Relationships and Responsibility

Reflections on a startup journey (Chapter 5)

Oct 30th 2019, party in our office to celebrate 5 years since the product first launched

I founded AppSheet in Seattle in early 2012. The company was acquired by Google at the start of 2020 just before the pandemic took over our lives. This is #5 in a series of articles to capture some of my experiences. Here was article #4. Every startup journey is different, and my perspective is probably over-fitted to my unique situation. So please read with skepticism and treat these articles as opinions at best.

Much of our waking lives is tied up in our work. That has been the case for me from the time I was a late teenager. I built close relationships with a few colleagues and I felt a sense of shared responsibility for them.

Those relationships and responsibilities become much more important at a startup. As a founder of a startup, you operate without a safety net. But for everyone else who engages with the startup, you are their only safety net and that comes with special responsibility. Everyone implicitly or explicitly has expectations of you and trust in you. It is a set of implicit “contracts” that have to be collectively fulfilled for the startup journey to be successful.

There are at least three categories of relationship/responsibility contracts.

1. With teammates — this is the most important because they contribute the most to the company, and usually they are the least informed and the least equipped to negotiate on their own behalf.
2. With investors — they are usually well informed, know the risk they are taking, and are well equipped to negotiate on their own behalf. So whether you feel responsibility or not depends on how comfortable you are borrowing and potentially losing other people’s money. I am not comfortable with that.
3. With customers —but I won’t really talk about customers here. Each company is different, but at AppSheet, our relationship with our customers felt unique and special. I don’t know if this generalizes, so I’ll cover the topic of customers in a separate article.

Teammates

In an earlier article, I talked about the 6Ms that motivate people at a startup (Me, Money, Mission, Method, Morale, Morality). Each person who works with you comes in with a different definition of what this means to them and how important each motivation is to them. I interviewed every single person who worked at AppSheet (and approximately 5x as many others where one side or the other decided it wasn’t a good fit). Here are some broad generalizations about the mindset of people I saw coming in:

• Most engineers cared first about the work environment (Morale) — is it a death march, how much flexibility will I have, etc. There were some who wanted to work on a particular technology (Method) — Android, React, etc. The engineers who actually joined almost universally didn’t ask about or care about money.
• Most people in marketing cared about the mission first, even though they sometimes couched it in terms of the business (Method).
• Most people in sales cared about the mission, but, because all sales people live in a world of performance-based commission, they also cared about their ability to make money.

I felt it was important to have maximum transparency as early as possible. We posted our positions only on AngelList so that people self-selected in if they were looking for a startup job. We made the salary and stock ranges for the jobs explicit so that there was clarity on the likely compensation. And in the interview process, we made it clear we were intentionally light on engineering process (so people who really cared about scrum or test-driven-dev, for example, would know they wouldn’t be happy here). I always felt worried that these candidates were not asking enough questions about the company’s finances and the risk they were taking. I’d bring up these three things explicitly:

• “Have you weighed the risk vs reward of joining a startup?”. Why don’t you go to <insert your favorite big company here>?
• “Assume your AppSheet stock ends up being worthless after 3 years of effort. Be sure you would still join us for the learning and experience”
• With respect to an eventual exit for the company — “I don’t know, but this won’t be a rocketship. You will not retire on what you make here. My commitment is to maximizing the impact of our work, not to maximize the money we make. If our exit covers your financial opportunity cost, I will feel I met my responsibility to you”.

Being a financially conservative person all my life, I had assumed that the financial part of the bargain was the important one to worry about. But I was wrong. Many people joined our company because they had been disillusioned in their previous job, sometimes in the mission, but usually in the work environment. The details in each case were different. One was disrespected. One was underutilized and bored. One didn’t like the ethics of their previous company. One did not like the lack of ambition. Some did not like that they were far removed from engaging with real customers. Quite a few did not think they were learning much. Every person who was considering joining our fledgling startup was making a big and partially informed leap of faith. So when someone joined our team, my implicit contract with them had three aspects:

• Cover their financial opportunity cost. This was mostly for me to feel okay. Also, as I was older than most people on the team, it did occur to me that one day these “kids” would grow up and realize that money did matter. For the best people, as their contributions increase, their financial upside should increase with it. This requires flexibility via additional stock awards. In at least two cases, we increased salary and/or stock for someone just one month after they joined because it became clear in just a few days that we’d brought them in too low.
• Career growth. Most of the team was at the early stage of their careers and they’d have to move on from AppSheet at some point to something else. I felt a responsibility that if they did good work with us, they’d get a leg up in the next job they took on somewhere else
• Finally, do significantly better on the one thing that mattered most to that specific person and that had brought them to AppSheet. This meant that I should remember it, respect it, and make sure it was truly something we factored into their work experience. If I felt we couldn’t provide it, I’d tell the person so and we wouldn’t proceed.

Now here’s the thing. You can’t assemble a team that has completely disparate motivations. And people change their expectations over time. So the implicit contract with each person is a living changing thing. You sort of need a general team-wide “contract” that is based around a common understanding of team values and culture and mission, and then an individual-specific “addendum” that is a more private agreement.

Occasionally, there may be a person for whom the contract stops working. I wish I could say I handled these mismatch situations well, but it would be untrue. It didn’t happen too much in the engineering team which mostly grew steadily with very little attrition. One engineer who spent two years with us told me one day she was leaving the company in two weeks because she got a job she really wanted at a game studio. This came at a bad time for us (a few weeks before an important launch and when some other funding stuff wasn’t going so well). I felt upset and showed it. It wasn’t a shining moment for me, but I apologized later and we remain friends. The mismatches showed up more in marketing and sales, where we didn’t have as much prior experience knowing whom to hire for our kind of product and company stage. It is always difficult to ask someone to leave the company. It is way tougher when that person is really dedicated but still it isn’t working out. We had one of those situations with one of our early team members, and it took me half a year to realize that mutual loyalty was getting in the way of mutual benefit.

Investors

I have always been uncomfortable borrowing money. When I was growing up in India, my father ran a press shop (a factory that made motorcycle parts out of sheet metal). Any small-scale manufacturing business like that runs on a tight margin and tighter cash flow, juggling between fluctuating costs of steel, labor uncertainty, and delayed payments from customers. Every Diwali, we’d receive some really fancy boxes of sweets from a person who I didn’t see the rest of the year. When I got old enough, I learnt that he was a money lender who provided cash flow loans for my dad’s business. Those loans were secured by our house. I don’t know how my father dealt with the stress of potentially losing our house in order to keep his business running. But I don’t think I ever enjoyed those sweets again.

It is common belief that investors write a check and then just care about ROI. My experience was different. I talked about our funding journey in a previous article, but just focus here on my “contract” with investors.

• Our angel investors (convertible note in 2014) were all “friends and family” from my professional life. Most of them were not professional investors. They were people with high net worth who were writing a check to help us and see if we could do something good with it. None of them ever mentioned a ROI target to me. A couple of investors wanted to actually participate in the journey. Ben Slivka would visit our office every few months, offer his encouragement, and tell me I was doing a good job. Amit Mital would call me once in a while to find out how things were going, and how we could help. The others were quiet supporters from the sidelines.
• It really bothered me that I had borrowed money from friends. To demonstrate (to myself) that I was treating their money with care, I wrote a regular monthly investor update email with the latest revenue numbers and usage stats. I occasionally got a response but mostly just “Thanks for the update”. I learnt afterward that it was something almost no other startup did, and they appreciated how I kept them in the loop. My implicit contract was that come what may, I must pay back what they had put in. As it turned out, they had to wait five and a half years before their investment translated an outcome. Not one complained about it.
• One of our VCs was NEA — — specifically Greg Papadopoulos from NEA who sponsored two convertible notes in 2015 and 2017 to keep AppSheet alive when no other VC would invest in us. Greg had conviction in the idea and wanted to see it become something big. He gave me a gentlemanly but most well-timed kick in the butt when he asked in 2018: “Praveen, it’s ok if you want to continue AppSheet like a lifestyle business but maybe it’s something you should think about”. NEA’s investment in AppSheet was tiny compared to their overall fund size. But Greg had supported us for four patient years through some challenging times. In my mind, what I owed Greg was that his investment in us should not be viewed by his colleagues at NEA as his failure of judgment. I don’t think I have ever told him that though. Later, he brought in Hilarie Koplow-McAdams to help us work towards our Series A. Hilarie exuded an enthusiasm for our work that gave us moral support at a time we were struggling. And they both joined our board after the Series A. When we considered acquisition by Google, they unsurprisingly both led with “what’s the right thing for you and your team” rather than “what’s the ROI for NEA”.
• Our other VC was Shasta Ventures — specifically Ravi Mohan who led our 2019 Series A round. Though we only worked together for less than a year, Ravi was an amazing cheerleader for AppSheet and a friend to me. Ravi is an anomaly among VCs because he wears his heart on his sleeve. Just months after the Series A round closed, we had started talking with Google about an acquisition. Ravi could have insisted we continue and grow Shasta’s investment further. His head said he wanted us to keep going instead of settling for the acquisition, but his heart said it was my call to make. “Your team has been taking all the risks and doing this for a long time, so if this is the right time for the people and families to de-risk and take the win, we will support you no matter what”. When almost no other VC would lead our Series A, Shasta had stepped up to make it happen. My implicit contract with Shasta was therefore the simplest of all — I owed them a reasonable ROI coming out of the acquisition.

Is it difficult to satisfy all these commitments?

The longer a company runs, with more employees and more investors, it gets to be a lot of commitments to juggle. I knew I’d never get this balance right in a way that everyone is entirely happy. But my goal was for most people’s experience and outcomes to lie within their definition of “acceptable”. In general, this should not be difficult if the company is doing great and you retain control of the company. It is difficult if either of those two isn’t true.

If the company struggles, then money becomes a problem. You have to start letting employees go. If you have been transparent about the financial situation leading up to this, people generally understand why and they don’t blame you. And, you could rationalize this to yourself. They were adults and they knew the risks.

Rationalization may not help you sleep any better though. To me, it felt completely unacceptable to run the company in a way where we’d have to lay people off because we ran out of money. My co-founder Brian endorses the theory that successful CEOs are far more likely to be psychopaths (I associate “psychopath” with knife-stabbing motel owners but it turns out it means they just people are unaffected by normal human emotions like loyalty and guilt). He’d bring that up to help me understand that I was a normal person, not a “psychopath CEO” and so it was normal to struggle with issues like that.

There’s another way a company struggles, and that’s by neither failing nor succeeding. This is an insidious state and that’s how we were for three years. Revenue and adoption grew as a steady linear line up and to the right. Clearly not failing. But no hockey stick growth and no proof that adding in fresh investment money would create hockey stick growth. Yet, investors have their doubts and the longer this goes on, the more their doubts grow. No crisis, but the clock ticks, and the months and years go on, and everyone’s opportunity cost grows. There was little I could do in this state beyond stay calm, project confidence, keep people in the team focused on work, and try ways to change the slope of the line.

If you lose control of the company (i.e. how it is run), a lot changes. One way you lose control is because of gradual ownership changes. You raise money, VCs get onto your board, they want you to steer in certain directions, they differ on company values and culture. I’ve heard horror stories of board dysfunction at other startups. Not every company gets VCs like we did who align with the founders on things like the compensation or equity plans.

Of course, you lose all direct control when your company gets acquired. When Google acquired AppSheet at the start of 2020, it was a last opportunity for Brian and I to “settle the accounts” with our teammates and investors. An acquisition process is by definition opaque to most members of the team (most don’t know it is going on until is pretty much done). They are totally dependent on the people participating in the negotiation to ensure equitable outcomes. For example, we couldn’t bring every teammate over with the acquisition, which was very disappointing for us and much more frustrating for those affected. With the tools at our disposal in the moment, we had to mitigate the impacts where we could and make decisions to achieve acceptable outcomes for as many people as possible.

You never succeed entirely at this, but have to try to fail as few people as possible.

In the next article, I’ll cover the personal impact of the startup journey.

“… Nothing is easy.
Though time gets you worrying
my friend, it’s o.k.…”

— — Jethro Tull. Nothing is Easy.