When I was at PowerBI in Microsoft, all the execs hailed it as Startup within Microsoft. Come work here instead of Uber. I worked like a dog, sometimes till 2am in morning. My manager would routinely ask us to come on weekends. I was naive, I thought we are growing customer base, this is what a startup looks like.
The ultimate realization was in a startup you have equity, a decent amount in a good startup. At Microsoft it was a base salary and set amount of stock. What we did moved very little of the top revenue metric. It made little difference if I worked like a dog, or slacked. The promos were very much “buddy buddy” system.
In the end I realized you can’t have startups in big companies (esp as an engineer you don’t have the huge upside if the startup is successful, your upside is capped)
Startups work because you have skin in the game, when you build something people want, you get to reap rewards proportional to it. That correlation and feedback loop is very important.
At big companies you don’t have the the same correlation. Some big shot exec they hired reaps far far more on the work you did.
>The ultimate realization was in a startup you have equity, a decent amount in a good startup. At Microsoft it was a base salary and set amount of stock.
I joined a startup in 1999. There were 3 founders and I was employee #2 after that. I received a ton of options (this was before RSUs became popular). We had a great product and a great team, but 18 months later ran out of money and unfortunately it was right after the dotcom implosion of early 2001 when funding had completely dried up.
My takeaway was that base salary is actually the most important component of TC. Cash bonus based on some metric that you control comes second. Equity comes third. If you work for a FAANG, maybe equity can move higher up (though it remains to be seen how long this will be true).
Outside of FAANG (and top executives at F500 sized public companies) very few people are getting rich off of the "equity" component of their TC. The vast majority of startups go bust before IPO or acquisition.
Time is the most valuable commodity you have, don't squander it for lottery tickets and empty promises.
The thing most people forget about options & RSU is that one is taking away a big chunk of the TC and delay it to a future year. Even when you hate your job, you will be hesitant to leave the company because of FOMO and sunk cost fallacy
That said, anecdotally, every one of my close circle of friends made decent amount money from equity (one of the many companies they worked at did very well) - far higher than the 10% stat that I hear talked about. May be the last two decades was lucky for this group of people.
> The thing most people forget about options & RSU is that one is taking away a big chunk of the TC and delay it to a future year.
That's not my experience. My TC is the amount I'll actually make this year (and have made in previous years), which includes my salary, bonus, and the value of the RSUs at vesting, which I auto-sell. I'm not "delaying" anything; I'm making great money right now. Unvested shares only matter to the extent that your future income might over/underperform current predictions to some extent. I definitely don't consider them "mine" yet in any way; they're simply a leading indicator of my estimated future TC at this company if I continue to stay employed here.
Options, yes, are a different matter, but RSUs in big companies are almost as good as cash (and when the market is going up, as it has been this past decade, they're better than cash).
Let's be careful here and not conflate options and RSUs, especially comparing between startups and public companies.
Options in a startup are extremely likely to be worth nothing, ever. Not only does the company need some sort of liquidity or exit event, but the valuation then also has to be higher than the strike price on your options. And options usually have punishing exercise-or-lose-them requirements if you leave the company before a liquidity event.
RSUs, once they vest, are yours without having to exercise them. If it's a public company you can turn around and sell them on the open market immediately if you desire and get cash for them. If the company's stock declines, your RSUs are still worth something since the "basis" is $0. If you leave the company, your vested RSUs are still yours.
Yes 1-year cliffs for vesting are common and do defer compensation, but 1 year is not a long time at all to be at a company especially a large public company. After the first year the regular vesting cadence sets in and it's just a slightly more complicated form of cash, with market risk.
Over the past few years that market risk has hugely benefitted most tech companies and RSU recipients. In 2020 my RSU comp was more than 50% of my total comp, basically doubling my (already high) base salary. ESPP further compounded that.
RSUs are trickier than that if you work at a non-public company (e.g. a startup). For example, they actually do typically expire if the company doesn't have a liquidity event within a certain timeframe -- and unlike options, if the expiration date comes up you have no recourse; with an option, you can at least exercise it, at which point it becomes common stock and you own it outright.
As a personal example, I previously worked at Airbnb and had a mixture of options and RSUs. Some of my RSUs were only months away from their expiration date when the company went public; if anything had delayed the IPO much longer, they would have disappeared. With the options, I could have bought them and prevented them from disappearing even had the company not gone public. As a result, leading up to the IPO I was moderately worried about my RSUs, but not particularly worried about my options.
FWIW, you're probably thinking about ISOs ("incentive stock options") when you refer to the "punishing exercise-or-lose-them requirements;" companies can also offer NQSOs ("non-qualified stock options"), which are less tax-advantaged but can offer long exercise timeframes even after you leave the company. A lot of the "unicorn" startups, including Airbnb, allowed ISO holders to convert to NQSOs for that reason.
Options vs RSUs is a tricky subject and the ideal choice varies based on circumstance.
> If the company's stock declines, your RSUs are still worth something since the "basis" is $0. If you leave the company, your vested RSUs are still yours.
The quotes around "basis" here make me think you probably know this, but just in case someone needs this nit picked: this "basis" being referred to here is emphatically not the "cost basis" for tax purposes. If a $50 share vests and you sell it for $55, you have a cost basis of $50, giving you $50 income and $5 capital gain.
I have never had a stock option that was worth as much as a penny in the course of my career. In one case, a “can't lose” employee stock purchase program (where you put aside money for purchase and at the end of the year you would get stock bought at the lower of the price at the beginning and end of the purchase period with a 10% discount on top of that) ended up being a loss because the stock dropped 50% between the purchase of shares and delivery of the shares. The company was eventually bought out by 3M and I got a hundred bucks or so out of my initial investment (which was, thankfully only a thousand or two, if I recall correctly).
A company sold for 3 million is... I mean, in average, I see that the worth is about 1m$ per employee. If you sold for less, your stock performed poorly compared to others. Maybe the product or the engineering was great, but on the wrong market or never met its window. Business is difficult.
The question is, would you have had excellent returns if the company had been worth $1m per employee?
In addition to the $3m/3M confusion, don't forget preferential liquidation.
If you own 10% of a company and it sells for 2x the invested value, you might get < 5% of the sale price yourself once the investors are taken care of.
> The thing most people forget about options & RSU
These two are very different things and they shouldn't be conflated. If you have FAANG RSUs vesting every few months or every year, you can convert them to cold hard cash on a regular basis.
Options in a startup, or a company that isn't traded publicly are a different animal.
I don't think that tracks with reality. If my company suddenly decided to do away with equity comp, they would not replace all the potential earnings with base salary. Base salary would be higher, sure, but still much lower than the salary+equity package.
I think more companies now have a policy where your RSUs vest every quarter, and there's no cliff (except for possibly the first new-hire grant[0]). So yes, it's delayed, but in practical terms you get your first vest within 3 months of getting the grant. (And if your company doesn't do refresh grants periodically, and equity is important to you, you should find another company.)
> Even when you hate your job, you will be hesitant to leave the company because of FOMO and sunk cost fallacy
This is unfortunately true. I do know people who aren't happy in their job (maybe not to the point of actively hating it), but stick around because of their golden handcuffs. I tend not to worry about that too much; they've decided[1] that being unhappy is worth the cash, and it's not a bad problem to have to be able to make that choice.
> That said, anecdotally, every one of my close circle of friends made decent amount money from equity
Exactly.
[0] Which I have a hard time complaining against. The company probably just spent $50k of its own resources to hire you, and I don't mind that they don't want to give you any equity until you've been there for a year.
[1] Then again, negotiation may be able to get similar equity terms at a new company that could presumably make them happy, and I think many people discount that fact.
> This is unfortunately true. I do know people who aren't happy in their job (maybe not to the point of actively hating it), but stick around because of their golden handcuffs.
For anyone "stuck" in this situation, recruiters from the other FAANGs you don't currently work at will try to match unvested shares in their offer. It always pays to interview once a year or so to see what the current offers are like, and it's fun to try out the other microkitchens. Well, until 2020 I guess.
Say what you want about Amazon, but at least they offset the fact that their RSUs vest somewhere between year 3 and 5 with stock price based (or whatever they estimate the stock price will be for next years) sign cash bonuses. Pretty fair solution, if you aks me.
>Time is the most valuable commodity you have, don't squander it for lottery tickets and empty promises.
That goes the other way around too, the only way to have massive amounts of free time without going FIRE is to win the lottery. So why not throw the dice once or twice when you're young and then settle into a stable corporate job if it doesn't pay out?
Modern Silicon Valley lets you do both. Why not throw the dice and still make around $200k cash?
As a [good] engineer you can have your cake and eat it too. Sure it won’t make you a billionaire but you can live a comfy life, maybe win the lottery, and retire at 50 if the lottery fails.
By the time a startup can pay you serious base cash compensation, I don’t think it’s likely they could also pay you serious equity compensation as an individual contributor. There’s no lottery ticket there, just trade offs. A lottery ticket is usually huge payoff or nothing. $500k or less, even a million or less doesn’t really sound like a lottery ticket (not to downplay how life changing that payoff could be).
Philosophically the lottery ticket scenario is your own startup or early startup employee, where your rationalization is >$10 mil or bust. Either certified “seriously rich” anywhere in the world or you just wasted your time. That’s a asymmetric payoff of a lottery ticket
I mean it depends right? Even employee 1000 at Google made many millions. And it’s rumored that the Lyft IPO made several hundred millionaires.
Hell, a friend of mine made about 1mil at IPO (on paper) and she’s a tech support manager. Not sure how early she joined but always said the cash was her highest salary ever.
Living and working elsewhere with the wages of the region reduces expenses and opportunities; but the wealth of educational resources online [1][2] does make it feasible to even bootstrap a company on the side. Do you need to borrow money to scale quickly enough to pay expenses with sufficient cash flow for the foreseeable future?
Income sources: Passive income, Content, Equity that's potentially worth nothing, a backtested diversified portfolio (Golden Butterfly or All Weather Portfolio and why?) of sustainable investments, Business models [3]; Software implementations of solutions to businesses, organizations, and/or consumers' opportunities
Single-payer / Universal Healthcare is a looming family expense for many entrepreneurs; many of whom do get into entrepreneurship later in life.
Small businesses make up a significant portion of GDP.
Small businesses have to have to accept risk.
> "Intrapreneurial." What does that even mean? The employee, within their specialized department, spends resources (time, money, equipment) on something that their superior managers have not allocated funding for because they want: (a) recognition; (b) job security; (c) to save resources such as time and money; (d) to work on something else instead of this wasteful process; (e) more money.
I’d you are going to start something on the side, carefully read your current employment agreement, particularly the part about IP assignment. Most Silicon Valley companies I’ve worked with, including FAANGs, claim ownership of everything you produce, inside or outside of employment, at home or in office, using their equipment or yours. You don’t want to lick into a unicorn idea and have your former employer’s lawyers send you that letter...
Unusual data point (I'm not sure if South African practice is applicable elsewhere) , but most bigger corps I've worked at have provided a mechanism to declare external interests, pending management approval, to work around these global clauses.
On paper any IP would be default belong to the Corp, but after some discussion/negotiations with your line manager and his higher-ups, you could do the paper work to declare.
It probably doesn’t matter in practice. They will have more lawyers and more money to burn on legal process than you. Who will go bankrupt first fighting a legal battle between you and, say, Apple?
Investors would check if you were subject to an IP assignment clause in your employment contract prior to investing. It's part of basic due diligence. They would then most likely pass on the investment.
As somebody who also has a bunch of lottery tickets that didn't pay off, I feel your pain. But I think there's a bit of hindsight bias to your conclusion. I think it's entirely reasonable for people to trade salary for equity. I also think it's reasonable to stick with cash. As long as people are making well-informed choices, I'm entirely fine with gambling on a positive-sum effort.
That said, there are good questions about how much things have changed vs 25 years ago, how likely an early employee is to see a big payout on exit, and how much the fever for VC-backed startups distorts employee choices. But that's another rant.)
There is also something to be said for the information asymmetry between employer and employee. From the outside, it is hard to know what the odds of winning really look like. Founders are always painting a rosy picture of how close we are to breaking out or getting that next huge round of funding. The reality may be totally different. Things may actually be rather bleak and they are hoping to just limp along, paying low salaries and giving out worthless stock in hopes that just maybe they will hit the startup lottery.
At least with gambling, the house has to post the odds.
Absolutely. And in addition to a pure information asymmetry, there's also a strong interpretive difference. A founder is generally going to be person who most believes in the company, so they'll value the stock more highly than anybody else. I think it's totally reasonable for a prospective employee to say, "I think the odds are good, but not that good" and lean toward cash.
One formulation I've used that helps is to say, "From data source X, your market-rate comp package is $Y/year. You decide how much of $Y you want to use to buy in now, at a price set by the most recent investment round." That only works if the company has enough access to capital, of course. And it does set the price as that of the most optimistic VC the company could find. But I like that it takes it out of the realm of personality-based negotiation.
Startup is not a lottery. Working for startup is risky, but the key is to build a system that increases your accumulated probability of success -- this is exactly why it's important to live in the bay area and work for some startups there, at least before the Covid-19. You get to see a large number of people who didn't fund any company, but still became financially independent or built an explosive career by choosing to join the right companies at the right time. You get to see how those people make their choices. You get to see how those people decide to jump ship. You get to build a social circle where you learn lots of first-hand information about startups.
Yes, it's still risky to join a startup, but no it's not a lottery. The chance of being rewarded handsomely is orders of magnitude higher than buying lottery.
I wonder how many people each year make at least $1m from startup equity appreciation (that is actually liquid).
Because it's between 1500 and 2000 people that win at least $1m in lotteries in the US every year. Granted, lots more people play the lottery than start or join a startup, but it's an interesting comparison.
If you optimize for cash comp, you can invest the "extra" cash into thousands or even tens of thousands of lottery tickets of your choosing. They could be actual lottery tickets, or deep-out-of-the-money call options on FAANG or options on QQQ.
I'm not sure if the calculation is correct. 2000 people winning lotteries out of at least millions of people, right? Yet in the startup word, it is thousands of people out a few hundreds of thousands? Another factor to consider is that your equity keeps giving, while lottery is a one-off deal.
> Equity comes third. If you work for a FAANG, maybe equity can move higher up (though it remains to be seen how long this will be true).
Tech companies are the largest companies in the US economy these days. They are the economy. For better or worse they're now too big to fail, and in some severe recession they would end up being bailed out like the banks were in 2008 since the alternative is a complete economic implosion.
I treat my RSUs as cash that has some variance to it (less variance than crypto, and roughly the same as the stock market overall). I even auto-sell them.
I'm not saying base salary is not important. It very much is. You need at-least somewhat a comfortable amount where money stops being a major issue. You can pay mortgage, go for a couple of vacations and have a decent amount in savings.
At Microsoft, it would be hard to cross $10m over 5 years, unless you're a really big shot. At a startup that rises to be a deca-unicorn, if you joined 5-7 years ago, that would be possible. Dropbox, AirBnb, Doordash e.t.c probably minted quite a few deca-millionares on their IPOs. Entry level folks would have made that much. That's what I mean by equity and skin in the game. Sure, there is a lot more risk but your upside is also huge. You can see how your work moves top line ARR and incentivizes you to focus on customers and build what they want and will pay for.
Sure at GOOG, MSFT, FB e.t.c once you go above senior to staff level, your equity/RSU component starts to be more valuable than the base salary. That's what I mean by skin in the game and proportional rewards. However those rewards can be unproportional once you have a large chain of managers. It incentivizes doing things that lead to climbing ladder rather than doing things that are good for your customers and long term ARR. Sometimes it's related, sometimes not. At a true startup, if it's unrelated the startup dies.
In my humble opinion, Bitcoin is a better lottery that equity, because it does not require you to work till 2am in morning.
Instead of equity, ask for higher salary, and invest the difference in cryptocurrencies, stock market, and even the old-fashioned lottery. Maybe a bit of everything, to balance the portfolio. Your chances are not worse, and you can go sleep before the midnight.
I think an important difference between equities (your company's options, the regular stock market) and the other things (lottery tickets, digital commodities like Bitcoin, and traditional commodities like gold) is that equities are overall positive sum. The point of (most) businesses is to create value greater than their inputs. Speculating on commodities is in theory zero sum, but in practice negative. Actual lotteries are clearly negative sum. (US state lotteries return only about 60% of the input money as prizes.)
So if people aren't sure what to do with surplus time/cash, equity will (on average, over the long haul) produce a better return. Buying an index fund gives you zero control but good odds on a steady return; trading your time for equity (a company you start or one you join) gives you more control and narrow odds on a higher return.
There's no one right answer here, though. I'm happy with the startups I've done, but right now I'm happy to be banking a steady salary. A lot of this depends on one's situation in life and one's personal values, especially risk tolerance.
Well but how do you get the money to buy any bitcoin in the first place ?
You don't invest in crypto currencies, you join early enough to sell to the next level of the pyramid you convince via social media post :s
But well you're right to say people should balance portfolio, I however don't see the value of the lottery, it's like paying taxes twice, with no chance of winning ever. At least bitcoin slowly loses value, a lottery ticket will lost its entire value a few days after purchase in 99.9999% of cases
Bitcoin slowly loses value? Even those who bought the very top in 2017 have more than doubled their money if they didn't sell. Bitcoin, when it does lose value, loses it very quickly but on longer time horizons nobody has ever lost money by holding bitcoin for 3+ years. That being said, buying at current levels is extraordinarily risky and more equivalent to gambling than anything else.
The expected ROI of the lottery is so low though It's hard to take someone seriously that mentions playing the lottery as an actual smart financial move.
People doubled their money on paper in unrealized gains. But since Bitcoin is being sold as a store of value and not as a medium of exchange nowadays, if you want to realize that value you need to sell. Where's that cash coming from? Other buyers, i.e. the next layer of suckers as indicated in OP's post. And if enough people decide to sell, then those doubled/tripled/etc values aren't going to last very long.
Note I'm not saying that it's not possible to win in this system - clearly some people will, at the expense of many others. Perhaps it's my own ignorance, but I genuinely struggle to see how this isn't a zero sum game.
Same's true of gold, silver, or cash-settled fresh bacon index futures. Consequently such commodities tend to have long-run zero returns, or returns that just equal the per-capita GDP growth rate, depending on how you look at it. I've watched people lose fortunes at that poker table.
The fresh bacon index is maybe less exposed to this kind of thing because, unless the world mass-converts to Judaism or something, someone will pay to eat bacon, so there's a floor on how low the value can go. But gold? Industrial use of gold is minuscule compared to speculative gold trading. Today GC trades at US$1773 per troy ounce, which is 10% down from a few months ago, late 02020, and 100% up from 02008. In 02001 it was barely above US$200. It could drop to US$200 again, and everyone who bought today and held will have lost 80% of what they invested.
That can happen with fresh bacon, too. What's different with gold is that, if enough people decide to sell, it could drop to US$20. It could drop to US$2. Or it could rise to US$20000. We have more history about gold: it's been a precious metal for many millennia and a widespread currency for the last three. So it's a lot less likely for it to lose 99% or 99.9% of its value like that, or go up 100× (though, as I said, it's gone up very close to 10× in a mere score of years.)
People — and, especially, central banks and governments — invest in gold because they dont think it's likely for that to happen, and because it doesn't have the secular inflationary tendency that fiat currencies do. It may bounce up and down by a factor of 10 in a couple of decades, but in 01687 it was probably also within that same factor-of-10 band.
They're not looking for an expectation of profit when they seek a "store of value".
They're just looking to reduce the risk of indigency.
Well, no comment on if they're suckers or not, but I think this is a misunderstanding of what a share in a company is. With a share, you own something with actual tangential value, i.e. claim on dividends/voting rights/cash flow/etc. Plus the company itself can actually go and do valuable things and make money - Apple can go and sell a bunch of iPhones and make a ton of money, and then reward their investors through dividends, buybacks, etc. That's not zero sum, there was something of value created and provided to the world. I do understand that in reality many people play the stock market like it's a casino, but that doesn't change the fact that it's still fundamentally different.
> The value of a stock is the present value of all future dividend
That is an idea from the 70s. Not many people would agree that there is an actual fair value for a stock anymore, much less that it is driven solely by accrued future dividends.
> No, that is an idea from economics predating the 1970s. Did you mean the 1870s? It predates that.
It really depends on what level of formalism you consider to be the basis of "the idea". I'm referring to the "dividend discount model" (DDM) here, which to me is the first real well defined model of this idea in modern economy. Exposed in early 60s and democratized in the 70s:
"The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value."
Stock buybacks are more tax advantageous to investors than dividends. The price goes up and you sell some shares and pay long term capital gains if you’ve held for more than a year. This is cheaper than paying income tax on dividends.
Crypto provides global access to a decentralized, permissionless, censorship resistant financial system. Bitcoin provides a savings vehicle that has a completely predictable and transparent supply. That's very valuable.
Why do you care so much about predictable supply if the price is anything but predictable? How is such high volatility commodity a good storage of value? It might be a good speculation vehicle, but people looking to store value typically look for something more stable.
It remains to be seen how resistant Bitcoin is if powerful governments really decide to take it down.
Bitcoin and Blockchain is an interesting project but 1 BTC > 50k USD... Yeah, sure...
> Why do you care so much about predictable supply if the price is anything but predictable?
Because the price will go higher. When the price goes over $x MM per BTC it will be very predictable.
> How is such high volatility commodity a good storage of value?
It stores more value than any other commodity. When the stock market started in 1920s it was no less volatile than Bitcoin. Volatility is a sign of disruption as much as it is a sign of value.
"Because the price will go higher" isn't really an answer. You can either explain it or you just have faith that it will do what you want. People could use that same argument for everything.
The stock market was never meant to be a way to store value but a public tool to finance and own projects that actually produce economic value. Comparing it to the bitcoin market is a false equivalence.
The NYSE was opened in the 1790’s and even in the 20’s stock volatility was significantly smaller compared to bitcoin, DJIA “only” grew around 5 times between 1920 and 1929 (so comparable to the decade between 2009 and 2020).
To find something on a similiar scale to bitcoin you might actually need to go back to the 18th or 17th centuries (see the “South Sea Bubble” or the “Tulip Mania”).
Friend of mine left MSFT back in the early 2010s for a startup that is set to IPO in the next year or two if all the prevailing winds remain relatively similar.
He'll do pretty well in the IPO because he has some of those early enough options as one of the first 25ish employees.
BUT!!!He left MSFT at $30-40ish a share, now worth $240 a share. Unfortunately, he divested most of it into more general index which has been fine, but not 6x.
He would have EASILY covered whatever money he's likely to make in the IPO by just staying at Microsoft and holding company shares for the last 9 years, and in fact probably would have made way more given stock rewards/promotions/salary increases etc.
That being said, he has enjoyed working at the startup and it has propelled him into a role that he wouldn't have been in at MSFT or any other big company so there is that to consider as well.
Investing in the right single stock always outperforms the index. But risk adjusted returns may not be better than a diversified portfolio, Microsoft could also have dropped due to some scandal whereas the downside risk of a balanced portfolio is much smaller.
> The vast majority of startups go bust before IPO or acquisition
In recent times, these giant late rounds with the amount of preference given mean that when acquisition happens, it often doesn't pay out for regular employees/common stock. The common stock employees get is for the moon or bust, or hope an acquiring company is generous.
The best many non-founders can hope for is a cushy acqui-hire deal.
I've had several friends have the startups they worked for acquired, and their equity was worth nothing due to valuation and unfavorable liquidation preferences.
They got a nice hiring package from a big company, but not significantly better than one can get from applying on your own. And the opportunity cost of taking a below-market wage for several years probably nets out to a loss in pure dollar terms.
I don't know if it's that black and white. The risk calculus changes based on stage of the startup for example. Joining doordash pre IPO is still more risky than google, but I there's some reasonable confidence it'll be of some value soon.
I agree with your overall premise, but I think you and the parent are talking about fundamentally different things.
If I'm at a startup and I'm constantly working 14 hour days, I want equity. Because I am not going to work 14 hour days (or even 10 hour days) for just a normal base salary. I mean, sure, I wouldn't mind instead taking 4x a normal base salary to work those 14 hour days, but no company (startup or established business) is going to give you that deal. That equity may end up being worth nothing over the long term, but by joining an early startup, I am betting on a solid founding team and the product, and the team's ability to execute. And because it's a small team, I'm betting that I personally can be a big component in whether or not the company succeeds or fails. (Often it'll succeed or fail despite what I do, but that's not the point.)
We can debate the wisdom (with regard to productivity and health outcomes) of working habitual 14 hour days at all in the first place, but the bottom line is that if I'm going to be pouring so much of my life into something, I at least want the possibility (even if the probability is low) of a life-changing financial outcome. It's pretty rare that you're going to get that with a base salary, even at a larger, well-established, public company that has decently high growth.
And I get it, some people just don't want to make the base vs. illiquid-equity trade off. An early-stage startup is probably not for those people anyway, and there's nothing wrong with that. I did it three times: one was a complete flop (after I'd paid to exercise options that became worthless shares), one was a mediocre flop (got out of there in under a year, knew they were incapable of shipping, turned out I was right), and one was more successful than I ever expected. And yet I'm happy I joined all three, even the first one.
> Outside of FAANG (and top executives at F500 sized public companies) very few people are getting rich off of the "equity" component of their TC.
Not even at* FAANG. A new hire (today) at one of those companies is not going to get a life-changing equity grant. A hire from back when they were relatively new companies (or, as with Apple, down in the dumps circa 2000) can get that. But, a hire at that point will be expected to work more (often much more) than a normal 8-hour day.
I think people forget that a mulit-millionaire Googler who has been there since 2003 and is still there now is likely mainly rich because of the equity they got in the first 3 or 4 years. As companies mature, their equity comp declines rapidly. If that same person had joined Google 5 or 7 or even 10 years ago as an individual contributor, their equity comp would not make them rich; they're now getting most of their wealth from base salary.
> The vast majority of startups go bust before IPO or acquisition.
Right. And that's why you shouldn't join a startup because you expect to get rich. You should join because you like that style of work better than large-corporation life. But if they're going to expect you to pour your life into that startup, you should get a big chunk of equity that can -- if things work out -- compensate you for those long hours someday.
In exceptional circumstances, yes. In most circumstances equity in a startup ends up being worthless, even in the event of exit. Starting your own startup, or joining a startup as a very early employee can make you rich; anything else and you might as well be buying lottery tickets.
That's not to denigrate startups in any way. Working in a startup is amazing. It's just not how you get rich as an employee unless you are staggeringly lucky.
Even when they’re not worthless, most startup options end up being worth less than the salary that one could’ve gotten at a non-startup. Last time I looked into it, and it was a while ago, the median startup option package was exercised for a profit of $30k, not nothing but far less than what one could’ve gotten at a large company like ... Microsoft.
Arguably the existence of several different types of stock options has broken the startup option system, incentivizing founders to play financial games with dilution and debt, and separating their incentive structure from that of their workers. Instead they now get paid with the VCs, which is bad for the workers.
Nothing is worth working like a dog though. That’s always a bad trade.
> most startup options end up being worth less than the salary that one could’ve gotten at a non-startup
I took a lower salary to work at a startup I "believed" in. We were eventually acquired and my options were in the low six-figures when exercised. I worked there for 6 years. If I average the options profit and add it to my base salary, I'd have still been underpaid in the local area for my skills and experience level. And that's to say nothing of what the event did to my taxes that year.
> Nothing is worth working like a dog though. That’s always a bad trade.
I never worked like a dog for the place in my story, at least. It had a very sane work/life balance.
> I never worked like a dog for the place in my story, at least. It had a very sane work/life balance.
For sure not every single startup overworks it’s employees, and not every overworked employee works at a startup. But there is a very common (but not universal!) trend for startup employees to be encouraged to overwork themselves so that their options will be worth more in the long run.
I don't know how common it actually is. You hear about the startups that overwork employees far more than you hear about startups where people have a good work life balance, but there could be many reasons including the big one being that happy people who live well balanced lives don't tend to talk about it.
There are many different kinds of averages. Median average, arithmetic mean average, geometric mean average, mode average.
People frequently, and intentionally when it comes to politics, use the word average to muddy the information and evoke whatever emotion they want rather than specify the type of average.
If you include wear and tear in that calculation, then it’s definitely true. A couple years of austerity and socking a bigger salary into investments is less stressful and a surer bet, even if it pays off less some of the time.
Yeah if your stake isn't significant even in case of a huge exit, you're not making even close to what you'd make at a faang even in case of a massive ipo
How do you get rich as an employee then? Because I've never heard of any salaried line engineer getting rich except through winning the startup lottery. I sure have friends who have done exceptionally well by working for the right startup with the right acquisition however.
Even Google engineers don't feel rich when they have to stretch to afford the down payment on a house in Mountain View.
Comes with a lot of caveats, though [0]. Amazon and likely Microsoft, has made many people wealthy, too. The surge in BigTech stock prices over the years has been nothing short of extraordinary, and there's no indication of that slowing down as more enterprises move to the cloud and even more consumers take to the Internet.
Also, overworking like a start-up employee isn't necessarily what a start-up is about: A start-up's value is in its under-the-radar disruptive potential (that is, being dismissed by the incumbents as a mere "toy"). That said, a start-up must capture as much value it can (this is where working hard, being highly flexible, and moving fast likely matters) from the market it helps create, lest it be subject to irrelevance; but this part comes a bit later in a start-up's life, at which point (the start-up is no longer under-the-radar and investors are circling around it like bees) its stock-options wouldn't likely make an engineer "generational wealth" either (different story for executives) but would have to work hard anyway.
Most engineers at startups get very little equity and most end up worthless due to dilution or failure.
Even if engineers hit the startup lottery, the payout for most are not that much. Very few end with multi million dollar payouts.
Statistically, financials are better with big company offers for most engineers.
Some engineers that get in early with a unicorn can hit the jackpot. This is mostly combination of timing and luck and network. Some just happened to be in the right place at the right time with right group of people. PayPal engineers, early Google engineers.
This is why it was a founder that complained about the equity/pay problems, rather than any engineer.
If they actually rewarded their Waze employees with enough equity, the employees would have pushed much harder to not get acquired and been much more upset afterwards. You should be highly suspect of any investor or founder that thinks an acquisition is a successful outcome.
What's clear is that Waze employees finally got compensated fairly, and the founders suddenly didn't have 100x upside. There's a reason it's a founder with the frown at TGIF at Google, and all the employees are excited and smiling.
Yes, while financially you may be better with BigCorp, there are some benefits of startups that I experienced first hand. First is the experience of being a fast-moving startup and the comradeship that you build with your colleagues. I'm still friends with people I worked with at my first startup 15 years ago. Second is the learning experience of being around very smart people. I learned so much in my 4 years at my first startup. From how startups work (and that my equity was worthless) to how to do modern (at the time) development in Java. Finally, as someone mentioned earlier, you get to see how your work moves the needle. That feedback cycle is addictive! Also, you can see when you screw up the opposite happen (I once personally caused a loss of a couple hundred dollars in revenue due to a bad SQL query).
Apple stock was essentially a flat line until about 2004. At which point, a random person who put in $10,000 would today have $4,000,000 had they held.
I would like to offer an extended view from the wealth accumulation angle. True, equity builds wealth, but in a startup, since there is no floor protection, when the startup becomes worthless (can happen for any number of reasons, and often do), then one wishes one had taken a salary (and reinvested in stocks or as seed investment - ways to gain equity exposure).
One could argue that PowerBI, in this example, gained any traction at all because it benefited from the large customer base and marketing muscle of Microsoft.
To extend further on the point Nojvek makes about how PowerBI moved very little of the topline revenues of the company; this also means that the bonus accrued to the author was because _some other team moved the needle_. This grouping of risk for a mean payoff, could be a desirable outcome as well, if one has better avenues to invest the capital. It all comes down to how one views risk, its mitigation, and wealth accumulation horizon.
> when the startup becomes worthless (can happen for any number of reasons, and often do), then one wishes one had taken a salary (and reinvested in stocks or as seed investment - ways to gain equity exposure).
Well, sure. And when the startup becomes worth billions, one wishes they had taken the options instead of a higher salary.
This is just an observation that having information lets you make better decisions. Unfortunately, most of the best information lives at a point in the future after we must make the decision.
The point is that the odds of any startup to be worth billions, or for an employee stock option be worth a lot more than accumulated high base salary, is very very low.
So if one optimizes by using the expected value over time the conclusion is that high base salary tends to trump employee equity. One can make this sort of inference at any point in time, without hindsight at all.
Joining a startup is not some game roulette where you gave zero information about potential outcomes and just choose randomly one number.
You as an employee have a lot of agency to find the startup to join that you think has potential. If the startups or founders are unwilling to share their thinking then it’s probably a bad sign.
Think about Stripe when they started. The whole story was that most tech and other companies need payments but it’s a hard problem and back in the day we had do merchant accounts. Makes sense, and there is a clear business and maybe as you talk to the team, you are impressed. They raised from Sequoia and other too VCS. Great, sounds like good company. Obviously there are risks. What if they get shutdown? what if PayPal/visa/Google builds this? Maybe the product will suck?
Compare Stripe to something like pet walking startup Wag which also has raised tons of money. Do you think it’s easier to make money by charging % on business revenue or charging % people walking other peoples pets?
There are always risks and unknowns but it’s not a random throw dice which company you join. Probably there has never been a time it would have seemed a terrible idea to join Stripe, at most it would have seemed uncertain and risky. They could have failed too but now they are a $100B+ company, and your employee equity would be worth $1M-100M depending when you joined.
If you join a random startup, you take a random chance. If you do your research and thinking you can increase your odds like you can increase your odds on the public markets. You can also optimize for the team or domain you want to work in, and even if the startup fails, you might have learned something.
The expected value is a fine way of looking at it. There’s other ways that favor the startup though. Working at SV startups your whole working life will still probably result in retiring very comfortably, with some fraction of the money your friend who worked at established companies their whole life.
At the midrange of the preference curve that’s a problem, but you’re still likely in the same order of magnitude of wealth. The difference is if you have a strong desire to have an order of magnitude more wealth, you often can’t do that in established companies only. At the least you can bounce into startups for the executive and leadership experience then bounce back to established companies at a managerial role, but by then you probably have the experience and connections to make a startup with its huge potential payoffs more likely.
If retirement comfort is what you seek, you will likely get reach that at startups too, but you will likely only see those massive payoffs with startups.
This is also an issue I’ve seen with companies that began as startups, but then transitioned into the “big company” phase: Founders and early employees complain that “when we were getting started, we could’ve gotten this feature done in a week! What’s taking so long?” There tends to be frustration that employees won’t work nights and weekends, even though their work could “turn this company into the next Amazon!”
When you bring up the fact that the difference is that they have equity and you don’t, and that they would materially benefit from growth but you wouldn’t, they tend to get grumpy. But they never do have a better answer.
I said this thing in response to Game Development crunch, which also applies to startups. The original creators of the company, now people in charge, have equity and that is a big reason they worked so hard to grow the company from nothing into what it is today. Therefore when they ask (or subconciously demand through company culture) to crunch or work overtime they should give out equity as an extra part of the compensation for working extra hours.
Part of this is to align the founders' and employees motivations so they're more in sync, as both parties now have some form of upside to work hard and see the company grow.
Another part of this is to make the shareholders and founders really think about the culture and how they expect other people to work. So if they want a culture that is about putting in many hours and effort then they should be prepared to lose a little bit of ownership to make that happen. If they're not comfortable with that then they this will act as a disincentive for them, so they fix the culture and their expectations and people can have a normal work schedule.
One final note is that with whatever system there will be people that end up exploiting it, and as ever that's a people management problem. Hopefully with a trustworthy culture this will not happen.
UnitedHealthCare is an example of this on steroids.
UHC basically can't show a huge profit. Otherwise they'd be subject to investigations and pilloried for profiting off of the misery that is the US health care system.
But they make money hand over fist, because... it's the US healthcare system, and they have an effective monopoly/dominant cartel position as one of the four pigs at the trough (trial lawyers, doctors, insurance, drug/device companies). So instead of profits, a gigantic management tree has built up, and the managers take all the money.
Then tell their workers they aim for the bottom third of market compensation.
Colleges seem to me the same way: no "profits", but suck in huge amounts of money as the tuition skyrockets. Hmmm, and suddenly a huge administrative/management/MBA apparatus has appeared in higher education? You don't say.
Salary was basically a contract with employees to take steady income and employment (once upon a time ....) while the management layer and stockholders will eat the gravy. Motivation in that contract is strictly around 1) access to management for the "ambitious" and 2) don't get fired for the rest.
Hand in hand in IT with not being able to get things done quickly is that doing things quickly is high risk, and that violates the core motivation of almost everyone in the #2 don't get fired crowd.
> Startups work because you have skin in the game, when you build something people want, you get to reap rewards proportional to it.
Eh... not really. Especially not for the rank-and-file employees. Most don't get proportional rewards even if the company exits successfully. Unless you're a founder or one of the early employees, for the high percentile of successful startups, rewards are proportional with what you'd have gotten at FAANG companies during the same time.
Not to diminish your experience, but I think the idea there was that you get to work on something 'risky' but regardless of its success you'll still get your paycheck, health insurance benefits. And if it goes belly up, you can just do a lateral move to Azure or whatever instead of worrying about the very existence of the company.
Many comments below focus on failures with a single startup. I think it misses the point. Working for startups is risky, but the key is to build a system that increases your accumulated probability of success -- this is exactly why it's important to live in the bay area and work for some startups there, at least before the Covid-19. You get to see a large number of people who didn't fund any company, but still became financially independent by choosing to join the right companies at the right time. You get to see how those people make their choices. You get to see how those people decide to jump ship. You get to build a social circle where you learn lots of first-hand information about startups. There are a few simple steps that worked well for many people (again, no guarantee of success, but they do increase accumulated probability of finding the right company).
- You bet on product you love. Airbnb/Pinterest/Uber before 2013, Netflix before 2010, FB before 2009, Google before 2003, Databriks before 2017, Tesla before 2017.
- You bet on sectors. SDN, gig economy, search, big data, and etc.
- You bet on company's productivity - the customers/engineer grows exponentially without Uber-style marketing cost - Instagram/WhatsApp; the company releases features faster than they hire - Google; people deliver without working like a dog - Netflix
It’s a no true Scotsman scenario. Obviously working on a “startup” in a big company isn’t the same as starting a new company.
But... you get to enjoy the bigco benefits and security while avoiding a lot of bigco bullshit. I did something like this in a public sector org. We got to do something new and exciting, many of the team ended up getting promoted, and the big shots got to pay themselves on the back too. We did not get rich, but we did not risk much.
Generally speaking, if you want to build wealth on a short horizon, working for someone is the hardest path.
You can have payouts proportional to success even in big companies. Google famously payed $120M to Anthony Levandowski. This is because there was an agreement in place to pay projects in X based on the value that they create.
True, but this is a vanishingly small edge case. You generally have to be a certain person to negotiate something like this with a big company. Surely the "Ninth Cog Engineer From The Left" at Waymo will not have the negotiating power to get this kind of profit-sharing or pay-for-value comp package.
I recall reading somewhere that Waymo had retention problems due to many of the early engineers were given so much money that they simply no longer cared to work. I don't know how true that is, but I believe it.
> Bloomberg says that early staffers “had an unusual compensation system” that multiplied staffers' salaries and bonuses based on the performance of the self-driving project. The payments accumulated as milestones were reached, even though Waymo remains years away from generating revenue. One staffer eventually “had a multiplier of 16 applied to bonuses and equity amassed over four years.” The huge amounts of compensation worked — for a while. But eventually, it gave many staffers such financial security that they were willing to leave the cuddly confines of Google.
This has more to do with negotiation skills. Anthony Levandowki also negotiated deal with Uber to pay him more money. He knew his value and negotiated hard, and got paid by 2 companies.
Every engineer should learn from Anthony about understanding the value and negotiating hard with companies. Companies will pay up for in demand skills.
Equity can also be bought with your excess capital for you work. At the current market salary for developers it should be quite obtainable to live well below your income and invest a sizeable portion of it in the markets, either stock or realestate. Do this for 10 years and about 20 years later you will have many millions of dollars.
This is quite one sides view. There are many many examples such as Word, Excel, Google Maps, Gmail, FB Messanger etc started as “startup within big co”. Initially they were small, people worked hard and then they become very big. When they were small (<50) people, those early folks ripped similar rewards as early startup employees. Many later became distinguished engineers, CVPs raking many millions over the years. I don’t know when you joined PowerBI but the probability of you getting disproportionate rewards if you weren’t in first 50 employees in usual startup is not very high either.
I don’t agree with thesis in this article. Yes, most startup efforts in big co fails but failure rate is probably not worse than usual startups. For successful startups within big co, rewards are pretty huge as well. For Waze case, I had argue that they were already running out of steam when they joined Google even though they continued growth. It wouldn’t be feasible for them to compete effectively while growing exponentially with strong and free product like Google Maps as their competition. I am doubtful if Waze employees would have faired vastly better as independent startup.
That's a good point and a fine distinction about whether the success is higher or lower. The point that Noam makes is more that its different. It's not a startup anymore. That probably means less chance of abject failure or success.
Ah, not quite. At that early stage, the risk and opportunities are different. He wants his employees to to work as hard as if it were Day One, but he cannot offer 10s of thousands of workers the same possibilities as if they arrived on Day One.
I think Bezos referred to the mindset of the people who live and die by the success of the company - namely the founders and executives who are responsible for making sure it succeeds.
Do they live and die by the success of the company. If the business starts to decline who is terminated first. The founders and executives. The audience for the letter from this quote is taken is not only founders and executives, it is Amazon employees, investors, potential investors and analysts, i.e., the public.
I don’t think the issue is that working at a pseudo startup doesn’t pay enough while a real startup does. Startups almost always pay less than big companies. Even most of the successful ones. For a worker, the pseudo startup is a great option. You get a high base salary, and a large stock grant, and the high growth stock we’ve seen at a lot of the big companies over a reasonably long period. By the end of your vesting, your $125k cash + $75k RSU = $200k/yr has (using apple growth, which is reasonably FAANG representative) grown to $125k + $245k RSUs = $370k/yr assuming no promotions and a linear vest.
Equity does build wealth, and BigCo equity does it much more reliably than a real startup.
You can certainly work like a dog in an actual startup with the hope that your equity will someday be worth something... only to have it be worth nothing because the company didn't make it. This is what happens in the vast majority of startups as few startups end up making the big time.
It seems the only ones benefiting are the partners in these companies - who actually try to create that startup narrative and get the compensation in return.
If a group within a large company tries to advertise as startup, it's a big red flag.
One should join a company like Microsoft to learn and see how things are done in a mature place and to have good work life balance with reasonable pay - then if you want take that knowledge and experience with you outside to a startup if you want.
Off topic, but were you involved in PowerQuery/PowerPivot as well?
I have moved away from Excel, but was one of the first users of PQ/PP, it was a great step forward and my understanding is PowerBI was an extension of that.
Congrats because everybody I know loves PowerBI! Well done, even if the rewards may not have been commiserate.
I worked as a contractor for a sort of startup inside a big company, so the pay was good and immediate.
The problem is when we got successful everyone tried to pin us down with the existing bureaucracy, and everything that made us great was a reason we should be stopped. Autoimmune response.
I mean, sure, but it also misses the point a bit. "Startup in a big company" doesn't mean "yo take some cashdollar and try build and release something to the public", but it does mean "hey, take a small team and do your own thing with less oversight and process overhead from higher-ups".
The team I worked in at AWS was like this and it felt a lot like startup teams I've worked with. That didn't mean we could take 'brand and legal risk', and if that's what you want then definitely go and start your own thing.
If you want more autonomy and higher velocity than is normal at corporates, then a 'startup within a big company' might actually work out for you.
While I worked for Adobe, one of the executives there (Mark Randall, serial entrepreneur that was "acquired" by the company, awesome guy) launched the "Red box" initiative that eventually become https://www.kickbox.org/. The red box was essentially a "toolbox" that he created on how to build a startup (set of training materials + $1000USD credit card that you could use however you wish), and the purpose was to get enough proof so that you get executive buy-in to continue your idea - if you achieved that, you got the "blue box" (whose content was a "secret" but was essentially custom-tailored support for your project). The entire process banks on the fact that you validate your ideas _without_ involving the Adobe brand, because if you slapped "Adobe" over it of course people and press would get interested. There were some legal caveats here and there (e.g. you couldn't outright lie and claim you were _not_ with Adobe), but I think it is to some extent the closest thing that you can get to "startup within a big company".
I personally got to the blue box - but then I gave up, when I realized that to get it to actually ship I had to sacrifice nights and weekends. Which would have been maybe fine - except that I knew that I didn't get to keep any upside. I had most of the risks of a startup, but very little of the payoff. Great learning process, but for me - it only managed to convince me that I shouldn't try within a corporation, if I want to try I need to actually do it by myself.
“except that I knew that I didn't get to keep any upside. L
Same at my company. They have similar programs but you also don’t get any stake in the outcome and are still controlled by executives who in the end get the credit.
Same for hackathons they tried to organize. The idea quickly turned from fun projects basically into overtime to check off Jura tickets quickly but with the addition of free pizza.
I think leadership in big companies is almost by definition very controlling. They simply can’t let go. It’s against the instincts that got them into their positions.
It is astounding to me how smart, conscientious adults can be manipulated with kindergarten-level tactics.
I dont know if psychopathy (or the whole dark triad?) can be quantitatively measured but I would not be surprised in the least if after the mean value, any % of incremental in psychopathy is way better than its equivalent in IQ to survive and thrive in the corporate world.
If they were honest and called it a "beat down tech debt day" I would probably be keen for that. I am easily swayed by free pizza, and I love cleaning up hard to understand/bug prone code.
That's not necessarily bad so long as everyone is honest about it. Often tech debt and bugs don't get fixed because there isn't enough time or they don't generate revenue. But we developers hate tech debt and bugs. Dedicating a chunk of time specifically fixing these issues that we hate can result in good outcomes.
I agree that an incentive structure is probably needed as a matter of practice (since few people will want to do extra work with zero upside), but I wouldn't call it exploitative.
You're an employee, you work for a guaranteed salary now in return for someone else shouldering the risk. That's the nature of the deal. If you want to share in the upside, you have to share the risk.
It's not like anyone's being forced to do this extra work (unlike, say, game dev, which is exploitative). It's just an option for people who want to tackle interesting projects.
We're talking past each other here, so I'll try to simplify where I'm coming from...
It is exploitative by the company to expect you to work nights and weekends, but then all the possible benefits go to the company. If you're going to do work on your nights and weekends, then do work for yourself, not for a company that won't compensate you for it.
The above has nothing to do with whether or not it's like a startup; it's speaking only to the deal in question being exploitative.
(Side note: I don't have a problem working some nights and the occasional weekend for my job. But it's very rarely expected of me; it tends to happen when I make a commitment to delivering something in a certain timeframe and then it turns out my guess as to how long it would take was wrong. Because I'm flexible, so is my company; if I need to take a half day to help my daughter with something, nobody is going to push back on that. I just wanted to make it clear that I don't consider the occasional night/weekend exploitative automatically... just that the situation described by the OP appeared to be so.)
> It is exploitative by the company to expect you to work nights and weekends, but then all the possible benefits go to the company
We’re disagreeing, not talking past each other. (Which is fine!)
Above-market salaries, bonuses and the promise of promotion (within the company or without) are fair compensation for aggressive work expectations. The upside is sharply capped in comparison with start-ups. But the downside has been practically eliminated. Nobody bemoans investment bankers, who have largely this compensation model.
My understanding was that this person's normal job did not include working nights and weekends. It was the act of taking on the "company side project" that necessitated that extra work.
If the person's job includes working nights and weekend and compensates fairly for it, and they have the option of working on an official side project _instead_ of their normal work, then I agree with your analysis of the situation.
If the person's job does not normally include nights and weekends, and they are compensated based on that, and adding the official side project to their work adds this time with no added benefit, then the company is being exploitative.
At the high level...
- if the side project can be done instead of your normal work, all good
- if the side project is done in addition to your normal work, with no additional compensation, then it's exploitative.
The (implied) benefits you get is that you can work on interesting things, and probably get much more freedom in your day job.
Looks very fine to me if done on a voluntary basis.
Reward being tied to risk is only for the little people. One can point at numberous executive compensation packages where they have plenty of exposure to upside, and almost no risk (or even negative risk: a golden parachute if you get pushed out).
Sure, in that sense it’s “fair”. It’s also meaningless, as this example shows most people will not make a really great product if there is no upside for them so they will mail it in. So sure you can try to squeeze your employees but maybe if you gave them some more you would get a smaller percentage of a much bigger pie giving a win win. It’s very unlikely big corporations can do that for the precedence it sets.
It's not, at all. You know very well what you get into, and have every option to get out at any point, with zero downside to your career. You get paid, get to learn a lot, get to experience building a product with basically zero risk for yourself. Why would the company also give you the upside? They put a lot of resources into this program.
Also, it appears that Mark enhanced the program in the meanwhile/ I was one of the early participants. There's more structure now, and there's a "goldbox" that suggests he figured a way to give employees some guaranteed upside.
In the link[1] virgilp shared it says red box participants get 1000 CHF budget, 20% of working time, and access to experts.
So they want you to prove out your idea with an allocation of one workday per week. I’d bet most people have to add their own nights and weekends to make it successful.
Do note that they appear to have fine-tuned the program. I was one of the early participants - initially the blue box was a "secret" because Mark Randall genuinely didn't know what to put in it. In the meanwhile, the blue box was refined and it appears that a gold box turned up. True to his form, he approached the entire process as an MVP that was evolved & enhanced in time.
I wouldn't mind, but I don't know what - ask if you have specific questions. There's ample material on https://kickbox.org and https://home.getkickbox.com/ (basically all the contents of the red box, minus the cash), plus it appears one even has access to a "kickbox community" from what I can tell.
>but it does mean "hey, take a small team and do your own thing with less oversight and process overhead from higher-ups".
If you are interviewing for a "startup in a big company" job, one of the first questions you should ask is "how much oversight and process do we have from the larger company?" Make sure you ask a lot of questions about how decisions are made, who the product is being built for, how it is being sold, etc.
I've worked in two "startups" in two very different big companies. In both situations, the every major decision had to go through the larger org, which meant basically the whole thing was a waste. The only things that were approved were things the big company was already doing.
I'll provide a concrete example. I was involved in a product where our people had to work with the larger account execs of existing customers. The idea was the account execs could take the product to existing customers easily and grow very rapidly. What really happened was the account execs refused to put the product in front of customers unless it fit into the larger enterprise architecture strategy. They didn't need a startup - they needed a typical huge enterprise software team. So basically the product that got built was a completely half-baked POS that only looked good on slides. It was a market failure.
Sounds like in your case it worked out, but I would consider AWS to be an insane outlier...also from a company still founder-led (Bezos is an exec with proven startup success--hence why Amazon exists in the first place!).
I think the point of the author is that, inside a big company, the fundamental risk/reward incentives that drive startup innovation are removed. Autonomy alone doesn't drive people to make crazy decisions. Risk/reward incentives do.
Google is never going to say to one of their internal employees:
"We're cutting your salary to $50k/yr, but you get 80% ownership of the business you create if you succeed. But there's a 95% chance you won't. And if you don't succeed you're fired. Good luck!"
That's the equivalent environment needed if you want to mimic the human decisions and behavior that drive innovation inside startups.
The problem is, if this employee is the perfect person to create this business, why are they working at Google and not on their own starting this venture already?
Why waste time letting one of your clearly risk averse in-house employees (hence why they work at Google in the first place), fumble around for 5-10 years trying to build something? While your competitors might be doing the same thing and will actually succeed? And while the rest of your employees start complaining, "why can't we also play startup for 5-10 years on the Google gravy train like John?"
Google can just sit back and let the real startup ecosystem do its thing. Then buy whatever they see that has shown success in areas of strategic value to Google. No PR or legal risk while the startup does necessary but shady things to force itself into being. This is a much better model, hence why innovation is most often acquired, not incubated.
I think the point he was making is it’s a half measure compared to having no safety net. The “adjust as you see fit” would be not operating under the Google umbrella at all.
The simple act of having to do the rounds to repeatedly secure financing and letting that, or the actual performance of the business, gate growth or survival and being a cofounder or employee in this environment has a different emotional and operational strain on the business.
I worked in a company like this btw for about five years, we were started as a subsidiary of a successful medical device company by that ceo as a “what if”, to take the already developed dispensing hardware by our parent and adopt it to the general supply chain management industry. We were doing decent business ($30M ARR for a 40 person company) and were minimally profitable but eventually shuttered by our parent company after it became apparent the hockey-stick like growth was not coming.
I’ve also worked at startup that failed after about 6 years. The difference between how those two companies screeched to a halt was stark. In one case it came out of the blue and suddenly 1/3 of the employees were sucked up into the parent company and the rest got pink slips. In the other case it was a really wild final year with the writing clearly on the wall, multiple furloughs and downsizing for survival.
The word for this is "skunkworks". Even the most independent skunkworks still serves big-company goals, often taking advantage of big-company resources and generating IP for the big company.
In some ways, a skunkworks is startup-like but in many critical ways it's way different.
Just came here to say this. The popular examples were the legendary work at Lockheed Martin, and also at Bell Lab for Unix. I was under the impression that Unix was well supported in the beginning at Bell Lab. Apparently according Ken it's not so and initially they need to piggyback on a grant that did not even mentioned OS or system research due the outstanding issues with the Multics project.
Honestly just working on something without an existing user base makes a huge difference.
There's a certain amount of institutional crud that's just crud, but most of it exists because once you are successful, you can lose what you have more easily than gaining something new.
Millions or billions of people use the major products FAANGs provide. They might get more users if they make these products better, and boy howdy are there a thousand ambitious devs, PMs, and managers trying, but they'll also lose millions of users if they make them worse. Hell, they'll lose millions of users if they make them different, regardless of whether it is better or worse.
90% of institutional crud is "how can we not piss off the billion people who are happily using our products and giving us money, either directly or indirectly?". Users hate it when our product breaks, so we're going to have excruciating review and approval processes to submit code changes, style guides and minimum test coverage and an entire campus devoted to monitoring for problems. Users hate it when their personal data gets leaked or abused, so we're going to set up razor wire and require devs to go on a quest for mystical artifacts before they can do anything with it. Users hate it when the site changes so we're going to require a dissertation in the form of a sonnet explaining why the color of the buttons should change, and then six months of live experiments to be sure.
90% of what you hate as a user about big companies is the result of them "acting like a startup" and radically redesigning UIs or changing the core functionality of a product or breaking existing functionality to add new or just developing a new product out of nowhere and presenting it to you like you should care.
I was really shocked to see into a couple 'startup in a big company' teams at my company and to realize just how little they actually went off-leash. I don't know the details -- how much of it is not being allowed, how much of it is people who've worked here 10 years believing we're doing things the right way -- but I was really taken aback by the number of things they had to slow them down and the amount of oversight that seemed to be in place, given the general concept.
> "yo take some cashdollar and try build and release something to the public", but it does mean "hey, take a small team and do your own thing with less oversight and process overhead from higher-ups"
Yeah, this. People who are used to actual startup culture and talk about how "startups" at big companies don't work have a different internalized concept of what startup autonomy looks like.
The success criteria are different, and measured differently.
Glad you shared your experience. The title of the article is completely misleading and many people in the comments who claim it's impossible are either wrong or don't understand the meaning of this phrase.
I have been a (very happy) part of two such startup-within-a-big-corpo initiatives during my career in investment banking.
Although on different (in my opinion: better) terms, it does happen, although quite rare.
The creation of EC2 originally (which at the time was not AWS -- AWS was originally the XML-RPC and SOAP APIs that allowed people to interact with the www.amazon.com website) was done by a skunkworks project in South Africa. That team was very, very far removed from Amazon proper and actually delivered.
That's probably the only time I've seen that kind of startup-with-a-large-corporation work. I can think of other examples (like Amazon's google-competing search engine) which tried to copy that and failed pretty completely.
I suspect other successful things that happened after I was there were run as "startups" though (I'd guess Alexa?).
But in general every other time I've seen those happen at other companies they've been completely miserable failures.
Working in IT, usually those "startups" are full of Dunning Krugers who mostly go to war against the corporate IT and don't actually have very good business ideas (and honestly the corporate IT has been run like crap and deserved it, but that doesn't actually help launch your product). They're usually fed a bunch of ego-food about how they're the special children which will entirely transform the next generation of the company, and then they wind up fighting with everyone else.
> The creation of EC2 originally (which at the time was not AWS -- AWS was originally the XML-RPC and SOAP APIs that allowed people to interact with the www.amazon.com website) was done by a skunkworks project in South Africa.
AWS did indeed start out with E-commerce Services (2002) and Alexa Internet APIs (2004), but in mid-2003, when Andy Jassy took over AWS from Colin Bryar, he completely changed its charter to build an "Internet Operating System" instead. EC2 happened in South Africa in 2004 after Jassy and others had ear-marked compute as one of the key building blocks, along with Storage (S3) and Database (RDS / SimpleDB). In fact, S3 launched before EC2 did. SQS launched even before that, in 2004, though in limited beta.
Yeah, it was a bit messier than that though. There was a ton of internal politics between 2004-2006, that Wikipage makes it sound way too clean. You're right though that S3 and SQS launched before EC2 did, but EC2 was highly politically charged internally. I don't know that it would have happened if they didn't ship development off to South Africa.
Agreed on this feeling within AWS. The product I worked on came out of an engineering brainstorming meeting, we had to get it funded, small team, etc. Felt very much like startups I've worked at before and was part of the reason I stayed at AWS so long.
From the data science side of things, this works if and only if upper management has the discipline to leave you alone, including letting you procure your own tooling & compute if needed.
I'm not sure why everyone seems so focused on the cafeteria thing. I'm not sure people and their attitudes towards amenities are really the problem here.
From my understanding, the differerence is the companywide attitude to risk. A startup has a "grow at any cost, or maybe perish" attitude. If things go south, bankruptcy will take care of the leftover excess risk (barring criminal charges). A bigco cannot easily go bankrupt, even less a single department. There are tons and tons of capital to eat through if the accumulated risk is realized in cost. So a bigco has to do something about that risk somehow, because most of the company wants to keep what capital it has, only a small part of it really wants to risk things. So the only means to have a situation where you don't risk bigco for a single department is not making it a department. Make it a Ltd. in a holding or something.
> So the only means to have a situation where you don't risk bigco for a single department is not making it a department. Make it a Ltd. in a holding or something.
I was thinking that as well. Can anyone explain why this isn't common practice?
> I was thinking that as well. Can anyone explain why this isn't common practice?
If you squint a little bit, this is exactly what the whole premise of corporate VC is. Take the funds that you'd allocate to long shots and operate as a VC would, provide strategic distribution where you can add value as a bigco, etc. Problem here is that compared to pure VCs you risk portfolio conflict in a different way that may not be as attractive to founders, but at least it's viable.
It is rare I think because of the parent company's CEO and founders don't like to really lose control to someone else.
A child company is not easily managed (and they shouldn't, but that's scary and risky by itself. The parent company need to have the know-how of an a serial startup builder investor)
The thing with the cafeteria is that it reflects company culture. If you in the office sit at a desk in the Google search engine area or youtube or Waymo is hardly noticable. People have settled in an if the neighboring teams go home at "normal" times, the "startup" team will go home at those times. Also you have a hard time to keep the small team culture when directly embedded. And then corporates encourage changing jobs internal over leaving and hiring somebody else, which means that there are ties on all levels. Pulling out and having your own startup culture is hard. The cafeteria symbolizes that, as it is a social place and culture to large parts is a social thing.
So like, the whole startup thing boils down to being at work late and working overtime, despite all the studies on crunch showing it is inefficient and less productive?
I think that summary is too narrow (i.e. the whole team, maybe even as "us vs. them" thing etc. are part of culture) but yes, for many of those startup guys "do 'hard' work, push things" seems to be an important piece and that's a reason for me to keep my distance.
If people really think of founding enterprises as a gamble with potential infinite reward, but limited downside (as bankrupcy will take care of it), I would say our economy has a problem...
It's this that makes entrepreneurship more abundant in the first place. If you have an economy with no risk taking you have no growth and no dynamism. Sure, 80-90% of businesses will fail, it's essential that people can fail without too much personal risk after all, but the 1 in 100 businesses that go onto grow to employ hundreds or thousands thanks to an effective business model are more than enough to make up for the failures. When someone fails in a startup it's not like they drop out of the economy altogether. Its not like they learned nothing. They go on to become effective employees at other companies, producing value there.
Why? Limited downside does not mean small, it just means limited. It can perfectly destroy a person's finances if they invest all their lifesavings in it. And the reward for a company is normally a % of how much value they provide to their customers (yes, I know, not always, but generally that's true). Unbounded does not mean infinite.
It's just big company talk to pretend they're cool and innovative. Obviously ridiculous garbage that probably got someone a good annual review score.
A small company I was working with had heard that IBM, who had a customer in common, were operating some sort of "garage" thing that the customer really liked. Rumours were flying around, someone had heard it was a video conferencing app, they were desperate to know more about this secret sauce.
Eventually I got to speak to an opposite number from them on a piece of work that joined with our own. They were calling any team of people a garage (because of the Amazon, Apple, etc stories). That's all it was, just a different word for team, like toddlers playing let's pretend.
I worked within IBM garage, it's not 'any team of people', it's a specific organization that mostly does services work. Their 'secret sauce' is that they're trying to consult on technology and company culture at the same time, in line with Conway's lay.
I.E. If you want to be more agile you'll want to adopt CI/CD, if you want micro services you'll want smaller more autonomous dev teams.
Yes but the parent's point is that the term "garage" has nothing to do with how or where the team actually works. It's a make-believe name chosen because of its association/connotation, not because of any actual grinding in reality.
There is a physical garage (more of a hipster warehouse styled co-working space) that the org no longer fits entirely in, but was still in use up until Covid hit. The plan pre-covid was to build more of these spaces to use for co-working sessions with clients.
Woah I think we've stumbled on something here.. Spotify seem to be the source/example of all these new management fads. I remember having to sit through that hand-drawn sketch video (is there a name for these things?) describing how Spotify does SAFe (if you don't know what this is, pretend you never read it and continue your life as usual, please) and how awesome it is and why we all need to do it.
Opinions are my own, but it’s basically a worst version of agile (safe = scaled agile framework) that removes all autonomy from teams and gives upper management/leadership more power in making decisions at the team level.
If you never heard of Allen Holub look him up on YouTube/Twitter. He’s one of the same voices when it comes to agile frameworks.
Indeed, it was the same in the Watson group where I worked about 6 years ago. It was pure cargo cult activity that ultimately resulted in much lower productivity.
I actually liked my experience with the guild structure, as somebody new to the industry. I had my specialty, was the leader in my team in my particular specialty, but that's mostly because I was the only one in my team with the specialty. The guild structure got me the opportunity to network with people who were more experienced in that area
Where I work we have teams and guilds. Guilds operate every other Friday, they work on cross-team concepts (e.g. automation, ai/ml, security, open source). Some guilds work better than others. The downside is around ownership (e.g. A guild creates a useful tool that ends up being used throughout the org, who fixes the critical bugs that arise?)
We originally cargo-culted the Spotify model, but changed it to fit how we want to work, it seems OK.
When I worked at a startup we copied the Spotify model as well. We called it "functional teams" and so on but the idea was the same - we watched the spotify videos as well. To be honest it helped. I think this is a point in IBM's favor because they saw something better, and adopted it even though "it was not invented here".
The predominant sentiment in the comments is that equity is worthless, which very well may be a fair statement. It would also explain why relatively few people decide to start companies, let alone do it back to back several times after getting burned over and over again. But those same people will then argue that founders should not get 10x more equity than employees [0] (which, for the record, may or may not be justified, but you can't argue that founders would be better off keeping their jobs at mega corps, and also at the same time criticize their upside).
My personal take on this is:
- Stay at the mega corp if you're exclusively optimizing for wealth generation. I don't know if I would recommend pursuing the Skunkworks opportunities, since they are by definition not core to the business and your contributions won't produce a lot of profit for the company for a long time. It's unlikely that the company will remunerate you more than someone who's paying all the bills. After all, this career path is all about maximizing your risk-adjusted likelihood of wealth generation.
- Start your own startup if the journey matters to you. Important caveat: you will get better at this over time, so if it made sense to you to start your first company, it will make even more sense to stick to this career path and do it over and over again. Don't invest your own money, and hope for the best but expect each company to fail. Be ok with earning sub-market salary, and treasure the upside of being your own boss. This approach works best if you're able to raise pre-product seed financing, which brings me to the next point...
- Before you start your own company, be an early employee at a startup that's run by a serial (and ideally successful) entrepreneur. You will get the worst of both worlds - not enough salary and not enough equity - but you will dramatically improve the odds of success when you start your own company (and will also improve the chances of raising a pre-product seed round). Don't do it otherwise.
What I wouldn't do: keep a job at the mega corp, and work on new ideas nights and weekends. This may seem like having your cake and eating it too, but it works far less frequently than you would expect (you end up sucking at your job and at your startup, not to mention that your work-life balance is possibly worse than in any other scenario). Again, the alternative would have been to be an early employee and learn first-hand about entrepreneurship.
I would add to scenario 3 that the startup needs to do well enough to grow at least a bit (growth is a great teacher) AND your position at the startup has to scale with that growth. Otherwise from what I've seen you might be better off just starting your own company sooner, as founder equity is 1-2 orders of magnitude higher than non-exec early employee equity so it's arguably worth just taking more shots on goal.
"What I wouldn't do: keep a job at the mega corp, and work on new ideas nights and weekends. This may seem like having your cake and eating it too, but it works far less frequently than you would expect (you end up sucking at your job and at your startup, not to mention that your work-life balance is possibly worse than in any other scenario). Again, the alternative would have been to be an early employee and learn first-hand about entrepreneurship."
I like this point a lot, it mirrors my own experience watching many extremely smart people try and fail at this. This is actually potentially the single activity that I've seen really smart people fail at with the highest frequency.
What does seem to have some payoff is investing/advising/sitting on boards while keeping a job at a mega corp. But that isn't the experience that a lot of people are going for and is also hard.
No it's quite common, I'd say that most board members are employed elsewhere. You can see it in the independent board members from various public companies.
Random example: check out the Nike executive team at https://about.nike.com/pages/executives and search in the page for "board." You can see their past and current board membership.
I can't stress the the "ideally successful" part enough. I've worked at a couple startups where the entrepreneur was serial but this was their first "success". I felt I learned very little. Both companies reached a comfortable point and then the founder didn't know what to do beyond that.
I came to understand why there's a lot of stories of VCs forcing out the founder and bringing in a new CEO who had experience in growing a company.
I agree. I didn't want to make too much of a point of that, because if you filtered just for founders with prior exits, you might have a hard time scoring early opportunities with them (they usually have plenty of people to fill the first 20-50 jobs). But yes - joining Square the day it was announced that Jack Dorsey started another startup would have been a no-brainer for that career path (same with Max Levchin's Affirm and many other examples).
This is very cherry-picked. Actually research has found that prior business success does not predict future success at all. Though failure does predict failure, so at least avoid that.
1. Take a population of 100 people. There is a 50% chance that a random person from that population can create a successful business (obviously 50% is a made up number)
2. All 100 attempt to start a business. 50 succeed, 50 fail.
3. The 50 that failed now have a 25% of succeeding in their future business endeavors. The 50 that succeeded apparently have the same 50% of success.
4. Now, given the same population, there is only a 37.5% chance that that a random person will succeed in their next business, which is in direct contradiction to point number 1.
I'm not entirely sure I did that right. I'm no statistician so there may be some glaring logical flaws there, but that seems correct according to my intuition.
> There is a 50% chance that a random person from that population can create a successful business... All 100 attempt to start a business. 50 succeed, 50 fail.
This is the most glaring wrong assumption that causes your and GP's confusion.
90+% of startups fail.
Note: "failure predicts failure but success does not predict success" could still be true even if business failure rates were >= 50%! But the fact that failure rates are higher than 50% is the first and simplest mistake in this line of reasoning.
I know nowhere near 50% of startups succeed (and have heard the 90% failure rate many times). However, I don't think that is relevant to the mathematics of it.
Remember that these are correlational studies! They're not directly comparing raw counts of data points, they're checking for statistical significance.
while also being the case that "there is not a statistically significant correlation between past success and future success".
Think about generating a dataset using the process you outline and then performing a statistical test for correlation on the resulting dataset.
Think about the percentages in step 2 and 3. If those get small enough, then there could be a statistically significant (failure, failure) correlation in your generated dataset and also not a statistically significant (success, success) correlation in your generated dataset.
The 90% number [0] explains how those percentages get small enough that (success, success) is not picked up by a significance test but (failure, failure) is.
You don't have to take my word for it, though. You can actually implement this process, run your favorite test for correlation, and verify that as those success probabilities get small you have the above effect.
But just because this is true doesn't mean that there will be a statistically significant success -> success correlation.
Again, the most fundamental reason that can happen is because failure rates are over 50% [0].
--
[0] I mentioned in my first comment you can get this result even with a 50% failure rate. How? Companies and founders aren't 1:1, founders drop out of the data generation process, etc. You can play with that to create similar effects even in extreme cases like failure rates dropping to 50% but it'd be a bit contrived.
- Prior failure, most likely the next venture will fail.
- Prior success, most likely the next venture will fail.
Basically, odds are that a venture will fail regardless of past performance, similar to how past lottery winning doesn't predict future lottery winning. Personally, I don't think it's necessarily true (successful founders will already have an existing audience and investors for their next product), but mathematically this could be one way it holds true.
"All else equal, a venture-capital-backed entrepreneur who starts a company that goes public has a 30 percent chance of succeeding in his or her next venture. First-time entrepreneurs, on the other hand, have only an 18 percent chance of succeeding, and entrepreneurs who previously failed have a 20 percent chance of succeeding."
I remember reading something that had a collection of anecdata indicating that b2b success seemed to be repeatable but b2c did not.
Would love to see what other research data is out there.
I should have added some context for why in my opinion it's important to have an experienced founder when you're an early employee. Remember - based on the framework I presented, the goal is not to optimize for wealth generation - for that you would have stayed at your mega corp. For simplicity, I am assuming that you cannot predict success at this early stage of your career (although clearly some people have phenomenal track records).
Instead, the goal is to learn the best practices (lean startup, hiring above your weight, shipping early, doing things that don't scale, etc), meet the right people (colleagues and investors), and also very importantly, learn how to build the right culture (this is a far more complicated issue than most first-time founders realize - hence the need for someone with ideally some historical perspective).
If you sell your company for millions/billions to a FAANG company, stop lying to yourself, you did it for the money, which is fine. Pack up your things and do something else with that money
I saw several of these attempted at Google. They never went anywhere. Probably the most public was Google Wave.
Here's the problem: you can't create the same environment without the same risks and rewards. Google employees get compensated very well, better than all but the luckiest startup employees. If the "startup" fails, no biggie. You just move to another project.
At the same time, the "startup" needs to retain talent so you're competing with other projects. So what happens? The "startup" creates an incentive structure that rewards mediocrity that has nothing to do with the original goals.
This happened with Wave and it happened with Waymo.
I'm a VP for a software firm focused on IoT. I work closely with both actual startups and Fortune 500s companies looking to launch new connected products.
I agree there is no such thing as a start up within a big company.
But that's not the point.
The point is to innovate. And a lot of innovation can happen within a true start up. But a lot of innovation can happen inside big companies, too. I see it all the time. Most of it, though, is just incremental innovation, not massively disruptive innovation.
But that's true of most startups, too. Most startups (the ones that survive) are incremental in their impact: they make incremental improvements to some part of our world, and they get bought. Very few transform into the next Fortune 500 giant and have that level of impact on society.
Final thought: I have seen a few world-shaking ideas emerge from corporate America. The problem is it typically cannibalizes the core business, or is so outside the core business, and the C-suite doesn't know what to do with it.
I work at Google and there's one thing in particular that makes this totally impossible: legal.
Talk to any startup about their early days. They took legal risks, knowingly or not, that would make a BigCo lawyer sick to their stomach. No startup launches on Day 0 fully compliant with every regulation and with best-in-class user data protection, etc.
If you're a startup within the big company your legal risks are the big company's risks. And they're 100x worse because everyone knows if they sue you they can sue the parent company and get paid, unlike when you sue a near-bankrupt startup.
If a big company wants a startup they need to break off a chunk of cash and start a separate company. Not a subsidiary, a totally separate company in which they happen to be the first investor. At which point that company will lose most of the BigCo advantages such as infrastructure and talent.
If you don't really own your company, you won't ever behave as if you owned it.
It's basically a less rigid version of a big corp job, not more, not less. Which isn't bad, big corps have to rejuvenate themselves in some way, but selling it people as a "win-win" because they get to work in a big corp AND do a startup is a simply a lie.
I worked for a "startup within a Big Co." for a few months, set up as an "innovation lab" for a big stuffy 3-letter HR tech / payroll vendor everyone knows (at least in the US). It wasn't bad, and I felt like they really tried to make things feel all fun and "silicon alley" (I'm in NYC), but boy did that whole facade disappear once you realized you need to use on corporate VPN to view things on the public internet and a second one to connect to source control. Or when the companies patent lawyer comes by to talk to the team about the importance of patenting every last little idea you have.
I don't even blame them either, they are a huge company that can't just change the way they fundamentally do business. But it does make the whole thing feel a bit artificial. I'm sure for startups that are acquired it's a bit different but in the end the same result.
What's interesting about skunkworks is much it gets invoked by people vs how much it actually happens in practice.
We engineers love skunkworks: working on cool stuff, without accountability and a lot of freedom ? Who would not want that ! But there are very few situations where this is sustainable, for reasons well explained by OP.
>We engineers love skunkworks: working on cool stuff, without accountability and a lot of freedom
I'm pretty sure people who keep saying this have no idea what working at Skunkwork was actually like.
If you read Ben Rich's book, which I recommend you do, you'll find out that they had tons of accountability, the more classified their projects were, the more they were drowning in paperwork. No employee was to be left alone with the blueprints and if one of two needed to go to the bathroom then the plans had to be locked in a safe during that time.
Also, the hours of work and the stress they were under was insane as shit would break unexpectedly all the time.
I'm sure this is not what engineers love, and what they tink they mean by Skunworks is cowboy coding and being paid handsomely to play like kindergarten kids in the sandbox with the latest shiny toys, while leaving work at 5 PM.
>I'm also pretty sure most engineers don't want this, and what hey actually want is cowboy coding, playing like kindergarten kids in the sandbox with the latest shiny toys, while leaving work at 5 PM.
Nope. They want autonomy, mastery and purpose. They want to be able to apply what they know appropriately - not to be micromanaged or frustrated by instructions that make no sense. They want to be able to develop skills that make them valuable to their peers and their organisation - valuable enough to be secure and able to earn sufficient to protect their families. They want to know why they are doing the things that they are doing and to be able to believe that their efforts will contribute to something worthwhile.
If you can provide that all your engineers will both love you and jump into a bonfire for you.
I should have explained a bit better what I meant by accountability in that context: reduced direct oversight from general management, almost kinda "chinese wall" style.
Besides the reasons given by OP, an issue w/ skunkworks is that it requires two things that happen much less often in practice than people like: you need very strong, skilled team, and the need for high impact that management believe cannot be achieved any other way.
Similarly, at the heyday of xerox park, it sounds like Taylor was key to enable true, long term autonomy for his teams.
Strongly recommend reading the book - they had tons of accountability as critical projects were handed to them on tight deadlines. Yes, working on cool stuff, but delivering at an extremely high level.
The most famous version of this (where the name came from), was Lockheed’s. A family member’s father worked there, and had a lot to do with some rather exotic avionics.
When Google acquired Waze, Waze was nearly running out of money / dead. Google paid the acquisition very well. It's something Waze people didn't talk about.
I was in a "startup inside a <mid-sized> Company" (about 5 years old at that point, pre-IPO) a few years back. It operated independently, separate building, separate recruiting with a large amount of equity compared to the main company.
The benefits were that we could hire major talent who wanted to take some risk but not complete risk (i.e. our funding was "secured"), politics were completely removed, we operated in semi-stealth and we had an already established base of customers to do POCs and get feedback from. It was successful and post-IPO of the main company it merged fully and became a fully branded product under the same umbrella. It was almost like a Cisco-style "spin-out-spin-in" but way less equity.
The downside was if the project failed for technical risk reasons, we would all be axed, of course, and the partially vested equity wouldn't have been worth as much of course.
I think really think the biggest benefit was the removal of politics and distractions from the main company. Other large companies (Ex. Oracle) you cannot innovate internally unless you do it faster than someone can find it and kill it. After a company reaches a certain size and maturity, the only growth is through M&As not through internal innovation and taking risks IMHO.
OP and Noam Bardin both dance around the core issue which is that you can't give more than a handful of people enough equity to actually care about your company.
This seems kind of obvious and does this article stem from someone taking the term startup too literally?
Obviously it's not the same - nobody hears "startup in a big company" and assume start-up things like "paid inequity, on your ass if this fails, barely health insurance, etc.". Those things are part and parcel of a startup life and both create the conditions and attract the kind of people who do that.
Startup within a large company always just meant a fairly independent team that is exploring a new space, and having been "there" a bunch of times I can tell you it's awesome. I am now at a real startup that's awesome as well but different.
Just making the point that to write this scathing article drawing a distinction that is actually just obvious, seems pointless.
I think this misunderstands the process by which any project gets funded. There is not a nice orderly process where the CEO says 'right we are now going to build a website so users can track their order - here is the spec, and the cash go do it.'
The CEO (or other CxO) picks from a multitude of projects that already exist in different forms of completion - both internal and external.
For every conceivable project in a large company, there are already 5 different unofficial versions of the project - two spreadsheets on an analysts desk, one knocked up by a senior lead who needed a solution and 2 being hawked around by a MD who had some spare cash and let someone run with a side hustle. On top of which there are 3 SaaS options and Oracle probably has one to sell you, and McKinsey will do a demo next Thursday.
I will lay good money that when they bought Waze there are two projects in Google already that did the whole 'tell us what is on the road ahead' thing.
But the CEO picked an external buy - and those projects went the way of the Dodo.
By time you have big co sign off to do a 'internal' start up, you have basically hit Seed / series A level. Someone with money believes in you. You are past the major points of startup failure (I don't know what the stats are for failed before raising A and after but I bets its waaay lower)
I have been in both sides - the small scrappy start up, the funded start up and the getting something off the ground unofficially in a bigco.
And they all feel the same until you get 'blessed from above'
The Series A slowdown - this is point where all the crazy starts to slow - you actually have lawyers to read things, etc etc, someone starts to consider holiday pay and HR stuff.
In a bigCo this hits all at once - all compliance needs to come in. People look over your shoulder. But its not that different to the Board suddenly asking new questions.
So, yes entrepreneur startups are different to 'intrapreneur' startups, but not that much. Its a fight to get anything off the ground, usually in spare time, and internal politics looks a lot like marketing plus who you know in the real world.
Finally - yes if google is giving out equity for free, then yes incentives are misaligned. This seems to be a google problem (one exacerbated by the fact that most previous tech giants had smaller tech giants after their lunch within a decade or two - we don't seem to see that in FAANG.)
Having worked for several startups I'll argue they're extra overrated. You're very likely to work much harder, what's a holiday when you're the only QA person or the only engineer.
And for what, on the off chance the IPO goes public and you make hundreds of thousands of dollars. Give me a big company job during the day, and I can work on my startup idea at night .
Former CEO at Creative Market here (though at the time, I was VP Eng). Call me an optimist, but I believe this can work, though I accept the premise of the headline generally.
We were acquired by Autodesk in 2013. We may make for an odd case study: we had a very unique opportunity to spin out and return to be an independent startup in 2017, thanks to Autodesk's support - not to mention the leadership of our co-founding CEO at the time. (Parenthetically, I could write a book about acquisitions and spinouts, but that's for another day.)
During my time at Autodesk, we were very much a "startup within a big company." They wanted us to continue doing what we do, because it was clearly working. We continued to grow. We continued to have more resources and support thanks to Autodesk. We found ways to preserve our culture, but also adopt some of Autodesk's. We built relationships and got to know people in other business units. We never felt like there was some ulterior motive or felt our hand forced.
There are disadvantages, sure, but I think it would lack nuance to pin all that blame on the acquiring company. Relationships are a two-way street. If you're going to sell, I think it's incumbent on the founders to normalize being proud of being a part of that bigger company. I think it's okay to say, we're going to change and we're going to reach out and connect with the larger organization. It may not be helpful to try to be the "pirates" within the organization, like the Mac team during Jobs' first stint. It's isolating and corrosive to be the smaller piece of the puzzle, yet view yourself as the greater cause.
People can criticize big companies. In many cases, that criticism is warranted, fair, and important if we're going to increase competition and innovation. For my own part, looking back on my time there, I always felt valued and respected as an Autodesk employee. I was always proud to hold my employee badge.
If you are a great engineer that can get a job at FAAG, joining a start up is almost never worth it from a strictly financial point of view.
17 years ago, Paul Graham was able to post this essay: http://www.paulgraham.com/wealth.html - nowadays, the compensation in tech has shifted upwards so much (https://www.levels.fyi/) - that start ups are just not competitive when you adjust for a risk premium. Finance captures this concept using metrics such as the Sharpe ratio (https://en.wikipedia.org/wiki/Sharpe_ratio) - which measures how much extra returns you are getting in exchange for the additional risk you take on. For start ups - your expected returns are lower, and the risk is very significantly higher.
Are there other great reasons to join start ups? Absolutely: several start ups are working on exceptionally cool science problems, some are solving tasks that will make a meaningful improvement in the lives of people (https://detroitwaterproject.org/, etc), some people just prefer working in a small company, you get a chance to work with your friends - but - if you are going to work for a generic SAAS company, don't accept a pay cut.
The VC that's financing your start up evaluates their investments with a spreadsheet and zero affection. Ask them how they sacrifice their own income to work on more interesting work, and they'll (politely) laugh in your face.
Big tech salaries are at this point high enough that even with some acquisitions, I see folks getting payoffs that didn't catch them up to where they'd be financially if they went the big tech route.
This reminds me of the story of Saturn within General Motors. As I understand it, it was created to compete with popular imports like Honda and was given a long leash from GM to be "a different kind of car company" (in the words of their marketing). The first generation of cars were a lot different from any of GM's previous compact offerings. GM started reining in Saturn and moving toward badge engineering. Eventually it became the same kind of car company, because at the very top it always was.
I worked in a startup lab within a huge multinational company. In many ways it felt like a startup because we had very limited runway to incubate and commercialize our ideas, so that definitely put the fire under our feet.
Despite an effort to firewall us from the larger organization the culture and processes of the mothership always seemed to leak in and contaminate the organic startup flows. Additionally a large organization is extremely risk averse unlike a real startup and this manifests itself in a multitude of ways.
I know this is not what the article is talking about, but there have been some success stories of companies incubating startups. An obvious example is Tinder, incubated at IAC.
Ask yourself this, would your "startup within a big company" have managed to lure Mark Zuckerberg or Larry Page to join them instead of founding their own companies? And even more important, would it even let such people have lead a significant part of the company in order to realize their ideas?
If you answer no to either of those, there is your answer to why your "startup within a company" can't hit it as big as real startups.
I worked for a startup within another company. It got spun out and the CEO used it as his own escape hatch, while selling off the remaining parts of the original company. The startup had a successful exit, although it didn't become a unicorn.
Any time someone makes a categorical statement like these, you know it's not wholly true. There are more permutations to the real world than anyone can think of up front.
Being a startup in a large corp works if you are the "famous" manager inside the corp and get your personal playing ground (skunk works?) project and are building something new.
It works less, when you are being acquired and want to keep your independence. When acquiring the acquirer will look close at you to align the acquired product with the corporate interests.
This will only get less and less unlikely as it becomes obvious that only the management folks benefit greatly in compensation from risk-taking.
There is no way they would let their lowly engineers make seven figures if success was found. And the recent experience at Google, with engineers making seven figures, is some thing for them to point to saying “look, they will leave the company if they make too much money!”
IMO, the bigger issue is that many people don't know what a startup is. Yet, as a culture we glorify a "startup." Everyone wants to work for one, even though they don't really know the clear line between a startup and an exit.
I remember seeing billboards in Silicon Valley. They were from AOL, trying to recruit. They said, "You're the startup, we're the VC." At the time, AOL had no defining characteristic that made it appear like a startup, even for people who don't fully understand what a startup is.
Another time, I was in a post-acquisition "startup." I recognized the situation and focused on the area with clear product-market fit. The "CEO" tried to continue to find new product-market fits and blew through our R&D budget. (The R&D budget was supposed to improve the existing product, not find new ones.) When the situation came to a head, only people who worked on the clear product-market fit area remained. (Everyone who behaved like we were a "startup" was let go.)
It's also complicated by how in the 2010s we saw the rise of unicorns that could amass huge amounts of funding, and remain late-stage startups for long indefinite amounts of time. Was AirBnB really a startup, even a late-stage startup, in 2019? For the average employee, was the experience any different from working at FAANG?
The 4000 person video game company I work at, has in some of its job descriptions something about "understands what it's like to move at a fast paced startup"
yet, the company:
- was founded in early 2000's
- has about 4,000 employees
- from my experience, does not move fast. too much bureaucracy & too many management-compliance related tasks impede developer speed, focus, and context-stability.
you have to ask yourself: why would the most talented and/or visionary and/or defiant individuals want to stay at a large company to build new products? Be it in Labs, Spin-outs, Spin-ins, corporate accelerators, skunkworks projects, or what have you. The craziest of the crazy will go out on their own and try to build something. Most will fail. Those that persist eventually combine luck+opportunity and turn their hallucinations into mainstream-disruptive innovations.
A lot of affirmations that it is not possible, with examples of where it didn't happen, but doesn't really go into "why" at all. The closest they get was near the end by alluding to risk-aversion and having to wear Google badges to the cafeteria.
The mindset would be very different. There’s always a sense of urgency to get things done with the realisation that there’s no safety net. You ask yourself different questions going to work and that drives different level of passion.
There can be relatively autonomous greenfield project teams that choose their own tech stack within big companies which I think have the best balance between work, life and work satisfaction.
Of course they rarely last for long, at some point you'll probably be integrating your project with some big legacy project at which point you've essentially become yet another maintainer of the local dev resource blackhole and might occassionally need to do some work for the original project you worked on (although maybe not; if you've done your job well you might find anyone can pick it up!).
Wait. In a lot of these startup companies the business plan seems to be grow the customer base and worry about profit later.(youtube, Instagram, waze) Selling to a big company with a lot of capital seems to be the goal or a survival technique.
Johnson and Johnson I’m told handles the aquiring of businesses well (it’s a business conglomeration of hundreds of entities). I know someone who left after their division was sold from JnJ and everything started going south.
IDK, I worked for a startup (Curiosity.com) within a big company (Discovery Communications) that spun off and raised a series A to become an actual company (and was later reacquired by the same big company).
There is no such thing as "a startup within a big company" on it's face is a tautology, so we can assume the author was not speaking literally.
So if he's not speaking literally, what does 'startup' mean? Is it characterized by the ownership structure? The maturity of the market? The culture of the team? The flexibility and nimbleness of the management team to pivot and move targets?
Since none of this is clear I think its possible that there is some disagreement even with the best intentions on both sides.
In economics there is a research subject called "Theory of the firm". In 2016 Holmström and Milgrom got Economics Nobel for their research of theory of contracting and incentives especially as applied to the theory of the firm. It's theory that is actually interesting to read. They have papers like: The firm as an incentive system, The Boundaries of the Firm, Incentive Contracts, Asset Ownership, and Job Design, An Economic Theory of Promises, The Firm as a Subeconomy,
It depends, i.e. I would not be so definitive on the "no such thing" part, for sure. I witnessed (and enjoyed) such a startup experience, myself, a few years back, when Arity came into existence, from "under and within" Allstate. Spending even one single day working in Northbrook (Allstate HQ), and another one @ the Mart, in Chicago (Arity office), and you could immediately tell the two worlds apart.
My own experience ([1]): the biggest different between "startup inside BigCo" and an actual startup is availability of resources.
"Startup inside BigCo" generally revolves around spinning up a new team that's product focused and delivering quickly.
Depending on which BigCo you're at, delivering quickly could be a departure from how things are normally done. e.g., You don't have to worry about writing a big up front proposal doc, going to the architectural review board, or using the standard infra tooling.
For engineers on a team, this "feels" like a startup. There are daily standups. They talk to users and have a sense of ownership on what's built. There can even be some sense of urgency to ship quickly.
While "BigCo startup" teams mimic a lot of the same procedures and activities as a startup, there is an underlying support structure at BigCo that isn't there in an actual startup. IMO, that makes the experiences substantially different.
Some examples:
- The cost of failure is different. At BigCo, if the project fails, it's generally OK. Each engineer can be reassigned to some new team at BigCo. At a startup, if the project fails, the entire company fails.
- There are more people to ask for help. At BigCo, if you're stuck on some hairy engineering issue, you have a swell of engineering talent to lean on for help and guidance. At a startup, you have StackOverflow, Google, and maybe some folks in your personal network to lean on for help.
- There's more than just product development. At BigCo, generally only the engineering / product development team is structured like a startup. After the code is "done", the regular product marketing org, marketing org, and sales org (if that's a thing), can kick into gear. At a startup, there is no such massive support structure.
- On the topic of marketing, having the brand of BigCo is a huge boon to a new product. For mobile apps, there's a lot more trust in seeing "NewProduct by BigCo" vs. just "NewProduct" in the app store. Your rockstar CEO may even tweet out the launch announcement to his millions of followers.
- And yes, at BigCo, when it's lunchtime, you can go to the cafeteria and decide if you want the steak or the coq au vin for lunch. (well, before COVID at least)
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[1] - I've worked for really small startups (< 8 people), really big companies (I was person 2000+), and small companies that became big (joined at 20, left at 200+, now at 500+).
It's interesting that nobody has yet to bring up all the Cisco startups (ok, ok spin-offs), i.e. Andiamo, Insieme, etc. Yes, typically they were all independent companies but the people there all but wore Cisco badges (they mostly used Cisco buildings, too). Very successful model to bypass issues e.g. hitting quarterly earnings goals, while innovating at startup speed.
Maybe you can't have startups at big companies, but you can look at your career and personal brand like an entrepreneur. Who are your customers/employers? What market niche are you capturing? How good are you at demonstrating your leadership in that niche? What do you need to change to put yourself in a better position with current/potential employers?
This is correct. When I was at Allstate they had a 'labs' team to come up with innovative new technology. They were the only ones with standing desks, treadmill desks, bicycle desks, and over two years the only thing they accomplished was design a phone holder for a bicycle.
They had much greater success using Kaggle for data science competitions in terms of innovation.
There are lots of startups within big companies. Example is Zonky (peer to peer lending startup) within Home Credit - multibillion dollar lending entreprise. But they have been created with a strong team which felt ownership. And as Home Credit was growing like crazy themselves too, they left this internal startup to self-manage too.
With all due respect to the author, I think the article kind of romanticizes start-up founders and their perils.
Amazon famously dubs itself with being the biggest startup in the world. There's a company that espouses Clay Christensen's philosophy of building enduring businesses. Over the years, a lot has been said and written about how Amazon manages to do it, I mean, this is better demonstrated by Jeff, its founder, whose wealth went from $10B in 1997 to $1B in 2002/3, but still bet big on AWS (2003), Prime (2005), and Kindle (2007) in an unprecedented run of series of innovations that'd could have killed the company.
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"working backwards"
I want to draw some parallels to the YC application process with how Amazon operates, from what I've read and what I've experienced as an ex-employee:
A lot of product development is funded at Amazon after review of what's called a PR/FAQ doc [0] (this is the "working backwards from the customer" part). The PR needs to clearly articulate in a headline or two what the product is about; whilst the first paragraph must present a complete summary of what the product would be in its v1 form at launch. The next few paragraphs detail the current problem and the proposed solution interlaced by imaginary quotes from would-be customers; and the concluding paragraph has a clear call-to-action on exactly how customers can make use of the proposed solution.
If you've ever filled out a YC form, you'd find yourself going through a similar exercise.
And on what merits is a product funded [1]?
- If it works, would it be really big?
- Is the customer / target market well-served today?
- What in Amazon's approach is the key differentiator? And is that compelling enough?
- Should / can Amazon build it in-house, or do they need to buy some / all of the expertise?
Again, pretty similar to the process YC has [2].
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"two-pizza teams" [3]
The team that's put together to run is encouraged to own the product end-to-end ("single-threaded owners" aka STOs), in the truest sense of the word: That is they're free to duplicate effort, not be beholden to another team's priorities, build whatever they need to, buy whatever they need to, and so on... Other STOs running existing but overlapping business or businesses at the risk of being cannibalized by this newer one do not absolutely get any say. This approach to incubating newer products within Amazon is what led them to build AWS in the first place, because they didn't want various internal engineering teams to be truly duplicating their efforts in building "undifferentiated parts of their businesses" which, on the Internet, is building all that Infrastructure required to start small and yet be able to scale. AWS, interestingly, itself was removed / isolated from Amazon's Infrastructure team at the time and was completely a separate under-taking (there's probably a Harvard case-study in there somewhere demonstrating the effectiveness of STOs).
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"disrupt yourself"
The other thing Amazon does is it is truly customer-focused as opposed to product-focused or competitor-focused. If I were to take the example of Android: How many customers do Google have a direct line to? If you are a FireOS user, you could chat with customer service about its annoyances, send an email to kindle-feedback@ or even escalate it to jeff@ and all those complaints are root-caused and fixed to whatever extent deemed necessary, with FireOS MayDay being an extreme example of this customer-obsession. Amazon believes in listening to its customers and disrupting its own cash-cows if it means it delivers value to the customer. No one flinches a bit in taking these decisions.
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"you can't fight gravity" [4]
As opposed to reacting technology changes constantly and riding the wave, Bezos instead believed in focusing on universal constants (like gravity) that never change: For example, for Amazon's e-commerce business, those constants are customers would always want lower prices, larger selection, and faster deliveries". That was never going to change. But this simple framework then lets his management team decide on what bets to take with respect to technologies that help move the needle in the right direction, because if they don't, someone else will eat their lunch by doing those three things.
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"the best way to predict the future is to invent it"
To truly create an atmosphere of invention within Amazon, there are a lot of processes in-place, to make sure bureaucracy ("a single no" vs "a lot of yes") doesn't kill a promising idea. Of course, there's nuisance here, in that some decisions need to be carefully vetted ("one-way doors") vs ones that needn't be ("two-way doors") and the key is knowing which is which (and escalate when in doubt).
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"simplify"
If you follow AWS, you'd know how primitive and lacking the v1s really are: For instance, Lambda launched with just NodeJS support with no observability story of note, no "local development" environment, no support for other runtimes, and just 1 minute of execution time. This stems from the PR/FAQ process (distill down the v1 to the absolute minimum but deliver comprehensive value to the under-served) and two-pizza teams (too many resources to work on a problem is never approved of, so it is paramount to do things that don't scale for the v1).
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This isn't to say Amazon hasn't been disrupted at all: It has been, by instacart, daipers.com, doordash among some examples that come to mind.
I am no expert (either in the ways of the likes of Amazon or the nimble start-ups), but I believe that to reduce innovation / invention being a playground for start-ups just because they've no access to a "fancy cafeteria" is telling half the story [5] and probably misinterpreting symptoms for cause.
[2] YC also fund all sorts of "uninteresting" ideas too (from outside, what looks like a spread and pray, but is likely a heuristic that they are working off of from).
[5] I mean, at the end of the day, Waymo wasn't even a startup by the time Google acquired it and also it isn't like Google doesn't have a track record of successful acquisitions...
This can mean many things. Examples:
- we don’t know what we’re doing yet
- we’ll be overworking you
- our funding is getting cut off
- we’re irrelevant to the corporation
- we have an open office
- we fire quickly
- we wish we didn’t work here
Google is very aware of this, which is why Google Ventures is a thing. It's much better, ironically, to put yourself in a position to only provide benefits to another company and prevent yourself from extracting any benefit for yourself.
A startup studio is essentially this. Also, every big company has a X for Startups, plus open-source projects. Most big companies derisk by acquiring competitors, you can think of that as a startup inside a big company.
This isn’t true. The digital service team for the US Government is indistinguishable from a high quality startup/consultancy that goes around and solves pretty cool problems in modern ways.
Can you give some examples of those projects? I would have thought a government in house software team would be doing things like replacing paper forms with web forms and replacing old COBOL applications with Java, along with being an approval board for government contracts.
What is the main reason though? The BigCo being too risk averse? Or employees having too much of a safety net? Or BigCo processes weighing the team down? A combination of these?
Big companies are risk adverse. At the same time, the motivation for the people is missing, in a startup you have the chance to become a billionaire or at least a multi-millionaire, in a big company you can get them a billion and be the employee of the month with a $100 gift card. I saw it myself some years ago when I got my company a ~ 5 million/year saving project all by myself with a one-time cost of ~ 20k, I got a $250 reward on top of the regular salary. That was a lesson to not care too much. 2 years ago I got them over half a million per year in a 3 days of work mini-project, I got nothing, not even a formal thank you note. That project was not regular work, it was none of my business and I came with the idea and the execution alone, so you cannot say I was paid for such work. Translate this into a risk adverse big company play-pretending to do startup stuff.
I don't know if there is a "main reason" for all instances. For me, on this kind of project at one of the Biggest Co's, it seemed a bit like the safety net point you make and it creeps into everything. There didn't seem to be much pressure because the project was never going to be pulled and had infinite money. This seemed to manifest in "good people" (my opinion) working at about 40% capacity and new hires having a background in companies more like BigCo than InternalStartup.
Edit: To clarify my last point, my assumption being that the point of InternalStartup was to allow deviating almost entirely from BigCo's approach to everything and that those people from OtherBigCo would be less likely to have that mindset.
If you work for someone with $80bn of shareholder capital at risk you can take 1/10000th of the risk at work than if you have $8M of shareholder capital at risk.
That depends on what the risk is. If the risk is to the credibility or business model or relationships of the $80bn core business, then sure, the big company absolutely must be more conservative. On the other hand, if only a tiny fraction of that $80bn is needed to underwrite losses from your skunkworks' niche product taking too long to launch, lack of rapid uptake isn't an existential threat (even if the project gets canned, most of the team will still have jobs and they might even keep the profitable part of the project alive) and resources can be shared with other areas of the business, there are other risks that are easier to take.
It worked ok for Carvana which was incubated within DriveTime. They eventually spun off as a separate company and went public. DriveTime is still private.
This happens with companies who are not big enough to take over other companies, so they try to latch on the loophole in capitalism by spawning different products often completely unrelated to original purpose of the company.
Such company will have a competitive advantage over someone starting from scratch with a similar product.
Question is should it be allowed? This ultimately leads to creation of those companies that are too big to fall, that have enough budgets to buy laws designed to keep competition at bay, do creative accounting and other measures that small company cannot afford to do.
Fortunately these "startups" within a company usually fail and are not as effective as take overs.
I think take overs should be illegal unless the technology your are buying is going to be incorporated into the original company line of products and does not spawn completely new business.
> Perhaps Corp-Tech should move to employee share buy back where employees must sacrifice some of their salary for equity or change equity to vest by a product related metric to connect the teams performance with the employee returns.
This doesn’t work all that well in my experience.
Employees focus in the stock which is not in line with the success of the product.
ESPPs aren’t bad. They’re seen as a bonus by most employees and some get excited watching the stock climb. Some may try to use that as a motivator.
But it’s more like watching your favorite team on TV that you’ve bet on with no control. That doesn’t inspire the right behavior.
Vesting stock based on some product metric would still be hindered by the futility of attempting to tie stock price to the actual success of the product.
Sometimes it is analogous, such as creating a new internal product and trying to get internal customers. The best part is if the effort fails I still keep my job and salary. On the other hand if it succeeds I can get a promotion and raise. Much less risk than real world startup, and better expected payoff.
The ultimate realization was in a startup you have equity, a decent amount in a good startup. At Microsoft it was a base salary and set amount of stock. What we did moved very little of the top revenue metric. It made little difference if I worked like a dog, or slacked. The promos were very much “buddy buddy” system.
In the end I realized you can’t have startups in big companies (esp as an engineer you don’t have the huge upside if the startup is successful, your upside is capped)
Startups work because you have skin in the game, when you build something people want, you get to reap rewards proportional to it. That correlation and feedback loop is very important.
At big companies you don’t have the the same correlation. Some big shot exec they hired reaps far far more on the work you did.
Equity is what builds wealth.