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How my Sales Role at TandemLaunch is Fundamentally Different from Ericsson

Leave a Comment Posted by on September 11, 2012

By Rawy Iskander

A year ago, I joined TandemLaunch Technologies to assume the business development function. Our mission is to deliver to our client base of large Consumer Electronic (CE) companies customized technology scouting and transfer across our vast global network of universities.

In this post, I reflect on the fundamental differences between the sales role with my previous employer Ericsson, where I spent more than 10 years in different sales roles, compared to TandemLaunch Technologies.

1. Customer requirements: At Ericsson, most of my customers had a pretty clear vision of their requirements. At TandemLaunch, we target organizations that have emerging demands that cannot be clearly articulated. There is no such thing called ‘established demand.’ In fact, the less our client is clear about their requirements, the higher the value TandemLaunch can deliver. At Ericsson, a sales person is primarily on a fact finding mission to identify customers’ unmet needs. We would then use this information to design a sales proposal in what was termed “solution sale”. At TandemLaunch we design our sales process to help both us and our customers “discover” their unrecognized needs.

2. Customer purchasing processes: At Ericsson, our customers had very well-defined and established purchasing processes. At TandemLaunch, our primary contacts inside these large organizations must be agile and flexible in purchasing decisions.

3. Customer Champion: At Ericsson we were trained to find an internal customer ally who was able to “coach” us through the maze of a complex organization and decision making. The bulk of the deal closing effort was ours! At TandemLaunch, such a profile cannot take us too far: our champion(s) must be able to initially challenge our proposals and help us quickly gravitate towards winning ideas. They must also be internal evangelists and go-getters. In fact we do the initial coaching but the bulk of internal persuasion must come from them!

4. Engagement timing: At Ericsson, the optimum time to engage with a customer was as soon as a need surfaced and we had identified that one of our solutions could help them. At TandemLaunch, we engage long before a need emerges since our role is to help our clients discover their future needs.

5. Sales engagement format: At Ericsson, the best engagement format was through customized well-rehearsed presentations that pitched solutions to identified customer needs. At TandemLaunch, we prefer customer workshops where we come in with many new concepts and work with our clients to discover what is useful and what is not. A well-thought-out, well-designed PPT flow prior to a meeting is quite useless. Interestingly, I realized that presentation skills are slightly less critical at TandemLaunch compared to Ericsson! This may come as a surprise to many people (including myself J) since we continuously pitch new concepts.  The fact of the matter is that it takes a long time to find a winning concept that is a good fit for a company to be fully-pitched. A longer and more critical aspect of the sales activity is to jointly discover these rare gems with our customers, so facilitation skills, thought leadership and the ability to challenge the status quo are more valuable skills with our business model.

I would love to hear your feedback, and insights on sales + business development activities. I am particularly interested in listening to your experiences on what worked and what did not…feel free to contact me!

Technology Transfer , , , , ,

Gaze Into Gaming with Mirametrix

1 Comment Posted by on August 22, 2012

I will be the first to admit that I may not be the most qualified gamer out there, but I can tell you I am passionate about gaming and the development of professional gaming as a sport. When you look back 20 years ago at gaming it was just in its infancy stage and could barely walk (so to speak). Now, even the gamers, have risen up and created their own professional league, the MLG (Major League Gaming) (actually, it was founded in 2002).

I am nowhere close to the realm of a “good” gamer, but that doesn’t mean I am cut out of the experience. Similar to all professional sports, the MLG hosts spectator events just as TSN or Fox would for the NFL. Spectators from all over the world tune in to watch these (highly paid) professional gamers go head to head in a multitude of different game styles with a similar structure to every other sport out there (in terms of qualifying rounds, quarter, semi and finals/championships).

We all know technology advancements have made their way to the NHL, NFL, MLB, and so on, but (aside from the obvious technology in the MLG) where can technological innovations take us as a spectator? Mirametrix’s eye tracking technology has been used by our technical staff while playing games like League of Legends and Star Craft II.

The videos were posted on both YouTube and Reddit with an explosive response rate (it was even re-posted to other blogs and forums!). This tells us two things:

  1. There is, without a doubt, an interest in studying strategies used in professional gaming.
  2. There is a market out there for eye tracking software to be implemented into the MLG spectator experience (We just have to better define it and determine the best business model).

The video gaming industry has come a long way from systems like the original Nintendo Entertainment system, the Sega Master System, and the Atari XU (to the right) but the competitive nature of gaming has remained prevalent and is widely appreciated today. Similar to the revolutionary (at the time) gun-like controller released for these systems, eye-tracking is beginning to be implemented into the gaming community to change how we interact with our favorite games.

How can this technology be used in the world of gaming? Well, I see two main areas. The first, as mentioned above, is the implementation into the spectator experience. Tracking the movement of a professional players’ eyes can serve as valuable data to better understand a player’s specific strategy. By this I mean we can get information on where the player is looking most often (the time spent analyzing a map in a game like Star Craft II for example) and understand their thought process that led them towards their victory.

Another more hands-on (or rather, eyes-on) way eye-tracking can be brought to the gaming experience is the usage of our visual gaze as a controller system. Similar to the Mirametrix’s eye-tracking “gaze-based remote control” system, eye-tracking is moving into the living room and could open a number of doors with respect to gaming applications. Big gaming companies have been looking at new ways to innovate the gaming experience by using human gestures to control the character on screen (the Microsoft Kinect being a prime example) and we see this as a strong ingredient to the future of eye-tracking applications in gaming. I for one, am extremely interested to see this development in human-computer interaction take flight and forever change the way we interact with our beloved video games!

How would you feel about having eye-tracking technology implemented into your gaming experience? We would love to hear your thoughts on this exciting advancement!

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Working Towards a Project Launch

1 Comment Posted by on August 21, 2012

When Kennedy said “By the end of this decade, we will land a man on the moon and return him safely to earth,” he should be: Concrete.

Goal

He could have said “We should aim to dominate the space race.” But what would that mean? Sending a monkey to space? A human being? An ant colony? For how long? And how far up exactly?

So, which of the two statements remind you more of your project charters? Chances are the latter. People have a tendency to avoid details whenever possible, because it means they just committed to something: “Better keep it light.”

But by “keeping it light” and avoiding details (“I can always fill them in later”) you introduce room for ambiguity. You may know (or think you know) what “space race” (or the equivalent) means. But so will everybody else on your team, and what you will really end up with is 24 different definitions of “space race”.

Kennedy gave a clear definition of WHAT needs to be done (putting a man on the moon and bringing him back – I’m sure the crew of Apollo 11 was especially glad about the second part of the phrase), using unambiguous language: There’s no ambiguity about what “man” or “moon” means.

Imagine one of your employees at a BBQ at a friend’s place (Really. Do it.). When a friend walks up to him and asks, “So, Mario, what are you working on?” What will your employee answer? Does he have an answer? And when Mario answers, will his friend understand what on earth he is talking about? If not, you sucked at giving a concrete project goal. “I am working on the space shuttle toilet that will bring a man safely to the moon and back by the end of this decade” – that’s what your employee should be able to say.

Timeline

JFK also gave a clear WHEN: “By the end of the decade.” Not much time to build a space program, but at least the engineers had a clear goal in mind. Giving your team a very specific, detailed goal is a huge motivator. “Winning the space race” might sound like an Olympic discipline, but you will find plenty of things to distract you from making the 2012 Olympics if you think that being ready for 2016 will do fine.

After the WHAT and WHEN, the last thing to drill down to is the HOW. JFK didn’t say anything about that, so here’s your chance to out-do JFK (and how many chances to be better than Kennedy do you have? Exactly.)

Guidelines

Now we’re getting into project plan territory: translating those terrifyingly concrete objectives into an actionable and achievable plan. Yes a good project plan should specify how many people you need to work on this project, but also if they are senior or junior employees (This will make a lot of difference for what your execution expectations can be). Also, does it provide clear measures of success? What color must your product be? What size? What weight? Add as much details as you can. You can ask early, and come to an agreement on your project’s criteria for success, or you can find out later when you haven’t met people’s expectations. Discussions are not bad. They are a sign that everybody is paying attention.

Beware of project plans that are accepted by everybody without a question. In fact, beware of project plans that were written without asking a million and one questions.  If that groundwork dialogue has not happened, chances are that the people involved have, or will, “customize” the specs to what they THINK, which is, I can guarantee, NOT what was originally in mind.

  • If you describe the WHAT, you give your team members a goal and open a source of motivation.
  • If you tell them WHEN, they know what is expected of them.
  • And by clarifying the HOW, you give yourself some peace of mind, and everyone involved actionable guidance.
  • And always, always, be as concrete and detailed as possible.
People Management , , ,

5 Reasons “Dumb Money” is OK

1 Comment Posted by on August 15, 2012

There is a common view in the start-up investment world that “smart money” is worth a lot more to a company than “dumb money”: the latter being worth just its monetary value, while the former might warrant additional considerations (e.g. board seats, etc.).

The use of a pejorative word like “dumb” has an unfortunate effect. Easily 90% of the Angel investors I know would describe themselves as “smart money” for the simple reason that no one wants to be dumb. Yet, I would argue that there is nothing wrong with “dumb money” as long as you know what you are getting into and keep the privileges narrow. I have raised financing from, or co-invested with, almost 100 Angels over the years. I would peg at least 90% of them as “dumb money” (including myself on some occasions).

That doesn’t mean that these individuals are dumb themselves. Most Angel investors, at least the true sort that made their own money, are highly accomplished professionals. But their money can still be dumb. There are 5 common reasons for this:

1. Expertise

The most obvious reason for an investor to be “dumb money” is a lack of relevant expertise. You can be a genius entrepreneur in real estate and make no contribution of value in a biotech investment.

2. Time (and Interest)

While expertise is the most obvious criteria, time is usually the biggest failure point. All the relevant expertise doesn’t help if the investor isn’t reachable (often in the tight time frame that a start-up needs). And good intentions don’t count. We all want to help, the question is whether or not we have the time to really do so.

3. Connections

In the days of the internet, one of the most common and less time-hungry, ways to help your start-up is to make introductions to other important people. In my experience, this only really works for people who are truly stars in a major hub (e.g. Silicon Valley). Anybody else will be of limited value. Just knowing others isn’t very helpful as any half-decent entrepreneur will be able to get those connections herself via tools like LinkedIn. What really matters is whether those important third parties actually care enough about your investor to do something for you. There are probably 1,000+ Angels who have Ron Conway or Dave McClure in their address book, but how many can make them actually invest in your venture? Similarly, corporate connections are also common but very difficult to convert into real value unless the connection has real interpersonal or professional depth (and the investor is willing to leverage this on your behalf)

4. Company Leverage

Even if the investor has plenty of relevant expertise, time and deep connections, it’s all for nothing if the company doesn’t leverage it. In my experience, a fair number of companies simply don’t reach out to their Angels beyond the legal requirements. Game over – everybody is dumb money at this point.

5. Relationship

Finally, “smart money” needs a strong relationship with the founders. If the investors don’t feel comfortable offering honest advice or the founders don’t listen then all the expertise in the world isn’t going to help.

Any one of these issues is enough to pull your investment into the “dumb money” bucket, regardless of how smart or successful your investor might be as a person. The key is to know what you are getting yourself into, what you expect out of your investors and how to match up privileges to those expectations.

Entrepreneurship , ,

Dealing with Suppliers

5 Comments Posted by on August 7, 2012

When shopping for suppliers for our S2 product, I was faced with some hard decisions: I was working in a start-up, I had no past supplier relationships, and did not have the resources to visit suppliers in person. I had to trust their websites and a few emails to make decisions about whether or not to work with them. I was in trial and error mode, which can translate into make or break costs when you’re a start-up. Supplier mistakes can really affect your cash flow and your schedule, and hence your whole business. Here are some tips for some of the product supply.

Quality Assurance & Customer Satisfaction

I had issues with suppliers every step of the way leading up to the product launch. The most deceiving one was when the product quality did not meet the requirements (Shipping boxes were the wrong size, parts of the product didn’t quite fit together, assembly instructions of subparts weren’t followed, and so on).  Were they bad suppliers or was it only miscommunication? I am still not sure. To avoid having errors in your order or poor quality products, ask as many questions as possible not just to make sure the product requirements are met but to gain insight into a supplier’  approach to customer satisfaction. What kind of pre-shipment testing do they do? Can you get a trial run or prototype made before ordering, or a sample sent? If they are confident about their supplies, they will be more than willing to show you what they have to offer (within limits). In my experience, even with specific descriptions of what I needed and followed up often over the phone, it seemed that some misunderstanding still came up and corrections had to be made. Possibly the more important thing I learned during this process was which suppliers were willing to make corrections at their cost for their mistake, or give me the refund I requested, and the ones who simply did not bother returning my calls.

Negotiate Payment Terms

This part is important in any business, but can really break you if you are a start-up. If you can create a chequings account and pay in 30 days after receiving your product, it allows you to better manage your cash flow, and will allow you to negotiate with suppliers if there are any issues with the shipment. In a small company, especially in a start-up, your suppliers don’t know you and may not trust you with a chequings account. They might require credit card payment even before the supplies are in production mode. In this case, you can negotiate including additional things in the package. If price and payment terms are not negotiable, you can deal on things like delivery time, shipping insurance, or refund policy for example. Establish what the priorities for your business are and try to include them in the deal.

Ask Others

Even if you have not dealt with a specific supplier before, try to see if you know anyone who has dealt with them and could give you an honest reference. You can even ask the supplier for references from some of his clients. If no one deals with the supplier you found, you might be safer sticking with people you have references or connections with. It will first allow you to establish a relationship to your advantage by leveraging people you have in common and second, you will know what to expect from them. If it happens that you are in a business where you don’t know people in the same industry that can hook you up, go with local suppliers. It will allow you to visit their offices, check out their product in person, and create a more personal relationship when meeting them face to face.  You also reduce your chances of having issues with shipping and handling if you can pick the product up yourself!

Create a relationship

Let them know you are a person, not a credit card number. Maintain regular contact with your suppliers, follow up, and coordinate with them. To create a trusting relationship, make sure the terms are as transparent as they can be and that you show a good image of yourself and your business by being punctual, thorough, polite, positive and reasonable. Be loyal to good suppliers and pay them on time. This will give you an advantage when dealing with them in the long term. Invite them to understand your product and your business; they might suggest better methods of doing things and new products that better suit your needs.

Suppliers can become a valuable ally. Chose them well and establish a positive relationship with the good ones. This being said, don’t put all your eggs in the same basket. You should never stop looking and shopping for new suppliers and better deals as you never know what can happen with your favourite suppliers. They might not be able to deliver on time, they might stop producing supplies you need, and they can go out of business. Keep notes of your dealing with suppliers during the trial and error stage and make a backup list of suppliers, your history with them, payments terms, prices, delivery times and overall relationship status.

Entrepreneurship ,

Three Core Tech Trends

Leave a Comment Posted by on August 2, 2012

There are, in my mind, three major technology trends in this decade’s consumer electronics world: narcissism, visual realism, and naturalism in interaction.

1) Narcissism

Narcissism is less interesting to TandemLaunch, but has become a major driver of our economy.  We all want to be famous, we all want to be the greatest person on earth, and it is in many ways a biological and psychologically ingrained desire.  For the first time in human history, the internet has made that possible to the masses, or at least in the somewhat narrow view of ‘fame’ which society has defined.  Guys like Mark Zuckerberg understand this, and realize that if you provide people with perceived fame, they will freely give up all kinds of higher order desires like ‘privacy’.  It is clear that narcissism drives a major part of the economy, including social network systems, photo sharing, and anything where you can share some part of your life.  These are basically all technologies that allow you to have hundreds or even thousands of friends, be liked by tens of thousands, contribute to revolutions in far off countries, and, to put it frankly, become famous without the actual effort of having to leave your couch.  How much better can it get???

2) Realism

We are entering a world where there is a strong push in consumer electronics not just for functionality, as is the case with computing power, but actual visual, auditory, and otherwise sensory realism.  We have displays that are approaching the human eye’s perceptual limits (Apple’s Retina display for example) and we have audio systems that are approaching the limits of the human auditory system.  This is all a push towards creating technology that looks, feels, and sounds no different than the real world, and there are still opportunities left in this field worthy of technical development.

3) Natural Interaction

Naturalness of interaction for computing devices (touch or gesture recognition), as well as interaction with other human beings, is becoming more and more necessary as many of our human to human interactions are currently done through some sort of computing device.  The emergence of video conferencing, online gaming, and technologies of the like are really about a chain of interactions: interactions between a human being and a computer, that computer and another computer, and interactions between the end computer and another human being.   The goal is to make that chain as natural as a face to face interaction between one human being and another.  This is where I believe there is a lot of opportunity.  In fact, the last trend is possibly the biggest because it is by far the least tapped into.  If you do the same analysis that I just did for realism (take the set of things that human beings would like to have and subtract our current capabilities), you’re left with a laundry list of technical challenges.  This is precisely why TandemLaunch’s first investment was in Mirametrix’s eye gaze technology: an affordable, non-contact, gaze tracking solution that integrates with gesture and speech recognition for your living-room environment.

Technology Transfer , ,

On Communication, Dentists, and Project Management

2 Comments Posted by on July 24, 2012

Cartoon by Pablo Helguera

A couple of weeks ago I found myself in a situation that we all fear and try to avoid as much as possible: I was lying in a chair while a complete stranger poked around in my mouth with instruments that seem to have their origin in a medieval torture chamber (and not having had evolved much since). No matter how much reassurance my mom gave me as a child, I still can’t help but think that visits to the dentist should be reserved for one of Dante’s seven circles of hell. But there I was, so in order to distract myself from the scrapping, poking, drilling, and hissing coming from my general mouth region, I tried to figure out why people hate going to the dentist so much. Surprisingly, my conclusion has a lot to do with one of the most important parts of project management – communication.

I’m sure you have all heard tales of projects drifting off due to miscommunication between the stakeholders involved. Every project manager gets drilled on communication from the very first day on the job. However, there’s a difference between knowing and doing. Some might think that communication isn’t such a big deal – emails are being sent, meetings are held, so, therefore, communication is taking place. But that’s what your dentist thinks too.

In my case, the dentist mumbled something of “root canal” and “don’t worry” and “tell me when it hurts,” and merrily started to drill away. I had no clue what was going on, what the plan was (if there was any), what I should be expecting, and what exactly the problem was that the dentist tried to solve. And the tubes coming out of my mouth, combined with a mechanical device that kept my mouth open, kept me from asking questions – all I could do was raise an eyebrow and wait for the pain.

Chances are high that I am committing the same mistakes as a project manager. As I’m primarily responsible for planning and goal setting, the plan is always crystal clear for me (just as the treatment is clear for the dentist, hopefully…). This does not mean it’s clear for the rest of the team however. As a project manager, it is your duty to make sure that all stakeholders have the information they need to make informed decisions. Here are some tricks that are hopefully helpful:

1. Be open

Don’t assume people ask questions when they have questions. I’m sure you know this phenomenon from your High School days: You had no clue what the teacher was saying, but you didn’t raise the question for fear of being considered stupid. The same happens with your team. Make sure to create an environment of trust where people feel free to ask questions when they have them… and are encouraged to speak even when they don’t.

2. Over communicate

In my experience, people will tell you very fast when they know and understood what you tell them. However, they won’t tell you when they don’t (see above). A very basic tool is to just repeat information in different formats, for example via mail and in a 1:1.

3. Focus communication

Not everyone has to know everything. The sponsor, for example, doesn’t need to know about every single line of code that has been written. Make sure to have a communication plan in place that helps you identify the different levels of information required by and from receivers and givers, and validate that all team members are receiving the information they need in an appropriate way.

4. Get personal

Nothing can beat a personal conversation. Try to talk to your team members face-to-face as often as possible. If your team is spread around the globe, have video conferences (emphasis on video). Miscommunications are often more readily identified and clarified in person.

5. Choose the right channel

Not all tools of communication are interchangeable. Distributing meeting minutes via phone makes as much sense as giving someone a performance review in a public meeting. These examples are exaggerations, but chose communication channels carefully. The “Who? What? Why? What priority?” questions are a great help to define the right way to spread information.

People Management ,

How Incentive Models Skew Behaviour

4 Comments Posted by on July 19, 2012

I have been on a bit of a kick about employee incentive plans lately, and observed an interesting trend earlier this year while we were looking to hire a CFO here at TandemLaunch Technologies. Based on the limited sample of a few dozen finance executives who I interviewed, it appeared that such people in Montreal receive fairly large base salaries, but very little equity (in many cases none). Now, the bulk of the candidates had all worked in start-ups from 10 to at most 200 people so this surprised me a lot. I started my entrepreneurial career on the west coast and the model that I’m familiar with is a blend of low compensation and high equity stakes. A start-up might pay their junior level people at market because, well, they have to eat, but at the mid and senior levels salaries are usually substantially lower than market rate in big companies. Offsetting this are meaningful equity stakes. Out west, I would expect a CFO or comparable executive in a tech start-up to own 2% to 5% equity after having raised meaningful initial financing. And yet (from the sample of people that I talked to) that seems to be very different in Montreal where very few of the candidates had any material equity and almost all had substantially higher salaries than I was paying myself at TandemLaunch!

So why do I find this interesting? It’s interesting in that if this is truly a local phenomenon (and it seems to be) then it might just be an explanation for the results or behaviour of Quebec tech start-ups. When you look at the statistics, Quebec has somewhere around a third of the Canadian population but only 5% of the listings on the Toronto stock exchange (a fairly good measure of the IPO volume of Quebec compared to other provinces). Other indicators, such as the lower rate of exits by population indicate a similar trend: For example, Montreal and Vancouver tend to go head-to-head in the number of early exists except that Vancouver is almost a third of the size of Montreal. While the entrepreneurial ecosystem in Montreal is as strong as it ever was, the city is clearly not seeing as much entrepreneurial action as other parts of Canada.

There are lots of possible explanations for this but I suspect that executive incentives have much to do with it. If the senior executives of your company have no meaningful equity stake but a very high salary then why would they push the company to an exit or IPO? A CFO is probably one of the first positions to be eliminated in most acquisition anyhow, so there is even personal downside to such a move. Much more so than on the west coast, I have observed that status and security are paramount in the Quebecois psyche. So why risk all that when there is no upside?

Thinking about this more broadly, what role do incentives play in an organization? I firmly believe that at the end of the day, even the nicest people will act mostly out of self-interest. At least within the boundaries of legal, ethical and credible actions, people will attempt to maximize personal benefit. So the goal of any incentive model should be to ensure that the natural outcome of individual behaviour leads to the strategic goal of the company. If that’s not the case then you might still achieve the strategic result, but only if you constantly badger people to pursue avenues that are not in their own self-interest. It might work if you have strong enough leadership skills, but you’re really stacking the deck of cards against yourself.

 

People Management

Tales of a Product Manager’s Television debut with M.Net!

Leave a Comment Posted by on July 12, 2012

So Mirametrix was invited to the M. Net show on the 18th of April 2012 to present our Mirametrix S2 Eye tracker. Being the product manager, that meant I was the person to show off our product.  Fantastic! Right?

But this is a live taping (Welcome to the world of live TV demos. no second takes if something goes wrong), it’s my first time on live television, I have no clue what questions I will be asked (the bane of the over-prepared), and  it’s the first time our product will be used on a TV set… by a co-host who has never tried an eye tracker before.

Fortunately, I was confident about our product performing well, and had done this presentation enough times to be able to recite my monologue and think about what to make for supper at the same time(I am the product manager after all). Still, many questions were on my mind, such as ‘What should I wear?’ and ’Should my hair be straight or curly?’

The day of the taping, the usual nerves kicked in: ‘Oh gosh, what equipment should we bring? Do we have the laptop ready with the demo? Do we have a backup, extra screens and cables?’ I asked one of the interns to help me get everything ready, test the demo multiple times, and over pack.

We arrived at the studio while another live show was taping, with half an hour to set everything up and test the demo.  I got a quick tour of where I would be sitting, and where the demo will take place. With the help of our intern, I started setting up and testing.  After a few necessary ‘everything that can go wrong, will go wrong’ modifications, we got the demo up and running. Just when I start relaxing, I am told that we can’t have the equipment installed before the show, because it will take up too much space on the table for the first segment. I panic. “You mean I’ll have 30 seconds during the commercial break to set up everything and test again?” Yes.

We unpack everything and hide the pelican case in a corner.

I go upstairs where I meet the host, Denis Talbot and the other people on the team.  He was very nice and made me extremely comfortable, until he announces that he will not be going over the questions with me now to make sure the conversation flows naturally. With the demo not set up, and no way to prepare myself for the questions, it felt like they had stabbed my over-prepared self in the heart and were asking me to wing it!

The show is about to start, we are taken downstairs and I am sitting in the background while other segments are presented. I get quite comfortable thanks to the intern that came with me and Claude Arson, the researcher for the show.

It’s the commercial break, we get all the demo setup in 30 seconds and Tristan Geoffroy, the co-host and guinea pig for the eye tracker, tests it quickly, they place the microphone on me and… WE ARE LIVE!

Want to know how I did? You can watch my segment at 15:30.

So, what did I learn from this nerve racking/stressful experience?

1) No tech talk:  Product managers tend to get lost in technical details when trying to explain their technology. The general population will not remember HOW it works, but WHAT it does. Focus on applications and key features and avoid the technical lingo.

2) Keep it simple: Yes, there might be 324 applications of your technology, but the capacity of human short-term memory is in the order of 4 to 5 items max. Think about what these 4 items should be and make sure they are explained in a simple way for people to understand and remember them.

3) Don’t worry, I’m a professional:  Trust the TV crew. They are good at improvising if anything goes wrong and at helping you showcase your technology in a great way. Between camera angle changes and pre-recorded videos, they keep it dynamic and interesting and can hide minor glitches.

Thank you to Julien Limoges, our intern, for being my moral support during that day and staying with me during the taping!

Demo Stories , , ,

Linearity and Employee Incentives Plans

2 Comments Posted by on July 3, 2012

In my last blog post I talked about the fundamentals of effective employee incentive plans:  Proportionality, Transparency, Appropriateness, and Certainty. To my mind of thinking, creating linearity in your employee incentive plans is essential to achieve Transparency and Proportionality, and I’d like to elaborate on that a bit using the TandemLaunch incentive plan as an example. My upfront disclaimer though is that TandemLaunch enjoys a few luxuries that make it a bit easier to come up with these solutions than it is for many companies. We are privately held, have no outside investors, and have a large enough scope with 30+ employees for it to be worthwhile to do some of the legal work that underlies this type of incentive plan.   As a result, all of this might not map onto your startup or company.

Transparency and Proportionality really go hand in hand.  Proportionality ensures that effort is fairly recognized, and transparency means you can see and, therefore, act on the incentive mechanism.  We achieve this with the TandemLaunch incentive plan by eliminating a lot of traditional nonlinear aspects of incentive plans. There are two different areas linearity or non-linearity can exist: in allocation, or in vesting.

Allocation Linearity.  Those who receive equity, usually founders and investors, have several inherit advantages over employees who usually receive stock options. Stock options, apart from the legal rights and tax disadvantages associated with them, have a strike price and that immediately introduces non-linearity.

Let me give an example.  Two employees join a startup. The first joins a day before a small investment round (share price of the last round at $2/share becomes his strike price), the other starts the day after (share price of the seed round at $4/share becomes her strike price). Afterwards they both work the same, they have the same title, they hold the same role, and they perform at the same level all for 4 long years. Even though the single day difference of their employment is virtually trivial after 4 years, the later employee will get significantly less money during a liquidity event. A hugely successful exit will wipe out this difference but most deals don’t achieve that. More commonly, the exit will be a modest multiple of the last round which can result in the second employee getting completely screwed (a $6/share liquidity event will yield $4/share vs. $2/share – doubling the stake for the person who joined a day earlier).

At TandemLaunch we avoid that non-linearity by issuing reverse vesting shares to all employees. This is a relatively easy way to overcome the tax and strike price non-linearity. Reverse vesting restricted stock is becoming quite popular for this purpose and I would encourage everybody to consider them as an option for incentive compensation.

Vesting Linearity. The next non-linearity that you get in non-traditional incentive plans lies in the vesting period.  Regardless of whether you vest stock options or you reverse vest shares, you have the problem of long cycle vesting periods. Things like vesting on an annual basis, vesting over a fixed time period, or having a one year cliff that your vesting only starts after (e.g. after the first year of service). There are some rational reasons for all these things, but they all introduce non-linearity.  That’s a problem because the guy who holds un-accelerated stock and whose one year cliff period ends three days after the acquisition of the company gets nothing, while the guy signing up three days earlier gets a payout, which intuitively just does not seem fair.

Accelerated and non-accelerated stock can introduce further non-linearity. I was recently interviewing a candidate for an executive role who, in her past company, had only received non-accelerated stock options with a 4 year vesting period. After a year she was tasked with negotiating the sale of the company. Her colleague at the negotiating table had a similar amount of stock but with acceleration. Talk about a recipe for disaster. Half of the negotiating team wants to close as fast as possible, the other gains personal wealth for every month that the negotiations are stalled (at a 4:1 gap if you are in the first year of a four year vesting period). This just screams misalignment of interests, and misalignment is what kills companies.

The TandemLaunch incentive plan overcomes some of these vesting issues by using a very straight forward, linear vesting mechanism (in our case a reverse vesting mechanism).   We base it on the assumption that all the shares belong to employees anyway, and the buyback of these shares occurs just before the liquidity event, regardless of when that event may be. The number of shares employees keep after the buyback are proportional to the time in weeks that they spent employed at the company, at whatever full time equivalent rate, divided by the total period from founding to liquidity event for the company. This creates a perfectly linear system. While there are some issues here around share buybacks, like forced drag along and the like, you can paper over these with the appropriate documentation [*].

Introducing linearity this way does not imply the risk profile of the company necessarily needs to be the same.  It just means that you are adjusting the risk profiles in the magnitude of the grant rather than the mechanism of vesting. So somebody who joins a startup later might very well receive a smaller equity grant than somebody who joins early, but their vesting mechanism is same. That means their reward for their service should be linear to their service, relative to the duration of the project or the company.

[*] This model works because TandemLaunch incubates new companies on a frequent basis and our employees receive equity in those ventures rather than TandemLaunch (thus allowing us to frequently issue equity at nominal value and to new hires). Your mileage may vary in a traditional “going for decades” venture with monotonically raising share price.

People Management ,

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