Ben Smith: There’s More to the Startup Game than a Post-Exit Payday. It’s Called Fishing
It is called fishing and not catching, and it is the dirty secret of Silicon Valley. Unless your startup hits a grand slam, or you are its founder, CEO or a key engineer, your post-exit payday isn’t more than a few months salary. Then you may lose your job.
So why join a startup?
The answer became apparent to me again the other day when I got a call from a young engineer who left MerchantCircle after we sold to Reply.com. This engineer asked me about his new employer, his options and how much money they would be worth.
These are all pretty normal things, so after helping him with some math, I told him to buy his options immediately so he would be an owner and pay long-term capital gains. The conversation stopped cold when I told him that none of his worthwhile questions were really relevant. It is called fishing, not catching.
In the valley, we often get caught up talking about fundings, exits and who made what. I have never really considered this the part of Silicon Valley culture that makes great things happen.
I am not much of a fisherman. But having grown up on the Gulf Coast where fishing is as important as football, I have learned a lot from fishing buddies. One of the best insights I picked up came from Jack West, a famous restauranteur turned fishing guide who talks for 12 hours straight and hangs out with everyone from Jimmy Buffett to hedge fund managers. He told me one day with a bit of irritation, “It ain’t called catching, its called fishing.”
Having just caught one with the MerchantCircle sale, it became clear to me the same is true of startups.
• The process of doing a startup is supposed to be fun. I don’t mean parties and playing video games fun. I mean you have to enjoy the process, enjoy the team and enjoy the problem. I know this because I experience the loss of not working on the MerchantCircle “problem” any more.
• A day spent fishing is a day spent learning new things, such as how to see a tarpon against the glare of the water. If you don’t want to learn something new every day, don’t do a startup.
• Not every startup leads to an exit, but every one should build relationships. We all know fishing is about the stories of the big one that got away. I certainly have one with Spoke that gets bigger as competitor LinkedIn’s public valuation grows.
• Startups are about the challenge of going after the big one, swinging for the fences and trying to change the world. If it was about catching, Google would have sold to AOL and Facebook would be owned by Yahoo.
I meet a lot of people in startups who complain all day about not catching anything. You know these people. They are the ones jumping from deal to deal trying to be there when the exit occurs so they can post on Facebook.
Of course, we all want to catch something, and I am not suggesting we shouldn’t be looking to make great returns. But having left my startup and telling myself I would not do another one, I miss the experience. While I have enjoyed a little actual fishing in the meantime, I find myself looking to get back to the startup world like a fisherman starts looking for a new boat the day he sells his old one. It is probably the same reason Chad Hurley jumped back in with Delicious after selling YouTube, and why Sean Parker is always working on two new ones after Facebook.
The happy ending to this story is that if you really love fishing and put in the time, your chances go way up of catching one people will talk about for 20 years. I have found over and over again, the teams who enjoy the startup game are the ones that deliver me crazy outsized returns. And the ones that don’t like the process, you might as well go to a grocery story if you want an easy catch.
Ben T. Smith IV is a serial entrepreneur and investor and a co-founder of MerchantCircle.com and Spoke.com. Follow him on Twitter at @bentsmithfour
Deby Veneziale said on October 24, 2011
Hi Ben,
I couldn’t agree more. It is the fishing, not the catching. I learned that at Arzoon. But I wouldn’t trade one day of the five years that I worked on that company.
Take care,
Deby
Nique said on October 24, 2011
Ben, you shoule come to Atlanta….I have a problem for you to work on. I am looking for serious co-founders interested in making a difference more than making an ego.
Jason Culverhouse said on October 24, 2011
Any good fish story is an improbable, boastful tale. In the investing world these fish stories include tales of “significant return to investors” when the real story is much different. You can always spin a story, but when catch is examined you’ll often find that it’s not as edible as the tale.
When you are lucky enough to actually have a post exit pay day you would think that common share is a common share. It turns out not to be the case. That engineer you advised to exercise his stock options, did you let him know that in the end a unscrupulous CEO might make his shares “in the Merger an amount of cash per share of his Company Common Stock that is substantially larger than the amount of cash per share than the other holders of Company Common Stock”? That’s the last lesson I learned while fishing. http://www.mischievous.org/2011/10/questions-of-fairness-in-silic.html
bob said on October 24, 2011
It sounds to me like Ben learned his lessons in the first bubble, not good training.
Carol said on October 24, 2011
Working in the sales side of a start-up (I.E. HR), I spend my days telling great engineers why they should work with us. I pitch the great management, the cash in the bank, the growth, the cool work, the amazing people, the awesome location, and some pretty damn good benefits. I don’t pitch the “get-rich-quick” thing. If you want that you need to join a company of 5, or have a great executive resume. The rest of our 200 get to payoff their car in a transaction …I am honest about it in the interview and am remembered for that honesty. They come for what’s real and drive to a long-term valuation: a great job with a great company with a great reputation.
TJ Scimone said on October 24, 2011
As a serial entrepreneur, I have started, sold, folded, and re-started many companies in industries from candy, promotional, tech, toy, and CPG — some made money, some lost money, but I always have fun — kudos to Ben for putting his heart into what he does and caring about the people around him — and doing it with a level of integrity that is admired by many people, including myself.
TJS
Peter S. said on October 25, 2011
Ben, well said and well written. For me the process and the building is the addiction. Looking for the “Home Run” as a first priority is like “Speeding” and getting caught.Some of my best and most respected friends are those I have worked with in start-up’s. OK–about fishing. I like to say ” You can not catch a fish if your line is not in the water”.
PS
Lynnea Bylund said on October 25, 2011
Exactly – Its not the pursuit of happiness, but rather the happiness that is found in the pursuit.
Adrian Scott said on October 25, 2011
Hi Ben, It’s been a while, since the Ryze and Spoke days. Great post and neat analogy!
Speaking Agent said on October 25, 2011
Hi Ben,
Great post, thank you. I couldn’t agree more with the importance of enjoying the process.
Spencer Maxwell said on October 25, 2011
Spoke.com is a total scam.
Jim Fowler said on October 25, 2011
Ben,
I feel you brother. My wife is semi-disgusted that I got back into the game after Jigsaw. Couldn’t help myself. I love to fish!!!
Great post.
Fowler
Viral Kadakia said on October 25, 2011
Spot on! As a recent entrepreneur, I can vouch for the fact that the process of turning a concept into a viable business is what drives most founders to do what they do – not simply flipping their idea.
Realistic VC said on October 26, 2011
So true. So many people read stories like early secretaries at Google retiring on their IPO proceeds and assume that’s how it will end. Unfortunately, those stories are the most extreme of exceptions. In the meantime, most startup employees are putting in long hours for years, building towards an uncertain outcome (and, in the upside case of an acquisition, they often end up without a job!). If you love the journey, and you are working on something you really care about, with a team you believe in, it’s worth it. Otherwise, for the vast majority, it is a bitter disappointment.
Merchant Services Guy said on October 26, 2011
Relevant musing by a seasoned Silicon Valley VC. Thanks!
PEHub Administrator said on October 26, 2011
In the interest of transparency and in keeping with peHUB’s policy that all comments are relevant and non-libelous, peHUB removed a comment from this thread. — Ed.
Gilles Daquin said on October 28, 2011
Well, it is a good question to ask oneself.
Do you work for passion (and more than often are paid in “prestige”) or do settle for “interest” and make a little more.
I have done both, and honestly, the passion was a good excuse to work countless hours in a dysfunctional environment (see Guy Kawasaki for what he thinks about start-ups). Very interesting, certainly, however with something a bit less interesting, I can also make more money, have more time to compensate with interesting things.
What’s wrong with fishing anyway, you make deals to earn resources and build in the long run your passion. So really, no naive all black or white stances, there are quite a number of shades in between.
WhiteHatt Man said on October 28, 2011
We have something for you Ben, drop me a line.
just.a.guy said on October 28, 2011
To paraphrase:
“In middling outcomes like the one I just experienced, the rank and file employees will make next to nothing while the founders and early folks might make a small killing. By accusing my employees of wanting something unrealistic, I assuage any guilt I feel after selling them into indentured servitude / slavery for relative pennies. I’ll use a trite fishing analogy to encourage people to think about not catching anything and not the fishing guide who is getting rich in the process.”
The reality is that in today’s exit environment, you have to be a founder or on board a runaway freight train to make any real money. Anything in the middle is founder level risk for peanuts rewards. So the correct strategy IS in fact to jump ship if your startup is winding up in the middle (and influencing that is beyond your direct control).
Of course naturally the founder on the other side of the bargain is going to pitch some psychic rewards though, posted from some remote fishing spot.
Tony Scott said on October 28, 2011
As someone who has spent the last twenty years helping early-stage companies recruit CEOs and other senior executives, the reality is that only few “whoppers” are ever caught and landed. There are a number of “whopper tales” about “the one that got away”, but it is rare that anyone talks about all the dismal failures that populate most of the fishing pond that is start-up land – kudos’ to Ben for doing that.
Ben is absolutely correct in his advice to people to not jump into the start-up world unless they recognize this reality. Too many people since the first dot-com bubble have gone into start-ups with the primary goal of getting rich quick – my favorite give-away t-shirt is from Garage.com -remember them? it proudly says;
Start Up
Kick Ass
Cash Out
I saw so many young engineers and MBAs come to the Valley during that time with the self-assuredness of the well-educated who have no real experience convinced that they were going to be multi-millionaires in no time flat. A few were lucky and made multi-millions. Quite a few of that group have been living off their random success since, trying to convince themselves and others that they hit the jackpot because they were truly smarter, harder working, and more clever than everyone else.
The mythos of Silicon Valley is that if you are really bright, have a great idea, and work hard, you too can have success. in the pre dot-com days, success was measured by the creation of a cool product which led to a successful company. But success didn’t only mean a billion dollar+ valuation – plenty of companies were considered successful simply because they grew to sustainable profitability. The people who founded and worked in those companies understood that they were taking a cut in cash compensation compared to big companies for the opportunity to work in a more exciting environment where they could have greater responsibility than they would have had in large organizations, and tended to be very happy with a level of financial success that would be laughed at by start-ups going for “home runs” today.
Each person has to make a choice about what is important to them – the psychic and other non-financial rewards that can be gained working in a small, exciting, start-up environment, or the stability and most likely greater compensation to be found in larger, stodgier organizations. Part of that is determined by one’s stage and status in life – if you don’t have lots of family obligations, or if you’ve already earned a reasonable degree of wealth, you can afford to take a bigger risk. If you aren’t in that position, you shouldn’t be doing something highly risky unless you are willing to accept the tears that may come from that choice. I’ve actually advised many candidates not to pursue their start-up dreams, because I knew that they were being unrealistic about the potential for success, and would likely end up being disappointed.
The unfortunate thing is that at some point along the way people began to feel that everyone “deserved” success – including financial rewards – regardless of their choices. As the Rolling Stones said, “You can’t always get what you want”. It is immature and unfair of those who criticize the creators of businesses and their investors from achieving a return on their efforts and investments unless everyone who worked in the company also “gets rich”. Those who “in the middle”, as just.a.guy says, absolutely do not take founder-level risk – and they are receiving much greater cash compensation rewards than in the past – typically not too much less than their counterparts in established companies.
I’ve built the teams for many pre-IPO companies. My search fees for such companies are far lower than what I can achieve doing similar level searches for large companies. In addition, I’ve traded off a big portion of my fees for equity in every pre-IPO company I’ve done searches for, and invested cash directly in subsequent rounds in many cases. In fact, I won’t do searches for pre-IPO companies unless I am willing to trade off fees for equity and have the opportunity to invest in future rounds. As to the results of that choice on my part, most have gone nowhere, with many being complete wash-outs; a few have returned my investments; a few have been reasonable successes; and none have been grand slam home runs. If I look at all of them as a group, I still might have made more cash by sticking to doing searches for larger tech companies. I definitely would have made more if I had focused on doing searches for bankers (which was the industry in which I originally started doing search). However, I don’t cry about those lost opportunities, as I wouldn’t trade the experience working with and being a part of building exciting start-up companies for anything.
I made a conscious and deliberate decision to be a part of the entrepreneurial start-up world. If that has been your choice, you should have gone into it with your eyes wide open. Crying and bitterness over the outcomes afterwards are, in my opinion, actions of the immature and spoiled.
Ethan Austin said on October 29, 2011
Thanks for the excellent reminder of why we all dedicated ourselves to this crazy lifestyle in the first place.
Ben T. Here said on October 30, 2011
Ben T. Smith took 62.5 cents of every dollar of equity owned by and owed to employees and paid that money to himself. And, on top of that, he received, “…an amount of cash per share of his Company Common Stock that is substantially larger than the amount of cash per share than the other holders of Company Common Stock.”
At least, according to http://www.mischievous.org/2011/10/questions-of-fairness-in-silic.html
To me, it sounds like Ben Smith ripped off the people that worked for him as well as other Common Shareholders.
Tony: Certainly, founders should get a much larger piece of the equity pie than employees that follow. However, if you think that outrage over this kind of action by Ben Smith is “crying and bitterness by the immature and spoiled,” remind me never to do business with you. I probably won’t with Ben Smith.
This story smells like rotting fish. That’s the real tale here.