvard Business Review.

Mark Zuckerberg reinvigorated an entire generation when he added nine zeroes to the end of his bank account before he was 30 years old. He made start-ups great again. He showed the world that youth is not a preventative factor of success and that work can actually be fun. This theme of wealth creation while doing something you love is why an increasingly large percentage of graduates are turning to start-ups over more traditional jobs. It might also be why people are quitting their consulting gigs and investment banking positions to pursue a career in start-up land. Just yesterday I ran into a recent Harvard Business School graduate who quit her consulting gig in order to follow her dream at a new start-up.

Unlike big, established corporations or what we might classify as a “steady job,” start-ups present more inherent risk because there are more variables and questions for a prospect to consider. Things like: Does this start-up have the right team? Do they have money? What if I choose the wrong company? Nevertheless, this risk is often overlooked because start-up employee prospects realize that new ventures are more fun, are intellectually rewarding, and could have big paydays down the line.

But there are practical questions that all start-up prospects should consider when looking to join the next could-be big thing.

How many outstanding shares exist? Joining a start-up can have significant upside if you own equity in the business. That upside is determined by two things: the percentage of the company you own and the valuation or price of the company upon a liquidation event (e.g., the sale of the company). When you join a start-up you are often issued stock options. Maybe you are issued 1,000 options; maybe you are issued one million. This number is only as important as the number of outstanding shares in the company. If you are issued 1,000 options and there are 10,000 outstanding shares, then you may own 10% of the business. Make sure you ask your prospective start-up employer how many outstanding shares there are, so you can understand what part of the company you own. If they don’t want to tell you, then you may want to reconsider the job altogether. If they can’t tell you this, what else might they be hiding?

What is your stock option vesting schedule? Time flies in start-up land. When you get an offer from a start-up, make sure you understand how long it will take to actually receive the equity you are entitled to. A typical vesting schedule has a one-year cliff with a subsequent three-year earn out that vests each and every month. So if you think you might leave within four years, make sure you are comfortable with the vesting schedule. Four years is a long time in a start-up.

How restrictive is your noncompete or non-solicit agreement? I once read a noncompetition agreement that said anything I worked on — in- or outside of the office, during working hours and non working hours — was owned by the employer so long as I was employed there. This is a very restrictive agreement and in so many words says you are a slave to the company. Make sure you understand what this part of your contract says. Employees in the start-up world often bounce to and from various companies, so you want to make sure you’re not putting yourself in a compromising situation down the road.

Does the team have a track record? Winners know how to win. It’s why venture capitalists tend to favor entrepreneurs that have a proven track record (PDF). A VC once told me that he “looks to invest in people with an unfair advantage over their competitors.” These entrepreneurs are people who know the ins and outs of a successful path in a specific domain. Before joining a start-up company, make sure you have a very strong understanding of the team, their investors, and their advisers. This will give you a great indication as to whether or not the start-up has the right ingredients for success. If the team members don’t have a track record, that’s alright, but make sure you understand what it is that will put them on a winning path.

Why am I really doing this? The most important thing you need to ask yourself when joining a start-up is why. Some people do it because they hate their jobs. Some people do it because they want the credentials. Others join because they think they will get rich or it’s the cool thing to do. Ultimately, when you are looking to join a start-up you need to understand the real motivational factors behind your search, because if your reasons do not align with the opportunity, it is likely you will be neither happy nor successful.

With advancements like cloud-based hosting, labor marketplaces, online education, and video conferencing, it is now cheaper than ever to start a company. As a result, we will see continued growth from emerging start-ups and their respective employment opportunities. If you are debating whether or not to join an early-stage venture, make sure you are asking the right questions in order to mitigate your risk and maximize your chances of success.

5 Corporate Hacks to Make Your Company More Social

This post originally appeared on Forbes.com.

If Facebook has taught us anything over the past few years it has taught us this:

Cover of "Hackers"
Cover of Hackers

1. A hacker culture works to drive accelerated growth in a business. Mark Zuckerberg writes in a letter to his investors, “Hackers believe that something can always be better, and that nothing is ever complete. They just have to go fix it — often in the face of people who say it’s impossible or are content with the status quo.”  It’s hard to argue that this approach doesn’t work. Facebook today has over 850 million people and to give you some perspective, that would make it the third largest continent in the world behind Asia and Africa. So clearly, a hacking culture does help move a business and it’s product forward. But why should a hacking culture be limited to a silicon valley technology company?

2. The world is social. Legacy, societal hierarchies no longer exist. Almost every day I encounter new stories with a similar theme: a group of like-minded individuals come together to affect change – and they do so from the bottom up. A great example is something called Cash Mobs, where a group of people visit a local business, as a large group, and share in a collective spending spree. In many cases they can even alter the prices of products. It happens organically and it happens from the bottom up.

Yet another example is one I learned about recently, called “Invisible Children.” This movement is working to disarm Joseph Kony, one of the world’s worst war criminals, from his position of power in Uganda. When the movement first started, the members unsuccessfully challenged government officials to intervene. Shortly thereafter, the organization decided to use social media to raise awareness and demand change. As a result, they were able to to generate participation from hundreds of thousands of people, the original naysayers, acclaimed celebrities and even President Obama. In today’s world, all organizations should expect this paradigm shift to affect their business in one way or another – without their control and without their permission.

So how can businesses embrace a Facebook-like hacking culture that could lead to accelerated growth?

Here are a few corporate hacks you can use to make your company faster and more social:

The “Team Collaboration” Hack: Assembling and curating ideas can be very time-consuming. It can also destroy your email inbox and waste hours of your day. Instead of accruing very long email threads, create a private Facebook group to facilitate the conversation. It is a free, private forum and you can invite only those you want to invite.

The “Customer Service” Hack: Social media is less about “media” and more about real communications between real people. People will either praise your brand or complain about your product so make sure you have people on your team listening to your brand. You can create google alerts or twitter alerts using their search functionality and RSS feeds. This will alert you when certain keywords are mentioned and from there, you can reach out to engage with them.

The “I Need Legal’s Approval” Hack: In many corporations, marketing teams require legal approval.  In today’s market there are many recent law graduates looking for work. Think differently about hiring and consider opportunities for lawyers to be an integral part of your social media marketing efforts. You’ll have someone on board that can quickly approve content.

The “Product Development” Hack: Why spend a ton of energy and time trying to figure out what your customers want? Simply ask your customers what products they want and use that feedback in your product development cycle. If you don’t ask, they’ll tell you anyway so you might as well ask.

The “Customer Acquisition” Hack: People are opting in to become fans and followers of certain brands. It is now easier than ever to identify and recruit customers of your competitors. Just look at their social media properties, reach out, and engage in good, meaningful dialogue.

Those are just a few social hacks to drive additional progress in your organization. What else have you seen?

Connect with Dan Reich on Twitter – @danreich.

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It’s All About Execution and Stick Figure Cat Drawings

English: Mark Cuban
Mark Cuban is an investor of iwanttodrawacatforyou.com

This post originally appeared on Forbes.com.

What would you say if I told you I was going to make stick figure cat drawings?

Your first response may be to highlight the fact that I’m above the age of 4. Now what if I told you that this was not a child’s arts and crafts project, but my business idea. Not only is this my business idea, but my sales pitch includes a song and dance called, “I want to draw a cat for you.” What would you say then?

I think many of you would ask me if I’ve lost my mind and that would be a fair question. However, the truth is that absurd business concepts, even dramatically idiotic ones like stick figure cat drawings, can be brilliant, revenue generating businesses so long as they are properly executed.

On ABC’s Shark Tank, a show where investors get pitched and invest their own money, a guy named Steve Gadlin walked into a room, stood before five prominent investors and proved that execution is all that matters. He danced, he sang, he pitched a business predicated on cat drawings, and secured an investment from Mark Cuban, a billionaire investor and owner of the Dallas Mavericks. This is something worth seeing for yourself.

The lesson to be learned here is that there is so much more to a successful business than just the idea. The trick to taking a business idea and turning it into a successful reality is all in the execution of that idea. It’s about taking your concept, regardless of how “out there” it may be, and making it work even if those around you liken your idea to the works of a 4 year old. It takes inventiveness, creativity, and lots of hard work.

Many of todays greatest inventions, if turned into a sales pitch, would be as television worthy as stick figure cat drawings. Just imagine what a Wright brother’s sales pitch may have sounded like. “So you see what those birds are doing? Yeah, its basically like that but with lots of wood and metal. Wanna invest?”

We encounter people every day who come up with crazy ideas, but the people that succeed are the ones that can execute. They are the people whose convictions and beliefs outweigh the objections and negativity of the naysayers.

So as I look out of the window and watch the planes fly overhead, I’m constantly reminded that no idea is too small or too stupid. Ideas don’t mean anything without good execution. And if the planes aren’t enough of a reminder, I suggest you order a picture of a stick figured cat and hang it above your desk.

Connect with Dan Reich on Twitter – @danreich.

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How To Start A Company

This post originally appeared on Forbes.com.

Starting a company is a daunting task and taking the first step sometimes seems impossible. I’ve encountered a number of people with the dilemma of “I know what I want to do but I don’t know how to start.” And rightfully so. Taking an abstract idea from thought to fruition is one of the hardest things to do. It’s why the failure rate of new business endeavors is so high. It’s also why most investors value people and execution of ideas above anything else. Ideas are a dime a dozen, but being able to execute on a vision is an entirely different story.

So how does someone actually start a business? The great thing about starting a business is that it requires creativity. Sure, you need to be creative in formulating the idea, but I think what goes overlooked often is the fact that you need to be even more creative with specifics around how you start the business. It doesn’t really matter what industry you are in. If you can be creative at both developing the idea and launching the business, I think you’ll have greater chances of success.

Here are a 7 examples of how you might consider starting a business.

1. Build a specific solution, for a specific problem, for a specific client. Most doctor’s offices confuse me. Not only do they confuse me, they drive me crazy. When I walk into a doctor’s office today I look over the counter and see endless shelves of manila envelopes. There must be thousands of sloppy, handwritten notes just sitting there unprotected in those color coated manila envelops. Every time I walk in I have the urge to walk up to the doctor and say, “give me $100,000. I’ll build you a digital solution for this mess and you will get lifetime rights to the technology. I’ll get to sell this to other doctors but you will get to use this technology forever.” If you see a specific problem that you think you can address, you might be able to find one client who will fund development. You will give them lifetime rights to the technology and in return, they will pay you and let you resell the solution to others.

2. Sell now, build later. Sometimes the best way to go about starting something is to first understand whether or not it makes sense to start. The best way to do this is to sell or pitch an idea to perspective clients before you even have a working or tangible product. When I was in college, I told the owner of a bar that I wanted to host an event on behalf of my marketing firm. I told him I was going to donate money to the charity I’ve worked with in the past. I told him I was going to bring in my entertainment. I told him I was going to create a marketing campaign. These were all lies. I didn’t have any of these things. I didn’t have a “marketing firm.” Well, he agreed to the event and I built up all the necessary pieces after it was sold through.

3. Go back to school. Do you know how much intellectual capital exists in academic universities? That’s why they are called academic institutions. They are pillars of knowledge and these pillars often facilitate cutting edge research. But sometimes these new technologies are never designed with the goal of commercialization in mind. When I was in school, I had a professor working on technology that could literally change the world. He had no interest in bringing this technology to market. He only cared about being published in some research paper. When I asked if I could take the technology to market, he was ecstatic. I expect there are others out there that have great innovations but have no interest in building a business with them. But maybe you do. Physically going back to school to explore these opportunities could potentially lead to the start of a new endeavor. It could be a school visit. It could be a school enrollment.

4. Combine and conquer. Sometimes two heads are simply better than one. It’s tough work staying motivated or even getting motivated in the first place to create a business. When you team up with someone and bring on a partner, you might find that a little bit of motivation and encouragement are enough to move the needle in terms of execution. Having a partner might also free up some burdens so you can focus on more pressing issues. And just having concerted dialog with someone else, who has the same directional goals, could also be that missing factor needed to start a new business.

5. Take money, make money. There are certain companies and industries that require a large capital investment to get started. For example, it would be nearly impossible to build an alternative energy company without some form of initial capital investment. These funds would most likely go towards research and development or manufacturing. In some cases, you may need to just go out and ask people for money in order to fund the development of the first iteration of your product or technology. But maybe you aren’t building an energy company and maybe a quick infusion of $5,000 to $10,000 from friends and family might be enough to kick start your company.

6. Leverage a distressed asset. People make great livings flipping houses (or used to anyway). They buy cheap and sell high. Many times people will buy cheap, fix up the house and bit, and than sell high. This is no different with businesses. There are plenty of distressed assets and companies out there that would love to be acquired for peanuts even though there is still huge potential and room for growth.

7. Don’t be glamorous. I heard a story once of a guy who sold hot dogs for a living. He made about $800k a year selling hot dogs and did so by setting up two hot dog stands at the entrances and exits of Home Depot stores. Not exactly an exciting job but it definitely pays the bills. There are probably a dozen other ways you can turn a low level job into a meaningful, high income producing business.

I’m sure this list can go on for quite a while, but what methods of launching a business have you seen?

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My Company Is Being Acquired

As the news says, today my partners and I over at Spinback are pleased to announce that we’ve been acquired by Buddy Media, the Facebook management system of choice for eight out of the ten top global advertisers.

When we started Spinback the goal was to build the most cutting edge technology that would facilitate conversations and sharing of products. More importantly, we wanted this technology to also track how word of mouth marketing affects new sales and new customer acquisition.

Now as a part of Buddy Media, we will have  all the tools and infrastructure necessary to accelerate our collective mission which is ultimately about leveraging this new social web in new and interesting ways for leading companies around the world.

We are really excited to begin the next chapter and I’ll leave the rest of the details to Buddy Media.

On to the next one…

UPDATE – Here are a few press releases:

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We are Wall Street

Wall Street
Image by jpellgen via Flickr

The market almost fell 10% today and one of my i-banker friends sends me this email chain…

We are Wall Street. It’s our job to make money. Whether it’s a commodity, stock, bond, or some hypothetical piece of fake paper, it doesn’t matter. We would trade baseball cards if it were profitable. I didn’t hear America complaining when the market was roaring to 14,000 and everyone’s 401k doubled every 3 years. Just like gambling, its not a problem until you lose. I’ve never heard of anyone going to Gamblers Anonymous because they won too much in Vegas.

Well now the market crapped out, & even though it has come back somewhat, the government and the average Joes are still looking for a scapegoat. God knows there has to be one for everything. Well, here we are.

Go ahead and continue to take us down, but you’re only going to hurt yourselves. What’s going to happen when we can’t find jobs on the Street anymore? Guess what: We’re going to take yours. We get up at 5am & work till 10pm or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we’ll eat that.

For years teachers and other unionized labor have had us fooled. We were too busy working to notice. Do you really think that we are incapable of teaching 3rd graders and doing landscaping? We’re going to take your cushy jobs with tenure and 4 months off a year and whine just like you that we are so-o-o-o underpaid for building the youth of America. Say goodbye to your overtime and double time and a half. I’ll be hitting grounders to the high school baseball team for $5k extra a summer, thank you very much.

So now that we’re going to be making $85k a year without upside, Joe Mainstreet is going to have his revenge, right? Wrong! Guess what: we’re going to stop buying the new 80k car, we aren’t going to leave the 35 percent tip at our business dinners anymore. No more free rides on our backs. We’re going to landscape our own back yards, wash our cars with a garden hose in our driveways. Our money was your money. You spent it. When our money dries up, so does yours.

The difference is, you lived off of it, we rejoiced in it. The Obama administration and the Democratic National Committee might get their way and knock us off the top of the pyramid, but it’s really going to hurt like hell for them when our fat a**es land directly on the middle class of America and knock them to the bottom.

We aren’t dinosaurs. We are smarter and more vicious than that, and we are going to survive. The question is, now that Obama & his administration are making Joe Mainstreet our food supply…will he? and will they?

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The $800k Hotdogs

A cooked hot dog garnished with mustard.
Image via Wikipedia

I heard a story recently that went something like this…

(This is a true story, although the actual conversation below is fake)

A guy calls a reputable consultant for advice. This consultant also happens to be an Ivy League Law School Alumni, successful investor, and successful entrepreneur. Let’s just say he knows a thing or two about business.

The call goes something like this:

Caller: Hey Mr. Consultant. I got a great business that I need help with.

Consultant: Ok, what kind of business?

Caller: I sell hot dogs. I have 2 hot dog carts.

Consultant: You sell hot dogs?? Why the Fu*# are you wasting my time?

Caller: Well, I grossed over $800k last year from just two hot dog stands.

Consultant: Wow, ok. Now you have my attention…

Now, you can only imagine what the next obvious question is…

Consultant: …where are your hot dog stands located?

Before I give you the answer, just think about this for a second or two. This guy, in a cash business, made over $800,000 gross profit from selling hot dogs. Yes, hot dogs!

So you might say the hot dog stands were located in a city. Maybe Times Square. You might say the hot dog stands were located in a mall or perhaps some football stadium. Maybe a baseball stadium.

If you guessed any of these you’d be wrong.

The reality is, the hot dog stands were located in front of…

Home Depot.

Crazy? Not really, and think about that for another second.

From the minute Home Depot opens to the minute it is closed (around 7am – 11pm depending on the local store) subcontractors and construction workers are in and out buying materials, tools, and other wonderful construction accessories for their jobs. Middle class, blue collar workers who are looking for a quick bite to eat, and what could be a better snack then a $2.00 hot dog with perhaps a $1.00 can of soda?

Moral of the story here?

If you are thinking about the next, new big idea, just remember this guy. He took a very old idea but gave it a new twist. A boring idea perhaps, but this guy will never go hungry.

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Loosing Your Virginity – Getting Your First Piece of…Business

CraveRedCrossEventSAE
First contracted event

During my sophomore year of college my fraternity was shut down. As a result, all of our events were canceled and to make matters worse we couldn’t even participate in other organized events within the Greek system.

This sucked. It was a huge problem especially for my group of friends who enjoyed going out and doing the social thing.

But where there was a problem, there was also a solution.

At this point in time, my friend and I decided to build a college marketing company that would encompass three themes: (i) host events in a safe and secure environment (ii) be honest and upfront with our partners and vendors (iii) create recognizable and memorable marketing events that would promote the company brand in a positive and unique light.

In the short aftermath of my fraternity’s suspension, we hosted our first event. The first was all it took. It gave us some confidence, experience, and most importantly, momentum. From that point on we were able to grow the business, form new partnerships, hire more help, and keep the ball moving forward.

We were beginning to be featured in the local newspapers and magazines and were starting to become a focal point of the local community’s social scene:

HalloweenPoster06RP
“Yet another alternative to Freakfest is Runaway Productions Halloween 2006, the first event of its kind to be held at Madison Avenue. Runaway Productions, a company run by UW students, organized this 18-and-up event with Sony/BMG Music Records and CO-ED Magazine to provide an alternative environment for those in search of a riot-free good time. According to Managing Partner Daniel Reich, the Halloween 2006 event was created as a “legitimate venue so people can party in a safe, controlled environment.” Instead of wandering around aimlessly amid the drunken antics of State Street, students will have the opportunity to dance to their favorite artists at the dance club on University Avenue.

Runaway Productions intends to appeal to all sorts of listeners with a variety of musical acts. Hip-hop, reggae and rock fill the bill with artists including Golden, Collie Buddz, Fahrenheit and Displace. Also performing is special guest Sa-Ra from Kanye West’s record label GOOD. The event runs tonight and tomorrow, and attendees can purchase tickets from ExchangeHut.com.”

The Badger Herald, State Street not only show in town this Halloween

(Disclosure: Sa-Ra never came and the headliner was Collie Buddz. It was his first live US show. One of his songs here)

At the end of the day, “the first” was all it took. Although we did many events and functions thereafter, “the first” is what really put us over the top. It is probably the hardest thing to do when starting a business or doing sales, but once one is knocked down, the rest just kind of fall into place.

Sidenote: It’s been three years since we parted with Runaway Productions and three years later it is still going strong.

(Posters from other events below)

RunawayCoEdRP MadAveGirlRP

(Pictures from other events below: Collie Buddz and Golden performing)

collie-buddz2golden

Will I-Banking bonuses ever be the same?

About a month or so ago I had a conversation with a VP from Goldman Sachs. We talked about work hours versus compensation in the investment banking world. We also talked about how he was seriously considering leaving the banking world to pursue an entrepreneurial endeavor. The conversation could pretty much be summed up by this graph:

Until recently, many undergrad and graduate students had one career and one purpose in mind: Work for an investment bank – make a ton of money (most of which came from big bonuses).

Today, those huge bonuses are gone yet some people are sticking around these jobs thinking that one day the tide will turn and the bonuses will be back. Part of me believes this is true, that history repeats itself, and one day big paydays will be back (it’s only a matter of time before someone else exploits a flaw in the open markets).

But the other part of me thinks that this will not happen for a very, very long time.

I recently asked my cousin David Wise, who works as a compensation consultant, what his thoughts were on the big bonus payouts. In short, he made a few really good points:

  • Investment banks are dead. They are now Bank Holding Companies.
  • These banks’ Return on Equity (ROE) have dropped anywhere from 20%-30% to 10%-15%. Less money for shareholders. Less money for employees.
  • The current compensation and incentive structures are broken and need to be fixed.

It’s going to be a very interesting 2009, 2010, 2011….

David’s take on compensation below in a recent CBS news interview:


Watch CBS Videos Online

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