Thankful for a lot this Thanksgiving
Welp, it’s Wednesday, the day before Thanksgiving. No frills, pills, or chills with this post, but listing a few things I give thanks for this year.
  • Friends– I put friends first because I’ve had a couple really close friends who have been great supporters and motivators over the last year especially with Body Boss and Dee Duper. Everyone always seems highly engaged in what I’m working on, and offering some tremendous support including helping me learn how to program.
  • Family– Always able to be counted on, my family has largely been a great support system. Though, I do have family members who believe I’m bat-shit crazy for continuing on my low-income-pursuit-of-my-dreams. I know that in the end, they just want me to be happy and comfortable. We haven’t seen eye-to-eye in some other cases, but overall, they’ve been exemplary to lean on especially when I’m dying from food poisoning and bed-ridden. Yeah.
  • The Body Boss Fitness Team – Okay, so these guys are already pretty much captured in the above with Friends and Family (yes, they’re in both because that’s just how close we are). They’ve been a great team and are highly skilled at what they do. Everyone’s largely moved onto new paths, and it’s apparent the high quality these guys are with each joining some incredible startups even spearheaded by two of (who I call) the Atlanta Entrepreneurial All-Stars.  
  • Brookhaven Police Department – Shout out to the newly incorporated city of Brookhaven’s police department for responding to my 9-1-1 call back in May when I had a break-in at 4AM and woke with a stranger standing in front of me as I woke up — read “When a Break-In at 4AM Inspires 5 Entrepreneurial Lessons Learned“. The other night, I woke up thinking I heard something. False alarm, but it was enough for me to relive that night. Needless to say, I didn’t go back to sleep the rest of the night. Not going to lie – that night was scary, but glad the officers responded quickly and professionally.
Scene from “The Walking Dead”… the only picture I could really find of a legit guy hiding under the bed. This might’ve happened when I woke up to a break-in at 4AM
  • Atlanta’s Startup Community – I once read, “only entrepreneurs understand entrepreneurs.” True story. Not many people really understand the ups and downs of entrepreneurship, so it’s great to have a growing, vibrant startup community here in Atlanta that is tight-knit. I’ve met some great people ranging from startup employees, founders of all levels (early, growth, failed, successful sales), lawyers, etc. Most everyone has been happy to meet or introduce me to others. Very thankful for the connections.
  • Great Tools and Resources to Learn How to Code – I’ve only started programming in Apple’s Swift since August, and I feel I’ve been able to get up and running pretty… swiftly (get it?!). I’ve been able to pick up these new skills thanks to free YouTube channels, One Month [Rails], Stack Overflow, Parse, Facebook, etc. Especially for the platforms like Parse and Facebook, they’ve been very easy to integrate into.
  • Fantastic Professional Network From a Life Before (and kinda still) – Every once in a while, I need to fill up the coffers to keep my entrepreneurial journey going. Though to an even greater degree, I’ve wanted/ needed to know I’m still capable of doing great work, even if the startups haven’t quite reflected that. So, it’s been great to be able to pick up the phone and tell prior colleagues that I’m up for some consulting work, and every one of them has been eager to bring me on asking, “How many hours do you want? When can you start?” I’ve been fortunate through my prior life as a consultant to have formed some stellar relationships and built up good, adaptable skills.
There’s a number of others who I’m leaving out, and for that, apologies, but know you’ve been helpful on my journey. The ones I put above are those I’ve been thinking about for a while now, and many are likely to be staples to my Thanksgiving posts year in and year out. However, it’s good to call them out anyways, and thank them. Hopefully, this won’t be news to others if I’ve shown my appreciation throughout the last year.
And finally, THANK YOU! for reading my blog posts. If you have any questions or comments, I’m always up for hearing or connecting. Just give me a shout either via Twitter @TheDLuor email me at the.daryl.lu@gmail.com.
Who/ what are you thankful for this Thanksgiving? How are you showing appreciation not just on this holiday, but in your interactions?
Okay, I’m going to admit something here. Publicly. I don’t know a lot of things when it comes to startups. *phew* That’s like a big weight off my shoulders. I’m sure you’re surprised. Well, let me be more specific – I don’t know much about the financepart of startups. Yes, I have one of those MBA degree things buried somewhere in my house, but I didn’t really grasp finance. Truth be told, my learning style was much different from the way my finance professor taught, and as it was the foundational course, I got very little out of it.
Starting with this month, I’m going to post an article or two about a subject I don’t know much about. I’m not sure what the structure’s going to be, but I’m going to start and just let it play out and course-adjust as I see things working out. It’s like a startup itself! Essentially, I’m hoping to disseminate my learning for you in, hopefully, an easily digestible blog post. Be sure to share at the end any concepts or questions you have, too.
Where to begin? I’ll start with a 3-5 questions or concepts that I and/ or a friend has wondered about and try to answer those through research. I expect some of the questions and answers will be simple for some of you, but for others, it’ll be useful information. Let’s get this finance party started!

Preferred Stock
I was working with a startup recently that was trying to raise capital, but the investors wanted shares in preferred stock. This was one part of the wrinkle in the fund-raising, but here’s our first subject – what’s preferred stock? Well, when it comes to stock, there’s largely two types – common and preferred. Common stock is what we normally trade on various exchanges.
Preferred stock represents some degree of ownership of a company, but as its denomination implies, preferred shareholders get a bit of “special treatment”. In the event of bankruptcy, assets are distributed amongst shareholders – creditors, bondholders, preferred shareholders, and THEN common stock holders. That means that common stockholders are last in the pecking order when it comes to receiving funds from a liquidation.
The other BIG area where preferred stock differs from common stock is in dividends. When companies have cash assets in the bank, the company can choose to pay out via dividends. With preferred stock, dividends are pretty much paid out on a fixed dividend like clockwork. Common stockholders, again, get dividends only after preferred shareholders are paid out. In the event dividends aren’t paid on some set date, then whenever dividends ARE paid out, preferred shareholders get their cuts first.
Note: different stocks can also have different CLASSES. Classes are set by the company to retain (diminish or empower) voting power to specific shareholders.

Dilution
You know the really concentrated orange juice you can buy from a store? If you drink the concentrate straight, it’d be wicked strong. You add some water to it (diluting) and it starts to be of a consistency you can handle without squeezing your eyes shut. However, there also comes a point where the more and more water you add, the less of an orange juice taste you get. You get more of it, sure, but it doesn’t quite pack that punch anymore.
Taking that terrible analogy (I can admit these things) to shares, we can look at dilution as a means of creating “more juice”; though, with less “punch” per cup you divvy out – a reduction of ownership percentage. Follow me. Dilution in the startup world typically occurs when holders of stock exercise their options (buy stock at some agreed upon strike price – more on that later) and especially if the company is raising a round of equity financing.
In a raise, startups may issue new stock to investors with some equity percentage. In this case, as more stock is created, the value of the company may rise (depending on valuation of the company), but the denominator (number of shares – “shares outstanding”) increases usually at a larger rate. Thus, each value of the stock decreases – gets watered down. And equally “thusly”, if you owned 100 shares before for 10% of the company (total shares outstanding = 10 * 100 = 1,000 shares), and the company issues 1,000 more shares (2,000 total shares outstanding), your ownership percentage just dropped as well to 5% (100 shares ÷ 2,000).
That’s not all bad, though. Even though your ownership has dropped, the value of the company will have most likely increased and the company could now be in a stronger financial position to do even better (or just survive… you know, whatever). So if you don’t look at it as a “percentage” deal and from a straight-value perspective, you’re looking better.

Vesting Period and Strike Price
If you’re joining a young startup in the growth stage or earlier, especially, you may be given the opportunity to get equity in addition to your salary. Everyone probably thinks this is where you can become millionaires. It could happen, but it’s rare – how often are these billion dollar unicorns popping up? I digress… When you read your offer, you’re likely seeing some number of shares (say 100) with a vesting period of Y (say 4 years) with some “strike price” of Z (say $20). “What the heck is going on?!” you ask. Let’s break it down.
  • Shares… see above. You’re likely getting common stock, b-t-dubs (“btw” (“by the way”))
  • Vesting period. The vesting period is some time horizon that the employer has guaranteed some rights to ownership (via the stock) to the employee. During this time, the employee accrues these rights per some vesting schedule (if any), the employee can choose to “exercise” his/ her options. This mechanism encourages the employee to stay with the company as well as to do well (since a great company is better to own than a good company).
  • Vesting schedule vs. the Cliff. In the offer letter details the time periods the employee can exercise options per a vesting schedule. Or, the offer letter may make mention of a “cliff”. The cliff is some period of time after the start date of the employee for which the vesting may begin. From the cliff onwards, vesting occurs typically monthly. The cliff is a mechanism founders and investors like to mitigate attrition in the first year.
  • Strike price. This is the agreed upon price of each company share the employee accrues over the vesting period.

Okay, so let’s pull this together with a couple examples from above. 100 shares, 4-year vesting period, and a strike price of $20. Let’s say the offer says the stock vests according to the following schedule: 25 units in the second year, 25 units in the third year, 25 units in the fourth, and 25 in the fifth. If the employee remains with the company till year 3, the employee has earned 50 shares at a price of $20 each, but has forfeited the 50 shares. If the employee stays the whole five years (and then some), he/ she will have earned all 100 shares at $20 each.
Same example, but let’s look at a 1-year cliff vs. the gradual schedule. Only at the anniversary of the employee’s start date will 20 shares be vested to the employee. From each month onwards, 1.67 shares are vested each month (100/60 months). A fractional share doesn’t really happen often, but I’ll let it slide for now. So if the same employee leaves after 36 months, he/ she’d have accrued 1.67 * 36 months = 60 shares at $20 each, forfeiting 40 shares. See the difference?
Should the company go big and IPO later, the employee can choose to exercise his options by selling at the market price (“spot price”)… if it’s $100, then the employee can sell all 100 shares at $100-20 = $80 per share = $8,000.
Now, there’s a wrinkle to all of this (as always with finance, darn you)… you can’t just carry off $8,000. You must understand the rules of the plan as some vesting options do not let you touch the money till some retirement age before making penalty-free withdrawals.

Conclusion
Yowza, there’s a lot of good nuggets of information up there, so I’m going to stop at 3 today. This was fun to learn a bit about, and share with you, so I’m looking forward to keeping this train going. Next time, I’d like to touch on:
  • Types of financing including equity vs. debt
  • Convertible
  • Earnings per share (EPS)
  • Etc.

Next month, I’d like to also dive into some financial statements of a company or two, and share what I find interesting similar to David Cummings’ posts about companies’ S-1 filings – see “Notes from the New Relic S-1 IPO Filing”.

So before going, going to ask the same questions I usually do: what are your thoughts about finance in startups? What questions/ concepts are you wondering about that I can help do some research for you? What questions do you have about what I’ve shared above, or comments?
(Image source: jewschool.com)
My buddy (and the great Developer) Don sent me this link from HackerNews where a user posted the following question:

Founders whose startups have failed, where did life take you afterwards? (link)
I’ll just cut to the chase today because I read a ton of the responses… almost too many. I got through about 80% of comments, and I think I’ve got enough content in my notes to cull some of the interesting stories and take-aways.

“Hacker News is a social news website that caters to programmers and entrepreneurs, delivering content related to computer science and entrepreneurship. It is run by Paul Graham’s investment fund and startup incubator, Y Combinator.”Wikipedia
So here’s the list. Though, note that this is from the first 33 posts as of 9:30AM this morning (11/12) (not including replies to comments here, just first-level comments).
  • 8 founders I would qualify went into full-time gigs with seemingly non-startup companies including many at Apple and Google
  • Many cited regaining confidence and stability as a for joining a full-time role at a non-startup company. One described the failure experience as “traumatic” to the extent he questioned his skills and capabilities. He needed a place to rebuild his confidence.
  • 8 founders went immediately into some consulting or contract work. Many cited reasons including having flexible hours to the extent that they worked half-time. The other “half-time” was spent on side projects
  • A couple of the founders made note of the incredible stress the startup life took on their personal lives to the extent that their relationships ended either in divorce or otherwise. Interestingly, one of them got back together with his then girlfriend and married after the startup’s initial failure
  • Several founders mentioned the people involved as a reason for the failure of their startups from co-founders to employees. On the flipside, there were a number of founders who mentioned they would or have start a new company with their former co-founder
  • Cultural insight – one founder in Germany mentioned how difficult it was to regain some stability after his startup’s failure. In German culture, much weight is put on success and respect, and from failing in a startup, it was hard for customers, colleagues, etc. to accept this reality or trust him
  • Cultural insight – one founder in India mentioned how he was buried in debt to the extent that all profits were made to pay down interest to his lenders. In India when borrowing for business, many borrow from friends and family (close and distant). This can dramatically raise the interest with the number of borrows
  • HackerNews has a very much technical-heavy audience, but at least two of the founders mentioned their complete lack of technical know-how in their startup. Following the demise of their startups, these founders learned how to program to build MVPs including one founding a new startup as a technical co-founder
  • In trying to decipher what people were explicitly and implicitly saying, at least 23 of the founders said they would start or had already started another company; 4 founders I couldn’t figure out if they would (categorized these as maybes); and the remaining 5 founders as most probably not interested in starting another.

There’s a lot more to glean from the comments and posts, especially when you look beyond the first-level comments. It’s interesting to read about others’ failures to hopefully avoid those missteps. However, as several readers mentioned, it’s hard to avoid even when you know them. Experience should help prevent you from making those same mistakes, but there are blogs and established publication articles about lessons from failure including my own – 21 Rough Lessons Learned from Failure. As user nostrademons mentions, “The nice thing about having knowledge and experience is that oftentimes it shortens the time required to realize you’re making a mistake.”
Okay, so I’ll leave you with a few direct quotes that I thought were important…

“Someone may be a good developer, designer, or co-worker…but that doesn’t mean they will make a good co-founder. I learned this the hard way..and it was painful” – paulhauggis

“All I can say is: Know your founders. I’d go far as to focus on their personal situation, like their risk tolerance, their “philosophy”, their personal attachments, etc. The goal for a company is not to save the world, but to make money for you and your partners. If any personal attachment can get in the way, like “saving the world”, or “keeping control of the company”, it will. My major failure was not seeing this.” – bigpeopleareold

“A startup is a ship at sea in a storm, I wanted to experience a boat in harbour for a while.” – buro9

“The nice thing about having knowledge and experience is that oftentimes it shortens the time required to realize you’re making a mistake.” – nostrademons

“Focus on one thing , become incredibly good at it. […] Focus on customers and trust yourself on giving value , customer insight is better than customer need.” – appreneur

So what are your thoughts on the lives after failures for these entrepreneurs and others? How do you think failure has changed their trajectories had they either not pursued their own startup(s) or had been successful?

Image source: http://images.sussexpublishers.netdna-cdn.com/article-top/blogs/30297/2013/02/117159-115153.jpg
If you’ve been following me for a little while, you know of my interest in psychology as well as technology. Some may call the interest a passion. Others may call it an obsession… not many. Anyways, I was on Psychology Today the other day, and found a really interesting article – “The Human Psychology Behind Facebook’s Success”. I remember immediately being piqued about learning more on why I keep clicking on that damn site so many times a day.
The article starts by talking about how Facebook allows us to “not only connect with loved ones, but with our fundamental human needs”. Intriguing. Go on. Facebook is the “daily destination […] to meet our need for psychological fulfillment”. Okay, I’m in. Let’s get into the rest of the article.
The article breaks Facebook into addressing four key psychological needs.

Self-esteem

This is a strong determinant of our psychology well-being, and Facebook allows us to build our self-esteem via purposeful construction of our self-schema. “Self-schema?” you ask. Let me explain.
Our self-schema is how we model ourselves in terms of what we think about, care about, and spend our time and energy on. Essentially, it gives us the notion of what’s important to us, and what isn’t so that if we were to, say, be ranked lowly in an area we care little about, it doesn’t affect us (i.e. coming in the last quartile of a race we care little about running in).
Facebook profiles are reflections of our self-schema… reflections that we pick and choose what we want – pictures, hobbies, levels of education, etc. Thus, we boost our self-esteem by creating the profile representative of what we like most about ourselves. Meanwhile, we can mitigate negative hits to our self-esteem by limiting those who may otherwise “troll” our profiles.
Like what I wrote up about online dating profiles, our profiles are, unsurprisingly, carefully curated reflections of us – see “Practicing Biz Dev Whenever, Wherever… For Instance On Match.com”.
Kinda funny… kinda appropriate. Image source: http://harrissocialmedia.com/wp-content/uploads/2013/10/facebook-meme-ecard.png

Impression management. 

Facebook allows users to have more control over what we say, show, and do. How often do we want to hit the “undo” or “rewind” button?
Facebook gives us the opportunity to manage what we say and what others see by preparing thoughtful status updates, wall posts, messages, etc. All the while, nonverbal behavior goes out the window online that may otherwise create negative impressions.
We can draw both explicit and implicit cues from user behavior, too, on Facebook. We can see explicitlymeasureable cues including number of friends, education level, etc. While implicitly, we infer things including how often a user posts and shares updates may point to levels of extroversion. Frequent relationship updates may point to a high degree of instability.
With Facebook, we influence our self-esteem with these impression management levers. Not only are we influencing how others may perceive us, but we also influence how we perceive OURSELVES. *mind blown*

Need to Belong. 

The article cites a study performed in 1995 by Roy Baumeister and Mark Leary. They argue that “the need to belong is a fundamental human need to form and maintain at least a minimum amount of lasting, positive, and (significant) interpersonal relationships. Satisfying this need requires (a) frequent, positive interactions with the same individuals, and (b) engaging in these interactions within a long-term framework…” In today’s world, social networks like Facebook fills this need.
Facebook even leverages existing word associations to trigger deeper emotional ties. For example, the use of the word “friends” to link users on Facebook builds on our earlier understanding of the word and feeling of belonging. It’s a term with a strong cognitive, emotionally-charged association. We even joke at times that we’re not really friends till its official on Facebook. (We = some of us…)
Another example: “photo album”. Pre-Facebook, photo albums were largely compiled by families and close friends. With Facebook, photo albums are building on this association of “belonging” and “closeness”.

Facebook Enables Our Personality Traits. 

Facebook gives us the ability to vent and share our needs and obsessions without fear of repercussions that would otherwise “violate” social norms. Take the example from the article – an extrovert who loves to share pictures. In real-life, it would be unacceptable for him to pull out pictures and ask everyone to look at them. However, on Facebook, it’s perfectly acceptable to post the pictures online and let everyone look at them. It’s normal here.
Heck, it allows gawkers to… well… gawk at other individuals without getting evil eyes. If that isn’t weird to think about already…

So where am I going with all this?

Well, for one, this was an interesting read. I enjoyed the psychology aspects and how it’s layered in Facebook (and many other social networks). For me, the most interesting piece of the Psychology Today article is the notion of the self-schema.
I wrote an article a while ago about “Your Personal Brand: You’re a Walking, Talking Billboard”. Everything about what you wear, what you say, etc. is an advertisement for yourself in addition to any brands you’re actually wearing. Whether you’re conscious of the content you share or how you’re “managing impressions” on Facebook, you may want to. We’ve heard it long ago how recruiters will check Facebook accounts for any red flags. But that’s just from a professional setting. There’s the impact from a social setting amongst your family, friends, etc. as well.
The other aspect that is interesting to this article was how Facebook leveraged ingrained associations in its product. Whether Zuckerberg and Co. overtly used the words based on the psychological aspect or not, it’s turned out for better. TechCrunchpublished an article on the viral dating app Tinder– “Tinder and Evolutionary Psychology” – which talks about what psychological aspects Tinder, too, leverages to build its success.
As we enter a world with more and more data, everyone’s fighting for our attentions and our hard earned dollars. It’s becoming more critical to build campaigns, technologies, etc. to the masses on a personal level. To do that, ingraining psychological levers seems like a smart way to go.
What are your thoughts of what’s made Facebook so viral? How have other techs built on psychological cues to influence your engagement?