Negotiating Startup Employee Compensation

Originally posted on Smart Recruiters – by Mark Jacobson

Every Founder in today’s market knows the importance of recruiting top talent. It’s a non-stop process in a ferociously competitive market. Closing candidates is a function that can be broken down into a thoughtful and deliberate recruiting process. To scale your startup, you must structure a smart recruitment strategy, craft and refine a compelling story, then structure a thoughtful interview process in order attract your candidate. Once you are ready to extend an offer, use the following tips to successfully negotiate and close your ideal hire.

 

Tip #1 – Do your Homework

Before you can make a smart and competitive offer, you need to understand what they have earned.

Obtain the prior 2 years compensation history to look for final take-home numbers and year-over-year progression. This includes: historical base salary, bonus achievements, option grants, RSU awards, benefits, as well as, all payout and key vesting dates. You don’t want any surprises.

Conduct thoroughly complete background and education reference checks. While this is time consuming, it is critical and can help avoid costly bad hires.  Research has shown that a rigorous reference process is the single most critical thing you can do avoid foreseeable hiring mistakes.

Keep in mind candidates are often reluctant to give you this information because they are worried about losing leverage in the negotiation. By sharing your thinking about salary bands, equity ranges, perks, health/benefits and relocation assistance, you can get candidates to feel comfortable disclosing personal information and that they are not negotiating against themselves.

 

Tip #2 – Socialize the Offer

Make a pre-close call to outline the proposed details of your proposed offer. This exploratory call is to gauge your candidate’s reaction and increase your ability to shorten the closing process. You should clearly set expectations around when a formal job offer will be made.

A Pre-Close call should cover these topics:

  • Recap their compensation history with them.
  • Go through all details of the proposed offer.
  • Ask lots of questions, don’t make assumptions and clarify everything:
    • Are they comfortable with the terms or do they have any concerns?
    • Are the terms aligned with what they were hoping for? If not, what’s missing?
    • How will the decision be made? (Will a spouse or partner influence their decision? Do they have kids who will be impacted?)
    • How much time will they need to leave their current job?  What reaction do they expect when they tender their resignation? Try to determine if their company will make a counter-offer to retain them and how likely they are to accept your offer.
  • Collaborate to define short and long term milestones.  Setting mutually agreeable milestones helps candidates feel that their comp plan is fair.

Taking these steps will help you to better understand what will influence their decision and significantly improves your chances of closing your ideal candidate.

 

Tip #3 – Situation Analysis

As you prepare to extend a formal offer, make sure you know the leverage points from both sides.  Key consideration points include:

Strengths vs. Weaknesses:  Honestly assess your weaknesses (can you compete on cash, bonus upside, equity, commute) and plan how to shift conversation to your focus on your strengths (team experience, background, unique product, new market).

Hiring Experience vs. an Up and Comer: Your closing pitch should be different for “promotional hires” versus “functional experts.”

Company Comparison: Your pitch should be different if you’re pulling from a large company (high salaries but lower equity upside), recruiting from a failed or troubled startup, or poaching someone out of another hot startup.

Life Impact: Know your candidate’s personal situation to fully understand the impact of accepting your offer (Will their commute change? Will their cost of living increase/decrease? Are they single or married? Do they need to relocate?).

 

How to Extend the Job Offer

Candidates want to feel as though they are your #1 choice.  Always make them feel that way. Set clear expectations, keep your promises and use these tips to close the deal:

Sell the Mission and Vision: Reiterate how your company is changing the world.  Generate excitement (reinforce company culture, amazing people, shared interests and common goals). This will help remind them why they want to join your company.

Sell Impact, Education and Happiness:  Help candidates visualize their future.  Focus on the key selling points – the impact they will make at your startup, what will they learn and what challenges they will tackle. Reiterate how this opportunity maps to their goals and interests and furthers their career path.

Discuss the details: Take time to discuss all aspects of the offer, which should align very strongly with their stated interests.  Ask if they have questions or concerns.  Let them know that you want to move quickly to a decision.  Ask again for their expected start date.

 

Time kills all deals so don’t drag out the process. Make candidates feel special. Constantly communicate, go the extra mile, show them how important they are to you.

 

Great recruiting is an aggressive strategy with a lean-back style.  It’s up to you to drive the outcome.

 

 

 

Research – Your Secret Weapon

Using RESEARCH smartly can be a powerful weapon for you and serve as an opportunity to “network with purpose” (as one of my good friends likes to call it).

Your goal should be to not only show what you did in your career but share best practices and offer to create the outline of a game plan going forward.  Your competition is showing what they have done.  You, the smart job seeker, must show what can be developed/acquired/operated for less money.  Make sure your research is in tune with what is happening in today’s tough times.

Start by selectively share your findings with people you know – those who have helped you.  These are the folks who will give you the opportunity to refine your thinking/thesis and who will be your advocate.  This is an ideal opportunity for you to interact with your key contacts in a way that doesn’t waste anyone’s time.  It will motivate the “connectors” (people who can help you network through the industry) in your network to help you.  Moreover, you are going to make them feel more comfortable referring you into their networks since they will have a specific reason.  People are incredibly busy these days and the time for general networking has taken a back seat to more pressing issues.  By adding value, you will be able to get that meeting faster.

Your goal should always be to pique a potential employer’s interest in meeting you.  When you get the coveted interview, let them know that you have done the work and that you can think “outside the box.”  Competition for jobs is fierce, it is imperative you remember this in today’s market – it is not what the company can do for you but what you can do for the company.

The key is to show what an impact player you can be without showing all the goods.  Be gracious but don’t give them all the answers and don’t leave the materials behind.  Your goal is to get them to realize what they would gain by bringing you on board and lose by letting you go to their competitors.  You never know where these meetings will lead, but even if there is not an immediate opening, you will be top of mind when an opening does arise.

Here are a few examples to consider:

Sales – do an analysis of where the customer budgets are being spent today. Consider building a game plan about how you would attack the job.

Marketing/Product/Business Development – provide the company/interviewer with a strategic overview of the market. Where are the holes and opportunities to take market share?

Job searching is part science and part art.  There are no quick fixes or can’t miss strategies that will get you a new job in 2 weeks.  Today’s job market requires patience, diligence and focus.  People have quipped, “Amateurs practice until they get it right.  Professionals practice until they can’t get it wrong.”  Pure repetition won’t ensure results.  Quality and depth of the content you can provide will.  But, if you take care of the fundamentals and prepare yourself as best you can for “that moment,” you will significantly improve your odds of finding your next job opportunity and succeeding at beating your competition.

 

Announcing Chris’ New HBR Article

For those of you who know us, you’ll know that Chris has been hard at work compiling some incredibly interesting and insightful information on Best Practices in Venture Capital.  We are delighted to finally announce that the first publicly-available article has been published in the June 2010 edition of Harvard Business Review.

It’s tough to keep Chris to 800 words on anything related to venture capital, but this is just the tip of the iceberg of topics that are fresh on our minds.  Many of you know the extensive amount of research that was conducted – of which this article is but one theme.  There is a lot more behind this research and that drives to core of what we are doing at Ignition.  Chris had the honor of working with guys like David Teten and Yujin Chung on this article.  And you can expect to see a lot more insight and perspective from Chris, myself and the Ignition team in the coming months ahead on the topics of Leadership, Venture Capital and Entrepreneurship.

Here’s the link to the HBR article entitled “Time for Investors to Get Social.”  We’re pretty excited about what is next… and we hope you are too!

 

Job Search Strategies (part II) – Your Personal Situation

In my last post, I encouraged you to create a game plan for your job search by identifying your career goals, mapping out skills you have versus skills you need to acquire, and honing your personal pitch.

There is another critical element, though, that I strongly encourage you to consider… your “personal situation”. This falls under the emotional intelligence category and while it borders a bit on stating the obvious, I feel it is worth mentioning nonetheless.  You would be surprised at how many people pursue job opportunities (even to the point of getting an offer) without fully considering how their personal/family requirements impact their professional careers.

Before you embark on your job search, keep in mind that it is important to be cognizant of what is happening in your personal life and how that will impact the types of roles you can/should take at this point in your career.  As stated before, your goal is to put yourself in a position where you can be incredibly successful and accelerate your career over the next few years.

Individuals who are single have different issues and concerns than married couples with newborn children. Or individuals whose kids are grown and in college (or empty-nesters).  Or families who need to care for aging parents.  Or, sad as it is to say, those experience marital troubles or personal sickness.  Want some proof?  If you follow Monday Night Football, you will know that Tony Kornheiser recently left ESPN’s MNF show citing a fear of flying.  Phil Mickelson just put his PGA season on hold while he helps his wife battle cancer.  I’m sure you know many people who fall into the aforementioned categories.  The personal factors in your life will have a significant impact on the type of opportunities you can take on right now.

Be really honest about your personal situation so you can articulate the types of opportunities that are the best fit for you now. Make sure you compare these realities to your future dream job so you can streamline your personal game plan or make necessary adjustments. Your goal should be to achieve a balance in your personal and professional life.  Being honest about your personal situation will help you put yourself in a position to achieve your goal.

OK, so now that you have addressed some of the bigger picture issues, you want to get going.  I’m with ya… My next post will offer some successful strategies that executives are using to win in today’s market.

The past 6 months

Over the past few months I have witnessed numerous friends, colleagues and industry contacts be affected by massive corporate layoffs.  Unlike the dot-com crash from 2001-03, when companies were affected over time, sector-by-sector, the recent market collapse has affected companies across all stages, geographies and industries simultaneously. Executives at prestigious companies who (only 6 months ago) wouldn’t even consider leaving their jobs have been calling in a panic, frantically trying to figure out what opportunities were available in the market.  Company stage, investors, even sectors didn’t matter.  They desperately wanted to know what options they had.  It was clear… they thought they could be laid off next.

Over the past 6 months companies had to make decisions about which employees would stay and which ones would go.  Some were more obvious choices than others.  I don’t think anyone was surprised when companies let go of their “C” players (non-revenue generating functions were also typically part of the first cuts made, but again, very few surprises here).  Next came the very tough decisions about which “B” players would be terminated.  Capable employees (even friends of the Management teams and Board of Directors) were asked to leave.  It was difficult to watch and even more gut wrenching to go experience.  But when people saw “A” players get terminated, the terrifying realization hit that even the best and brightest were not immune.   There were no guarantees in this market and that created panic.

For the last 6 months, startups were forced to severely restrict new hires and public companies had hiring freezes.  The market has flooded with talent at all levels, functions and geographies.  Unemployment hit 8.5% in March 2009 but as companies continue to do lay-offs or go out of business I expect that number will continue to rise when April’s numbers are released.  The stock market seems to be recovering, but job seekers continue to anxiously wait for the jobs to come back.

Amidst the corporate layoffs, hiring freezes, salary reductions, equity pools being recapitalized and companies going out of business, executives are spending a lot of time wondering how to approach an incredibly competitive job market.  The volume of calls and emails I have received over the past few months from job seekers has been tremendous  Some have called to see what assignments my firm was working on.  Others have asked for help on how to negotiate offers and get baseline comparisons for similar roles in their respective industry.   At networking events and cocktail parties I have heard people express everything from relief of getting out of a bad decision to indifference to borderline depression.  After a while the stories all started sounding the same, but I noticed that there were few questions being asked about how to tackle this job market and even fewer solutions being offered about how to standout and win.

So while job seekers wonder where their next opportunity will come from and how they should differentiate themselves, I began to think about what strategies job-seekers might consider using, and most importantly, how they could put themselves in the best position possible to win that next job? In my next post, I will share some thoughts for job seekers about specific strategies they can use to tackle today’s market… but for now, keep the faith!  We all know the market will eventually get better, but the savvy job-seeker will maintain his/her career discipline and continue to build and enhance their own personal brand.

 

Do I really need to update my resume?

One of the questions I am frequently asked at work and in social settings is “Do I really need to update my resume?”  This question is typically followed by a sheepish grin because we both know the answer to this question. My answer is always the same (YES!).  But after answering this question far too often, I realized that the question that is really being asked is “what do you recommend I do to improve my resume?”

While there are many sites and services dedicated to resume writing (I will provide links to such service providers soon), I thought I would provide a little commentary designed to motivate you into completing an important step in your (inevitable?!) job search process.

Over the past decade, I have received hundreds of resumes each month.  Some have been professionally written and formatted while others used the basic Microsoft resume template.  Which ones do you think recruiters like myself, CEOs, venture capitalists and HR executives want to read?  The one that shows you put a little TLC into it or the one that says you put minimal effort into it?

Now some search firms reformat your resume into their own format, while others simply forward your format directly to the search committee.  Whichever the case, your resume is a key selling tool in a highly competitive job market and should be used to help differentiate you from your competition.  If you don’t take your resume seriously, why should your reader?

Update your resume!

Seriously… update it every 3-6 months.  It’s important to capture all of your significant accomplishments… your resume might as well reflect all that hard work you have put in year after year.  In today’s world, everyone is busy. Being busy is not an excuse to overlook refreshing your resume.  It is difficult enough to remember what you did a year ago for your performance evaluations, so make a habit of updating skills, accomplishments and deals often.  Add it to your memo pad on your blackberry, email it to yourself when you have a few minutes – whatever works for you – just take the time because you never know when you are going to need to highlight all that great experience you have built. Trying to do write your resume in one sitting is incredibly time-consuming for anyone and can, quite frankly, become demotivating.  That is not exactly the right way to get you pumped up to write the best resume you can for that exciting new job.  Hey, your career is worth it… right?!

One size does NOT fit all

Whether you are a Jack (or Jill) of all Trades in your company or you are the head of a specific function, you should have more than one version of your resume.  You don’t wear your dress shoes when you run (at least I hope not).  Don’t have just one resume to describe the skills you have acquired. It is critical that you tailor your resume for the job that you are interviewing.

A few short examples for executives in different functions:

  • Sales: what are the key relationships, accounts, verticals or territories that need to built?
  • Technology:  are there specific programming languages or development environments required?
  • Finance: does the job require specific reporting experience, Wall Street/Analyst relationships or operational knowledge (e.g. financial software upgrades/implementations)?

Review the job spec and build in the competencies into resume that you have acquired and developed.  These become talking points during an interview that allow you to shine, and also remind a search committee of your skills and accomplishments (in the event they might forget a few details along the way).  Your resume alone won’t get you the job, but it can be used as a powerful tool to help you stand out from your competition.

I have heard job searching and resume writing be compared to everything under the sun, from being similar to serving Jury Duty to Dentist visits.  You water your plants, tune your car, and hit the gym regularly. Whatever the analogy, the point remains the same.  Do it! DO IT ! (thank you, Ben Stiller).