Subscribe
Share
Share
Embed
The "No BS" version of how startups are really built, taught by actual startup Founders who have lived through all of it. Hosts Wil Schroter and Ryan Rutan talk candidly about the intense struggles Founders face both personally and professionally as they try to turn their idea into something that will change the world.
EP270_Audio Version
===
[00:00:00] Welcome back to another episode of the Startup Therapy Podcast. This is Ryan Rutan, joined as always by my friend, the founder and CEO of Startups. com, Will Schroeder. Will. It's early days in a brand new startup. Everybody's pumped. We got five or 10 people who are ready to jump on. We're going to start slinging equity out at everybody.
This is going to be amazing. We're going to grow this thing. We're going to take it to the moon of those five to 10 people a year from now. How many are still around? Exactly the same minus five to 10 people. Yeah, it's gonna be a Scooby Doo ghost town in a year from now And I think the problem is we all believe that all those people even just one person You know that said that they were gonna stick it out.
They were gonna do this with us Is going to be here a year from now. It's not that the intentions were right. We weren't deliberately being misled. Shit happens, right? And so, so on this episode, I think we should talk about why it happens and what to do about it. Right. Oh, it's going to happen. Plan for it.
Make sure you're not holding [00:01:00] the bag. So a year from now when five to 10 people leave, they took all your equity with it. Yeah. I was going to say that bag that you're holding was a bag full of equity on day one, and now it's a nearly empty bag and they're all running with their own little bag of your equity.
Yeah, exactly. Yeah. Oh, it's so tough. Yeah. And look, there's, there's tons of reasons that this happens. Let's, let's dig into some of the, the, the, why, why this happens. Why are we all so keen to get started and so hard to find three, six, nine, 12 months later? If we encapsulate it, let's talk about the typical startup weekends.
You know, if you remember, we used to have people in our office all the time after startup weekend, we'd run kind of like a little free clinic, if you will, or after startup weekend on Sunday, we would say, Hey, come to our offices on Monday. And let's talk about how you can actually get this business started.
That's when you did it, you know, in person. So indicative, man. Cause like, That's 54 hours, right? Like, so they're there together for the weekend and we're like, let's get back together on Monday. Like whatever their team was by the end of the day, Sunday, how much of that team actually showed up in our office?
And this is Monday. This is one day later. Zero to one was the, was the typical answer. Ten out of 10 founders on [00:02:00] Sunday. Genuinely believe that all those people were going to be part of the company going forward and maybe one out of ten of those founders Had any of those team members the following sunday, right?
Like it was it wasn't even like a long bit of attrition It was like world landslide Speed record of attrition. Now, what's funny is how not unusual that is. So when we talk to founders and, and, and they, they talk to us and like, Hey, we always get this. I found the CTO and they're willing to build my product, but they didn't want X percentage of the company.
And I'm so pumped because obviously no one else believes in what I'm doing and this person's willing to do this, blah, blah. And I'm like, you understand they won't be around a year from now. Right? And they're like, wait, what? And Ryan, if I can give you one more parallel as we get into this, it reminds me of first love.
You've got some freshmen in high school. Right? And that freshman finds the person they are absolutely in love with in high school. And as a parent, you look at that child and you're like, that's adorable. It'll never last. Yeah. And you sound like an a hole when you say that, right? Like, how dare you suggest [00:03:00] that the person I'm not even ready for prom yet won't be with me forever.
The difference is, you know better, right? You're like, yeah, I've seen this a million times. I've lived this a million times. Doesn't work like that. That's us having the same conversation with founders and trying to pull them from the brink of saying, Hey, maybe I should get married to this person too. It's a good analog too, because I think that it is something that we see significantly more in first time founders, right?
By the time you've done this once or twice, you realize like, Oh, Hey, I remember what happened last time. No, look, doesn't mean that we don't repeat some of those same mistakes or that we're Incapable of repeating the same mistakes. We're definitely capable of it. But yeah, I think that's definitely far more a first time founder, a startup weekend kind of problem than a third, fourth, fifth time founder.
But right. It's not most of our audience. So, but that's sort of the point. Okay. So like, uh, most of us go into this, let's do the setup of a typical startup and a lot of people you're listening or probably relate to this. And we get fired up by an idea. Let's say, you know, Ryan, you and I had this idea. We worked on it in whatever context, and we're finally ready to kind of launch this thing.
On day one, going [00:04:00] into this. Both of us think this is going to be awesome. This is our future. You know, I'm going to eventually quit my job. You're going to quit your job, or we just quit our job unlikely, but maybe we did. Hopefully not. But we got this thing started, right? Cool. From that point on, my assumption is that I'm going to be all in on this thing.
This is, this is my big outcome, right? What I don't plan for, and it's kind of hard because I'm all fired up, et cetera. What I don't plan for, it's just life happens. Right? Like, I was ready to go for this thing, blah, blah, but then some medical emergency happened, and I gotta go deal with that. Life was happening, and then two months went by where I couldn't pay my rent, and I'm like, hmm, uh, I kind of probably need to get a job now.
Or, life was great because I had all the time in the world, and then all of a sudden my wife's pregnant. And now I'm like, hmm, okay, it's not gonna work out so well. You name it! Right? Right. That's exactly, I mean, like these, there's a reason it's startup weekend, right? These things happen in a void where normal life isn't [00:05:00] occurring, right?
There's a reason it's not, it's called startup weekend and not startup busy workday plus commute with kids drop off and shit after school, right? Like there's a reason it's startup weekend. And so I think that's the thing that we routinely take from it. I'm not picking on startup weekend, right? Startup ideas in general tend to happen when, you know, we're, we're sitting around, there's a void of things to do.
For some reason, we're in a bit of a vacuum. And all of the planning happens in that vacuum as if that vacuum is going to continue off into the future. Well, that vacuum tube Ends at some point in the very near future. And then like you said, regular life comes back into play. And that's where like, we, we'd have to start to build around all this other stuff.
We got to think very freely. We have to act according to the context of our actual lives, which are quite different in most cases than life. The context of the idea weekend, you've also kind of just moved in with your spouse too, right? You know, get in the same context where like everything was cool until she was like, Hey, you keep leaving the toilet seat up kind of thing, right?
Like you start to have these like actual differences of [00:06:00] opinion that you didn't see when you were just talking about the idea at a high level. Like it was just about the ideas about the future, about the optimism, maybe it was about raising money, whatever. But now you have to live together, right? And you have to deal with each other.
Shit. My common one was this, like we've talked about this before. I was willing to work nonstop. But most people weren't because they're sane, rational people. And so I'll never forget, this is like during my first company, I'm like 25 years old and me and all the other people that work there, which were all like 25 or younger, we had hired this super old person who was 32.
It had a family. That comment, those jokes that we make, Will, are going to start to hurt more and more every year. Because that person is going to stay 32 every time you reference them. And, uh, and we're not. Like, we keep getting older every time you tell that joke. Yeah, yeah, and so, I remember, okay, so, so, uh, he gets up.
Yeah, let's call him Tom. He gets up, he's like, you know, I gotta head out, it's like 5 o'clock, uh, you know, I gotta go to my kid's soccer game, whatever. And I'm never, I said, like, what an a hole. I was like, oh, you're taking a half day, right? Half day, yep. Oh, the half day comment. And, and, it was [00:07:00] meant as a joke, in retrospect, maybe it wasn't, like, cause I was like, I'm gonna be here for seven more hours, right?
I would say that was a passive aggressive javelin loosely veiled in, in comedy. Yeah, I don't think at the time I understood like what a problem that comment was because it wasn't just hey You're going to your kid's soccer game or whatever which right as a father now, like of course, right? I got my kid's hockey game tonight, right?
Um, but what it didn't occur to me was like we're not on the same page, right? I'm gonna work every waking hour Now, that guy just happened to be a guy that worked for me, right? Imagine if you and I are co founders, after like a month, you're like, well, hey, you know, it's five o'clock, I'm heading out. And I'm like, I'm going to work till midnight.
But we haven't shipped that feature yet. We haven't released that campaign. We haven't done this. We haven't made those calls. Yeah. And all of a sudden, and again, this is me being empathetic. It took me a long time until I was a parent to see it from his eyes. Which was like, what did I just get myself into?
And this is the [00:08:00] kind of stuff that happens where people make a commitment, but it's not until they see all the details that come with it, like not getting paid, like having to work insane hours, like having other parts of your life. Meaningfully disrupted. In other words, he's basically saying, well, okay, I can do this startup thing with will, or I can have a relationship with my son.
Yeah. And then, and everybody responds the same. Right. And so what's interesting to me about that though, is in the beginning, again, when none of these things are necessarily contemplated or considered as founders. We're like, well, everyone sees it the way I do, right? Like, this thing is going to be massive, whatever.
Because it starts with agreement, right? It starts with agreement. We both agree this idea is going to be great fun. This is going to be super fun. We're both excited about it. It's going to be big. We're going to have lots of outcomes. We're going to make money. We're going to build impact in the world.
This is going to be awesome. And so because we agreed on that, We'll probably just keep agreeing and thinking roughly the same about everything [00:09:00] forever. The way I always think about it, man, is like the, the, the conception, right? The idea is like the frat party, right? Super fun. I guess. I really enjoy frat parties.
We'll just stick with my analogy. Pretend you like frat parties. It's a lot of fun. Right? Everybody's having a great time. We're all getting drunk. We're dancing on the tables. Whatever you do at a frat party. I actually don't really remember. It was fun. We'll pretend it was fun. Yeah. Then, from that point forward.
Every day is cleaning up after that frat party, but you have to keep doing it every day, every day, every day for the life of the startup. Without all of the, the, the party aspect. I think that's where like, as, as we sober up and we realize like there's a whole lot of work to be done here. And now we start to think about it very differently.
We're going to start to disagree about how the work gets done. We're going to disagree about how much of it needs to get done, when it gets done, who is doing it, that stuff. It's weird to say, here are all the things that can likely go wrong before we list all those things that can go wrong. Let's talk about a situation where, again, you and I are starting a company and now we want to bring on a third party.
Third person doesn't have to be a co founder, but let's [00:10:00] say it's again, the most typical scenario. We're going to bring on quote CTO. Yeah, of course. Right. Yeah, there it is. There it is. Right. You don't have to question. We're going to bring a CTO and this person wants equity, whatever in our mind. It's all green lights.
In other words, this is like the only person that said they do it. So like we're, we're rifling through candidates, but the next thing is we're like, okay, you know, they're, they're going to be a huge asset to us. And I love the way we, we end up overselling the person we're bringing in a CTO. Number one.
Again, they're competing with exactly no other person. Number two, we probably have no idea what they actually do. They can be 10 times better or 10 times worse than we actually don't know. Yeah. But that's here or there. That's the challenge. Oftentimes we have no ability to evaluate that, right? If we're coming from a non technical perspective.
Right. You know, in the land of the blind, right? You bet. Okay, but, but let's talk about All the reasons before we even talk about their equity stake or anything, the likelihood that they're not going to be here in a year. And again, it's so important that we really understand this because we're about to make a [00:11:00] really expensive decision.
Okay. So number one, they get involved in the amount of time it takes To do what they said they're going to do is well in excess of what they actually had considered. And they're like, I don't have the time, you know, because their current job pulls them or you name it, right? They're not willing to work past five o'clock and it requires working past five o'clock to do this job, so to speak.
Number two, the idea of what this was and then the actual work that it takes to get it isn't what I signed up for, right? Like it sounded like a cool idea, but now that we're getting into it and we're like, oh man, customers are harder to get and we're not getting paid and all these things. I just like, you know, you lost me, right?
Happens all the time. Okay. That's two. Number three, life happens. I had full intentions, right? Uh, I'm a CTO, I'm 25 years old. I have all the freedom in the world. And then I got pregnant. Right? Yeah. And I had a medical issue. Then I lost a loved one, right? And I gotta go take care of things there. Like, there are a [00:12:00] million things that happen.
If that's not enough, money, money, money. Right? That's the crux here, right? Because that's what makes, that's what makes the rest of this so fragile. Because it's not like people that have regular jobs don't also have life events. The difference is there's a much more fragile connection when I'm doing this out of a hope of future payment versus this is what I use to pay my rent.
Yep. Or my car payment, my mortgage, whatever it is, right? So that fragility. Is, is really the challenge here, right? So at the moment where those difficult things come, you go, I could just easily stop doing this and there's actually almost no consequence to stopping this involvement that I have with the startup, especially depending on, Oh my God, like just had a conversation last week with this, where again, like not even quite a year.
The CTO has just. Gone ghost. They've given a good pile of equity. And so we started talking about things like, well, what was the vesting schedule? Like what was the best, what's the best, right? So it's all permanent equity now. And there's this whole thing has to be unwound. You bet. For those reasons, it becomes fragile and [00:13:00] something difficult happens, shit breaks.
You bet. And so we've got two things kind of working against us. Number one, we by definition have to overpay for this resource, you know, usually in the form of equity, which is dangerous, right? And number two, We can sort of pay the least we can ever pay, right? Meaning our ability to like financially support this person through whatever problems, whether they're financial or life events, they have to get through is almost zero.
So the probability that we're going to find a person that has all the same expectations, we do that the product performs exactly like we had hoped and no life events or financial events happen in an entire year is pretty much zero. Now let's take that a little bit further. All right. Cause I don't want to pin this entirely on, uh, the first person you hire, the first co founder.
I want to fast forward. 18, 24 months out. And I want to talk about the first round of people you hire. Okay. [00:14:00] Ryan, we started over 12 years ago. How many of the first round of people that we hired back surprisingly a lot relative to most companies? Uh, what relative? Yeah, I was going to say like, it's actually, it's a bit higher, but I think part of that again, speaks to the fact that this was not our first, second, third, fourth, fifth rodeo.
I think that's part of it, but yeah, surprisingly high number. And yet when you compare it to like the total number of people that we've worked with over the last 12 years. It's a small percentage. Correct. And I remember saying this early on, and only because I had been through this before. This is like, you know, year one, year two into startups.
com. And I said, an organization sheds its skin on a constant basis in the first few formative years, right? It has to, right? You know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done a thousand times before you.
Which means the answer already exists, you may just not know it. But that's okay. That's kind of what we're here to do. We talk about this stuff on the show, but we [00:15:00] actually solve these problems all day long at groups. startups. com. So, if If any of this sounds familiar, stop guessing about what to do. Let us just give you the answers to the test and be done with it.
Change the shit. It doesn't just get bigger. It completely changes form sometimes, right? Absolutely. You gotta go, you gotta shed the snake skin so you can grow your crab shell. You bet, you bet. Things keep evolving. It's almost like dating. You end up dating a lot of people in order to find the person that maybe you want to have a relationship with.
And you have a lot of relationships until you find the person that you might want to marry. And even then you might get married a few times. And that's true on the personnel side, that's true on the, that's true on the product side, that's true on the customer side, right? You are dating on, on all fronts at that point.
Yeah. Everything. And so, if we know going in, that we're gonna shed our skin, and shed our skin is just a euphemism to mean we're gonna turn over a lot of people, just the very nature, Of what we do will turn over a lot of people, then our willingness to make an extraordinary commitment to any one [00:16:00] person needs to be a bit tempered, needs to be a bit tempered.
So, so let's talk about though, what's the cost of these folks bailing? What happens when we make these commitments and they leave? What gaps and holes and wounds does that create? How do you see it? What comes to mind first? It's interesting because like, first, the first thing is that having seen this a number of times, it's hugely variable.
There are actually times where like that person needs to bail because the organization is outgrown or move past them. Right. We've done an entire podcast on this was that the people get outgrown by the organization. Sometimes people grow fast with their organization. They need to leave. That can definitely be more painful because now you've got somebody who was a really great resource in growing and adding value, um, and, and becoming more valuable over time.
A lot of it depends on the size of the organization at the time, right? If we just think about it, just from a personal perspective. Sure. Just like arithmetic level math, right? If we've got five people on the team and let's just say everybody was doing roughly equal amounts of work, rarely the case, but just for simplicity here, everybody's doing roughly [00:17:00] equal amounts of work.
You lose one person. That's 20 percent of your team's output disappeared overnight. That can be pretty painful, right? So there there's a size at which this matters a lot more. I would argue at the smaller size of the company, sometimes those things are more easily absorbed simply because. You're actually not doing that much, right?
When you're a one, two, three person company, there may be, sure, there was stuff happening, but just because that person's not there anymore, it's not like you and I run a bus company, right? You drive the buses and I sell the tickets. Uh, if you leave, I can't keep doing my job, but in an early stage startup where we're just building shit and we're adding features, whatever, oftentimes that doesn't hurt as much.
So. It's really context related, but it is painful. And I think it's, let's get away from the, let's get away from the pure mathematical, let's get away from the practical aspects of this a little bit. Let's talk about the emotional pain of this. Cause this is where I see a lot of founders really struggle with this when they're like, and this person left and I just, I can't believe it.
And like, I feel betrayed. Like it's the strangest word for me to hear. And yet it's one of the ones that I hear the most when people are talking [00:18:00] about one of those early stage people leaving. You're hearing this a lot as well. Yeah. Of course, it feels personal. I mean, it is a very interpersonal engagement, you know?
And so from, from my standpoint, uh, again, early in my career when I had never seen this before, no different than what is early when I was in my dating career, I looked at it and I was like, Oh my God, I can't believe we're breaking up. I can't like, Oh, what happened? I try to save every possible, you know, person.
And later on, and I don't think it was me being callous. After a while, I was just like, that's the way it goes. Right? Like, people come, people go. Like, that's, that's the nature of organizations, right? Like, my job isn't to save every person. My job is to try to retain people who are here for the right reasons and can contribute well.
But short of that, people are gonna churn, right? Even good people are going to leave. I mean, it's the nature of being a good person. You don't just stick with one company your whole life. You go on to do other stuff, right? It's so rare at this point. To be sticking with one company for your entire life. Oh, yeah, yeah, yeah, yeah.
Like, it's, it's super rare. You know, I wanted to bring something up because we've talked about, we've used this analogy in the past, and right there, there was There was a point in time where people were talking about, you know, company is [00:19:00] family. And I think even more so in the startup space, it was like, you know, your startup is like your family.
And I think you and I came out with a bit more of a sober view. We're like, it's more like a professional sports team. Right. And, and I think that that's where this, this analog really also helps to hold strong, which is like, yeah, people come and go like in your family. Typically, people don't come and go.
Your family is your family. But in a startup, in any business really, we need to think of it more like a sports franchise, where, yeah, people are going to come and go. Sometimes they're going to leave for better opportunities, sometimes you're going to need to make cuts to the team. Shit happens, right? It does happen.
It is really hard, though, to your point. It does feel very personal, and you have all these hopes and dreams riding on the output of this person, and you see how they fit into the future of it, and all of a sudden they're not there. You have to go back and recalculate that entire vision while simultaneously trying to keep up with the work while simultaneously trying to find the person to fill that hole.
It's insanely challenging. Here's something a lot of people will push back on and I'm okay with this. A lot of people will say, look, if you're going to make the commitment to the person, you got to be 100 percent committed to that person. There's no questions asked. [00:20:00] I think that is basically an inane way to look at it, right?
It's just unrealistic. It's just unrealistic. Yeah. I think a realistic way to look at it is, this is the best person I can find for this moment in time for this set of responsibilities. Both of those things will change over time. That's just the nature of it, right? So there's no possible way for me to make a bet on any one person in life, by the way.
Right. And have that never change. That, that could come down to your spouse. Yeah. Like, this could be the best spouse for you in your 20s, but you're in your 40s and you guys make no sense for each other, right? Those are just humans. Now, you take something even more dynamic, like a startup company where the entire landscape is changing on a regular basis.
We can't make hires where we know exactly what the role is going to be forever, where the compensation is going to be, what the interactions are going to be, et cetera. We're building everything for the first time. So from our standpoint, you know, when we look at this, we look at, you know, all these people were bringing on everybody is a temp until someday they're not.
That is the nature of starting a company. And it's a painful truth, but it's the [00:21:00] truth that it's something we advocate for actually, which is to like, have them start as a temp. Right. You don't have to jump all the way. You don't have to go to FTE, use them fractionally, have projects, do stuff together, uh, extend that dating period a little bit before you marry him and bring him into the company.
And again, like, I think it's so hard because one of the, you know, you, you touched on it earlier, but like, as we're making these decisions, right? You run that CTO. They were the only person, you hear where their qualifications, they were the only person who said, yes. And they had one of those massive HTML books in their desk when I, when I met with them in their, in their office, old timey office, right?
Like, it's, it's so funny, but then we, we base an entire future. And again, like, as founders, we've talked to us a couple episodes as well. There's so many times where I think the fact that we are constantly having to project out into the future straps our, our thinking and our feelings. future moments, right?
Where we're, we're pitching the future. And that's great. But we got to pitch the future. We're gonna live in the present. We have to live and operate in the now. So I think when we get too caught up into believing our own pitch of the future and that that person [00:22:00] has to of course be indelibly involved in that future.
No, they don't, right? This isn't blockchain. These are people, these are not immutable contracts. Every time I would hire people early in my career, I felt indentured to them. I had this really broken notion of what this was supposed to be, what this contract was. I thought it was I have married this person in sickness and in health, and I have to go through everything with them.
And no matter what, what I created, I made myself into a victim. I mean, quite in the literal sense. Where everyone else was like, yeah, this is good for me, and so it's not good for me, and then I'm out. So I was willing to be the victim of that feeling. It was never reciprocal. I was never like, oh wait, maybe I can bail when it's not good for me.
It took me like a decade to figure that out. Look, it is a fine line, too. I think we do have to enter into it with, of course, the best of intentions. Like, we've talked about this in a number of other contexts. Again, it's kind of like pitching, right? We have to pitch the future of this thing. Like, I want you to be here.
I want you to do this. I'm going to do [00:23:00] all that I need to do, right? Ethically, morally, I will do everything I can to support you in your role. Make sure that you're successful. But, like, we're both. Making a bet on a future state that, one, the company grows the way we think it will, two, that you grow the way you think it will, three, that the outcomes you're trying to achieve are even achievable, and that you have the skill sets to do them.
And so this isn't, this isn't, I, I, I just want to make sure the audience isn't hearing us say, You know, like, look, you just got to throw some shit at the wall and see what sticks. Probably better to throw the spaghetti at the wall. Throw the spaghetti at the wall and see what sticks. And then go from there.
That's not what we're saying. All right. You do have to be somewhat calculative. And of course you do want to take care of your team. We're not saying anything to counter that. Right. But what you're saying, and I'm agreeing with, is that we still have to be flexible in our thinking, right? There's so much dynamic.
This isn't like hiring your fourth line cook for a restaurant that's been around for 15 years. Right, right, right. Where it's just a capacity issue, and we sort of know how that fits, and we know what tomorrow will look like, we know what the next week will look like, until we don't. You bet. And so, let's talk about, [00:24:00] if we can come to the fact that yes, in fact, Lots of people are gonna leave.
What do I do about it? How do I approach this, you know, with a little bit of that foresight to be able to say, Okay, knowing that I've got some churn, I don't know where the churn's gonna come from, but it will happen. You know, Ryan Will said it's nature of the beast. What do I do about it? How do we stay safe in all this, right?
As founders, how do we, how do we protect ourselves emotionally and practically, right? Like, how do we, how do we balance out knowing that this is going to happen? Let's start with the emotional part, because while we're going to talk about equity and we're going to talk about other things, I think you touching on the emotional part is salient.
The first part has to be, we have to understand, no matter how passionate we are, but the folks that we brought on, or about the culture, the camaraderie, and all, you know, all these things we tell ourselves. Churn is part of life. Churn, like, I'm talking about people, people coming in and out, is part of life.
We do whatever we can to try to build great relationships and try to make things work, but we also have to be big enough to understand when it's no longer working, it's no longer working. And, and we've got [00:25:00] to let it go. And frankly, in the early days, Most of that it's no longer working is coming from the people we bring on, not from us.
We're so happy just to have anybody come and work for us. We're long past the point where we're like, Oh my God, well, you're not going to be good enough for this organization. It's like, dude, you started this thing five minutes ago. And so at that point, most of our focus is please stay here. And the reality is, and this is what we're saying, most people are going to go home, do that math and say, this isn't for me anymore, and I'm out.
It's part of it. And I think it's important to be prepared. I want to, I want to stick on something you said, which was that no matter how passionate you are as the founder, right, no matter how passionate you are, and maybe how passionate they were, but this is the point I want to touch on. No matter how passionate you are.
In fact, the more passionate you are about something. The harder this may end up hitting you, right? Because your passion may well outstrip everybody else's usually, right? Let's also bear in mind that often the passion that you see in others is a reflection of your own passion as the founder, right? Right.
They may be passionate [00:26:00] along with you. Passion is contagious, right? This is what good leaders do. They make people passionate about things they otherwise wouldn't have necessarily been as passionate about. That has a limit. Right. When we get to those hard moments, when we get like, again, there's some fragility here, and we get to those really, really rough spots.
When the passion is by proxy, instead of it being an internal thing that just comes from you. If I'm the wellspring of passion, I'll keep going. Right. This is literally how founders survive. If everybody else is relying on your passion, there is a, that's a limited currency, right? And so when things get really tough in their personal lives, how much passion you have, is Doesn't matter because your passion is not going to pay the rent.
It's not going to repair the relationship with the child. It's not going to fix their spouse in the hospital, right? So this is where we have to be really careful about misconstruing how we feel about the business. And how people felt in one moment, right? There may have been a heated moment of passion where they were just as into this as you were.
Don't expect that to stay with the same power that your own passion does. And I think that is one way we can stay way safer as founders. You bet. And with that, when we're all fired up and [00:27:00] we're bringing people on, we're like, Oh my God, CTO is willing to come on. You should give them 20 percent of the company.
It's like, Whoa, hold the phone, dude. Seriously? Yeah. What percentage of the product that you expect them to build over the next year have they given you? And they said they're gonna do it, right? Okay, cool. That's, that's what vesting schedules are for. The river of broken promises. Okay, so, uh, first thing, just to be clear, early days, assume everyone will leave, and dole out equity accordingly.
Okay? So, CTO comes on, best candidate in the world, can't believe they would go on a date with you. Let's get married to this company. Cool. Let's offer them. Whatever percentage we're going to offer at, you know, however, however we work that out, let's do it over a period of time. Never, ever, ever, ever give someone all the equity upfront in hope that it works out for the best.
Right. That kind of works out never in getting it back. When you realize you made that mistake is awesome. Almost [00:28:00] nonexistent. By the way, Will has produced an amazing splitting equity course on startups. com. Come check it out. If you want access to that, uh, email me, ryanstartups. com and we'll work something out.
I want to, I want to, I want to stick on this for a second. Well, and I want to, I want to quote you because I think that one of the things that really gets misconstrued here. Is that equity just feels like monopoly money at the beginning, right? We talk about this a lot, but I'm going to quote you. Yes. The equity may seem like it has very little value now, but remember it represents 100 percent of the future value of your company, right?
So as you're doling out that 20%, which feels like it's free money right now, it's worth nothing, but aren't you the same person who also believes you're building a hundred million dollar company? Yep. Yes, you are. So what is the value of that equity you just handed out in this perfect future that you believe in?
Yep. Yep. 20 million. Yep. Would you pay that person 20 million for what they've accomplished so far? No. Now, if they help you get to 100 million, you'll say, I would gladly pay them that piece of that pie to make that a really big pie. Right. Cool. Let's bake the [00:29:00] pie and let's cut it. So differently, like at least make them contribute into that pie.
vesting schedule does. It's all these other things that like, there's so many ways to protect yourself. Go check out splitting equity. You'll, you'll figure it out. Just a 60 second primer for anybody that's even 1 percent not sure about this. Nobody gets all their equity up front. Typically we use what's called a cliff, which means there's some period of time, a year is usually the case, but it could be whatever you want it to be where they'd actually don't get any equity at all.
They're earning it, but they don't get it granted. Earning it meaning like it's almost being tabulated in the back to say, okay, like every month you will get more. If you stick around past year one, or like in the case of a CTO, it might be if you ship the product, you know, some other milestone that isn't time, but it's called a cliff in that Delta is designed.
And in tons of startups have this, you know, when there are 10, 000 people, right? They still have a cliff that's Delta is designed so that you're not arbitrarily giving out equity to all the people that churn right away. I mean, there's a reason it exists in the startup [00:30:00] world because most people churn long before they would, they would have been there long enough to earn that equity.
So with that being said, we have two components. One is we've got to establish a cliff if we can to say, look, I'll give you the 20%. But not if you don't make it past a year, right? You get nada if you don't make it past a year. Not if you don't make it past a year, and not if you ship nothing, right? Exactly, exactly.
Time based, performance based, outcome based milestones need to be included here. However you negotiate it, just make sure that you have some trial period. The longer the better. Six months to a year is usually pretty good. Some trial period, like where you're dating, but you're not married. Married is I just give you equity.
Dating is, hey, we're working together. Give yourself a chance to work with that person. Give that person a chance to get a feel for the organization, the product, the company, etc. Before they're all in. Then the, the other lever I mentioned, there were two. The other lever is you don't have to give all the equity up at, at once, either it, it is not, [00:31:00] you have a one year clip and at the end of the year you get all 20%.
Most startups don't do that. No, no, no. That's sort of the, your first dose, right? Correct. And then it can happen again over like, we're typically now seeing two and three year besting schedules. You bet. And then let's just call it two years, right? Yeah. So at the, at the end of year one, you get your 10% of it and then, uh, half of it, and this, the end of year two, you get the other half of it.
Yep. Cool. All that says is you need to be around long enough to have done something. The idea that I'm going to give you 20 percent of the company now today, cash on the barrel hood, the whole thing in hopes that you might do it. Here's the equivalent. It's equivalent of saying you make 200, 000 a year.
I'm going to pay you 400, 000 cash on the barrel hood. One giant check right now. Because you said you were gonna stick around for two years and we'll see how it goes. That's exactly what you just did. At the end of the day, this comes down to a couple things. One, recognizing the fact that there is going to be churn in the company.
We are going to lose people. We are going to need to to shed some skin. Some [00:32:00] people are going to leave with their own volition. And this really comes down to something that I think you really described well throughout the episode, I already will, but let me let me Put a bow on it here. It's the incompatibility between two things, right?
We are trying to build an imaginary future with very real people, right? We are using not real money to pay very real people with very real lives. And the incompatibility between these two things leads to a very dynamic situation in which we must expect change and just learn to work around it.