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Late-Early Stage Employees – What they say about you

I read an interesting article today about what Peter Thiel, one of the best-known early investors, asks any startup founder. He wants to know why employee number 20 will join your company. Employee number 1,000 is easy: company is stable (relatively speaking; ask Dick Fuld), money is relatively plentiful, lots of different career paths. Employee number 5 is also easy: lots of equity at a low valuation, which means huge upside if the company does well (which is the definition of risk). But employee number 20 joins when there is still equity, but not quite as much to make an enormous payday, but not enough stability to appeal to number 1,000 (or even 100). You need to be able to articulate compelling vision to the “late-early stage” employees. The equity is not big enough for the risk, but the current stability and upside aren’t there.

What Thiel calls “employee #20″, I call “feet on the ground.” In the years when I worked in corporate IT, I always made it my habit to visit a vendor before I bought their products or services, especially small ones, no matter where they were, no matter how large or small the purchase, even if the executive management offered – and did – come visit me. Besides meeting the COO, CFO, CMO, CTO and CEO, not to mention the VP R&D and Customer Service, I always wanted to walk the ground, “shmooze” with the customer service reps, sales staff and engineers, the grunts in the trenches. Often, I would discover a company with a phenomenal product or service, but engineers who, I knew, could not possibly have built what they are selling me. To put a fine point on it, it was way out of their league. Dig deeper, and I would discover top talent had lost faith and left. I would walk away from the deal. Sometimes, the reverse was true, and a lost deal would be salvaged.

The most important part to me, though, even in a large company, was to get a feel of the spirit of the company. If there was a positive energy, people were doing work, happy, and really felt part of something that I, as a customer, actually wanted to buy at something within reasonable range of their ask price, that was a company I would invest in.

One particular incident stands out in my memory. In 2001-2002, I was looking at buying a notification management system. Everyone (and I mean everyone) was using a simple configuration file driven system called TelAlert. But TelAlert had a lot of shortcomings, and since I headed up Enterprise Management, it was my decision to continue or replace. I found a small company called AlarmPoint (different name back then), based in Pleasanton, CA, a little Southeast of Oakland, that had a still maturing but much better product. I met with them, did trials, gave feedback, and they listened. Our investment was not *that* big, but I got onto a plane first thing in the morning, spent most of the day with everyone from their great CEO Troy McAlpin down to the first-line engineers, and came away convinced they were a good investment. In my terms, I got feet on the ground and found good paths; in Thiel’s lingo, I found out why employee #20 joined.

 

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