Silicon Muse Startup Lessons from HBO’s Silicon Valley
Telling New Hires the Truth About Your Startup’s Chances at Success
Startup Lessons From Season 6 Episode 4 of Silicon Valley
If you’re in the startup game HBO’s ‘Silicon Valley’ is must-see television. In its sixth and final season my own Gen Z’er has informed me that ‘Silicon Valley’ has pretty much ‘jumped the shark’, but after investing five years in this groundbreaking series I feel obligated to finish it. So throughout the season I’ll be covering each episode in a series I’m calling Silicon Muse. In these posts I won’t bother to recap the episode, but instead I’ll attempt to discuss an interesting startup theme related to it.
“The Valley is small and the road is long.”
~ Gavin Belson, Former CEO of Hooli
Episode 50: Maximizing Alphaness (Recap)
Directed by Liza Johnson, written by Daisy Gardner, aired November 17, 2019
In the fourth episode of Silicon Valley the cast is dealing with the integration of the Hooli team into the Pied Piper organization. I’ll have to admit that I struggled to get through this episode and as a result it has taken me a couple of days for me to write this post. The most important lesson I took from this episode is the importance of being honest with your team about the likelihood of your startup’s success or failure.
Most successful founders, even after understanding the odds of their success, will have an uncanny ability to suspend disbelief when it comes to the future of their own startups. Good founders are always in sales mode. They continually sell themselves, their friends and family, their investors, their customers, and the world in general. While this is a good thing founders need to be very careful when it comes to hiring employees.
Founders need to share the worst case scenario for their startup to potential hires. Before hiring a civilian (i.e. people looking for a job or a career) founders need to explain the harsh realities of the startup world. Potential employees need to be told that fewer than 1% of startups ever raise venture capital and of those that do fail more than 90% of the time. Entrepreneurs need to make it clear that eventually their endeavor will almost certainly fail. Employees who don’t understand this reality will be perpetually unhappy when they hear rumors about the state of the company.
But it doesn’t have to be all bad news. Startup employees can learn a lot more than their corporate brethren. They’ll generally be challenged more and given more responsibility faster. The truth is that startups that are on the brink of huge success are often on the brink of spectacular failure — the line between the two extremes is often razor thin. For example,recently I ran into a former employee who was working for a friend’s startup. When I asked him how things here is what he said:
“We’re fucked. The monthly cash burn is over $200,000 and we’re going to run out of money in three months. Our idiot CEO is clueless. While we’re here dealing with this train wreck he’s on the road speaking at conferences, doing interviews for Bloomberg and the Wall Street Journal — if they only knew how full of shit he is. I hate my life.”
Later that day I gave my friend (the CEO) a call to see if I could do anything to help and here is what he said:
“We’re doing great. Our annual run rate revenue is now over $5M. Contribution margins are over 40% and we’re on track to reach breakeven in four months. We’ve got a second meeting with the partners at Sequoia — hopefully we’ll get a term sheet next week. Our existing investors have been fielding calls from them and are pumped!”
The funny thing is that I know BOTH of my friends are telling the truth. I’ve been in the same situation before. It is all about perspective. My former employee is dealing with the struggles and stress that comes part and parcel with undercapitalization and a lack of communication regarding the realities of the startup world. My friend is excited that the company is finally hitting its numbers so they can raise their next round and yet he feels like he can’t share that information with his employees.
Three months of runway might be a little short (I recommend having funding sorted six months before running out of cash), but his existing investors are pleased and will bridge the company if the fundraising process drags on. Founders need to explain this reality to employees PRIOR to bringing them on board. They need to explain that the company will often be very close to running out of cash — that is the way the game is played. Make a commitment to pay them for their work no matter what happens and that you’ll attempt to pay them at least two weeks notice if at all possible. In return ask them to commit to NOT share their fears about the viability of the company with outsiders — those rumors can kill a funding round that would otherwise give a startup the runway needed for success.
The startup game isn’t for everyone — it isn’t really for most people. At the end of the day the most likely outcome is failure — even the guys investing millions in your startup expect it to fail. You better help your employees understand what they’re getting into before they join your team. You should ALSO stop lying to yourself. At the end of the day, as alirez ramezani points out, millions of Americans are angry about their jobs — you don’t want the folks who work for you pissed off.
About The Author
Alexander Muse is a serial entrepreneur, author of the GEN Z Startup and Sous Vide Science, contributor to Forbes and managing partner of Sumo. Check out his podcast on iTunes. You can connect with him on Twitter, Facebook, LinkedIn and Instagram.