Exploratory Q&A - Paul Egan

00:00

Equity is not necessarily a linear thing. That's a mistake that some people think about, when they think early-stage startup. Let's say I have 10% of a business, and then every subsequent round there's 20% of dilution. A very simple model is to think, "Okay, I'm going to get diluted down, diluted down, diluted down." That is not the way it actually works in reality. In reality, cap tables are adjusted in every round, and they're adjusted such that those people who are contributing value to the business are properly incentivized. Those who maybe no longer are going to be diluted down. So if you believe in yourself and you believe in your capability of driving significant value for the business, you shouldn't be too worried about what your equity stake is at the beginning, because it's going to increase. Either the CEO or the founding team has to recognize that, or indeed sometimes it will be the board who recognize that.

00:59

I'd love to dive in to how you've made decisions between offers too in the past, and what types of things you've weighted?

01:05

Well, one starting point for that which I definitely talk to others about, especially if they're earlier in their career, is ... Again, it's about this opportunism point that I was talking about earlier. If you follow that line of thought, you definitely want to have opportunities in front of you. And so I've often advised, and certainly it was something that I learned for myself, was to make sure that when it comes to like an interview, that whether it be at a half-hour screening call or that first maybe hour-long interview, to make sure that I had the option, should I wish, of moving forward.

01:56

As in, even if I was not 100% sure about the opportunity early on, just to present a version of me which I would feel confident would move forward to that next stage. Not exaggerating or lying or anything like that, but just putting that best foot forward so then I have the choice basically to be in control, as to whether you are moving forward or not. That's obviously easier said than done, but there is two, let's maybe even call them tricks that I have found useful for myself. One is around trying to do the job, and the second is around this point that we were talking about earlier, about mission or values alignment. I think both of them are kind of independent of the type of role that you're going for.

02:53

So the first one, kind of doing the job, I guess one of the reasons why this is something that I have felt is a good trick is I, as we were chatting about earlier or the last time, I was saying that I was lucky enough that very early in my career, I was building teams from the beginning and therefore had that interviewer experience and interviewer mindset. Putting that into ... So empathizing a little bit with that interviewer viewpoint, a key thing that you are looking for is, "Does this person really seem engaged with the role, with the company, with what they're trying to do?"

03:45

A key way to kind of showcase that is that you're really kind of leaning into, "What will the job look like?" Like a simple signal that I often look for and have shown in interviews, and that has proved to work well for me, is to quickly adopt the kind of terminology that you would use if you were part of the team. So for example rather than ... This is a really simple thing, but rather than saying, "What challenges are you facing?" You can say, "Well, if we are working together on this, what challenges will we be facing?" And it's very kind of subtle, but it's a very strong clue to an interviewer that this person is already a team player.

04:34

And following along those lines, and this sometimes comes up when people are wondering what kinds of questions to ask. A kind of very obvious question to be asking is to say, "Okay. If we're working on this together, what kind of challenges are we facing? Who would I be working with? Who can we pull around this challenge? Are we going to work together on this, or will I be working a bit more independently? What other stakeholders do we need to involve?" And almost beginning to do the job right there and then. There is an example that really springs to mind for me for this. It was when I was living in Melbourne, and it was a fast-growing start-up. It was chaotic really, but the two people who were interviewing me kind of looked at my CV and were ... Kind of looked up and said, "I don't think you're a good fit."

05:37

This was right in the very beginning, because they said, "We were looking for a webmaster role." And back in the '90s, a webmaster was somebody who copied files around to web servers and things, and maybe just did kind of general content management. And when they asked, "Are you a webmaster?" I was like, "Yeah, I'm probably not right." But then we got talking about what it was they were facing as challenges, and they were multiple. Everything from infrastructure problems, to their application layer not working, all across the board. I jumped into that conversation with, "Tell me a bit more about your challenges," started talking through about who they were currently working with. That very naturally actually kind of brought a few other people into the room to talk through about the challenges that they were facing, and how maybe I could help.

06:35

It did not take long before we kind of left that meeting room and went in front of a computer, and started playing around with some things. It was pretty much later in the day where the two people who originally interviewed me kind of came back and said, "So, do you want to come back tomorrow?" kind of thing. I pretty much already had the team around me, and we were all happily working together. That was a role that I thoroughly enjoyed for the time that I was there. But one of the key things for sure, to make sure I had the option to do that, was to just try and do the job. That signals to an interviewer that you are deeply engaged.

07:26

It sounds-

07:29

I have too many of these stories, that I could probably spend way too much time talking about. But I did a few days beforehand have another interview like that, where I had deliberately said, "Right, I'm going to try and do the job as much as possible." But it was with two people who didn't really know tech very well. I won't tell this story too long, even though I do have a longer version. But basically, they were trying to describe the problem, didn't really understand it. We got a computer out, and in the end it turned out it was really trivial. What ended up happening is, I did the job in the interview, because they didn't really know whether it was like a ... They had been told by others that it was maybe potentially a three-month piece of work, but it turned out to be a small bit of JavaScript.

08:14

We were all left at the end kind of a little bit stumped as to what to do next as they were like, "Hmm, that's the job done. Do we pay you?" I was like, "I don't know. Let's just leave it at that." But that for me is one kind of key, simple tip both on the kind of language you use like, "We, us." Start adopting some of that team terminology. And then secondly, the questions that you're asking should be leading to how we actually move things forward, not in long-term in the future but, "What's the next thing that we can do, and what does that look like at a very practical level? Who are we working with? What are the outcomes that we're looking to achieve?" That has served me well over the years when I wanted to have the option of moving forward to that next stage. But with those anecdotes is sometimes where it went a bit wrong.

09:19

Why do you think that embodying the job works so well?

09:23

Well, I think it's relatively simple for me in that in many ways, an interviewing process is a not very good proxy for how we might try and either demonstrate our capabilities, or as an interviewer to understand whether the person that's in front of them can really do the job. We obviously have interview processes which try to go a little bit further with maybe a practical test or something like that, to maybe demonstrate those skills even further. But if you can ... And again, we would probably recognize too that maybe one of the best tests that you can do in an interviewing process is one that most aligns with the job. It's often why there's arguments about some big tech companies giving you some esoteric algorithmic challenge to overcome, when actually the day job doesn't require you to do a traveling salesman problem or something like that, you know?

10:40

Ideally, the test is something that reflects what you're actually doing in the day job. But more importantly, a lot of what you need to do in the role is to communicate, is to understand and is to suggest solutions. And so if you're leaning into that in the interview, it just makes the interviewers' job a lot easier. They're seeing your capability demonstrated in front of you, in front of them.

11:14

Do you have any other behavioral tips that can help you in an interview?

11:20

Well, it's maybe not necessarily a behavioral one, but the other one that I think is really important, and again just makes your job easier as an interviewer ... So I've talked a little bit about the two-way empathy. As an interviewer, you want to empathize with the candidate and vice-versa. As a candidate, you want to empathize with the interviewer. What are they looking for? Why is it? I would think that a good line manager, a good employer, a good interviewer, should be looking for values and ... Or, mission and values alignment. We talked a little bit about it, but those that last time, in the context of doing your best work. You often do that when you feel like you're aligned with the team and the company. Maybe there's even a close coupling of what you're trying to achieve with that business. Of course, the values alignment speaks to the way of working.

12:24

You will do your best work in that kind of environment, and most good interviewers would recognize that, too. Clearly, you would want both the functional expertise and alignment with mission and values. But I would think that all other things being equal, you would probably go for somebody ... Like if you've got somebody who's perfect and functionally expert, but doesn't align on values or doesn't really care about your mission, they're probably not a good fit. If you maybe have 60, 70% of the functional expertise required but you do align on mission and values, then almost certainly that's going to be the preference, to hire that second example. And if you recognize that as a candidate, then it is actually quite easy to demonstrate that.

13:24

And honestly again, the way to do this is pretty straightforward in that most companies these days do publish what their mission and what their values are. It only takes five minutes to go and look them up, and you can kind of expect that there will be some form of questioning which will revolve around this. If it's a company that values putting the customer first, the customer is always right, that customer focus ... You're going to get a question that's going to be maybe asking about previous experience where maybe there was a bit of tension between, what did the customer want, and maybe what you felt was maybe better, and how you might maybe compromise around that.

14:17

Maybe there's a value of forgiveness over permission or something like that, which kind of speaks to whether you move forward independently versus kind of building consensus before you move forward with something. In both cases, or in any of these cases, you can kind of think about some examples from your past that you can have at the ready if the question is asked. But even better is to actually bring them forward before you're asked. I can think again of my own experience as an interviewer, where I have been most excited by a candidate is when I've got this mental checklist of some values that I want to have demonstrated. I have maybe some questions that would kind of probe around them. But if somebody's already jumping in and demonstrating that ... Actually in the last couple of years, there's a couple of examples like that that I can think of, that I almost just wanted to go, "Screw the rest of the process. Fuck it. You're the person. You're hired, on the spot."

15:34

Where even other interviewers who were in the room kind of also recognized that, as we had talked about what we were going to look for. Came out of that interview going, "Wow, they nailed it. Did not even have to go after some of the things that I really care about." And this has some overlap with the previous topic as well, like if you are asked for any questions from your side, a place to probe for sure is around the ways of work, the values that are important to the organization and to the team. It's a quick way for you to kind of rule in or rule out, "Am I really going to enjoy it here? Am I going to do great things?" We talked the last time a little bit about how your own sense of what good work to you changes over time, and certainly is different between different people.

16:38

Some people might really like ... We talked a bit about my own past, where I'm much more cared about maybe some of the engineering priorities earlier on. And then later in my career, I'm much more cared about the customer and kind of business value generated. That will come through in what the team and the business really value. It is one that has definitely served me well. I do have actually two very specific examples around this as well, and again I'll just tell these very quickly. Actually, it was the first time I was looking for work in London. This is maybe ... It's a good while ago. I was half thinking of going into kind of banking fintech, maybe consultancy. I was in this interview for a big consultancy, and we went through the process. The person who was interviewing me felt really satisfied and was kind of saying, "Okay, you have the job."

17:56

I hadn't had the opportunity to ask any questions yet, so and I actually really was feeling quite nervous about the idea of working for a consultancy, didn't really understand whether it would fit. So my very first question was around culture and values. She totally did not get it, so I asked like ... I can't remember the exact wording. But it was something like, "What's the culture like here?" She stopped and she said, "Oh, good question. Yeah, yeah. Well, we're very multicultured here. We've got people from Eastern Europe, and other parts of the world." I'm like, "No, no, no, no. I mean, you know, the values. What do you prioritize? How do you work? I have this picture of a consultancy, which is quite authoritarian and doesn't really prioritize independence and yes, might be customer-focused, but maybe subservient to the clients' needs."

18:54

And she was like, "Oh, okay, right. I see what you mean about culture, yeah, yeah." And then she started talking about the canteen, and people kind of hanging around there. I was like, "No, no, no, no. You really don't get it." And that was my kind of light bulb moment where I was really like, "This is not a place that I'm going to fit." It went worse because then I asked, "I presume I don't need to wear a suit all of the time." She's like, "No, no, no. You do need to wear a suit." "Oh, shit." And then at the time, I had long hair too, and she was like, "And of course, men have to be well-groomed, well-groomed." And I was like, "Well, what do you mean by well-groomed? Do you mean I have to shave?" "No, well-groomed." I was like, "I have to cut my hair? I am not working ..."

19:43

But where the real culture clash was that she was like, "Well, okay. So, those were good questions but it looks ..." Well, how did she phrase it? She was like, "Okay, so this looks like a fit?" And I was like, "No, no, no. I don't think it is." And she was trying to show me where I would be sitting and things like that. I was like, "No, I ..." And the way I remember it, and I kind of was shouting a bit. I probably just raised my voice a little but I was like, "There's no fucking way I'm sitting there with my hair cut, in a suit, no matter what it is." If I had not asked the questions about, "What is the culture like?" and maybe some of the other things were relatively positive. Honestly though, I look back at that and I feel like she as an interviewer probably was done a disservice in that she probably had never had much experience in maybe what to look for, or how to maybe answer questions like the ones that were thrown at me.

20:51

I did have another interview a few days later, and we talked before about how I worked at Disney for a good while. I went to chat with Disney a few days later, and I still had this bad experience with the culture mismatch fresh in my mind. Went into the Disney building in Hammersmith, and there's a lot of heavy Disney branding in there. In the lift, they play Disney Radio. The radio, the music in the lift was actually playing hi ho, hi ho, it's off to work we go. I almost pressed the emergency stop button of like, "Get me out of here. Get me out of here." But the guy who was interviewing me, who later became my line manager, when the music came on and he saw me panicking he did just turn around and go, "I fucking hate it, too. Don't worry. This shit is not the way it works."

21:50

And that for me was the clue, "Okay, actually maybe company culture has a certain aspect to it, but the team culture can be different, particularly in a bigger organization." We have this anecdote quite often about that people quit their manager more than they quit a company, or vice-versa in a positive way that it's often the manager who retains great talent, rather than necessarily the company. I think that's absolutely right. So yes, you can see maybe some of the values described for the company written on their website or whatever, and I think that you can prepare for. But getting to understand how your line manager thinks about working together and what they prioritize is something that's just so important to understand.

22:52

And again, to link this back to the earlier point about trying to do the job in the interview, part of that is to understand, "Will we be working together? If so, what will that relationship look like? How should we communicate? If I go off and offer solutions, is that going to be rewarded, or would you prefer to be a decision-maker in that?" You very quickly begin to understand, "Well, what does this person value?" And they see, "Here is somebody who is eager to understand how I work. This is somebody who's going to be kind of responsive to feedback, and fun to work with," shall we say.

23:47

So these two bits for me I have felt make it ... Maybe easy is too strong a word, but make it a lot easier to be moving forward in a process. Show that you're aligned with the values that the team and the manager in particular really cares about, and lean in to doing the job already. In each of those cases, I've seen it work over and over again both as a candidate myself and as an interviewer.

24:29

Other than the question that you asked about culture, what other questions do you typically ask an interviewer?

24:36

So the team configuration around you I think is an important one to understand, because the stakeholders that you're going to be working with are really what's going to kind of shape the role. It also kind of speaks to the level of responsibility that you might have. If you maybe have an ambition or intention to be in a slightly more senior role, but the way that the people that you're going to work with is described is more of like, "You're going to fit in this little box," then you know you might quite quickly learn, "That doesn't feel aligned with my expectations." Whereas if you hear, "Yeah, you're going to have to work with these different parts of the business, and make your own kind of independent decisions and then communicate them in this way" or whatever, then it's like a very strong signal as to whether it matches your expectations or not.

25:51

That for me is a really good one, and a really practical one and really independent of the kind of role that you're doing. It's like, "Who am I going to be working with?" And here again, it actually can be helpful for you to just look in LinkedIn and see who's there. This works especially well for a smaller company, and not so much obviously for bigger companies. But that can, if you've already kind of shown ... And that's only like one minute's homework, to go and look at the LinkedIn and see, "What kind of people are there?" Let's continue to use the engineering example. You might see, "Okay, there's 10 engineers. Okay, how is that team configured? Are we all working together? Is there smaller little squads? Do we all work on the same thing? Will I be working with designers or a product manager? Will I be close to the customer?" These times of team configuration questions is another big one for me.

26:57

Practically speaking, how have you gone about starting to look for work? So all the way from like, do you apply for a job? Do you use your network? What do you do?

27:10

So I think rather naturally, it's more network-focused as I have grown in my career than it was in the past, which it was much more of searching for work. It also shifted depending on when I used to work as a ... More in contract roles compared to of course being part of a founding team. The context is different there. I can think of the very first job interview that I did, proper job interview. This was at Motorola. I was still an undergraduate at the time, and actually it was ego that drove that. I was already kind of doing odd jobs around in different places, and so I didn't really feel the need to go and get a job. But there was a few people in my class who had heard about this internship role, and were going to apply.

28:28

My ego kicked in and I was like, "Well, I'm clearly better than them, so I'm going to go and be the person that they hire," which is exactly what happened. It was the absolute worst reason to go and be sitting in that interview, but it obviously turned out well and I really enjoyed that role for the years that I was there. It opened up so many opportunities for doing that. But that was the very first kind of proper corporate interview that I went through. As a contractor then, if I think about the different places where I've taken contract roles, it has been in Ireland, in Australia, both in Sydney and Melbourne, and then a good bit here in London as well.

29:36

How did I approach that at the time? This is pre-LinkedIn for a lot of these examples. So, I did make use of agencies quite a lot. That was also helpful just to kind of manage the employment contracts and things like that, particularly in a place like Australia where I had just moved to and needed somebody to kind of have an umbrella company around me, and manage payroll and things like that. So agencies were definitely something that I made heavy use of. The challenge there is that you've got this buffer between you. You might communicate to a recruitment agent, "Here's what I'm interested in." And then they're going to translate that slightly differently to their clients, hence why for example ... I gave those two examples, little mini-stories of two interviews in Melbourne. Both of them were misunderstandings about what the job was, and whether I was a fit or not.

30:54

Obviously the second example it did work out in the end, even though they were looking for a webmaster and that was not what I was interested in. But the problem was that the [inaudible 00:31:09] agent that I was working with didn't know how to translate that. The example like ending up at Disney, that was a little bit more deliberate, a little bit more in my own hands. Where I had some bad experiences with interviewing at some of the more kind of financial and consultancy institutions and then kind of said, "All right. I need to look elsewhere. The media space is probably more of a fit for me." And so I was looking specifically for contract roles there, and applying directly for that.

31:56

That is perhaps the last time that I was kind of actively applying for jobs. Ever since then, it has been much more network. So whether that be founding my own company with others, or joining as part of a founding team, as a CTO in with a CEO who might have already started, they were nearly all people that I knew already, or were referrals where somebody who knew that founder had said, "Hey. If you move quickly, Paul might be available at the moment." Before Founders Factory, I did entertain quite a few of those kinds of introductions. They were less interviews at that stage. I think it was fair to say that as you grow in seniority, the ability for people to kind of put you through a more kind of rigorous interview process, especially when it's an early-stage startup, it becomes both a harder ask on you as a candidate, and also maybe feels a little bit less appropriate as well.

33:31

There is an extra dynamic when it comes to being that kind of startup CTO role. Quite often, you're talking to somebody who does not know how to evaluate your skill set. They don't have the technical expertise that they are looking to bring to the founding team, and so it does become much more of a chat around the mission and values alignment that I was talking about earlier, and more of a chat rather than like a formal interview. If you're finding that alignment, almost certainly that would become multiple chats where you kind of meet for coffee, maybe outside of an office or something like that, and just really kind of begin to explore the opportunity that we're talking about. Kind of push on the boundaries of, "Who else is in the team so far? What are their ambitions about what the team could look like?"

34:36

If it's very early stage clearly a key question would be, "Where are we at in terms of capital? Do we have some funding behind us, and what will that enable us to do? If not, what's the story we need to tell in order to start that fundraising round?" It's much less formal than past experience. But to answer your question specifically, if I think back of all ... Even in the last 15 years, I have not gone actively looking for something new. The opportunities have come to me.

35:25

I think it's got idolized, finding work through your network. It's almost seen as a bad thing that you apply to a job, but a good thing if you found it through your network. Is that necessarily the case?

35:40

No, clearly not, and for two reasons. One obvious reason is that you might not have a network in the place that you're looking. That certainly was the case in different countries that I've moved to, and did not have a network there already. You shouldn't hold that against anybody. In fact, I usually see it as a positive thing if somebody is comfortable to go and move to a new country, and confident enough about their capabilities to explore work opportunities there. That in many ways kind of trumps the network point. And then the second is maybe a little bit more subtle. Networking takes work. If you went and told younger me, "Hey, you should focus on your network," I would have been like, "Fuck off. I'm not interested in that. I just want to do ... I want to play with computers. I'm not the people person who's going to be off shmoozing, and going to different events, and trying to get to know as many people."

36:53

I mean, I still do have a bit of aversion to this. But now I have learned that paying attention to network not only enables me to identify new opportunities, but it also helps others as well. Whether that be referrals that I can make or even for the business itself, clearly the attraction of talent is a key skill that anybody would be looking for in a startup CTO. And so if you're able to speak confidently about your network, then that is going to put you ahead of maybe a CTO candidate who maybe hasn't paid as much attention to their network. But it requires effort, and that's everything.

37:56

That's not just connecting on LinkedIn. That is regularly reaching out to people, keeping in touch with them, checking in as to where they are. If you're working on something that maybe had some overlap, sharing it with them, reaching out to maybe ask some questions. Maybe you're hitting a challenge, and they have some expertise. That's keeping you in their mind. And then even there's the physical element too, of go for coffee. My preference is go for a pint. You can pull people together as well, in bigger groups. That's a great way to connect, and that works very effectively if you are the one who's pulling people together.

38:50

For pretty much all of the last few startups, I have a Google Group which has all of the previous employees. Every now and then ... Although not the last two years because big groups out in pubs has not been the done thing the last two years ... But for a long time I would then maybe every year or so, reach out to that group and say, "Hey. Who wants to come and hang around for an evening?" If maybe the team was 20 people five years ago, maybe five of them will still come out. But that again, it requires work. You can't just take that for granted, and assume that the person that you worked with 10 years ago, that you're connected in LinkedIn, will respond when you ... Or think of you when somebody has something that might be of interest to you.

39:50

I'll wait for the invite. How do you decide between offers? I'd love to know times in the past where you've had multiple offers, and what decision-making process you've practically gone through to weight it out.

40:07

Yeah. We might have touched on this the last time we caught up, Ben. But the one that sticks in my mind was thinking about the Founders Factory opportunity, which is obviously the last job decision that I made. I think I might have mentioned this, but maybe it bears repeating. I had had a couple of chats with a few other founders, many of whom I quite liked, and liked what they were doing. When I look back now and think about those options ... I'm not going to name names, but there are two in particular that I did say no to, that are now billion-dollar businesses. The people who are part of those founding teams are all very wealthy and successful. There is part of me that feels regret on that missed opportunity.

41:10

And yet, when I go back and think about the different options that I had, one of the reasons why Founders Factory was clearly the only option, it was because of these points that I've kind of come back to so often. The mission and values alignment, so how we were going to work was something that we had talked through quite a bit and I felt very much aligned on that. And then more importantly for me, the mission that we were setting out to work on, which is about empowering founders, taking the lessons that we've had from previous startups and applying them to many different businesses. Once I started thinking about it, it did not take long for me to think, "This is the only place I can be, because it speaks to the problems that I feel are worthwhile solving. The mission is something that I absolutely believe in, and the people that can be around me are ones that I'm excited to work with." Yeah, there might be some regrets, but that for sure was the thing.

42:29

And again, if I go back to the ... Let's take that consultancy firm versus a few days later, interviewing at Disney. You know, that was a long time before but it really boiled down to the same thing. "Do I feel like the mission and values are things that I care about? Yes. Therefore, this is the place." The rest, you can kind of figure out. You know, I kind of believe as well that if you do have good alignment on these kinds of topics, you can be an agency for change for yourself within the role. You can shape things around you that suit you. You're not a passive participant in the organization. You can take that alignment and use that to kind of drive your own position within the company, what it is that you feel will be important to move things forward.

43:53

Okay, maybe that's not always the case but I've been lucky enough that I've been in ... Because I've paid attention to the kind of mission and values alignment side, I've been given the space to shape a bit more what my role should look like, and how I could have an impact for the company, which quite often was maybe different to how the person that was hiring me originally might have seen it.

44:26

Has the way that you've weighted compensation changed as your career has developed?

44:31

All right, that is a good question. I was paid more before. In pre-startup time, I definitely earned a lot more, so that has definitely changed. Yeah, how do I think about that? Yeah, as a contractor I did prioritize cash, so I had my day rate and it was pretty high. So back when I first ... The first contract in London was probably $500 a day. What I wanted was to put cash in the bank, and then I would go and travel, and then I would probably spend all of that money traveling for maybe three months or six months or 12 months or something. And then I'd come back and do another contract, and prioritize cashing back again.

45:33

Once into the startup world, clearly the bet is much more on equity. But nearly all of my bets have not panned out, so I've taken the salary sacrifice and not had the equity reward. Yeah, there are times again when I have regret on this. So I do know others who have gone on a bit more of a conventional, kind of maybe corporate path, and have continued ... Or maybe continued with contracting or consultancy, and have put a lot of money in the bank account, bought a house, have lots of stuff. I don't own a house, or I don't own a car, or I'm not very financially secure, it would be fair to say. That is because I've spent the last 10 or 15 years prioritizing equity over salary.

46:41

Now, should I have done that? Sometimes I think, maybe not. But then, I mean we were chatting the last time a little bit, Ben, about how yes, it was opportunistic. But some of the experiences that I have gained have put me in a great position in my current role. I think that is true. I do also believe that the equity that I hold within Founders Factory will pay off in a big way. So it'll probably all work out in the end, but certainly yeah, to answer the question specifically, has my priorities on compensation changed? Absolutely. Contractor focus was cash in bank. These days, much more the equity side. But there is part of me that definitely feels the pressure of taking too many bets with just a focus on equity. There are, after all, kind of basic needs particularly if you've got a family and kids and all that kind of stuff, that just mean that you do have a base salary that grows.

48:05

It's almost like, as we've spoken, when you've gone into an interview it's like you already know what you're going to be doing the job for, and then you're being hired to do that job. Sort of a contrast, I mean the people who use cord, a lot of the time they make the decision because they kind of half know how to do the job, half don't. They almost take the job to learn. I wonder whereabouts that fits into your ...

48:24

I think that it would be fair to say that that was on my mind, too. Whether that be a new industry or maybe a new technical challenge, or maybe a different team configuration or something like that. I think yeah, absolutely that would be on my mind as well. Perhaps a little bit less so in this ... Well, actually if I think about even just that last decision around Founders Factory, I knew nothing. I knew fuck all about building an incubator or a studio or an accelerator. But, the operations experience in early-stage startup I felt confident about. I was probably a little bit naïve to think that building a studio or an accelerator program was going to be straightforward. It clearly wasn't.

49:20

But if I think about others as well, like there's one very deliberate example that I can think of. I have spent most of my career, certainly in the early stages, in web. A few startups ago I recognized, "Shit. I have not done anything in mobile. So, next business that I'm going to ... Next startup will be mobile-focused." That was just like a ... I mean, it wasn't a must-have but it was certainly what I prioritized in terms of the chats that I was having at that time. One of the reasons that I was drawn to ... Again through network, somebody introduced me to a CEO who was looking for a CTO. It was mobile first and I was like, "Okay, yeah. This is definitely fitting with an area of interest for me, because I've never led a team that's been working on mobile across Android and iOS." I've had bits of mobile experience in other places, but it was more tangential than like, "We are a mobile first business."

50:37

How did you know how much money to ask for?

50:47

Okay, if I go back to previous, like early in my career, the day rates were pretty well understood. Working through recruitment agencies really helped with that, especially when I was moving to a new country and had no fucking idea what people were supposed to be charging. A recruitment agent would tell me, and then they'd probably add a lot on top. And then what I might often do is even then just ask my employer what they're being billed. They'd usually tell me, and then I could kind of gauge, "All right. Here's where I'm maybe being undercharged or overcharged or whatever." So that was much more simple, back in the [inaudible 00:51:32]. Contracting is a bit more ruthless anyway, so I think it's a bit simpler.

51:37

For the startup CTO technical leader role, let's talk about that a little bit, because this is a bit more of a complicated one. The first distinction obviously should be whether you are one of the founders or not. Of course, if you are one of the founders then there is of course an expectation that you are taking that salary sacrifice. Within the Founders Factory ecosystem, we generally have a ballpark of around ... Like a base salary of about 50K as an initial salary for a lot of our founders. Once you start going a bit beyond that, it does look like a seed round, or a very early friends and family round or something like that. If it's a couple of hundred K, and all of that is going into salary just for you, that's not going to look right, you know? So you do want the salary to be relatively low at very early stage.

52:46

But again, we have to go back to the point that I made earlier. At different life stages, people have different needs and different commitments that they can't really get out of. You might be paying a mortgage, or you might be paying for child care, or whatever your circumstances are. Especially if this is a startup conversation where it's a small team, just being transparent with that is the obvious thing to do. I've often felt really comfortable just to talk very directly about, "Here are my costs. I'm paying this much on rent. I'm paying this much on school or child care. This is my spend for the year. If we cover that, good. That's the base."

53:50

Then as you move forward with a business, and as you begin to raise some capital, maybe there's room for growth there. But the key bit I think is just to be transparent about what your base is. I mean clearly then as well, there is the ... You do have to look around at the market. I generally haven't, but that should be something that you should do, and I recommend others do. There are plenty of resources around which kind of give you a sense of what kind of average salaries are. So there's a couple of different sources that I recommend. First is, a lot of agencies do just kind of publish reports on average salary by different roles in different regions. You can Google that. You'll find a PDF report. You can look them up.

54:49

I do find that quite often, because they usually look at kind of national averages, they can often be undervalued, I would say. So you might see average front-end engineer is 50K, but you might expect a bit more. Things like Glassdoor and Indeed and others obviously do publish summaries of salaries across all of the jobs posted as well. That's another good source. And then I would say platforms like cord or other equivalents are a great place as well to get a sense of what current salaries are. That's especially important in times like we have at the moment, where we're seeing a lot of salary inflation. The last year, we've seen some big jumps. If you're not paying attention to that, you might miss out on that opportunity of kind of pushing up your salary.

56:02

This is probably more important for like an individual contributor role or something like that. If you're in that startup CTO role, your head has got to be a lot more in thinking about the business, and the financial security of the business as a whole. Even if average salary for a startup CTO is 150K or whatever, if your startup can't afford that there's no point in thumping on the desk saying, "I fucking need this," you know? That isn't going to work.

56:46

Where does equity come into it?

56:47

Equity is another tricky topic. You know, there are plenty of resources again that can help you to get a sense check of what is appropriate. A good source, Index Ventures has some good resources on incentivizing employees, and therefore you can get a good feel there of what might feel appropriate. The reality is, is that this is a much more opaque part of the compensation package. I talked earlier about how salaries ... There's reports produced, people like Glassdoor and Indeed. You can go and look on cord, and you can see salaries advertised. You will very rarely have the same kinds of sources of data for equity. Perhaps rightfully so, because the truth is is that context really does matter here.

57:55

Again, let's just look at a very simple example of whether you're part of the founding team. As a founder, of course you would expect to have a decent chunk of equity within that business. Whereas if you come along later, as maybe into a business that's already moving forward, you would imagine you would be getting options in an option pool. There of course you get a much smaller amount. Maybe there's a couple of things I could add on top of this. There's two that spring to mind. First of all, I would say just like the salary point that I was talking about if you're a startup CTO, a technical leader into an early-stage business, be transparent about your base. I do try and talk transparently about, "What does the equity look like as already distributed within the startup?"

59:02

Hopefully, you will be talking to a founder who's relatively comfortable to talk about that. They might be able to say, "Okay, well, we have 20% already allocated to investors who have done that first round." They might be able to talk about how there's 10% set aside for a share option pool, and maybe the remainder is for the founding team. Maybe there's already two of them in place, and they're looking for a technical co-founder. And so if you're able to talk at that high level, being transparent about what it is, then that would be a really good signal.

59:43

There are some tools around on the web which can help you to at least start the conversation around equity distribution so you can kind of plug in, who's doing what? Who's going to be leading the investment conversations? Who's going to be managing people? Who's driving strategy? Who's going to be the voice of the customer? Who's defining product features? And so on and so on, and some of them do kind of spit out an answer at the end of like, "Okay. Here's our recommendation of what the equity split should be." The reality is that it has to be like a genuine conversation. You can't just say, "A computer told me it comes out like this."

01:00:28

So that's one way of thinking about it, just the genuine, open, transparent conversation around this. There's a second point that I think is important as well. Equity is not necessarily a linear thing. That's a mistake that some people think about when they think early-stage startup. Let's say I have 10% of a business, and then every subsequent round there's 20% of dilution. A very simple model is to think, "Okay, I'm going to get diluted down, diluted down, diluted down." That is not the way it actually works in reality. In reality, cap tables are adjusted in every round. They're adjusted such that those people who are contributing value to the business are properly incentivized, and those who maybe ... Who no longer are, are going to be diluted down.

01:01:28

So if you believe in yourself, and you believe in your capability of driving significant value for the business, you shouldn't be too worried about what your equity stake is at the beginning, because it's going to increase. Either the CEO or the founding team has to recognize that, or indeed sometimes it'll be the board who recognize that. And similarly, if you own 50% of a business but then you're no long active, any incoming investor is going to go, "That person is no longer active in the business. We need to dilute them down and reward the people who are driving the business forward today." I've seen that over and over again. So the lesson that I take away from that is, yes, it's important to have that open, transparent conversation in the beginning. But don't fall into the trap of thinking that then, equity is locked in and there's no movement from there after. That is never the case.

01:02:24

I think a lot of people, especially who use cord, will be considering share options versus equity.

01:02:31

Yeah.

01:02:32

What unfriendly share option terms should someone look out for?

01:02:36

Hmm, well industry-standard terms are four-year vesting with a one-year cliff. So if you see something outside of that, you would probably want to ask why. So if you see a two-year cliff then that would be suspicious, or if there's a vesting schedule that goes beyond four years, well that would be not very industry-standard. You might sometimes see back-weighted vesting schedule, so maybe it's worth explaining that to people. So a typical vesting schedule would be that every year, a quarter of your total allocation will become available to you. Usually vesting on a month-by-month basis, except for that first year where typically if you leave within that first year, you walk away with nothing.

01:03:31

For a back-loaded or back-weighted vesting schedule, rather than it being a quarter per year what you might see is something like 10% in the first year, maybe 20% in the second year and so on, adding up to 100% in that four-year schedule. The reason to do that as an employer is to prioritize retention, but it's not very common to see those terms these days. The most common is the one-year cliff, four-year vesting, and then a straight linear vesting schedule. So my suggestion would be, if you see something outside those industry standards, then ask about it.

01:04:22

Then the other one that often catches people up, particularly if you're joining something that's a little bit later, is the strike price. So if you join very early on, the strike price ... And I'll talk about UK companies more specifically, but it does apply in other jurisdictions as well. So the strike price will be set in the U.K. by HMRC, and how the value of the business is currently perceived. If it's very early, then you can assume that there's no value in the business yet and so you can set the strike price ... The price that you need to pay to buy your options, i.e. to exercise your option on those shares ... Either when you're ... Well, mostly when you're leaving.

01:05:14

That will be maybe 0.0001, or a penny, or something small when you join early stage. If you are joining a later-stage business, maybe it might even just be a year or two later, that business now has value and your strike price could be potentially pretty high. It might be maybe a pound. It might be 10 pounds. It might even be 100 pounds. Let's say you've got options over ... Let's say it's 1,000 shares, right? So if you want to exercise that and it's 100 pounds a share, I ain't got that fucking money. You probably don't have that money either, especially ... And this is much more the case in the recent years than maybe it used to be in the past. So if you go back dot-com era, the route to IPO was very quick. You could maybe expect a business to go public within a couple of years.

01:06:22

In the last decade, we've seen businesses stay private for longer and longer and longer. You've got businesses like Stripe doing series Gs and Hs and still private, and so your liquidity is not there. If you are leaving the business for whatever reason, you do generally have this time period in which you need to exercise your options. Again, this will definitely vary depending on which country you're in, which tax jurisdiction you yourself are a resident within. But let's just talk about the U.K. for a minute. So most of the share option schemes within the U.K. are under the EMI scheme. The EMI scheme is really great because it's tax-efficient, but specifically the EMI scheme does mandate a 90-day window from you leaving the company and you exercising your options.

01:07:29

And so quite often what you might find is that you're stuck with this question, "Do I fork out, maybe it's $5,000, maybe it's $10,000, maybe whatever?" Anyway, it's going to feel uncomfortable for this bet that maybe this startup is going to be worth a lot more in the future. That's a really difficult decision to make. So one thing that I would suggest people watch out for is, does the company actually allow you to exercise your options beyond that window? So sometimes what you might see is that actually the company is comfortable for you to exercise your options within a five-year period, or perhaps even a 10-year period. You won't get the tax efficiency in the U.K. if it's an EMI scheme, but at least then you're able to exercise your options when you know that you have an upside to it, rather than taking a bet. So specifically on things to look out for, standard terms, four-year vesting, one-year cliff, kind of conventional linear vesting schedule. Watch out for the strike price, and I think there was another one that I had in the middle. I'm forgetting it now.

01:08:50

It is a misconception about when you achieve liquidity with share options. When should someone expect some kind of liquidity from those share options?

01:09:02

Yeah, so for most startups, it is many years before you see an exit, particularly if it's going to be a big exit. You might see a small exit maybe in the first year or two, if it's like an acquihire. Or frankly what has happened to a lot of businesses that I worked on, maybe we sold some of the assets because the business itself didn't work out. We could maybe count that as a bit of an exit, but it really wasn't more valuable. And of course it's worth remembering that all investors will have some form of hurdle to overcome.

01:09:43

Just to explain that a little bit further, if you've taken on ... Let's make the number simple ... A million pounds of investment, and there's an exit for a small amount. Let's call it two million, then of course the majority of that is going to go to the investors. They're going to come out first. They're going to have a hurdle to cross too, which might be 1.2, 1.5X what they've put in. They're going to take all of that. So what's left for you as team, if it's an early exit, is going to be almost nothing.

01:10:27

If you're looking for an exit that involves that kind of billion-dollar valuation which is maybe, "We've been acquired by Microsoft, or we've gone public," there are rare exceptions to this but normally it takes seven, eight, nine, 10 years. It's not something that generally comes quickly. We do have, in recent years, some very big, obvious counterexamples to that, but that is more the time frame that you should be expecting. And therefore things like the time period in which you can exercise your options is something to keep in mind. I recently have gotten a little bit of cash back from a business that I ... This is a business called mydeco, which I was there from the beginning from two ... When did we start that? I think we started that not long after I moved to Japan, which was like maybe 2007, I think. Maybe 2007.

01:11:46

2007, yeah.

01:11:47

That sounds about right. So that is 15 years ago, and I got a check in the post a few months ago. I'm expecting another little bit of cash sometime soon. Not much, but that is an example of how long it might take to see those rewards from equity.

01:12:14

Love it. I've really enjoyed the conversation today.