I wrote several posts (now deleted) about a guy that won the Tour de France seven times, after surviving cancer. However, he has since been stripped of those victories for doping. You probably know who I’m talking about but I won’t mention his name. I was deeply saddened to find out that this guy lied, cheated, and hurt people emotionally, professionally, and financially to cover up his deceit. To make the story even worse, it appears that the tour wins will never be awarded to anyone else.  Too many of the riders who finished near the top have already admitted using banned substances.

The dilemma that this guy must have faced in 1998 reminds me of advice that a great professor shared with me.  Andy Crawford taught an entrepreneurship class at the University of Michigan’s engineering school.  He gave us great advice on the realities of starting a business.  One of those was about making sure that you understood what it took to win.  He said that in some businesses, pushing the limits of ethics and bending (or even breaking) the rules were necessary.  The example he gave was the steel hauling business.  He told us that the margins were thin in the business and that making money required loading your trucks beyond the legal limit.  He explained that companies carefully avoided weigh-in stations and planned their travel around times when they were less likely to get caught.  He warned, if you weren’t comfortable overloading your trucks, then don’t get into the steel hauling business.

Since the scandal came to light we’ve learned about a few cyclists who understood what it took to win and chose a different path. As one of them put it, “Do I wonder what I could have accomplished as a professional cyclist? Yes, but I’ve never had to explain to my children that I lied and cheated.”

Be careful. Know what it takes to win, because sometimes the price is too high.

I was recently traveling on a stretch of freeway that goes from two lanes to one to accommodate a bridge repair.  I had traveled this stretch just days before but had forgotten about the construction.  Stuck between exits, I was angry at myself for the memory lapse because my last trip was delayed by 45 minutes.  Delayed because of the people who don’t feel that “lane closed ahead” means they should merge into a single file line.  They look at the long line of cars and see this as an opportunity to charge to the front of the line and then just before running into cones blocking the lane under construction,  jam themselves into the line causing everyone else to hit the brakes.  However, this story isn’t about these jerks.  This is about those who serve the greater good.

My second trip through this construction zone was much faster.  What happened?  I had merged to the right and yet no one was blowing past me.  I looked in my rear-view mirror and saw a large SUV just behind me in the left lane.  This vehicle was not charging past the line.  It was just sitting there matching the speed of the long line I was in, preventing the jerks from getting through.  ”WOW” I thought, “who in this time of gun-toting-road-rage-induced-nut-jobs would sit there like that?”  Then I noticed it, the licence plate on the front of this SUV read “NAVY.”  Because of this SUV we approached the construction zone with only a short delay.  At the end I slowed a bit and reached out of my window to wave this SUV in front of me.  As it went by I got a look at the driver and passengers.  They were in dress uniforms and all had fully grey hair.  They might have been on their way to a military funeral.  Yet they still had time to make a difference, to right the wrong of the jerks who would normally have delayed my trip.  They could have charged past the line but the chose to wait and serve the greater good.  As they went past, I gave another wave that I hope conveyed, “thanks for making a difference.”

A day later, some of their Navy brothers stormed a compound in Pakistan and killed Osama Bin Laden.  A much bigger event but the same sense of honor, duty, and commitment to the greater good.  For the members of our military, just another day at the office.  Happy Memorial Day.

The difference between loving a product and finding it useful is important.  Some of our recent prototypes have needed re-work.  To be fair, we are trying to release new features very quickly and the designs were not as fleshed out as they could have been.  But whatever the reason, the preliminary versions were so-so.  They got the job done (they were useful), but lacked the friendliness and fun that will make our users want to use our software.  This is a tough concept to explain.  It is not fair or productive to say, “not good enough.”  What I did was to highlight examples of our product features that our users love.  I encouraged everyone on our team who talks with customers to do the same.  We have a “Feel the Love” wiki page where these things are recorded.  To put an exclamation point on it, I handed out neon green bracelets with the same “Feel the Love” line printed on them.  The reaction was great.  I think we are feeling it.

A good friend of mine was recently negotiating a salary at a start-up.  As is common for early stage companies, they didn’t have much cash and were asking him to accept a salary that was lower than he expected.  He wasn’t sure if this was fair and asked if I had any benchmarks.  I didn’t, but I shared a line of thinking that I created while I was at UCLA which he found very helpful.  I share it again here…

To be fair, the genesis for this idea came from an entrepreneur who spoke in one of my classes.  If I could remember who it was, I would happy give him or her full credit.  The basic idea was that the upside of a startup should compensate for what you give up.  I call it the 10X rule.

If you think of working for a startup on purely financial terms, you are willing to be paid less cash in order to gain the potential upside.  Of course there are other reasons for working for a startup.  It is more fun, more challenging, and more interesting than a typical daily grind.  That said, I was a outdoor BBQ chef on Vail Mountain which was a very fun job that I quit to become a business-dork.  All business-dork jobs are less fun that BBQ chef, but fun isn’t everything, cash is a factor.

So back to startups.  We do it in part for the upside but how much upside is enough to compensate you from the cash you are giving up?  An example in round numbers…

Your value at Big-Co $100K

Your salary at a startup $80K

You give up $20K a year

You expect to work for the startup for 4 years, so you give up a total of $80K

So you’re going to give up $80K, you’re an idiot, but wait, there is upside!

You own 1% of the company and you think it will sell for $100M giving you a payout of $1M

You are a genius, you are giving up $80K to get $1M in the future, but wait, what are chances that you get the $1M?

Only 1 in 10 startups exit successfully so the “expected value” of your upside is $1M x 10% = $100K

Good news, you are still a genius, the expected value of your upside is greater than the compensation you are giving up.

To define the rule-of-thumb, the value of your upside should be greater than or equal to 10x the cash you are giving up.