Sizing Up a Start-Up 73
| Sizing Up a Startup | |
| author | Daniel Rippy, Matt Kursh |
| pages | 275 |
| publisher | Perseus Books |
| rating | (2,7)/10 |
| reviewer | stern |
| ISBN | 073820353X |
| summary | How to tell if that dotcom is a dog; may be interesting and useful to the completely uninitiated -- otherwise, skim at the bookstore (hence the 2/7 rating, for experts and novices respectively.). |
Michael Wolff founded Wolff New Media; it cratered; he wrote Burn Rate. Jerry Kaplan founded Go Corp.; it cratered; he wrote Startup. Adam Osborne founded Osborne Computer Company; it cratered; he wrote Hypergrowth. You know the old story: "If you can, do. If you crater, write a book."
You can understand their motivation. The book gives you the chance to make a few bucks off a failed venture, occupies some time while your emotions cool, and gives you a chance to blame the failure on somebody else. I have to guess that some rudimentary form of this effect drove Daniel Rippy to write Sizing Up a Start-Up. He tells us only a little about his own professional background, except that he was a product manager for a "software start-up" in Seattle that burned through $25 million in investor cash and "had little to show for it."
Rippy's employer seems to have fallen apart with less drama than the almost tectonic failures engineered by Osborne, Kaplan and friends, and his book is somewhat more modest as well. He attempts to explain the rudiments of evaluating startups for others who might want to work in one but who lack the ability to identify a good one. He also provides basic advice on stock options, startup lifestyles, and other topics of interest to anybody contemplating joining an early-stage company.
Though Rippy's advice applies to any young company, he concentrates on technology start-ups, especially software and dotcom. As such, he talks a lot more about identifying a good venture capitalist (which a nice dotcom will have), as opposed to measuring positive net margins (which no dotcom has). High tech startups also provide most of his examples and quotes. Rippy quotes executives of a number of technology companies on topics ranging from sizing up a management team to evaluating your own tolerance for risk.
Most of his advice is quite general. He explains that earlier stage companies are riskier, and that you'll probably work long hours. In a few places, he becomes quite specific, for example, analyzing the strengths of different venture capitalists. He missed a trick, I think, in failing to discuss some of the specific data most valuable to people who have adopted a start-up lifestyle. Where's the table of startup filled neighborhoods in New York City, San Francisco, and Austin, cross referenced by nearby all-night restaurants and gyms?
What's Good?
The best things in this book are also the most basic and practical. If you don't know how to value a stock option, you should figure it out before starting at a dotcom. If your potential employer hasn't actually shipped a product yet, you should probably remember to ask how many months of cash they have in the bank. Of course, these topics are more obvious to most people now than they were in the giddy days before April's collapse in NASDAQ.
The quotes from other people were generally insightful, though Rippy's stable of experts is smaller than it looks at first. He returns to the same people over and over again for more quotes.
What's Silly?
Rippy presents a spreadsheet for calculating your "tolerance for career risk". It's a bit like a spreadsheet designed to determine, in strict mathematical terms, precisely how much prettier you think Boston is than Springfield. The question is fuzzy; the inputs are fuzzy; the output is fuzzy; don't pretend it's physics.
Worst Bad?
His half-baked theories of organizational evolution and some of the space-filling material. Rippy spends chapters on the difference between "organizational infancy" and "adolescence," etc. The filler is quite obvious, and sometimes laughable. To bulk out what is essentially a brief comendium of common sense, he includes lines like "Your base salary must be at some acceptable level because you need to cover your living expenses on a day-to-day basis." (Really!?!? Oh no!)
Is it for you?
Are you thinking about maybe joining a startup? Do you know the difference between qualified and nonqualified stock options? If not, buy the book.
Stern is the president of Information Markets Corp. You can purchase this book at FatBrain.
No risk, no reward (Score:1)
What you aren't saying is that jobs at large companies tend to be mind-numbing.
The urgency of being at a start-up alone is worth the risk - the company succeeds or fails based on what you do. This is not the case if you work at a very large company.
And if it pays off, you could be set for life. It has happened to many people I know.
Letting the book decide: mistake one (Score:1)
In fact, if you're using any book to determine the worth of a start-up, thats probably the first bad sign, the first of many.
As someone who has worked at one disastrous start up, and then moved to one of the best "start ups" in history, I can tell you that the idea matters, but the people matter more.
A good idea will die in the hands of incapable people, but a mediocore idea can be hugely profitable in the hands of the capable.
Anyway, stay away from pulp books like this - they're almost always useless drivel.
No .com has a positive cash flow? Ha! (Score:1)
The .com I joined has been in a stage of positive cashflow since it started operating (a month before I joined). Just because a company is a .com doesn't mean the business plan is on crack.
Re:Starting your own successful company is difficu (Score:1)
A few of my own observations:
That's my experience. If you plan on building a company that follows orthodox business rules, you have a good change of succeeding.
Re:Reason to take a job (Score:1)
I'm currently trying to find a polite way to tell my boss that none of my team wants stock options for the 6 months of sacrifice they've made for the current project. A wad of cash big enough to choke a horse is more in line with the exorbitant hours we've had to put in. Stock options are a promissory note for a bonus. None of us "promised" we'd develop the software.
Cal
With what financial instrument, praytell? (Score:1)
Good luck.
Re:Ohhh worse than I expected (Score:1)
Re:No risk, no reward (Score:1)
The chances of becoming wealthy on a hot IPO is wayyyyy smaller than it was a year or two ago. Look at most companies that have gone public this year and you see the sad reality.
Re:Minor Rant - Conversion of options on buy up. (Score:1)
The sale price of the company is what drives the whole thing. Say company C decides to buy company XYZ for 100 million dollars. Doesn't matter if the purchase is done with stock or cash, company XYZ did something right to become worth $100M.
If company C paid cash for XYZ, every 'issued' share of company XYZ stock would be worth (Purchase price) / (number of shares issued).
Lets say in this case, there are 2 million shares of XYZ stock. Most is owned by the founders, but some has been allocated for employee options.
Now this is where I am not very clear, but I think that options grants are considered issued at the time of the grant. That means the total # of shares in the grant have to be accounted for in the company sale, even if they all have not been vested. This may not always be the case though.
Anyway, in the XYZ example, at the time of purchase its agreed by both parties that a share of XYZ stock is worth $50 (100M / 2M).
Now the next thing to figgure out is how much each share of company C stock being used to purchase XYZ is worth. This probably depends on the specifics of the deal, but I'd guess that since XYZ stock is pubically traded, they agreeded that they would use the stock price on the sale date. Say it ends that day at $75.
Now you have 1 share of C stock buying 1 1/2 shares of XYZ stock. ($75/$50 = 1.5 shares conversion) So this ratio is applied to all of the issued XYZ stock. A person owing 100 shares of XYZ now has 66 shares of C and $50 cash (the 2/3 fractional share, assume some sort of terms were written into the deal to take care of the fractional shares).
The same thing is applied to stock options, so that two values stay constant as of the date of sale: 1) the discount on the exercise price and 2) the total value of the option grant.
On the day of the sale, an employee had a grant for 300 shares of XYZ at $35. For purposes of sale, XZY stock was valued at $50, so the stirke price was at 70% of value, and the total value was $15,000 (300 * $50) and the employee would have paid $10,500 to exercise, netting him a profit of $4500. Note that since XZY stock isn't traded, the options were issued with the idea that either an IPO or an pruchase event was a future possibility.
Convert the numbers as discussed above, replacing each share of XYZ with 2/3rds (1/1.5) share of C and after the sale the employee has a grant for 200 shares of company C stock at $52.50. If exercised, the total value is $15,000 (200 * 75), at a cost of $10,500 for a $4500 profit -- same as it was before, just under new ownership. Note that now the employee has tradable stock and is happy that his options are worth something.
Purchasing with stock does give the buying company an advantage because they don't have to hand over the unvested stock on the day of the sale, and it gives the employees with options a reason to stick around after the sale.
I'm sure the specifics depend on the deal, and I don't really know what is the "norm", but I think it pretty much goes this way for being purchased by a publically traded company.
The basic principal is still the same - stock represents ownership in the company; and when a sale is made, the 'owners' are compensated.
With a privately held company doing the purchasing, using stock to purchase another company is trickier. If you own shares of a public company, you can do with them what you wish, and liquidate them for cash at any time though a well understood means.
With stock in a privately held company, what $$$ you can get for it totally depends on convincing someone to buy it from you and price they agree on. And often when an employee has privately held stock from his employer, they have an agreement that lets the company buy the stock back at a price based on the current company valuation in the employee leaves the company or other events - they often have the right of refusal if you try to sell to someone else (they have to pay the employee the offering price if the offer is bona fide to get it back usually)
-Mp
Minor Rant & There is another way (Score:1)
The whole "IPO & Stock Option" thing has been blown up in our culture as some sort of new lottery. There is nothing wrong with being at the right place at the right time and finding yourself a stock millionaire before you are 40, even though you aren't even in management. Yet, to listen to the media and uninformed, everybody and their brother was busy digging in and cashing out while you were just stuck plodding along in your job. We (most of us here anyway) know the true picture is much more sobering. So why, I ask, is (was) there so much effort spent on promoting this "ideal" of the young stock-option millionaire who works like mad for a few years and then cashes out? And why is (was) it sold to people as "everyone else is getting theirs, what about you"?
Now I put things in past tense due to the (media-led) backlash. (I say media because they now seemed disproportiantely fixated on
And what ever happend to promoting the virtues of meaningful work and a balanced life - something most people can achieve? Ahh, they must be too boring and not sexy enough.
Anyway, enough pondering. Now I want to point out that there is an alternative upside to stock (options) other than the much-worshiped IPO.
And that is to be an employee of a small company that will never go public, but is likely to be bought by a publicly held company.
That is to say, a company formed to fill a nitch - usually requiring some sort of industry specialization and a need to be profitable sooner than later. As such a company builds products and technologies that are well recieved in their corner of the marketplace, they come to the attention of the industry giants, who often seem to be on the lookout for an infusion of fresh blood and product technology.
Consider Cisco, a company that has fed itself a steady diet of small companies for the last few years. Most of those acquired companies were probably never to going to IPO in the forseable future. Yet the employees of those acquired companies that had stock & options suddenly went from having privately held stock with nebulous value to publicaly traded stock & options with a clearly defined value.
In such cases the usual procedure is correct the quantity to reflect the buying companies stock price (note they often purchase with stock instead of cash), but keep the ratios intct
For an example if an employee of a start-up got 10,000 options priced at 5 cents each, and at the time of purchase, the company stock was valued at $1, purchased with stock by a company who'se public stock was trading at $50, the employee would find themselves with options for 200 options priced at $2.50. The point here is that employee's company never IPO'd, yet the stock became worth something.
So my point is that in addition to asking "will this company make it to IPO?", the books author should have also added "Will this company reach a position where a bigger company will want to buy it?"
-Mp
All-night restaurants (Score:1)
He missed a trick, I think, in failing to discuss some of the specific data most valuable to people who have adopted a start-up lifestyle. Where's the table of startup filled neighborhoods in New York City, San Francisco, and Austin, cross referenced by nearby all-night restaurants and gyms?
That's all I care about, where to go eat after midnight. Whataburger and McDonalds just don't cut it. 24-hr breakfast is a big plus with me. Here's my additions (all local to me of course
Austin:
Magnolia Cafe, on Lake Austin Blvd. A bit out of the way for us North Austin techies but worth the drive and worth the wait.
Kerby Lane Cafe, two locations, one on North Research. An Austin favorite, overrated in my opinion. I like vegetarian cooking but portabello mushrooms do not a meat substitute make.
IHOP, to many locations to list. I used to like IHOP. They made a comeback. Now their quality is starting to slip again.
Re:seen it all before (Score:1)
Instead, the VC's make their money in the IPOs (or directly after), and this money comes from ordinary people investing money in something they don't quite understand. You're right: the money isn't coming from nowhere; it comes from the VC's. And their money doesn't come from nowhere, it comes from people who buy at IPOs, not from the companies actually being successful.
I consider this a "gold rush" or "funny money". And if it happens every time there's a new technology, then there's a "gold rush" everytime; frequency doesn't make it any less of a fantasy.
This is why the "VC money drying up" is significant, if it is really happening (I don't know either way). The VC's weren't making money from the actual businesses; they were making money from the ludicrous IPOs. When those stopped, I would expect the VC money to dry up a little bit, since that's all they've been making money on anyway.
Re:above looks insightful, but isn't (Score:1)
There was another article in The Economist maybe last January which pointed out that there was a similar gold rush every time some big technology came around. Yes, the technology was good for people on the whole, but not necessarily for the investors. They gave the example of the airline industry. When commercial airlines came out, EVERYBODY invested in them. A LOT failed. So many failed that it wasn't until the early 90s that the airline industry as a whole actually turned a profit. The 90s!!!
I love the Internet and computers, and I'm so glad to be living in the time when they're starting to really effect the lives of everyone around me, but that doesn't mean that Wall Street and everyone with their personal retirement funds are actually investing in more than a few tiny gems in a big vat of snake oil.
Re:above looks insightful, but isn't (Score:1)
Re:My basic advice.... (Score:1)
Re:Ohhh worse than I expected (Score:1)
whooooaaaaa (Score:1)
Re:All-night restaurants (Score:1)
Almost nowhere. Downtown and most suburbs are dead on weekday evenings, except for bars and night clubs.
McDonalds, IHOP, White Castle, and Dunkin Donuts have 24 hour locations.
On the north side, Melrose (3233 Broadway), and a handful of greasy spoon diners.
I'd kill for a good 24-hour sushi restaurant within 75 miles of downtown Chicago.
Re:Limitations of full-on capitalism (Score:1)
The strongest advocates of Big Government are socialists who would like to Microsoft, GM, GE, etc. nationalized, not split up.
Professional politicians like billionaires who give big donations. Whether they got that way as head of a Fortune 500 company or not doesn't matter. And a few pols don't even care what country they're from.
As far as MS goes, the fat lady hasn't sung yet.
Re:Limitations of full-on capitalism (Score:1)
Established companies trying to protect their market position against newcomers isn't anything new in our system; it's been that way here for over 200 years (probably closer to 300). In that time our system has become #1, and I would submit that it's 'because of' and not 'in spite of' the way it works.
There are a series of laws dealing with monopolistic behavior and improper means of competion. The laws (properly used) allow new companies to prosper--but only if they earn it with good concepts and management
Re:Starting your own successful company is difficu (Score:1)
"Can't win, don't try. Got it!" - Bart Simpson.
Re:Reason to take a job (Score:1)
Re:Starting your own successful company is difficu (Score:1)
It depends. When someone's resume shows they've had a lot of jobs in the last few years, I usually look into the companies. If someone goes from job to job because their companies tanked, or got bought by other companies the candidate didn't want to work for, I can't fault them for that. I know a lot of people who work for startups knowing that a) the company might collapse, and b) when it does, their next job is only a couple phone calls away, which means that overall the risk is lower than it looks.
OTOH, if they did six months at IBM, three months at AT&T then nine months at Sun before applying here, I'd get a bit suspicious.
Re:Ohhh worse than I expected (Score:1)
I disagree, currently there are about four times as many people alive as have died. Therefore present statistics suggest that only 20% of people actually die.
Re:qualified vs. unqualified stock options? (Score:1)
Re:Ohhh worse than I expected (Score:1)
Not really as all that. Remember, 100% of babies born will eventually die.
And actually, "go bust" is a bit of an exaggeration on my part -- the figure is really for companies which "cease trading". The reason for this is usually that the sole proprietor has voluntarily given up -- we're talking about the situation where Joe Blow Computer Services ceases trading because Joe decided to take a permanent sysadmin job.
above looks insightful, but isn't (Score:1)
In fact, there is no "gold rush" about it. A large sum of money has been invested in a successful technology. The venture capital industry continues to grow at around 20% per year (it is outright false to assert that it has "dried up"). A few small companies have gone bust (newsflash: 90% of small companies go bust). And another media fad has begun to enter its "backlash" phase.
I sincerely hope that I am responding to a troll; it would grieve my heart to think that anyone could sincerely consider the above collection of half thought out platitudes worth posting. But I fear that I hope without hope.
Re:Ohhh worse than I expected (Score:1)
Stock Options: buy a [bigger] house, not a car (Score:1)
The [only] escape plan for employees at a
Re:Limitations of full-on capitalism (Score:1)
Nice rationalizaton. (Unconvincing argument.)
Please address this point: Market leaders take extreme measures to fetter the market. The market's not so free after all.
Also, please avoid the 'limited alternatives' phallacy when making an argument. It's irritating.
Re:Nice Slash Wings. (Score:1)
For some really great examples of group think, try here [forbes.com].
If only... (Score:1)
So what the reviewer is realy saying is.... (Score:1)
and as an added bounus get you read a good story at the same time.
Re:Ok take a look at the life of John Brown (Score:1)
Damn. I'm torn between both of your arguments. Both hit home, and feel 'true' to me. But both can not be true at the same time. Or can they?
This is like trying to decide whether or not fate exists. It's the quesy feeling most of us get when we hear the phrase that "whether you realize it or not, the world is proceeding exactly as it should".
Damned if you do, damned if you don't. What proportion of failures and pain is worth what proportion of success, and what are the real odds anyways?
Most games of craps are a lot more predictable, and it's the rare game of craps where you're life is on the line.
I hate this world.
Re:Nothing will replace your own intuition (Score:1)
Wait a minute. You're asking us to trust your 'snap judgement' telling us not to trust anyone else's long well thought out peer reviewed judgements?
Somethings not right, and I think it's your screwy judgement.
Re:Investigate and remain not only wary, but lofty (Score:1)
Good books that you might not think of reading include Robert O'Hare's "Without Conscience - the Disturbing World of the Psychopaths Among Us". Grandiosity and wild optimism are hallmarks of entrepreneurs, and also of psychopaths.
Another is "Oppression of Minority Shareholders", a huge book about all the ways sleazy operators can turn your stock into nothing. For example, the company can "reorganize", pay you a few cents a share to buy you out, and argue that since the company's net worth was negative they gave you a fair deal. There are *many* more tricks to watch out for. Ask for a shareholder's agreement and get a referral to a savvy attorney to study it.
And watch your health! If the company pushes you to the edge of a nervous breakdown you won't be able to hang on until you're vested. Don't get pushed over the edge either. I've seen two people it happened to. Not pretty.
On the positive side, working hard with great people to build something new is one of life's biggest rewards and is priceless professional experience.
Re:Letting the book decide: mistake one (Score:1)
Stability is all important (Score:1)
You cannot have a stable life without a stable job.
Wow lucky you (Score:1)
Taking risks dosn't mean you have any more bravery than anyone else it's just that you want quick material gain. I think intellectual risks are far easier and more prone to success than material ones. If I take a gamble and decide to learn latin I have at least a sporting chance to learn latin.
Not so with businesses. I know of people who loose almost everything because their idea for a business dosn't work out. The road of business enterprise is littered with corpses of the fallen ones.
I don't think life is a bore when I can expect to have a reliable base for the rest of my life. I want the bills paid and my accounts squared away. In fact I want to be secure with a base level of understanding. Then you can be as reckeless as you want. Go skydiving, live in the woods like Thoreau, or put your head in the mouth of a lion if you wish but at least you have the ability to win. The problem comes when you risk yourself in ways that are potentially nonrecoverable (ie smoke crack, blow all your wad at vegas, start a business and loose your shirt or loose your job.).
Remember you almost never hear about the failures in businesses because they are never able to ideologically spread by a large margin in the least. This is what really allows anyone to think they have an adequate chance beating the big boys.
Starting your own successful company is difficult (Score:1)
I cannot fathom why anyone would want to risk nearly everything they own just to try and make a business that will almost certainly fail soon.
But you're still out of a job right? (Score:1)
Campaign donations aren't totally a factor (Score:1)
Government was what we should all have. And what does Big Government like? That's right folks, Big Corporations who give Big Donations.
At some point you have to listen to what people say and what they think otherwise you get angry people. Also you have to balance the ammount of money that you need with what a liability it can be.
And the key phrase there is "properly used" I think. The American Government has shown precious few attempts at enforcing these laws in the face of corporate $$$ - the Microsoft case was nothing more than a sop for
the masses who, for once, could see that they were being shafted. You won't see Time-Warner being taken to court by the DOJ, that's for sure.
Eventually if they get out of hand yeah.
Ok take a look at the life of John Brown (Score:1)
What most people do not know is that he basically had a really, really, really crappy life. He tried a score of jobs and failed of many of them. Many of the members of his family died of disentary and other wonderful diseases. He was constantly in debt and being hounded by creditors in addition to being very fanatical and crazy about his ideas and convictions.
Well eventually Brown got hung and his bad political ideas started a nice little miserable 4 year war about two factions in a country that didn't like the look of the either.
Why do I feel that unnecessary risks are bad? Well look at the parable that you relate to in your post about the Crow and the cheese. The crow had a perfectly good piece of cheese but he saw a mouse with something better but opened his mouth to try and get the cheese and he looses not only his own but the mouse leaves as well and he winds up with absolutely *nothing*.
The internet successes are like the stupid Horatio Alger novels that claim that hard work, honesty, and luck will make anyone a rich and happy man. What a crap.
Ohhh worse than I expected (Score:1)
Wow that's depressing.
I have one question what advantage of being in a country that allows me to create my own business if I am almost doomed to failure?
And the point of working there would be? (Score:1)
Re:Decent assessment (Score:1)
millions.
Dried up it has! (Score:1)
http://www.thestandard.com/article/display/grok/0, 1151,18073,00.html
Looking at this from a bigger picture perspective, there is a tone of Who is John Gault in the tech community lately?
The VCs, business plans, markets ruined it... boo hoo. I'm going back to be a cog in big business.
What happened to the revolution?
This isn't a free fall, it's a shake out. Instead of free land, we have been racing for free brands. Names like Amazon, AOL, Yahoo, and Excite are well known as much for being first as anything else.
It's too late to be first. Now you have to be good... or close your doors.
A revolution has occurred.
Discounting all the progress that's been made in educating the masses about distributed networks is like discounting the assembly line when the auto industry started shaking out.
Are those of you giving advice like go back to established businesses actually following your own advice? Or misleading potential competition?
We've come along way baby! (to quote Norman Cook quoting Virgina Slims, both applicable)
Have you stopped and thought about the average person's understanding of a distributed networking lately?
More people understand that they can connect their machine to a much larger system than five years ago, agreed?
More people understand that the real power of a computer comes from its connection, agreed?
And even more importantly, the next generation (of haves) will have a systems mentality they take for granted... much like previous generations have taken democracy, electricity, ATMs for granted.
Everything is connected. So what's next?
Good reveiw,points out the target audience (Score:1)
Charge of the Old Hat Brigade (Score:1)
Re:All-night restaurants (Score:2)
Anywhere, and everywhere, any time of day or night.
The city does not sleep.
From Silicon Alley,
Bryan
Stock options? (Score:2)
--
Re:Mythical Man-Month relevance (Score:2)
Brian's first law: kludges multiply.
My basic advice.... (Score:2)
Nice Slash Wings. (Score:2)
Capitalism: Bad!
Anything but: Good!
In all seriousness, what exactly is it that you are trying to say? I don't see a coherant argument. All I hear is a gripe about capitalism supported by a vague and, possibly, misleading argument.
Sheep (Score:2)
The fact is that venture capital has performed poorly historically; their success is a very recent phenomenon. However, I'd accredit that mostly to the stock market buying the same crap they have. It's (or was) a matter of turnover. They could invest 5 million in a single DotCom and quadruple their money in the space of a couple months because the market was receptive. When it's not, you'll find the vast majority of these venture capital firms do very poorly. Whether or not this particular behavior makes sense for the particticular venture capital firm is debatable, but the point is that it a significant economic cost. While one sector soaks up 90% of the available venture capital, other promising sectors suffer. Likewise, when that sector goes cold, the VCs run from any mention of it, meaning that opportunities will be lost there as well. Just to be clear, I do believe in our capital markets on the aggregate, but venture capital tends to be a poor vehicle for this.
Re:Minor Rant - Conversion of options on buy up. (Score:2)
Dave
Re:Minor Rant - Conversion of options on buy up. (Score:2)
I'm currently putting together the business plan for a company whose basic idea is to get lots of top notch intellectual capital together then get bought. Cisco fodder, in other words. So you can see the interest.
Cheers,
Dave
Re:*This* Book (Score:2)
Re:above looks insightful, but isn't (Score:2)
They called the fact dotcoms have started to fail at a faster rate good news as it shows that investors are starting to get more cluefull and that the wheat is starting to be separated from the chaff.
I think the difference today, as opposed to a year ago, are that investors are starting to want to see a little more concrete evidence of potential. That's not necessarily a bad thing, given the huge number of startups that seem to have no business plan whatsoever.
Re:Mythical Man-Month relevance (Score:2)
--8<--
*This* Book (Score:2)
----
Not silly (Score:2)
This isn't necessarily silly at all; the question of "how risk-loving are you?" may be "fuzzy", but such things as "how many months' living expenses can your savings cover?", "do you have dependents (alternatively could you rely on the support of others)?", "what size of family do you plan to have?", "when do you want to retire?", "what student debt do you have?" are not. Making a spreadsheet to work out your ability (not desire) to bear career risk is a perfectly sensible step and indeed is one of the first things you learn as a financial planner. There are numerous questionnaires which have been designed to give a much better answer to this than "suck it and see". I don't know anything about this book, but to dismiss spreadsheet based financial planning on purely a priori grounds is, well, silly.
seen it all before (Score:2)
that Wall Street and everyone with their personal retirement funds are actually investing in more than a few tiny gems in a big vat of snake oil.
Yes: this is the whole business of venture capital. It's worth it to buy a huge vat of snake oil if you can be reasonably sure there are a few gems in there. Hell, some people crunch ton after ton of rock and mix it up with cyanide, just to get a few flakes of gold. Some companies sign a thousand bands in the hope of discovering one Nirvana. It's not a particularly unusual way of doing business outside the engineering industry.
there was a similar gold rush every time some big technology came around
More accurately, there's a "gold rush" of this kind all the time. Which makes it not a "rush" at all. All the journalists and such calling the Web investment fad a "Gold Rush" seem to think that this pool of VC money literally came out of nowhere. It didn't. It's the standard pool of VC funds which used to be invested in biotechs, in leverage buyouts of supermarkets, in mining companies, etc, etc, being pointed at a media-connected industry, and thereby getting noticed by the media.
It's business as usual. Don't believe the hype.
Competent leaders are neccesary (Score:2)
The answer to all three questions schould be a firm yes or the project/company is in deep trouble.
I have seen so-called project leaders tell programmers to skip the design and specification phases of a development project to save time!!!!!
Of course as the delivery date grew near, those projects were no where close to having a finished product, and the jokers leading them called in expensive consultants to throw at the problem.
Actually it might be possible to build a very profitable consultancy carear on saving such projects.
Re:Limitations of full-on capitalism (Score:2)
Established companies trying to protect their market position against newcomers isn't anything new in our system; it's been that way here for over 200 years (probably closer to 300). In that time our system has become #1, and I would submit that it's 'because of' and not 'in spite of' the way it works.
Yes it has, so far. Unfortunately the time has come when the American Government has decided that the Constitution is an unfortunate oversight on the part of the Founders, who really meant to say that Big Government was what we should all have. And what does Big Government like? That's right folks, Big Corporations who give Big Donations.
There are a series of laws dealing with monopolistic behavior and improper means of competion. The laws (properly used) allow new companies to prosper--but only if they earn it with good concepts and management.
And the key phrase there is "properly used" I think. The American Government has shown precious few attempts at enforcing these laws in the face of corporate $$$ - the Microsoft case was nothing more than a sop for the masses who, for once, could see that they were being shafted. You won't see Time-Warner being taken to court by the DOJ, that's for sure.
Decent assessment (Score:3)
History will record the last couple of years as the Internet's gold rush. Surely this has been a phenomenon of historical significance, probably the biggest since the Industrial Revolution. The next couple of years should be interesting to watch, now that the brick-and-mortar companies of old are starting to catch up with the Internet-only startups that hoped to replace them. Only the most well-managed of the latter will survive.
Does this mean that all start-ups are bogus? Of course not. But investing in one now, or taking a job at one now, is something to scrutinize carefully -- and this is something that this book will help to do.
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Re:qualified vs. unqualified stock options? (Score:3)
The difference is basically when and how much tax you pay. Practially it can mean the difference between making money or losing your shirt.
With a non-qualified stock option, the IRS doesn't take its slice until you exercise the option (turn it into stock, in laymans terms). Income tax is payable based on the difference between the exercise price and the fair market value of the stock at exercise.
Qualified, or Incentive, stock options are basically not taxes as ordinary income on exercise, and are therefore far 'kinder' on your tax situation.
Be warned about non-qualified stock options. There have been situations where an IPO has collapsed and owners of non-qualifies stock options in the company have been left with stock which had a considerably lower market value than the tax bill they were presented with (which, of course, is calculated from the stock price at IPO).
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Re:Limitations of full-on capitalism (Score:3)
The alternative to our silly free market system is very few companies that never fail, because they are propped up by the government. New industries in the US are financed by individuals (stock holders, initial venture capital then general public) who are willing to take a risk on a new market. Some companies fail, people lose money. Some companies succeed, people make money.
The fact that most new (and esp high tech) industries start and flurish in the US is specifically because of this cycle. The high rate of failure you state isn't because the people are incompetent, it is because there are enough people in the US willing to take risk on new ventures.
The high rate of failure is a side effect of success, not a warning sign of failure. The kinds of safe industries you are thinking of do have a low rate of failure (compared to high tech). Do they have a higher rate of failure in the US than in countries that prop up their larger industries to insure that even unsound companies stay afloat? yes.
I'll take our way over your pinko (had to say it once folks) solution.
-sb
Reason to take a job (Score:3)
When looking at an employer, questions like "Is their technology cool? Is the guy I'd report to a jerk, or a nice guy?" are far more important to your quality of life than cash or, heaven forbid, stock options.
And never, ever, ever delude yourself into thinking that stock options are real money. They are basically just free lottery tickets. Make sure that you can live on the salary they offer you. I'm personally on my fifth set of stock options. Grand income from them all: ~$3000. Worry about them during negotiations, but be very, very careful about giving up too much salary to get them. Never assume that you'll be able to make up the savings, whatever later, once you cash them in. And they are something to put entirely out of your mind the minute you take the job. Pretend they don't exist. Pretend you didn't get any.
In the end, if you like your job and earn enough to live ok, that's all you really need. Everything else is just gravy. And in these techie negative employment days, I don't know that even job stability is all that important, assuming you've been smart, and stuck a couple month's salary in the bank.
The Consulting Option (Score:3)
As a consultant you are paid by the hour- this tends to help avoid the 80-hour work week, or at least make it financially rewarding. It also avoids burnout- if you're careful about choosing the right contract, a month or two of 12-hour days can give you the savings cushion for a month or two of downtime, or a week in Aruba.
If you do choose to become a consultant, there are a few major pitfalls to consider-
Mythical Man-Month relevance (Score:4)
Thanks, this is a really concise review.
In the review the book is compared to some other "failure" books. I think it really is cathartic to write about things that went wrong, it may even be the best way to understand what happened and (theoretically) how to prevent it.
I think this is what inspired "Mythical Man-Month" by Fred Brooks (IMO this is required reading). His motivation was, in part, to describe how and why things fall apart from an organizational perspective. There was some commentary on interdepartmental politics, IIRC, but it was mostly about configuration management and why the massive project he had tried to manage was so over-budget and behind its schedule. I guess it is a "related reading" for this topic.
Some people have suggested that the work he has done is no longer as relevant and that his organizational princicples seem kind of dinosaurish to a company running on Internet time, while others say the things he discussed are so ingrained in Software Engineering that we see the book as a cliche (something like a Platonic discussion of the ideal project environtment). What do you think?
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Limitations of full-on capitalism (Score:4)
Of course in the kind of capitalist marketplace that you find in America, home of the startup, you pretty much have to expect that the failure rate of starting companies is going to be sky-high, especially when coupled with a market such as the "net generation" in which customer loyalty is at an all time low.
Classic economic studies show that when free market principles are taken to their extreme then the differential rate of success of new companies will fall to near zero, and the startup phenomenon has proven this to be as true in practice as it is in theory. When the market is completely unfettered, only companies with an extremely small risk quotients can succeed in entering the marketplace.
I hate to say it, but despite its past successes in promoting wealth and productivity, laissez-faire capitalism in America is now beginning to stifle the market and remove the potential for innovative newcomers to gain market share. The amount of capital liquidity is down as more and more companies settle into their post-expansion phase in which they attempt to stifle any up-and-coming competition rather than generate new sources of revenue.
Maybe it's time for some help for the little guy before the market stagnates and a country with a more balanced system of economic policy becomes the world's #1.
Investigate and remain not only wary, but lofty. (Score:5)
After an interview process and they show you around, you should have the option of signing and NDA and asking to see everything they have to offer in terms of the business model, projections, staff, and organization. If a start-up has a business model that fails in general assessment in *anyway* or fails to demonstrate good long-term goals, forget about it. Also, turn the interview around from yourself to the staff. Question your projected boss. What does he/she really know? Is he/she a technical type that has a clue about what you're going to be instructed to do, or is he/she just a figure head that works as an underling for the top people, pushing employees around. Are the higher-ups well educated people that you could truly respect? What about your potential co-workers? Are there a few that are confused by constructors? Are some of them installing RedHat for the 3rd time that same day? Usually lack-luster employees shows that management just wanted to get some quick help together for practically no cost just for the sake of impressing VC's. Bad. Also, observe the office organization model. It's usually a bad sign if everyone is running around between tasks in an aimless fashion. (Yes, that's vague, let me clear it up.) If you see someone who should be writing code stapling papers together in place of an office manager, bad sign. A good start-up company should have people hired for their respective positions and not unrelated ones.
When I say that you should be lofty, you should remember that a good start-up company knows talent and will relentlessly pursue talent. Why? They know that they will only succeed if they can convince the best minds around to join their team. A start-up that is doomed to fail is one that interviews talented employees, but says, 'well, you cost too much, we can find someone cheaper.' Bad. Always remember to turn questions back at your interviewer. If they really want you and your skills, they'll put up with quite a bit.
Lastly, make sure there is a lot of work to do! A start-up company should be busting its ass to become successful and beat everyone else to the punch. They should not be chaotic, but they should have their workload assessed and everyone on the team aughta be shoveling away at the pile, not standing around cubes with coffee mugs preaching how great they are. (Don't forget that if there isn't a lot to do, there's something fishy - and it might also mean that you'll not be needed for too long.)
This is just a collection of thoughts from my own meandering experience with start-up's. Don't be discouraged though! A friend of mine and I have gone through several of these things and it's incredibly frustrating. Many, however, will become successful and you'll know it when you join! Stick with it and someday you'll be cashing in on loads of valuable stock. :-)