Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike discuss work-work balance, living a processed based life, angel investing, and answer more listener questions. Mike also gives an in depth update on his progress with BlueTick, and Rob helps define angel investing and shares some ways to make a possible return on your investment.
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Transcript
Rob [00:00]: In this episode of Startups for the Rest of Us, Mike and I discuss work/work balance, living a process-based life, [angel?] investing, and more listener questions. This is Startups for the Rest of Us, episode #308. [THEME MUSIC] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:28]: And I’m Mike.
Rob [00:29]: And we’re here to share our experiences to help you avoid the same mistakes that we made. Wait a minute, was that the right thing? I wasn’t reading it.
Mike [00:36]: I don’t know. You tell me. I wasn’t listening [laughter].
Rob [00:38]: Yeah, I think – what is going on this week, sir?
Mike [00:42]: Well, I started rolling out the latest updates at Blue Tick, and this is kind of a massive release that I’ve been working on for a while now. But the core functionality of it is that it allows the application to download the actual contents of mail messages from somebody’s mailbox. The difficult thing behind it was actually that, depending on which type of mail server you use, there could be a lot of duplication in the mail messages that are behind it. So whenever you move a message from one folder to another on a mail server, it doesn’t move references around. It actually copies all of the data as well. So I basically had to run through this process of downloading the messages, and trying to find out if they’re unique or not, and storing them. It was kind of a mess. I don’t think I’ve ever written so much test code in my life for one specific function. Or for one feature, to be honest. Because there’s just so much involved in it.
Rob [01:35]: Yeah, it sounds like it. Why is this important for Blue Tick to have as a feature?
Mike [01:39]: People have been asking me to basically be able to surface just the content of the emails inside of the application, because they want to be able to log in, and when they’re sending emails through Blue Tick, they want to be able to see the replies, and what previous messages have been sent to the person. The only way to get that is to download them from their mailbox. So it makes it difficult to be able to surface that. I can show pretty easily the emails that I have sent, because I keep copies of those, but I don’t have any other way to show them emails that have been sent prior to them signing up for Blue Tick, unless I go into their mailbox and download them.
Rob [02:15]: Alright.
Mike [02:16]: So it basically provides them with a better history of all the different conversations. It gets more important in a team situation, because if you have multiple people who are on a team and User One sends an email to Sally, and then User Two sends a different email to Sally, you’ll be able to see those things in aggregate, so you can see what the team communication is with a particular person as opposed to just your own personal communication with that person.
Rob [02:39]: True. The bummer is that you had to build it yourself from scratch. I have to imagine that there’s not as much – well I guess with .net there isn’t as much open source stuff out there to do this. I know that when we tried to do stuff like this – we haven’t done this exact task, but when we have done stuff like this, like parsing RSS feeds, or just stuff that’s semi-standard but it’s a little [cloogy?]. There’s bits of [Ruby Jam?] written to do that and that we were able to use. Were there no components out there that did take care of this?
Mike [03:07]: Well, there’s components out there that allow you to interact with a mail server and download the stuff, but there’s nothing that says “Okay here’s this back-end storage system, and it’s a very generic thing, we’re just going to treat it like a database or something like that.” And you can wire up those pieces, but there’s nothing out there that directly translates a copy of the contents of a mail server into some generic back-end storage system. Because the back-end storage footwork can be pretty much anything. It can be a database, it can be a [nosequel?], it can be a file system. It can be a variety of different things. And all of the components that I used to get the messages are all of the shelf, but the back-end storage of it – depending on how you index things and how you want to surface the data, and what specific pieces you want to actually store, those are the pieces that I had to build. Anywhere where there’s questions about how do you search it, or index it, or anything like that? Those are the things that I had to also build. And then making sure that there’s tools in place that we can verify, “Okay, yes. We got this message, and we were able to get the contents. We built all the [indices?] and everything else.” And later on, my message might get deleted. So if a message gets deleted, then all that stuff needs to be updated. And then we had to build tools to make sure that everything got deleted. There’s no orphan data laying around, etcetera. It gets ugly very, very fast.
Rob [04:27]: This does not sound like fun at all.
Mike [04:29]: It is not. It was not.
Rob [04:32]: So, on my side, I wanted to call out a forthcoming e-book from MicroConf’s very own Kristoff Englehardt. And his e-book is SassEmailMarketing.Net and he’s obviously writing it for Sass Companies. He’s teaching about email marketing. And he did a video interview with me today. I’m assuming that he’ll include it as a bonus or something like that. So if you’re interested in that topic, SassEmailMarketing.Net, on another note, did you notice that our last two episodes went live almost two weeks late?
Mike [05:01]: That’s not technically true. [Crosstalk] They were out there.
Rob [05:06]: Right. That’s true. That is technically true. I got on Downcast, which is what I use on my iPhone a couple weeks ago on a Tuesday, and the episode didn’t come out. I thought, “that’s weird.” So I went to the website and, sure enough, it was live on the website. Well, I was thinking that maybe iTunes and Downcast got out of sync. Because Downcast – I think it must scrape iTunes or something like that. It wasn’t showing up. So it was several days later and you and I finally dug into Feed Burner, which is something we’ve used to for subscriber counts. Feed Burner got acquired by Google four or five years ago and they have just let it languish. So sure enough, something in there just snapped. Nobody cares, or was willing to fix it. I posted to their forums, I tried to email them, but there’s no help email address at all, support bounced, support@ bounced back to me. So I posted on their forums and it was like crickets. So we had to go nuclear on it and just switch everything over to a bare WordPress feed. The redirect is going, so hopefully everyone who is hearing this episode, it came up properly in your pod-catcher. But if someone is experiencing issues, feel free to get in contact and we’ll see if there’s any edge-cases that we’ve missed.
Mike [06:16]: Well, the problem is that if they’re hearing this episode then, obviously, they’re past the issue.
Rob [06:21]: Perhaps.
Mike [06:22]: [laughter] So it almost doesn’t matter.
Rob [06:22]: Although, a bunch of people were saying that they didn’t notice because they listened to the episodes on the website. Can you believe that?
Mike [06:28]: Oh, that’s interesting.
Rob [06:29]: I know. I would never have thought to do that. It just doesn’t – I mean, they’re on the website but it’s more for posterity, right? I guess the main consumption driver is really a pod-catcher. And I think 80% maybe of our downloads – because that was the cool thing. Feed Burner would tell you what percentage came from iTunes versus the Google downloads. It just had all these different divisions of your downloads. It was like 10-20% web and everything else was podcast apps. And of that, I think it was 80% or 90% iTunes. It was a huge consumption. Although, wait. That’s not true because Google had at least – they had the Android thing and it was like 20-some%. Anyways, I don’t remember the exact numbers, but it was nice to know. And we’re basically not going to have any of that data now. I mean, we do still use Blueberry I think it’s called. It gives us download data per episode, but the metrics in there are not very good. I guess we’ll just continue to fly blind.
Mike [07:20]: Yeah, that’s one of the downsides for podcasts in general. The statistics behind them that allow you to see kind of what’s going on, and what your listenership levels are. It’s atrocious. I’ve looked around a little bit, and talked to Craig Hewitt a little bit about it – he’s from Podcast Motor. And they’ve looked into potentially developing a product around providing statistics. I don’t know if they ever went anywhere with that, but the problem is that in order to get anywhere with those statistics you really need to kind of know – or at least be hooked into whatever the application or the platform is that the people are playing the podcast through. Because there’s a difference between a download and a play. You know, it could be thousands – it’s just like RSS feeds. There could be thousands of hits to the RSS feed, but is anyone actually reading it? And you really just don’t have any good way of knowing. That’s a very hard problem to solve, I think.
Rob [08:09]: Yeah, that’s kind of left out. I mean, since podcasting was bolted on RSS, and RSS by itself doesn’t have any type of analytics built into it, right? It just simply passes you a URL of a file. In this case, typically an MP3 file. And so what you’re saying is that when someone hits your RSS feed and then goes and downloads the MP3 file, your web server has no idea where that came from. It doesn’t know that it came from iTunes, it doesn’t know that it came from a pod-catcher or if it was played on the web and was just accessing it. So the cat’s out of the bag on that one and there’s not really much we can do to put it back in. But I guess that’s just the state of things. We can deal with it.
Mike [08:46]: The other funny part about this is that Feed Burner has kind of been on autopilot for Google since I think 2011 or 2012. So here it is like four years later and we finally decided to switch off of it.
Rob [08:57]: I know. Well, you know if things aren’t broken, you’re not going to spend the time and risk losing subscribers and risk potentially breaking anything. Any time I mess with this stuff I always feel like DNS propagation. You know that it’s probably going to work, but you’re not really 100% sure until it does. And there’s really nothing you can do to test it. You just have to do it. You just have to click the button and hope that everything redirects. And if it doesn’t and things start breaking it can kind of suck. So we have some listener questions that we’re going to run through today. I think that this cleans out – I don’t think we have any more listener questions in the queue, which kind of makes me feel good. We’ve had some of these listener questions in here since 2014. I’m sorry about that. It also makes me feel a little bad because people aren’t asking us questions. I feel like we should get these conferences filled again. So if you have a question for us that you’d like us to answer on the air, please send your questions to StartupsForTheRestOfUs.Com. So our first couple of questions are from Anders. Anders Peterson, who comes to many MicroConfs, you’ve heard us mention him on here before, said “One question I have is, do you have anyone in your life that continually asks you the hard business questions? Those questions you don’t want to hear but probably need to. If you do, how do you find those people?”
Mike [10:03]: I would say that I probably use my mastermind group for this kind of thing. When I have questions or problems I will bring them to them. But I also feel like in a mastermind group you have to be a little bit cognizant that over time you become good friends with people, so it can more difficult for them to essentially challenge you on the things that you’re doing, and really put your feet to the fire and say, “Look, you’re going in the wrong direction here. You haven’t made progress on this in a very long time, what’s going on?” They tend to be more intimately involved in the things that you’re doing, so they’re not as objective. That’s not to say there’s no value in having made a mastermind group, because I think there’s a ton of value. But I also think that because they are much closer to the situation – obviously you’re that kind of first tier where you’re very close to it and it can be very difficult for you to see the forest through the trees, so to speak. In addition to that, your mastermind group tends to be people who are also only one step removed. And then if you have a business coach or something like that, they’reprobably a little more removed from that, or even if you have just people that you meet at a meet-up or entrepreneurs that you meet a conference. Those people are even another step removed. I think as you get further removed, it’s probably easier to be more objective about things. And the conversation you’ll have, you’ll probably focus in on a few key issues versus the people who you are very familiar with who you’ve been talking about, they won’t necessarily question come of the assumptions because they’ve been there with you while you were making some of the decisions about those assumptions.
Rob [11:28]: I think for me it’s the same story. The mastermind people are going to be the people you feel comfortable enough with, or they feel comfortable enough with you to be willing to do this. Because if you don’t know someone very well and they ask you those hard questions, it kind of pisses you off. It’s like, “Who are you to ask me those questions?” But if you know that someone has your best interest at hand and they’re not trolling you on Twitter with a hard business question, but they’re actually asking it to help you maybe face up to some shortcomings or to face up to a decision you’re having or to call out bad decisions that you’re making or thoughts that aren’t valid. I think that’s helpful. So it has to be someone that you have a good relationship with. That you trust that they have your best interest at hand and that they’re not going to be a jerk and always ask the hard questions. Because if that’s all someone does, it’s going to get irritating to. You have to have a relationship beyond that. So I would say, yes, mastermind group. The other one is my wife. Sherri may not be inside the business and be able to ask the detailed business questions, but she does ask, as she’s hearing me talk about the same thing over and over over the course of a month or two months, she says “How are you going to fix that one? Why aren’t you fixing it? What can you do?” And starts prodding in there. And of course we have the relationship where we’re able to do that. The question of how you find those people, we’ve talked about finding folks for a mastermind. You’ve got to build those relationships slowly, build them over time, meet them at MicroConf, that kind of stuff. This is a good question. I think more people need to think about this topic. Who is it that is asking these hard questions, who has your best interest at mind and who knows enough about your business to know that it’s the right question to ask you? Thanks for sending that question along, Anders. Anders had a couple questions, actually. He said, “I’d like to hear more about how you handle work/work balance. I’ve talked a little bit with Rob last MicroConf Europe about how much time he spends on fun work and how much time he spends on crap work. What do you do to notice when the balance is off and how do you rectify it?”
Mike [13:19]: I like the phrase “work/work.”
Rob [13:22]: Work/work balance is cool.
Mike [13:23]: Yeah.
Rob [13:23]: I really like that idea of – it’s basically saying that not everything you do is going to be awesome every day, or fun every day. It’s like fun work versus crap work balance. Work/work balance is a clever way to say that.
Mike [13:34]: Yeah, but I can also see it coming from a large enterprise 500 company where they’re like, “Oh, there’s work that you do for us that you do here, at your desk, and then there’s work that you do at home while you’re not at your desk for us.” I guess for this type of thing I would say that if you look at the things that you’re doing and you’re finding yourself easily distracted from them and procrastinating them, then those are things that you probably need to figure out how to address. Is it something that you just need to power through? Is it a short term thing? Or is it something that you need to basically give to somebody else because it’s frustrating to you, you don’t understand it, or you don’t have the experience and expertise in order to do it? And I think that just being cognizant of what those things are and how you’re feeling about the work that you’re doing is important. It’s one thing to just say, “be more aware of it.” I don’t think that that’s the answer because it’s very difficult to become aware of it if you’re not already setting aside time to review those things. What I find is helpful is setting aside specific times at either the end of the day or the end of each week, depending on what you think the appropriate cycle is, to review what you’ve been doing and where you’ve been spending your time, and try and figure out if that’s the best use of your time. So it depends on what type of iteration cycle that you’re interested in achieving. If you’re trying to avoid those things where you’re stuck doing the same thing for several days on end, you might want to do a daily review. Even if it’s just five minutes set aside, a scheduled time, put a reminder in your calendar or do some journaling or something like that. If you’re okay with longer time periods where it might be a couple of days or a week or two, then you can space it out and say, “I’m going to do a review once a week, Friday at 3:00 P.M. or 4:00 or something like that.” When your week is especially winding down, put something in your calendar that says, “Let me come back and review what I’ve done over the past week.” So again, it depends on what that iteration cycle is, but the really important piece is making sure you set aside time to consciously review that as opposed to letting it be something that creeps in and then is a problem for days, weeks, or months on end and then suddenly you realize, “I need to do something about this.”
Rob [15:44]: I think that’s a really nice way to attack it – is to just review daily or weekly. Personally, I notice because I start losing motivation and I start not liking my job. I mean, that’s what it is. I’m the co-founder of the company and when I stop liking my job for weeks on end I realize I’m doing too much crap work and I need to figure out what it is. Then I start keeping notes at work. What did I do today that sucked? And I’ll do it as I’m going through. I don’t do it reflectively. I’ll realize as I’m sitting here in my inbox for five hours, okay, I need to figure that out. I mentioned this in several year-end reviews that I need to do less emails. That was something that was always there. Legal and administrative stuff and H.R. – there was a bunch of things that I was noticing would creep up as we were growing DRIP. So it’s work that had to get done, but it was work that I didn’t enjoy. Typically I’ll pick up on it because I’ll notice that I’m not enjoying stuff and then instantly the way I try to rectify it is I’ll identify, make a list, and then I’ll say, “Who can I hire to do this instead?” Like a specialist who is really good with administrative or really good with H.R. Because most of the things that you consider crap work is a job for someone else and it’s a thing that they enjoy. It’s just about finding the right person to do that for you.
Mike [16:56]: One thing that you mentioned in there that I think is probably not inherently obvious to everyone is that when you’re building your own business and you’re running it, you’d think that it would be like “this is going to be great, I have a job that I love because I built this job in order for me to enjoy it.” But the reality is that there are going to be aspects of running a business that you don’t enjoy. I think it’s just important to keep that in mind. Not everything about the business is going to be something that you enjoy. There are some thing you’ll just have to power through and there are other things where you’re going to want find someone else to do them.
Rob [17:26]: And then Anders’ last question was, “Have you ever noticed how most ‘normal’ people” – and actually, I like that phrase, “normals versus technologists” is a phrase that I’ve heard, but he says, “Have you ever noticed how most ‘normal’ people live an event based life? When I when the lotto, then I will become happy. When I get a new car, then I will be happy. Whereas it feels like most successful entrepreneurs live a process based life. I work on my business because it makes me happy, and because long term it will pay off. What is your take on this and where are you?”
Mike [17:53]: I would have to agree with that general assessment that a lot of people do live their lives that way, and they are always working towards these goals, but and they don’t always enjoy the process. They’re looking specifically for achieving that goal, but they don’t really look at anything beyond that. And they will make any number of sacrifices during that process thinking that the “I have arrived” fallacy that you kind of mentioned here on the podcast here before – the question is “what’s next?” What do you do from there? And if you don’t have an answer to that, it becomes very difficult to go on to the next thing, regardless of whether or not you were successful with the previous one or not. So you really have to think of a lot longer term than that. I don’t think that probably matters so much for people who are non-entrepreneurs because they have a 9-5 job, they go into work every day, and at the end of the day they go home and work on their hobbies and spend time with their families and it doesn’t matter. Because no matter what happens, they still have to go back to work the next day. That’s probably less of a problem for those types of people than it is for entrepreneurs in that situation where you could have a life-altering event – which is much more likely to happen, such as selling your business or selling your product, than win the lottery.
Rob [19:03]: Yeah. By its very nature, entrepreneurship is a constant state of forgoing present gains for potential future rewards, right? Your present day gains are things like you go out to Happy Hour, you could hang out and watch a movie, you could spend time with your family. There’s a ton of things you could do that are fun, but instead of that tonight you’re going to spend three or four hours writing code, building your business, doing some marketing. And over the weekend you’re not going to go out of town and go to the beach, you’re going to spend it writing sales copy and thinking through your pricing. That kind of stuff. That’s pretty much a perpetual state of affairs as far as I’m concerned as an entrepreneur. I think, Anders, you’ve made some generalizations here that I think are fairly accurate. I think that people who are drawn to entrepreneurship, they have to know they’re investing for something better in the future. So I do think there is that mix of – I think you can have the arrival fallacy as an entrepreneur because you can say, “Once I quit my job, then I’ll be happy. Once I sell my app, then I’ll be happy.” It’s easy to slip into that, but I do think the healthier and the long term entrepreneurs who make this more of a sustainable lifestyle realize that at a certain point you just have to be in it for the process. You have to find something in it that gives you the dopamine rush, right? And for some people that’s – Derek and I have talked about this – for some people it’s shipping a feature. It’s pushing a feature into production. And that’s the rush you need. And so you’ve got to find that and make that more of a part of your day. For other people it’s doing launches. Then figuring out what you’re going to do. An e-book launch, every other month for marketing? Could I do a video launch? Even if you have a Sass app, if what you really want to do is launch little products, because that’s where you get the rush from, then figure out how to do that. If you really love building a high-performing team, and working with them to solve problems, then figure out how to do that. That’s what it is, I think. Becoming happy and fulfilled by engineering a business rather than going for the end result. The end result – I mean, we talked about this with the Bill Walsh episode, right? Where he basically says to put your best effort in, be the best you can, and the score will take care of itself. That’s how I view this. It’s like the more you can make sure you’re happy and you’re keeping those around you happy, and making this a sustainable lifestyle, I think that good things will come of it eventually. Our next question comes from Kevin from Viper.io and he said, “I just wanted to jump in on a question. I love the show. I’ve been listening religiously and it’s overtaken all of my other podcasts. I have a question for you and hopefully you’ll have a chance to answer it. Rob, you say you do [angel?] investing in these fun startups. How do you make a return on those? I know some investors take a percentage of profits every month or something like that. Is that the structure you work with? Or are you banking on an exit? Have you made a return yet on any of those investments?” The fun strapping is where someone is basically trying to raise a small round. It’s typically between 50k and maybe 200,000/300,000 and it’s to get to profitability. So they’re not looking to raise a series A, B, and a C, they’re really just kind of raising a small round to grow quicker but to get to profitability. Last question is, “Have you made a return on any of these investments?” And the answer is no. I wouldn’t have. My first [angel?] investment was maybe three or four years ago. That was WP Engine and it’s now worth a bazillion dollars. I think their most recent round is public info. The most recent round was over a year ago and I think that they were valued at 120 million. So, certainly, my investments on paper are worth substantially more than when I first invested. That would be the business that’s the furthest along and there’s been no liquidity event or anything like that. Another part of his question is how am I going to make a return on these? Some of the investments are in big startups like WP Engine that are either going to get acquired or they’re going to IPO. I mean, there’s going to be a big liquidity event, as they call it. A chunk of mine – and it’s kind of what I’m focused on now because it just fits more with who I am and the business I believe have a reasonable evaluations are the ones that are going to be profitable businesses. These are not these moon-shot businesses. They’re businesses like Jordan [?]’s Hook and Justin McGill’s Lead Fuse and [?] from Matt and Joel – I’m an [angel?] investors in each of those. These are businesses that, I believe, they all absolutely have the potential to get to seven figures and maybe even eight figures in revenue. They’re going to be businesses that just spit out cash. They’re Sass businesses. And so gross profit on Sass apps can be something between 50% and 80%, and net profit can be between 20% and 70% depending on how you’re running it and how fast you’re growing all this stuff. So there’s a lot of money – a lot of cash – that can come out of these. So the deal typically is structured – and this is the same kind of deal that you’ll see at Indie.VC – is the money goes in and as long as the money is used to take care of the business, nobody takes money out. But as soon as dividends come out, a certain percentage goes to the investors. Some of the deals say that once the investors are paid back 3X, then things revert to a smaller amount that goes back to the investors. Sometimes investors get completely paid off, and are paid out at 5X. I think that’s how Indie.VC works. If they’re paid 5X then they’re own zero of the company anymore. And it’s only if the company were acquired before then that .VC would get it. I think that’s how it works. Don’t quote me on that. But that’s the idea. And each is a little different. I don’t want to speak specifically about the investments because the payment works private. The idea is, yes, while it used for the business nobody is making money. The founders are taking a salary, but there’s no dividends coming out to anyone. And then once they start taking that, a certain percentage which is negotiable – and it’s a different setup on each deal. Sometimes it’s based on how much you actually own. If you own 1% of the company, you get 1% of the dividends. In the others the investors are favored more upfront until they get paid back their initial investment, 1-2X. And then it flips. That’s the basic structure.
Mike [24:33]: I like the Indie.VC model, and I don’t know whether they pioneered that or if they’re responsible for pushing that, or if they were the first or whatever, but I like that idea better than the .VC model just because it’s more in favor of the entrepreneurs who are building it. I don’t think that you need this massive exit in order for it to be work it. I don’t know what your feeling or take on this is, but in many cases it’s not necessarily because you want to have this giant payout, but you want to see somebody be successful. You don’t want it to be a go-big-or-go-home, you want it to be something that somebody can grow into a viable and profitable business.
Rob [25:11]: That’s right. And those are the kind of businesses that I believe in anyway. Those are the businesses that I want to see succeed and that’s why I’ve started doing this model. And Indie.VC, I have seen their investor deck for people who become LP’s in their fund, the people that actually give money to .VC to invest. And they’re doing well with it. There’s definitely returns to be had in this fashion. This is also all modeled after brick-and-mortar businesses. If you want to start a restaurant or a car wash and you went to investors, a typical structure for that is investors do put up the money and you take a salary as you run it. Then as profits are generated and there are dividends, more goes to the investor. It’s often 80/20, 80% goes to the investors until they’re paid back either 1 or 2x, and then 20% goes out to the founders. It flips at a certain point. Sometimes there’s a maximum payout. Again, with Indie.VC 3x or 5x is I think where it maxes out. Where with brick-and-mortars, I’m not sure if it ever maxes out or how that goes. I think it’s more about a business that generates revenue, not this liquidity event. Right? In that sense, it’s funny – an app like Drip who’s long term play is become a profitable business has almost more in common than a dry cleaner or a car wash in terms of the business model, than it does with Facebook or Twitter where they really need to get massive or they’re just going to self-destruct. Our last question of the day comes from Jordie [Coski?] from TapFun.com. He says, “Hey guys, I’m a big fan of the show. I’m wondering how you would structure a salary for a lead developer on a Sass app. Would you build in any kind of performance structure related to revenue and revenue growth of the service?”
Mike [26:49]: I think that when you’re looking at this type of question, there’s two different ways that you can view it, or two different perspectives you can have. The first one is what role does that developer actually have in the development of the product? Are they a W2 employee? Or are they an external, third-party contractor? I think that depending on the answer to that, it’s going to heavily impact how you treat that person in terms of the compensation. So, for a W2 employee, obviously, you’re going to give them a salary. And this is really where the questions come in about giving them additional compensation or performance structure. If they’re an external contractor or third party that you just hired off of UpWork or LinkedIn or something like that, chances are really good that there’s not going to be any performance bonuses or anything like that. You’ve kind of negotiated whatever the contract rate is with them, and that’s what you pay them. It doesn’t really matter what their performance is, that’s what you’re going to pay them. If they’re a W2 employee, chances are this is where those questions will come in. And I think that in the case of developers, the vast majority of developers, there’s not going to be any performance bonuses, because it’s going to be very difficult to map the things that they bring to the table to the growth of the products. It’s very easy to write tens of thousands of lines of code that don’t really contribute to the bottom line in any measurable way. It’s very difficult to map those lines of code back to the performance of the product. You can write tens of thousands of lines of code that have zero to do with the product’s growth. That’s really what sales reps are for, that’s what the compensation record is for, compensation reps, people like that, that’s what they do. It’s to help them promote the product and incentivize them to grow the product. And they will do anything they can in order to do that. But with the developer, those mappings are much more nebulous. It’s very difficult to derive the impact on the product based on what it is that they do. So those are probably my general thoughts on it, in terms of offering equity or a stock plan or anything like that. Those things are all really negotiable. It kind of depends on what your relationship is with the developer and what the company culture is and how much money the app is making. You could do profit sharing or revenue sharing, those types of things. There’s lots of different way to go, but it’s also very situationally dependent. And I don’t think these are things you have to look at or really need to consider on day one when someone comes in. If you have a team or five or ten people, then maybe it’s something to think about. But for your first develop or two, I wouldn’t worry about it at all.
Rob [29:16]: Yeah, I agree. I mean, you have to think about A, motivation, and B, what’s kind of the standard and why has that arisen? And the standard is not to give anybody but sales people a cut of profits. I mean, that’s typically the thing. Even people in marketing, as a rule at startups, they’re not getting a percentage. You know, they may get a bonus at some point or they may get stock options, but they don’t get a cut of the profits. Because you need those profits to grow. Especially at a small Sass app, you really want that money. I think something like stock options, which is really good for retention, because they invest in it over the years, I think that’s cool. Because then everyone feels like they have ownership. Also think about motivation. Are developers motivated by money? I mean, some, yeah, maybe. But developers are much more motivated by having really cool problems to solve, and working in an environment that’s fun, and being able to ship a lot of code quickly. There’s certain things that are just more valuable than a few thousand dollar bonuses that they’re going to receive each quarter or each year. So that’s not something I’ve seen done, and it’s not something I would particularly recommend. Giving people bonuses at some time during the year, or doing profit sharing, or setting up some plan later on down the line I think totally makes sense. You want to take care of your people. If your business is making money, you should share it with them. And giving people stock ownership is cool, there’s lot of different options. But up front, having that be part of the deal, I think is really tough. You could easily give away more than you need to or want to because you just don’t know what the business is going to look like. Get farther down the road, get this thing live, and when things start happening then make that call.
Mike [30:41]: As you mentioned kind of early on in that answer, it also depends on what their motivations are. So, just thinking about giving them equity, some people might not care about equity at all. So you have to understand what their motivations are for that kind of thing. It might not impact their productivity in any way, shape, or form, and you just gave away part of the company. You have to keep those things in mind as well. I think those things take time and it’s not something you will want to necessarily decide on day one. So I think that about wraps us up for the day. If you have a question for us, call it into our voicemail number at 1-888-801-9690, or email it to us at Questions@StartUpsForTheRestOfUs.com. Our theme music is an excerpt from “We’re Out of Control,” by MoOt used under creative commons. Subscribe to us in iTunes by searching startups and selecting StartupsForTheRestOfUs.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
