great jobs

The death of Steve Jobs raises and answers the question that haunts the psyches of ambitious entrepreneurs everywhere: “Was it worth it?”

Praise follows death like the glowing debris that trails a comet, and the writing in the sky says that Jobs was the greatest CEO ever. A few muted voices remember that he was famously harsh to work with, but this is universally regarded as an entirely justified mania for perfection. Considering his accomplishments, it seems almost irrelevant that he denied the obligations of paternity for one child, and consciously decided that his children should know him through biography rather than time spent with him, even – or especially – in the final stretch towards death, when the remaining time must be remorselessly allotted like oxygen in a sealed room.

This isn’t criticism of a great man. It’s a reminder that many of us would willingly make the same choices, were such greatness within our reach.

We say it’s not so, and try to believe it. We encourage each other to remember family, remember health, remember that a life of striving includes the quest to achieve a full and humane life through our work. But the life of Jobs is the story of his jobs, of his one true job: making a dent in the universe through the creation of products that become a part of our lives. For his success in that, we forgive and excuse his personality defects. We cannot blame a man for failing to uphold principles that we would throw aside ourselves if only we could be assured that the universe was malleable to our touch.

Saying that “you are not your job” is a comfort; it alleviates the cognitive dissonance between your self-image and the productive economic output you contribute to the world. The lessons of Steve Jobs deny that comfort; his strongest exhortations insist that you are all about the things you make for the world – not for yourself, not for your hobbies or leisure, not even for your family and certainly not your friends if you have any. You have to do great work, never settle, remember that each day could be your last, don’t waste time living someone else’s life.

There is no obligation to community, family or friendship in these words – though strangely, there is an overwhelming commitment to society in the desire to dent the universe, for this is not a universe of cold cosmological phenomena, it’s a universe of people, and his ambition is all about changing how people live. For Jobs, if this ambition involved sacrifices of a more universal personal nature, there is no question that it was worth it. It was worth it for him, and his efforts were certainly worth it for us.

It’s touching to see the determination with which Jobs’ sayings are repeated in the wake of his death. But the message of his most appealing words isn’t quite the message of his life. He told us to follow our hearts, to trust our intuitions, to ask ourselves if our plan for this day is how we’d want to spend our last. But those are not goals, they are only beautiful means to an uncompromising end. The goal of Jobs was to be insanely great in a world-changing way. That’s the hard part of the message to understand. All of us can hope to understand what is in our own hearts, and can hope to have the courage to follow it. Almost no one alive has a realistic ambition to change the world – what many of us think of as world changing is merely interesting, hopefully entertaining, and possibly enriching.

start me up

A couple of months ago, a good friend was talking to me about the differences between most people and “entrepreneurs like us.” I had to recoil at the phrase. He’s a real entrepreneur – founded a couple of successful companies, working on a third, constantly driving and innovating and dreaming and creating. At my best I never reached his heights. I’d been a “startup guy” for a dozen years, and proudly wore that badge – as a startup lawyer learning business basics, boardroom battles, and founder secrets; as a venture capitalist investing across sectors and geographies; as a startup manager in multiple different roles and companies. When I finally founded my own company, I felt I could finally accept the label entrepreneur, and it felt great. But it didn’t last very long. I’d accepted a job at a large company not too long before that conversation, so “entrepreneurs like us” couldn’t include me anymore.

I’m not too flexible about the term, unlike those who believe in four types of entrepreneurs. I think an entrepreneur makes a for-profit business that didn’t exist before, without the benefit of existing infrastructure. That rules out what some call social entrepreneurship, because working for nonprofit good is too different than pursuit of viable commercial enterprise. And it rules out corporate entrepreneurship, because starting a new division or business line for an existing company is very different from starting a company from a cocktail napkin.

I said different – I didn’t say harder or more admirable. The numbers probably say that social and corporate efforts are harder, as there seem to be more new companies than there are new social efforts or successful businesses started within large companies.

I’ll differentiate some more: Although I’d include both the fruit stand owner and the tech company titan within my view of entrepreneurs, I don’t think they’re the same in most ways, even at their respective starts. Fruit stands aim for some daily living, selling a well-understood product, within a social infrastructure that understands and supports the concept of buying and eating fruit. The most extreme tech founder dreams of all the money imaginable, with a product that initially seems bizarre, with no apparent revenue model, distribution channel, or plausible customer interest. Although these two kinds of people have something in common, they have a lot more differences. So “entrepreneur” isn’t a binary label – it’s possible for one entrepreneur to be more entrepreneurial than another. Labels are most useful when we use them to distinguish and measure concepts. I don’t like seeing a meaningful word diluted to appease egos or ease conversation.

Because the company I work for now is fairly well known, I should doubly-triply-quadruply emphasize that this is all my opinion, and moreover it’s my opinion about me. I can believe that for many entrepreneurs, coming to Google doesn’t mean that your days as an entrepreneur are over – those entrepreneurs are more entrepreneurial than I ever was, which I’ve admitted isn’t a high bar.

And although I’m still a startup guy at heart, I can believe that Google can in important ways return to its startup roots, even though I’m naturally inclined to disbelieve that a large company can have the “energy, pace and soul of a startup.” But I’d say that you have to measure the energy and pace in the context of the scale of the ambition. People who think that Google is slow or that the competition is anything other than the unknown future are probably underestimating the enormous opportunity remaining in the information economy.

Ah, but that last bit, the “soul” of a startup … what does that even mean? That’s tricky, and probably the topic of another post.

best startup blogs for entrepreneurs

I once made a case for pmarca as the best startup blogger evah.  Now that I’m in the midst of my own entrepreneurial efforts, I’ve had plenty of occasion to revisit the category.

I still think no one matches Marc for the sophistication and deep experience of his posts.  But I think that once you have the background that he covers, if you are working on a startup you might want something that gives you more guidance about what you are facing day to day.  So here are a few possibilities for interested entrepreneurs:

ReadWriteWeb is running a serialized book called Startup 101 that describes the startup life cycle.  It has a number of factors against it:  the information is very broad and basic, it’s directed only at web startups, it assumes little to no experience in business generally.  Nevertheless it looks to be shaping up as a nice basic primer for first-time startup folks.

Venture Hacks has some good info, mostly about fundraising but also assorted other categories.  This is possibly the best resource for those who are mystified about how VCs think.

Eric Ries has made a name for himself around the catchphrase “The Lean Startup” – a solid summary of fundamental principles of running a low-burn, nimble business.  Much of this might seem fairly obvious to folks who have worked in modern web startups, but Eric has a really nice clean delivery of the concepts.

Steve Blank has shared the stage with Eric for “Lean Startup” presentations, so the two have a common mindset.  Steve differentiates himself with a much longer history of entrepreneurialism, which gives him great authority and many informative war stories to share.  His customer development model is highly valuable to any startup (though a bit better oriented to enterprise customers than mass consumers).

Steve’s blog has risen to another level in recent posts about how entrepreneurs can stop lying to themselves and deserve an epitaph that signify a family life well lived.  I haven’t seen any other startup blogger come closer to giving this topic the time and attention it deserves – managing the demands of a startup in balance with a rich family life is incredibly difficult.  Perhaps too few have succeeded in this to inspire many good blogs about it.

Finally, probably my favorite category of startup blog is from those who are blogging the process while they’re doing it.  Signal vs. Noise is a classic in this category, but I like to find new blogs from relatively unknown startups.  Two that I happened across recently are from the founders of Expensify and Alice.

What are your favorite startup blogs?  I’m particularly interested in finding ones from startup founders who are blogging it while they’re doing it.

entrepreneurial lobbying

Warning:  this post is very long and concerns tax policy, and so is likely to suck your soul while you read.  However, if you have been or ever will be a highly successful entrepreneur, then I’m talking about matters that mean millions of dollars to you.  Enjoy.

We are in a time when the government’s hand in the U.S. economy is heavier than at any time since as least as far back the 1930’s.  Makes me wonder who, if anyone, lobbies in D.C. for the benefit of entrepreneurial activity?

The National Venture Capital Association has been in the news of late, as it tries to avoid Congressional and Treasury proposals to regulate “private pools of capital” – a generic term that includes hedge funds as well as venture capital funds.  Hedge fund activity in the credit markets may have contributed to the systemic failures in the financial system, but commentators indignantly proclaim that venture capital had nothing to do with the current mess.

The NVCA is the main lobbying organization of the venture capital industry, and in their stated mission and nearly all of their public policy positions, they say they have a broader mandate to “support entrepreneurial activity and innovation.”  The NVCA wants Washington to understand the VCs are not merely investors, but part of the lifeblood of the entrepreneurialism that fuels massive portions of the U.S. and world economy.

I suspect that at first the fine folks at the NVCA made this connection to entrepreneurialism because it sounds worthy and friendly to politicians, as compared to being cast as mere financial speculators.  But now this connection has become a key conceptual anchor of their argument that venture capital should be treated differently from hedge funds and other private equity funds.  Those other guys are pointy-headed number crunchers, see, who move massive amounts of money and credit with extreme disregard for our financial system.  VCs are closely involved with startup innovation, heck they are practically entrepreneurs themselves!

This conflation of VCs with entrepreneurs is even more critical in what has become the most important lobbying battle in the history of the NVCA, the fight over carried interest tax policy.  I think if more entrepreneurs understood this particular public policy issue, there might someday be better lobbying in DC for related issues that are closer to the hearts and wallets of entrepreneurs.

Briefly, VCs are typically compensated in two ways, with management fees and carried interest.  Management fees are a small percentage of the total capital commitment of the fund.  For example, a $100 million fund might have a 2% management fee, so the VCs receive $2 million per year for their operating expenses.  Carried interest is basically profit sharing on the investment.  So for example, if the $100 million fund operates for 10 years, and makes $500 million, a 20% carried interest might be applied on the profit – that would be $500 million less the $100 million of invested capital, less the $20 million of management fees (assuming 2% per year).  So 20% of $380 million is $76 million.  I’ve smoothed over a lot of variations and complexities, but this is basically how it works.

And how the U.S. tax system works – smoothing over a thousand times more variations and complexities – is that you either pay ordinary income tax of 35%, or long term capital gains tax of 15%.  Have you guessed what the carried interest tax policy battle is about?  That’s right:  carried interest has historically been taxed as capital gain, but many are now calling for it to be taxed as ordinary income.  In the example above (which would not be a particularly large or extraordinarily successful fund), the 20% difference in tax rates would mean $15.2 million less for the fund managers.  You can see why this is the Battle of the Century for the NVCA.

Now, let’s get back to this point about VCs being practically entreprenuers themselves.  In Congressional testimony, the NVCA says that venture capitalists rise above mere “financial engineers” (presumably the hedge funds and private equity guys), contributing sometimes daily management attention and real “sweat equity” into startup companies.  Some entrepreneurs may snicker at that testimony, and others may pluck their eyeballs out rather than read it.  I can freely admit that I’ve seen VCs who do make invaluable contributions to their portfolio companies, far above merely providing money.

But if the NVCA really wants entrepreneurs to view their efforts to “support entrepreneurial activity” favorably, they ought to extend their views on tax policy to the issues that really and directly affect entrepreneurs.  See, although startup founders can readily enjoy capital gains treatment on the value of their equity, some bizarre tax policies in this country often have the practical effect of forcing ordinary income treatment on the equity stakes of many private company employees.  The NVCA is fighting tooth and nail so that VCs (who are almost like entrepreneurs, after all) can get capital gains tax treatment, while saying not a single word about the policies that cause millions of startup employees to have their equity gains treated as ordinary income.

There are many ways that the NVCA could advocate tax policy for the benefit of entrepreneurs, but I’ll note the two most obvious ones, one a layup and the other a long ball in difficulty of change:

The layup is the Section 83(b) issue.  This is just an utterly bizarre policy that is harmless to entrepreneurs if you file all your paperwork correctly, but it is ruinous to entrepreneurs (and often their companies and lawyers) when there is a mistake in filing.  Briefly, founders and very early employees of startups usually receive stock (not options, but the stock itself) that is subject to vesting.  The tax code says that ordinary income tax is due as the stock vests, on the spread between the price paid for the stock and the value on the date of vesting.

That’s a real problem, because even as the stock vests, it has no liquid market – meaning that the stock can’t be sold easily.  So an entrepreneur who holds this stock in a successful company would get huge tax bills that he or she cannot pay.  Fortunately, the IRS allows the stockholder to make a “Section 83(b) election” – this is an election to pay the tax at the time of the initial stock purchase.  Since typically the price paid for the stock is the fair market value of the stock at the time of purchase, there is no spread and therefore no tax is due.

So that would be harmless, except that if you don’t file the election in the right way at the right time (30 days after purchase), you have to pay taxes the default way.  And that kind of mistake does happen, and it can cost millions – not just for the taxpayer, because ruinous tax issues for company founders and early employees can easily sink the company itself, and also typically results in malpractice suits against the company lawyers.

Why should the default position in the tax law be to pay a ruinous tax that no rational person would ever voluntarily elect to pay?  Why not just have a law that says if I don’t do a cartwheel on my lawn every 30 days, then I have to give my house to the IRS?  This is just utterly inane, so inane that it should be an easy win for the NVCA if they were to take it up as a lobbying cause.

The long ball would be for the NVCA to go after AMT/ISO reform.  This is a very complicated issue, but bear with me, because this problem does routinely affect startup company employees.  In a vast, vast oversimplication:  the problem is that the Alternative Minimum Tax requires Incentive Stock Option holders to pay a tax on exercise of their options, even though the company is private and there is no liquid market for their shares.

In a successful company, this can mean a tax vastly exceeding the assets of the employee, with no means of paying it.  A typical solution for many is to sell their shares at the mercy of the less liquid secondary markets (at severe discounts), in order to be able to pay the taxes.  And of course, a sale in that situation is typically taxed at ordinary income rates rather than capital gains rates, because of ISO tax rules.  So AMT and ISO rules conspire to mean that startup employees often are forced to sell their stock at discount values, and to add insult to injury the gain is taxed as ordinary income rather than capital gain.

So, NVCA:  you need to go after those two issues before any knowledgable person should regard you as an advocate for entrepreneurs and innovation.  Not only would you get the cosmic satisfaction of your actions actually conforming with your words, but you would also likely get grateful contributions from entrepreneurs and their lawyers.