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The rantings of a serial entrepreneur as he wins, loses, and doesn't pull any punches in describing both...
1+1 = ½
Wednesday, August 29, 2007 - 11:14 am 4 comments
I have noticed some funny math in my startups over the years.
This funny math doesn't start until after VC funding -- so to better explain it, I must first rewind the clock to our pre-institutional investor stage.
See, I do funding a bit different than other entrepreneurs. I launch the company myself. I form (some of) the team. We build the product. We get to revenues ... and we even go profitable. In short: we get our ship lean, mean, and pumping efficacy from every valve.
Then we go get VC funding (less dilution, more control, etc.)
It's so predictable what happens next. Ya gotz some green in the bank and a newly formed HR department, replete with a salivating recruiter, brimming with job reqs to be filled. Go! Go Go!
Staffing at warp speed always scares the crap out of me.
I approve each new req. -- queasy -- because this new person will now solely be focused on what *used* to be 1/20th of my job. As I sign the req, I hope they will be better at "it" than me, care more about "it", and get more of "it" done.
But, in my heart, I feel the funny math coming on.
Each new person that gets added to a startup, instead of adding an integer worth of value actually temporarily subtracts value. The old person, instead of doing their old job, is now training the new person. Add a body and get less for your pleasure. 1+1= ½
Eventually you end up having more new people than you do old - I call this being "upside down". That is when the ownership problem starts to compound. Nobody has really been here long enough to know, or care, and once the "new job excitement" has worn off, accountability starts to dwindle. In my old company, this problem was pervasive. The more people we had, the longer it took for anyone to pick up the phone when it rang.
It won't always be this way. If you survive your terrible twos, you will eventually get more efficient with each new body. Slowly 1 + 1 = 1.25, then 1.50 and it probably never gets much higher than 1.75. With the exception of specialized industries like wholesale and investment banking, the most efficient companies in the world can achieve $1M of revenue, per employee, per year. Google is $1M, Dell is at $900K, Cisco $570K. The average of non-financial Fortune 500 is about $290K.
In my current company, I made a firm decision to combat the chaos of these mathematics from the outset - wielding the best weapon I have in business: honesty. I started warning people about it from day one. During "all-hands" company meetings, whilst folks munch pizza and hear about our financial numbers, I remind them "1+1= ½". When I see five people in a meeting that only requires two, "1+1= ½" is all I have to say.
I don't even have to say it anymore. It has become a saying.
And, I think it has helped.
--
Chris Lyman
Fonality CEO & Janitor
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Good Points
All good points Chris, I've seen it a few times myself. Not the VC part, but certainly the rapid growth, mass hiring, scrambling to train and then dealing with the period of time where you must do the same with more. While the new hires get up to speed and start to "get it", everyone else has to work even harder to maintain without falling back. Even without the VC or salivating HR person, hiring at that pace can cause a lot of disruption and certainly rocks the boat.
We have tried to address it and combat it with a combination of methods including multi-stage interviewing, detailed job descriptions, roles and responsibilities, departmental and conceptual org charts, pre-defined compensation ranges, documented career paths, visual and documented processes and procedures as well as 2-6 week new hire trainings.
Much of this is fairly recent and is now being put to the test with 10 new hires in 3 weeks. For us that's a 25% increase in headcount, so we shall see how successful the preparation is. So far so good.
Keep up the blog Chris, I have always appreciated your direct approach to business and technology related issues.
>>> Your VC approach is the right way to do it in my opinion.
Keep us posted
Ben - as a fellow CEO in your own fast growing technology company (congrats on your recent awards in this area), I take your advice seriously!
Your methodological approach to this problem is a good one and myself (and likely my readers) would be interested in a follow-up about how these practices play out in the "real world" over the next few months.
Keep us posted!
../chris
Nicely Said
Nicely said Chris,
This is an impressive and brilliant analysis of what happening in real life. This type of math..., you can't find it in books!!!
Peoples of terrain like us usually came to this type of answer by the best type of advice an entrepreneur can have. Get punch hard in the face, some times, it even takes us more than one hit before that the hurt get hard enough to worth start looking for a way out of the cable.
Some "older" entrepreneurs as even spoke about the fact that we (entrepreneur/artist/inventor) sometime put unconsciously ourselves in difficult situation because we know that our brain will HAVE to react. We have the capacity to pursue solutions to so big problems during days, weeks, months, and even maybe years sometimes. And big problems answers, can became huge business opportunity by themselves ... Fonality seems to be one of these big problems that became a very nice project.
We are presently working very hard on doing exactly what you just describe and I'm happy to say that trixbox will have an important role in our future. It's my second start-up, and your little math could be of good help.
In about a month from now, we will be in position to show the world what a young Quebecois from Montreal and is team can do (speaking French by the way) with technology people like you and others (Google, SaaS and Web 2.0 world leaders) are offering to the community to build the basis of what many have start to call the Cloud.
Your hybrid model is a very good example of what's coming up...
And again, nice job on trixbox.
Interesting Concept
Hugo - interesting concept of entrepreneurs putting themselves (ourselves) in difficult situations so we can think our way out of them. What might you then call us: cerebral swashbucklers? ;)
You might be right though, when building a company you just *do* it, and *deal* with what it takes to make it happen *as* it happens. You just can't plan for the heat of the fire from your couch!
Good luck with your launch in a month!
../chris
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