Fire Faster: Five Excuses Startup CEOs Give For Not Getting Rid of Low Performers

Letting someone go from your company because they’re failing to meet your expectations is emotional. It’s emotional the first time you do it and it’s still emotional the 100th (I’ve personally had to do it ~10 times). But, and leaders often don’t realize this until they’ve gone through it, turning over low performers is absolutely the right thing to do and in most cases you should have done it faster to benefit both you and them. At startups in particular there are a consistent set of false rationales I hear from founders as to why they haven’t addressed a low performing team member. Here they are. Avoid them.

1. We’ve got so much to do and they’re contributing something

Yes, they might not be a total zero. It’s not like they come to work, put their feet on the desk and eat crackers for 10 hours, but their underperformance is still a net negative. It usually creates work for the rest of your team to assist or fix their issues. Customers, partners, investors, candidates – anyone who touches them comes away likely less impressed with your company. You’re setting a low bar for performance and communicating that it’s acceptable. You’ve filled a seat and using dollars plus equity for someone who isn’t going to create the environment for the magic that startups require to find escape velocity. You want a horse-sized duck at your startup, not 100 duck-sized horses (I think).

2. The team really likes them and I don’t want to risk our culture

No, you’re risking your culture by keeping them. Their teammates invariably know they’re an under-performer and wondering why you won’t address it. Each day you delay is both an opportunity for the contagion to spread or for your team to flee. And wondering why you’re having trouble closing new hires? Because they’re underwhelmed by the dude you should be firing.

3. It’s my fault and a better CEO would coach them up

No, good CEOs realize that action beats inaction in this situation. You should be spending time inspiring your highest performers and helping to bring more talent into the startup. Are there things you did incorrectly during the hiring or on-boarding process which contributed to this? Maybe, but distill those learnings from a post-mortem, don’t compound the errors by delaying. Longterm it’s actually more humane for the person to give them the feedback and let them move on into a new situation where they can succeed.

4. I’m so busy and want to do this right so….

Oh the excuses – waiting for the lawyers to get back to me about a separation agreement. It’s a bad week to do this because of XYZ blah blah blah. Seriously, treat this issue as your highest priority and close it out now. Direct. Quick. Fair. Do consult your counsel to make sure you’ve got the right docs and don’t say anything stupid. If the person was there for 10 months consider accelerating them to their one-year cliff or giving them 10 mths of stock. Don’t be emotional. Don’t be foolish. You want a clean break where no one speaks ill of each other.

5. Will send the wrong signal to my investors because means we made a bad hire

Nope, your investors like to see you holding everyone to a high standard. You can tell us after – don’t sweep it under the rug – but unless it’s someone who you previously identified as a big hire or being critical to the company, you don’t need to get approval or anything. That said, most investors have seen this happen lots of times so if you want advice, feel free to reach out. Now if you turnover the entire team annually, we might start thinking the problem is with you, but there’s always going to be some amount of unregretted attrition and we expect that. In fact, a startup gets to a certain scale without have turned anyone, that’s actually a rarity (and sometimes evidence of a problem).

But Remember, Don’t Fire Someone Just Because They Disappointed You Once

Unless someone has behaved unethically or otherwise misrepresented their skills, they should be given feedback regarding their underperformance plus the opportunity to articulate to you that they understand and can correct quickly.


The Three Types of “Second Seed” Rounds: Too Cold, Too Hot and Just Right

For a founder, the first few million dollars you raise are likely to be the messiest in the history of your company. For some they come in a single round, meant to last you 12, 18, 24 months – a straight trajectory towards the milestones you’ll use to raise a Series A. But for most it’s a lumpy mixture of bootstrapping, friends and family, hackathon prizes, angels, incubators/accelerators and venture capital which combine over a period of months or years.

Accordingly it doesn’t surprise me that we’re seeing an increased number of companies raising a “second seed” – that is, an additional $1-2 million matching a similar total sum raised previously. I don’t think these rounds are evidence of a Series A crunch or anything quite so structural. There have been a tremendous number of seed companies funded in the past few years and trajectories are hard to predict. Some number of those early ventures require (and deserve) additional investor support before they are ready to raise the institutional A that they modeled.

While Homebrew is quite often the first money in (and certainly the first VC round), we don’t dismiss out of hand the idea that a company raising additional seed financing could be a wonderful investment. However as we saw the inbound volume increase we needed a framework to understand the opportunities in order to make good decisions of how to spend our – and founder – time. In reviewing the types of second seeds we were seeing, Satya and I broke them into three segments, two of which we have little interest in and one which whips me into a full-on funding lather (pause so that reader can create visual in their head).

Too Cold: Smart Team Still Wandering in the Desert

The founders have a pedigree and the problem space is a big one, but the team just hasn’t managed to nail a true MVP (let alone product<>market fit) and needs more funding to continue building. Maybe they’re just two months away from a launch. There’s always something tantalizing just. around. the. corner. They can sell investors really well but if you go deeper, it’s just not clicking. The first million was a party round and now those investors aren’t really responding and never really pushed the team to get beyond the problem definition from the original pitch. Given our model of making 8-10 lead/co-lead seed investments per year, getting behind this team doesn’t mean throwing $200k in, betting that at worst it’s an acquihire, but rather having the conviction to write a $700k+ check. Not a good fit so when we see these we typically pass quickly.

Too Hot: Early, but Delayed, Traction

Ooh, these are tough ones. This startup usually has a chart that’s up and to the right, but with just 2-5 months of data because it took them longer to find product<>market fit than they originally anticipated. The best Series A investors are telling them there’s lots of potential here but would want to see 6-9 months of data to better assess cohorts and repeatability of whatever seems to be working. So the team is off to find some more money beyond the 25-75% that current investors are willing to re-up for.

It hits our inbox and there’s a lot to like. However after going down the path on these a few times we’ve actually become less excited about entering at this midway point. First, it can be really hard to tell whether growth is actual traction or just a mirage. Second, the existing investors have already built a relationship and influenced the cadence of the company, whereas we like to have a chance to see the journey from the beginning. And third, the founders and current investors often overestimate the value of what’s been created so they’re seeking a meaningful step-up from the seed round (for example, an uncapped note at a small discount to the A Round). As a result we’re declining the majority of these conversations unless we really understand the market vertical and the founders are familiar to us.

Just Right: Team Delaying an A to Bet on Themselves

Every once in a while we find the second seed opportunity which is JUST RIGHT. It involves a team which may already be able to raise an A Round, or is trending towards one, but after assessing their startup, has decided to put some more money in the bank and push out the next raise. Maybe they want to hit some quantitative milestones which will give them better terms. Or, even better, they have some hypotheses to test out and prove before they feel comfortable committing to an extended plan. Our investment in ManagedByQ kind of looked like a Just Right.

In fall 2014 the Q cofounders Dan and Saman were already fending off Series A VCs who wanted to start poking at their data. But despite the inbound interest, they felt Q wasn’t ready. Operationally they sought to ensure they could scale supply to meet the demand they were seeing. And after launching in NYC, the team wanted to really understand what it would look like to expand into other cities – the speed and cost of success. So we led an additional financing which gave them time to accomplish these goals — in fact to exceed them by launching into Chicago before the A Round was even completed. And as they recently announced, this momentum and confidence helped them put together a plan they felt great about — to the tune of a $15m Series A!

While these situations are rare – and sometimes we need to source them proactively – man, it’s exciting to see. Not Too Cold. Not Too Hot. Jussssssst Right.


The One Thing VCs Shouldn’t Hand Over to Their Firm’s Talent Partners

I’ve been meaning to write about how thrilled we are to have Beth Scheer join Homebrew as our Head of Talent. But Memento style, I want to work backwards and instead start with one responsibility that Satya and I believe we’ll always do ourselves: helping founders close potential hires.

Here’s what we stress to our CEOs:

  • Helping you bring the most talented people on to your team is an evergreen top priority for us. If you believe having someone with a job offer hear from your lead VC, never hesitate to reach out.
  • We don’t care how senior or junior this person is. If you want to use us to close someone, do it. Don’t “save us” for execs only.
  • Asking us to help close someone who might still have doubts isn’t a show of weakness, it’s a show of strength in that you know when to get us involved. Caveat, if you need us to close every candidate that might be a show of weakness ;)
  • We’re not going to tell a candidate what they want to hear, we’re going to listen to what they’re trying to understand and give them our best answer. This means being straight up, when directly asked, about what we think is going well and where the next phase of growth/learning needs to come from. It doesn’t help anyone if the new team member is surprised on Day One by a bunch of things you didn’t tell them.

Here’s what we stress to the potential hire:

  • We believe people choose companies, not the other way around, so let’s talk and make sure you know why this is the best choice for you.
  • Joining a startup should ALWAYS be a bet on yourself and ability to make a difference. Yes, in many cases you’re joining a team with momentum, but it’s still very early. You’re joining not because you want a lottery ticket, not because you want to “work for a startup” but because you want to help a small team solve a big problem. And your contribution will increase the probability, velocity and scale of that success.
  • Do right by a startup we’ve funded and we’ll always have your back. Look, we get it, startups are riskier than just doing another year at Google or Twitter. Well here’s a safety net: if you work hard and do right by any company we’ve funded we’ll ALWAYS have your back. If for some reason the gig wasn’t a great fit for you, we’ll work our butts off finding you another opportunity in our portfolio – or beyond.

So I can’t wait to share more backstory about what led us to ask Beth to join our partnership, but at the end of the day, part of the VC value add should be their willingness to jump on the phone or grab a coffee with a potential hire and get them to sign on the line that is dotted.


“I Wanted to Do the Deal But Couldn’t Convince My Partners:” A Handy Explainer

An entrepreneur raising their A Round recently shared that one potential VC passed while telling them they wanted to do the deal “but couldn’t convince my partners.” This (and other variations such as “our partnership couldn’t get aligned around this one”) can be confusing. Here’s my guide on how to interpret:

1) “I Didn’t Want to Do This Deal & Never Even Showed It To My Partners”

Ahh, the soft pass. Didn’t really want to tell you know so blamed “the process” even though it was never even shown to the partnership. Bad VC.

2) “I Did Want to Do the Deal but Got Pushback & Didn’t Have Conviction/Time/Political Capital to Spend”

Ok, this one can be a little more complicated. It’s more like Frustrating VC, not Bad VC. Partnerships are supposed to have a constructive tension to these sorts of discussions and consensus deals rarely turn out to be the most successful, so it’s not the “pushback” that’s annoying, it’s whether or not your VC rolled over right away and how they’re portraying it to you. If your potential investor went in fired up and came out with questions/pushback which changed their conviction in the deal, that’s different than still having conviction in the entrepreneur but not the ability to get the deal done from a process-standpoint. Or maybe their partners are right and you’re just a bad deal :)

3) “I Couldn’t Get Enough Support from Partnership Even Though I Tried Really Hard”

It happens. Just wish the VC would say “we passed” rather than the passive aggressive blaming of partners – getting deals done require some support (but not necessarily consensus). Forcing it through wouldn’t be good for the founder because they’d be left with a fund that is only half-committed. That said, with Homebrew I’ve started to see that the best VC partner don’t get “surprised” at the last minute by their partnership. And they don’t see it as a question of approval or not, but rather is the VC partnership working well together to help collectively make better decisions?

So general advice for founders raising capital from VCs

  • Understand the decision making process at the firm
  • Use your lead partner to help you understand the firm’s general sentiment towards deals like yours (partnerships have long histories and they will/won’t like deals because it reminds them of successes/failures in the past)
  • Help your lead partner with their partners. You want as many advocates in the partner meeting as possible. Work with, but not around, your lead partner to ID backchannel references you can be providing, etc
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Near Zero Employee & Customer Churn? That’s ManagedByQ (Now Fueled With $15m Series A)

Stay objective Hunter, stay objective. I CAN’T STAY OBJECTIVE ON THIS ONE, I F’IN LOVE MANAGEDBYQ!

Ok, now that I got that out of the ole’ system, it was great to see ManagedByQ launch in SF this past week (previously just CHI, NYC) and announce a strong $15m Series A by Steve Schlafman at RRE. We put a short note on the Homebrew blog.

What is Q?

Q combines people, process and technology to deliver the operating system for physical office space.  Via an iPad installed in your office, Q centralizes stellar office cleaning and other smart services to help office operations run smoothly. Hundreds of offices in New York, Chicago, and as of today, San Francisco, are using Q to clean and manage their offices efficiently and cost effectively.  

There are a whole bunch of reasons for me to love Q from a business standpoint. Their growth numbers are great great great. It was a nice writeup of our seed investment. Yadda yadda.

But what gets me so excited about Q is the way they’re building this business to be amazing for both customers and employees, especially their Field Operators, the office cleaners and maintenance workers who are used to being nameless, faceless. Not at Q. At Q they’re diverse, celebrated, employed (W-2s w benefits) and valued. That’s why there’s been less than 1% turnover among the hundreds of people they employee.

“We realized fairly early on that in order to deliver the best quality of service, we needed to be the best employer,” said Q co-founder Dan Teran, 26.

It’s also one reason I can’t wait for the fast follower, VC-incubated Q competition I keep hearing about to debut. You can copy a spreadsheet, you can’t copy culture.

“The mainstream [model] is to use contract workers, but it’s hard in an environment like Managed by Q,” said Zeynep Ton, a professor at MIT Sloan School of Management.

Ton researches how organizations can best run their businesses to suit needs of employees, customers, and investors, which she refers to as “operational excellence.” She was so intrigued by Q that she is now an adviser to the company.

Saman, Dan, the Office Operators at Q HQ and the Field Operators working across SF, NYC and CHI, we couldn’t be more thrilled by this milestone.

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Startups Are Stories: 18 Months With Bond Street As They Raised $110m

We like to turn startups into graphs – valuation graphs, usage graphs, market share graphs. But they’re actually stories; stories about people. After 18 months of quiet, now we get to share stories about Bond Street, a SMB lending platform which announced their $110 million equity + debt Series A raise today.

Our Bond Street story starts in the fall of 2013 when we’re introduced to CEO/cofounder David Haber by a founder we backed earlier in the year. “David and Peyton are really sharp.” We’d hear variations of that line many times.

Our Bond Street story is about a bunch of drinks, meals, phone calls in the subsequent weeks. About me walking into a West Side coffee shop one evening for back to backs. First with Nicholas Chirls (then at Betaworks), followed by a face to face with David. “Who are you meeting after me,” Nick asked. “Oh, he’s smart. And he’s sitting right over there,” pointing to a guy in a sweater, earth-tones, sitting on a bench in the lobby. It was raining.

Our Bond Street story is about getting them a termsheet on Christmas Eve to lead their seed round and receiving signatures from them on New Year’s Eve. There was no specific pressure forcing those dates, it just kinda happened that way, but I think we’ll always remember those sheets of paper because of the unique timing.

Our Bond Street story was joyfully helping them convince an experienced banking executive Jerry Weiss to join as first team member, leading credit. “Wow, they just de-risked this company,” we thought to ourselves. Getting to meet Jerry’s son in 2014 during a trip to San Francisco. Seeing that Jerry’s a wonderful culture fit and leader for Bond Street, not just adult supervision.

Our Bond Street story had me and Satya remaining silent while they started growing their business – David and Peyton didn’t want tech press coverage yet. Lending first off their balance sheet and then from a small fund they raised. We got fingerprinted and did a whole bunch of other things the State of California said was important.

Our Bond Street story saw a team grow, saw new challenges appear and new plans to navigate those challenges. Usually involving food.

Our Bond Street story had them entering a competitive process for their Series A and being delighted that Spark, David’s old firm, sought to work with him again, this time as a founder. We also learned a lot about raising money to lend, of which they now have a nine-digit sum to put to work. I think the kids today call that Commas.

Our Bond Street story has the team excited about where they’ve come but, not surprisingly, looking forward to the hard work ahead. And we get to join them, continuing on as an investor in this round as well and with Satya remaining on the Board through the next fundraise.

Startups are stories. Bond Street Chapter One sure has been a blast.

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The Time When Lady Gaga Told YouTube to Keep Its UX “Shitty” (& Some Snapchat Thoughts)

A few years back one of YouTube’s product leads was giving Lady Gaga a private look at some of our proposed UX revisions (this was when Gaga visited Google to be interviewed by Marissa). The team has mocked up design explorations in different directions including a few that were “premium” style looks. The minute Gaga saw that one she stopped our product managers and said, “No, keep YouTube looking shitty.” Gaga elaborated.

What she meant was that as a community product it was important that we didn’t lose the authenticity of the product in an effort to upgrade the look and feel. Usability was separate from shine. A creator or fan needed to feel like their “fingerprints” could be left on the site. That the site is different for their participation. Incrementing a view count, commenting to a creator, “liking” a video, leaving a response. All of these features were meant to increase the feeling of accessibility and engagement. Allow folks to feel “I WAS HERE AND I MATTER.”

Gaga is right. Looking “shitty” isn’t an excuse for poor design (and you can have your own opinions on how YouTube’s look and feel has evolved – or not – over time) but important to remember that product design is about producing emotion and spurring actions, not a set of guidelines around beauty. Product designs optimize for usability not how they look when framed and hung on a wall.

I think often of Gaga’s words when using Snapchat (OMG that’s a weird statement to write). Not because Snapchat looks “shitty” but because of the purpose it serves in framing the user content. First, the relatively starkness of the UI (framing the screen, mostly white icons, little text) allows the content to be front and center – as both a creator and viewer. Disposability of the content plus ability to write on pictures, etc all leads to intentionally ‘less than perfect’ composition – no filters, no editing. My fingerprints feel all over the content.

Second, while I’m watching the Snapchat curated Local Stories (which I think are the best part of the product), it always feels like the next clip in the story *could* be something I shouldn’t be seeing. Something unfiltered. Something raw. Not illicit. More like authentic. Like life is occurring and I’m peering in. The story location (Coachella, London, Indy 500) is context not content in and of itself. The people are the content. Snapchat is people.

So yeah, I’d say one of the most important UX theories in recent years was delivered to me via a multiplatinum recording artist. Gaga, I’ve got a Designer in Residence seat open for you at Homebrew.