Nesheim Online

IPO GROUPON: How much did the employees get?

I'm in the midst of dissecting the Groupon IPO prospectus. It's a real messy story, of a series of acquistions that created and grew the startup to IPO in less than four years.

My first set of self-generated stats has shown me something remarkable: The 10,000 employees got a very low ownership compared with the founders and early investors.

My analysis so far shows:

• There is only 7 percent of the company reserved for future stock options.
  • LinkedIn had 15 percent.
• There is only 4 percent of the company that has been sold to employees via stock options. And the bulk of that was optioned to top executives.
• The value per employee of the 4 percent was (at IPO pricing of $20 per share) $60,000. Mason, the CEO was valued over $1 billion.
  • LinkedIn value per employee was $617,000 and the founder CEO Hoffman was valued at $900 million

The gap between the top brass and the workings is stunning, the kind of thing in principal that The 1 Pecent Demonstrators are upset about. I've seen a lot of IPOs in my years, but this wide-gap sharing of ownership is a first-of-its-kind for me in venture capital backed new enteprises. (There may be more to come with Zynga and Facebook. If so, it's a new chapter in the history of modern startups).

Next week I'll have more time to dig into the swamp and learn more. Right now I've got to pack my bag and get ready for flying ithaca, New York to do final exams at Cornell University this week (I always look forward to seeing what cool ideas the students have come up with for their startup plans).

BOTTOM LINE: As founder CEO, give some thought to the gap between you and employees when designing your stock option plan. If you see a gap as large as that of Groupon, expect to be a target for critics and probably employees (who may leave for greener pastures). Planning a fair, competitive and motivating-retaining stock option plan is what serial entrepreneurs do well. It's part of their unfair advantage.

I wish you The Best on your Adventure!

THANKSGIVING WEEK 2011 FOR STARTUPS: Sources of hope and meaning

This is Thanksgiving week in America.

Some of you startup people may be finding life rather difficult at the moment, personally and professionally. So I have an fresh source of hope and meaning for you from an unusual source: The celebration of the Pilgrims on the first Thanksgiving Day in 1621.

Thanksgiving Day was intended by its founders the Pilgrims to be time of reflection, joy and thanks to God. The families gave their Creator credit for sustaining them during their perilous voyage and survival through their costly first year. Nearly half died of disease, with records showing signs of intense influenza compounded by pnemonia killing men, women and children.

Arriving in their new settlement in Plymouth, Massachusetts on November 19, 1620, they began building houses, hunting for food and planting a few crops for the Spring. Original documents reveal their enthusiasm for freedom to worship Christ as they wished, beyond the dictates of the powerful government Church of England. They used capitalist incentives to get the difficult work done quickly (each family had to construct its own garden and house). And they shared a common, highly valued culture, the confidence that the founding of their village on the hill was God's will for their lives. Miraculous events occured and gave them hope and detrimination to stick it out, not to return to England (e.g. a friendly Indian who spoke English, Squanto, suddenly appeared and showed them how to hunt game, fish and plant corn). 

Here are some thoughts for you to ponder from the Pilgrims' Thanksgiving celebration.

1. STARTUPS AND PILGRIMS MAKE PROGRESS THE SAME (DIFFICULT) WAY

I find startups begin life the same way, as these Pilgrimas, perhaps your new enterprise has also started this way:

• Founders' initial enthusiasm (for freedom from dominant forces in The Big Corporate World)
• First idea (what to to with that new freedom)
• Struggles to get started (financing, people to lead and work)
• Courageous start (begin building the first product/service)
• Near-death experiences (blows to nearly everything being constructed)
• Survival of First Phase of life (with several of the original people gone)
• Solid footing for Second Phase (working product/service, growing demand)
• Thanksgiving Celebration (of what the people of the company have done, who to thank for the "awesome" accomplishments, and what the new enterprise's culture stands for)

2. A PERSONAL SPIRITUAL FOUNDATION DOES NOT CRACK WHEN THE WORST HAPPENS TO STARTUPS

Startup leaders often feel alone when the media attacks their startup, when the thing does not work well, and as all the bad news arrives on the same day. When that happens to you (it will), try turning to the story of the Pilgrims for support and guidance.

There is good advice for startup leaders in this short article in the 2009 edition of a Wall Street Journal article about Thanksgiving.

It is a quick yet rich read that I found inspiring and practical. Its author, Amy Henry, discusses despondency and human emotions in troubled times and examines how the Pilgrims found encouragment.

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"With Thanksgiving just around the corner, encouragement may come from an unexpected source: the Puritans.  

Often misunderstood and perennially maligned, the Puritans—tested first by religious persecution and later by the elements in their primitive surroundings—grew not into the fuddy-duddy party-poopers of modern history books, but into a tenacious and stalwart people. They developed by sheer necessity one of the most highly defined and well-honed work ethics in history. If anyone knew a trick or two about surviving hard times, they did.

Defined primarily by their religious separation from the Church of England, the Puritans (not surprisingly) had a view of work in which God looms large. Living according to the Westminster Shorter Catechism, which states that "Man's chief end is to glorify God and enjoy Him forever," the Puritans believed that all of life, including their work, was God's, and, as such, infused with purpose and meaning. They saw hardship not as a sign of failure, but as a path to growth and maturity, a mind-set that kept them from the kind of work-related despair seen in today's news."

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So what does that do for startup leaders?

Think about these:

• Don't accept all of what you hear about people when they are maligned by the media. I've found great people among those souls whom the reporters knocked and the public mocked. Find out on your own. Make your own decisions about people. Then be ready for your day to be attacked by the media.
• Religious people work hard, together, for a shared vision, with enthusiasm. Those values are fundamantal to their values and deep beliefs. That is where their determination, loyalty and commitment come from. Those characteristics are precious to startups. Look for and welcome such stalwarts to your new enterprise.
• Faith in God keeps people from despair. All startups will get into serious trouble. Their leaders and workers need more than self-reliance to keep from falling into the dark pits of despair when the tough times arrive (they will). Faith in God is stronger than self-willpower. Such people make great startup employees. They stand up to blow after blow and keep on contributing to the overall good of the new enterprise.

BOTTOM LINE: There is a lot more to Thanksgiving than giving thanks. People of faith know that. They make great employees as well as leaders of new enterprises. They have a deep source of purpose and reason to work hard. It is part of their unfair advantage. Wise founders look for them.

Here is the third part of what I found helpful from the Thanksgiving Story of the Pilgrims.

3. KNOW YOUR SPECIAL PERSONAL TALENT AND GROW CONFIDENT

Thinking before you leap into a startup is wise. Pilgrims have some advice for you as you ponder making that big leap. Startup leaders often are in water over their heads. Others seem to be ever confident. The difference lies in how a person sees themself and their particular talent.

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"Reformer and forefather of much Puritan theology, Martin Luther, in his doctrine of vocation, taught that God gave each individual an occupational "calling." Man's vocation was not seen as impersonal and random, but as from a loving and personal God who bestowed each individual with natural talents and desires for a particular occupation. This thought further deepened the Puritan's sense of purposefulness, fortifying him in difficult times.

Much like modern work is separated into white and blue collar, 17th-century tradition held that sacred occupations (like priest or monk) trumped secular ones (like farming or blacksmithing). The Puritans, however, rejected such a distinction. Holding to "Whatever your hand finds to do, do it with your might" (Ecclesiastes 9:10), the Puritans sanctified the common, believing that all work, however lowly, if done for the glory of God, was good. Christ Himself "was not ashamed to labor; yea, and to use so simple an occupation," said Puritan Hugh Latimer. The farmer's plow became his altar, his tilling an act of service to God every bit as holy and valuable as the priest's, reminding the unemployed that temporarily taking a step down in pay or status does not equate to failure."

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So what is applicable to startup people? Ponder this:

• When looking for your own special talent, take ithe search very seriously. With God giving out the talent, this is serious business. So be careful to recognize what the specialness is about. You may be a techie who thinks he would make a great CEO founder, but that may turn into a disaster if you lack the talent. Ditto for other career jumper-wishers. But the search can also give you courage to finally jump onto the track you really were created to take, at last!
• Once you are on the right talent track you can be a lot more confident. Consider that perhaps your talent does come from God. Then He will support your choice. Your motivation for doing the work will be clear. That leads to greater certainty and courage when doing your startup.
• Humility follows from seeing all kinds of work as good. People in startups do what work is necessary, regardless of job title. Pride and politics are to be left in Big Corporate World. That kind of startup humility gets a lot done very quickly. It is central to the agility of startups that gives them a competitive superiority to giant corporations.

BOTTOM LINE: Startup people do amazing things. Even more amazing results come from knowing with confidence that this is a place your special talent can shine. Pitching in with the rest of the company to do any work needed daily turns into an agility of the company that is very powerful. Be careful when trying to fit the right people into the right jobs (talent matching to the work challenge). And set the example yourself. Then you'll be on your way to building an unfair advantage.

Hope you have a thankful Thanksgiving, wherever you live, whatever you do.

I wish you The Best on your Adventure!

MANAGING MORPHING A STARTUP: Lessons from the lastest shifts at startup Foursquare

I've been discussing "morphing" a startup in recent blogs.

Morphing a startup is all about movements and focus.

My blogs on startup morphing are aimed at delivering special tips to founders of today's startups -- because they are under very intense (read that as acute) pressure in this current era of "rapidly scaling startups". Investors (and increasingly experienced startup employees) expect a founder to swiftly move from initial idea into an established new enterprise that moves swiftly upward in users and revenue. If not, they start moving to the exits. Life has become very impatient for slow moving founders.

So I thought I'd pick apart today's story about the latest change at startup Foursquare and list a few tips that might add to your skill set as leader of a new enterprise.

FOURSQUARE STORY OF THE DAY

Here is the story headline from TechCrunch: "Foursquare Outgrows Mobile, Wants to be Your City Guide".

Here are some things to ponder that I noted in the blog:

• Startup Morphing is a continuous process. Note how the company has moved on from its initial catchy "check-in" feature:

"The Foursquare.com site redesign is the third major product development that aspires to move Foursquare beyond the check in; The company recently launched Explore to derive value from all the checkin data it has accumulated over the past three years, then Radar which allowed users to take advantage of that data with minimum effort."

A serial entrepreneur I respect recently remarked to me that Foursquare had shifted from a generic location based service into "a place people go to brag where they have been."

• Startup Morphing is focused on generating user-driven revenue growth. That means the number of unique daily users must remain loyal, continue growing (faster than competitors) with new ones arriving by the hour, and be attractive to advertisers and merchants.

"One million daily unique visitors is a terrible thing to waste."

So the company has been adding more features aimed at keeping existing users clicking on the service, while the new offerings become more and more attractive to hesitant users. "Growth, growth, growth" that 's the mantra chanted by Foursquare founders 24x7.

• Startup Morphing demands that Marketing figure out how to convert user clicks into Revenue. The next trick is to convert a growing number of users into real $$$$$$ in the form of revenue. That's the job of Marketing. 

Now Foursquare Marketing has made a major change in the focus of the business: The new New is focused on leaving "check-in" behind and moving on to being a "city guide service".

"And it just might succeed too, with the wealth of more than a billion checkins from which to draw conclusions about the destination predilections of its ten million users, “[We want to do whatever] we can do with this data to make people more aware of the world around them in real-time and geographically relevant way,” Foursquare Head of Product Alex Rainert said as he gave me a tour of the site earlier."

• Startup Morphing changes the branding of your business (and thus is frought with risk). Foursquare owns the word "check-in" and always will (Search = Google, etc.). But now the company wants to become The Gorilla of "Your city guide". That is definately a move, a big move. And it is into a market that is crawling with solutions (search for "city guide mobile" and you'll get 53 million items). And if you add to the search "recommendations" you run into another crowded space. Yet that is what the Foursquare is going to do next.

Foursquare is making a concerted effort be more than just an app for checkins, as we and every other person who covers this stuff has noted before. The difference here is the mobile-first startup is expanding its horizons way beyond its iOS roots in order to become a location-based city guide and recommendation service, sort of moving towards Yelp while Yelp ironically moves towards Foursquare.

The danger is that these moves create a generic city guide out of the Check-in King, one whose unique appeal ("bragging"?) is lost to a not-so-exciting-city-guide.

But if successful, we might find ourselves observing an new category of "recommendation-based city guide" or something along those lines (web and mobile accessed). The growth they are seeking might be there. I for one am forever amazed how much time I have to take to research a city I am going to visit in order to add a bit more enjoyment to my time there. Perhaps this New Foursquare is my solution.

• Startup Morphing calls for guts, soul-deep courage. . . Or reveals ignorance. Marketing branding is based on end users instantly recalling one simple thing when they think of your name (that's what becomes branded by that single, special thing: Social Networking = Facebook). To loose that indentity with that single thing is death to a brand (what is a Sony?). To keep that identity is central to creating a brand that is recalled by your Ideal End Users.

Thus there is a critical trick to morphing from that initial branding focus: each move has to build onto that focus, that word, and thus retain in the end user's mind the identity that has been earned and that is the reason for millions of clicks/uses on/of the service. That takes guts, real courage.

So I commend Foursquare's leaders. They have made a major move with boldness. That reflects the intensity of their personal drives and ambitions, and their guts and courage. It also resonates the intensity of competition that surrounds them, competition that is moving daily, attempting to encroach on Foursquare's success in its current space (market segment). It is a story unfolding, well worth watching and learning from.

BOTTOM LINE: Startups that move from an entrenched market position into a crowded space have to have leaders wise in strategic planning and skilled in execution of bold moves. That happens to be central to what serial entrepreneurs are very good at ("brilliant"). Studying moves made by new market leaders can teach you how to gain such abilities. When you can do Startup Morphing, you are well on your way to building an unfair competitive advantage.

I wish you The Best on your Adventure!

STARTUP MANAGING EXPERIENCE: How much do you need?

I received this email today from a recent MBA graduate: "My try on entrepreneurship has not worked out.  I am going back to corporate to gain more experience before trying again later."

That is a wise decision by a person with a long career ahead of him. The situation begs the question "How much managerial experience do I need before joining a startup?"

I can best respond by classifying people as follows:

• Recent College Graduate: This eager person is seeking their first job. They are excited about doing a startup.

• 5 Years or Less in a Corporation: Such people have worked for a large public corporation. They have done work, perhaps with some excellent reviews, gotten raises and may have managed a small group of people for a year or two.

• Recent MBA Graduate: Similar to the 5 Years category and have recently finished their MBA after three or four years of business experience.

• Outstanding Manager: Such people will have a track record of at 5 to 10 years in a public corporation. Their track record shines. They are labeled as top notch, first class, rising star by their former bosses.

• Startup Did Not Work: These are people who joined or lead a startup that has shut down or been sold, one that has not become a success.

So what should such people do when considering "doing a startup?" Here are some things go ponder:

• Recent College Graduate is rarely successful in performing in a new enterprise. They often believe they have a wonderful idea that could make them rich, and succeed like Google. Their lack of managerial skills requires they find a core team to join them and then create a business plan that has a chance of succeeding. Most find working first in a public corporation to be the wisest next move, leaving the startup until later when managerial success is clearer.

• 5 Years of Less in a Corporation people seem to struggle the most in a new enterprise. They lack the outstanding track record and stunning skills sought after by experienced startup leaders. They are advised to keep working on greater achievements as managers before considering doing a startup.

• Recent MBA Graduates often get the startup bug after a few classes on entrepreneurship in school like an MBA online school where mega-buck entrepreneurs were speakers. Most can find jobs below the vice president level in large corporations where they can start on the road to outstanding success as managers of people and then divisions representing complete businesses. The few who find jobs in startups mostly struggle like those of the two categories above.

• Outstanding Managers are very attractive to startups when they seek work at the level just below vice president (Director level in the U.S.). Those who have become Vice Presidents in successful divisions are especially attractive if the corporation has gone public less than ten years ago. They are even more sought after if the corporation was private when they joined and then went IPO.

• Startup Did Not Work Out people have to make a decision: "Should I try a second time? Or should I go work for a large public corporation next?" It is hard psychologically for many to stop doing startups and instead work for a giant. I see lots of resumes with that pattern. A string of not-very-good startups typically follows. They make doubtful next hires for venture backed startups. I think most of this category go on to work in public corporations and succeed there. My email has found a few of them later finding a startup and succeeding that way.

BOTTOM LINE: Picking the right time for you to seek a managerial job in a startup is a serious decision. Managing a startup is special. Lessons from giant public companies do not transfer well to new enterprises. Learning on the job in a startup works better. Your choice of entry point should depend on your track record. Success managing increasing numbers of people in chaotic conditions launching new products will be what startup recruiters are looking for. New enterprises are mostly about the capabilities of their leaders and employees. It is a people game. The stakes are big. So the choices of experienced managers are made with special care. When you can bring the right managerial experience to a new enterprise, you will find no shortage of opportunities. It is your task to pick the best moment in your career to do that. Then when you join the new enterprise you will be a significant addition to the building the startup's unfair advantage.

STARTUP FOUNDERS LEARN FROM YOGI BERRA

Today's Wall Street Journal featured Yogi Berra's response to watching the movie "Moneyball". Reporter Jason Gay notes that during the discussion following the movie, this scene took place:

Of course, there are his famous Yogi-isms, jumbled koans which will live forever. Halfway through dinner, a woman in a black coat sweeps over to the table and leans into Yogi.

"Excuse me, could I be very rude and say hello?" she asks. "I'm an international opera singer and we use 'It ain't over 'til the fat lady sings' at least once a week, and I think of you every time."

Yogi smiles.

"For clarification, he didn't say that one," David Kaplan interjects. "Yogi said, 'It ain't over 'til it's over.'

"Oooh—well, I love that one too!"

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I find the veterans of new enterprises chant the mantra, "It ain't over 'til it's over."

They have found that keeps them focused on a final victory during the month after month slog of morphing from first idea to First To Get It Right.

It sure gets discouraging at times for entrepreneurs. There is so much action in every new space, it arrives so swiftly, that new markets look like (as I emailed a serial founder last week) "The new space has been carpet-bombed!".

That means a couple of dozen startups (prior to yours) have been attempting to "go viral", to "scale", to finally get repeated use of their app/product/service. And yours has to stand out in order to attract the resouces it requires to become The Gorilla of the new space.

"At last, we have momentum on our side!" is what the startup veterans all focus on. That is the name of the game, because when that happens, the energy builds on itself, your Great Thing is eagerly sought by customers, and you shift from hard selling, to furiously taking large orders. You are then "In the tornado", being propelled higher and higher.

But to get there you have to have a special mix of courage, determination, innovation and wisdom.

Yes, there are often moments when it is best to throw in the towel, shut the business down and start over with a new idea.

More likely, you will be challenged by the milling herd of new enterprises in your new space, stimulated to figure out how to morph your latest version of your idea into the one that "takes off" at last.

This process is very difficult to go through. The pain is unavoidable. Like the butterfly that must struggle out of its chrysalis to get strong wings so it can fly away in all its majestic beauty, so you too will have to go through it all.

So while that transpires, remember the wisdom from a very successful coach of very talented people, "It ain't over 'til it's over".

BOTTOM LINE: Startup CEOs learn they must go through a very difficult process to move from first idea to the winner's podium. While you go through that, recall the Yogi-ism, "It ain't over 'til it's over." Serial entrepreneurs know what that is about. When you do, you'll be well on your way to building a powerful unfair advantage.

I wish you The Best on your Adventure!

CAN STARTUP CEOS BUY "GOING VIRAL" OR DOES IT OCCUR NATURALLY?

"That startup is boosting users by buying traffic for its app!" is what a serial entrepreneur observed this weekend during our discussion.

He meant that a related new enterprise had recorded rising numbers of users. That suggested a sign that the app was staging to go viral. But after some research the findings revealed the growth numbers emanated from hundreds of thousands of dollars spent to purchase traffic and users.

That reminded me of a trustworthy adage from wise serial entrepreneurs:

"You can't win a race running on crutches."

Neither can startups.

Unless you are competing in the Special Olympics, your crutches are a sign of a fundamentally weakness: you are in an undesirable position, unable to compete to win.

In other words, if your app is not compelling to end users, all the extra things you to to try to get users to get excited and use it are doomed to flop. A dead horse is a dead horse.

All the PR and blogging and shouting will not produce something insanely great if it is not insanely great.

If it is insanely great, you'll find users quickly raving about your app, spreading the word "Gotta have it!" to friends around the planet, all at no cost or effort to you.

After that it's up to you to reenforce their enthusiasm, contribute to the viral momentum (by continuing to deliver what your Ideal Customers eagerly are seeking), and enjoy the fruits of your hard, creative work with the users. That's what "marcom" pros, marketing communications professionals, are skilled at.

I don't mean that the app/product/service will sell itself. You'll have to put in a ton of hard work, be very creative and execute with skill and great effort.

I do mean that dressing up a dog in a beautiful gown does not overcome reality: it's still a dog.

This is why serial founding CEOs focus on making an app/product/service so "insanely great" that end users rave about it and can't wait to Tweet, Facebook Like, email, blog and spread the word around the planet. The startup winners avoid artificial traffic generation efforts, pushy PR work, and blog influencing because they have their hands full keeping the servers from crashing as thousands of end users/customers make accelerating purchases by the hour.

BOTTOM LINE: Going viral is a natural phenomenon. Trying to artificially boost traffic and end users only produces a brief rise in the inevitable curve of a mediocre app/product/service. As founder CEO, it's your job to morph what you have into what the end users rave about. Then your startup will "go viral" naturally. That will be the sign eagerly sought for by experienced startup employees, strategic partners and investors, as well as eager bloggers and reporters. When you can produce products like that, you are onto the path of the winners. It's a key part of how serial entrepreneurs build their unfair advantages.

I wish you The Best on your Adventure!