Stock options are not restricted stock units. That’s my big lesson from this week. I thought I knew what getting equity was all about, but given I’ve gone through few meaningful liquidity events other than Burner Rocket, I didn’t know what options truly meant. Burner Rocket, after all, was a much simpler transaction that my partner and I largely split.

Over the last couple startups I joined, I have been offered more significant stock options as part of my compensation. These were all early stage startups with great risk involved and lower-than-market salaries. I’ve realized the big difference of stock options while financial planning. Meanwhile, I have several friends who have joined companies and received restricted stock units (RSUs).

Here’s a quick breakdown about each.

Stock options

Stock options are typically given as compensation and earned as a reward for hitting milestones with a company. They are typically earned over a vesting schedule. A common vesting schedule for modern startups:

  • 1-year cliff – to mitigate the risk of new employees earning high-value options, companies instill a period that an employee must stay in order to start earning options. Stay 8 months, no options. Stay 1 year 8 months, options.
  • 4 years – stock options are earned out over some time period where the 4 years includes the 1-year cliff. Typically, the earn out is evenly distributed over the years. If given 1,000 options, year 1 would earn 250 options. Year 2 would earn another 250 options (500 options, cumulative).
  • Typically, after the 1-year cliff, options are earned every month (1/12th of the annual period, or 1/48th overall).

The key part about stock options is that they come with a strike price (or exercise price). This is a value per option usually based on the last valuation of the company. This is also the price to which a new employee has the right to acquire the options for at a later date when the options are earned (based on the vesting schedule).

For example, take a new employee can earn 1,000 options over 4 years. After 18 months, the employee earns the right to exercise her options on 375 options (18 x 1 / 48 x 1,000 = 375). The value of a share of stock is $50, but in her contract, she has a strike price of $0.50. This means she can exercise her shares of the company at $187.50 (375 shares x $0.50). However, the value of her shares are actually $18,750 (375 shares x $50). That would represent $18,562.50 in value earned.

Employees can exercise their stock options based on a contract. Read: employees cannot hold onto options forever and expect to exercise at forever + 1 day. They expire. Some startups may provide 3 months for employees to exercise following the voluntary or involuntary termination. There could also be no ability to exercise (o days) for termination with cause. This should be spelled out in the options agreement.

And finally, stock options come in two flavors:

  • Nonqualified stock options – these options are extended to general employees, consultants, other partners of the company. No difference in value. The difference appears in taxes, to be discussed below.
  • Incentive stock options – these options are typically reserved to executive management of the company (C-level managers and other key personnel). These individuals (via this type of stock option) receive preferential tax treatment (to be discussed below). Lawmakers wanted to provide another incentive for these leadership personnel who lawmakers believe bring greater value to the grander economy.

Restricted stock units

Restricted stock units (RSUs) are another way of saying shares of a company that have been reserved as compensation to an employee. RSUs, like stock options, may be earned on a vesting schedule–many, also, on 4-year schedules.

The big difference for RSUs is that they do not need to be purchased by the employee to own. Instead, employees earn them outright after vesting periods elapse. There is no strike price here. Instead, the number of shares would be earned based on the value of the stock at the time of earning.

Important to note here that RSUs could also mean earning the cash / liquidity of the value instead of owning the actual stock. This provides some flexibility to the employee on what and how to deploy her compensation.

The big differences

In short, RSUs are a safer, less volatile compensation type over stock options which require the employee to “buy” at an agreed upon strike price.

The other key difference between stock options and RSUs is how they are taxed.

For stock options, taxes are paid when the employee sells the shares. This will be based on the capital gains rate applicable. Additionally, if the stock options were marked as nonqualified (NSO), then, incomes taxes will also be assumed here.

RSUs, on the other hand, are treated as income as they are directly earned by the employee. As such, they incur the normal income tax on the market value of the earn out at the time of earning. Typically, the employer will withhold some number of shares (or cash) to pay the taxes rather than issues full to the employee and having the employee deal with the income tax implications. If the employee takes the option for stock shares, then capital gains taxes may be incurred if sold later than a year.

As you can see, stock options and RSUs are very similar in how they are used to compensate employees. The biggest differences are on risk (RSUs being the lower risk) and the way employees are taxed.

I was speaking to a colleague recently working in private equity, and I heard about a very interesting concept called “add backs”. Add backs can play a big role in the valuation of a company. Add backs can be expenses made prior to an acquisition that are one-time and can further the growth of a company or reduce costs. These add backs can be added back to the EBITDA (earnings before interest, taxes, depreciation, and amortization).

Some examples of add backs include:

  • $300,000 for laying off the bottom performing 25% sales team
  • $50,000 for company jet for executive that is no longer involved in the day-to-day operations
  • $1,000,000 in consulting services to deliver a strategic and execution for high growth

If a company has an EBITDA of $5,000,000 with all of the above add backs, the adjusted EBITDA (true profitability) would be $6,350,000 ($5,000,000 + $300,000 + $50,000 + $1,000,000).

In M&A transactions where multiples are applied to EBITDA, add backs can be massive. For example, if a technology company typically sells at a 7x multiple, the valuation of the EBITDA would be $35,000,000; however, its valuation on an adjusted EBITDA would be $44,450,000. That would be a difference of $9,450,000. Or simply, every $1 of add back is an additional $7 of valuation.

Sellers need to consider these one-time, transactional expenses when valuating their companies. It could be a massive missed opportunity.

Last week was the first time in a long time I just said, “eff it, I’m not posting”. I could’ve still posted later like I had done for several weeks prior. However, I just didn’t. Maybe it’s time for a break?

The last several months have been a whirlwind for me with travel all around the world—including writing this post from Dubai. Meanwhile, I’ve sold my previous home. Closed on a new home. I’ve gotten married. I’ve taken on new roles at a new job. It’s a lot.

Meanwhile, I’ve felt so much less entrepreneurial in my current role. Perhaps because I’ve realized more and more that while I am in my current role in this startup, it’s crystal clear I am no longer an entrepreneur. Sure, I can be entrepreneurial. However, I’ve hung up my keyboard as an entrepreneur since selling Burner Rocket. Now, I’m just an employee.

I’ve felt so much less an entrepreneur. I have things to share, for sure, as I take on this “Solutions Architect” role while also taking on some elements of sales and some in marketing. However, it’s all… not mine. As I stare at a future that is quickly approaching with my new personal life changes, I must make the decision to stay on my current course as an officer of a ship, or find a new way for me to be the captain of one.

Whatever the next step is, however, I’ve reached a saturation point and exhaustion that has me saying I should cut back my posts here to at least bi-weekly if not stop altogether. Or, I go with something in between as a time bound hiatus or choose to post only when I want to (read: have material I feel should be shared rather than the obligatory weekly, or bi-weekly, post).

Life is changing. My role is changing. My views on how I pursue my life’s passions and ambitions are not changing. Though, these feelings are the same feelings many entrepreneurs face, especially in light of struggling to gain enough traction to stay the course and being able to do so—emotionally, socially, emotionally, etc.

Stay tuned. But also, reflect on where you are. How is your life changing? Are your ambitions and passions changing, too? Or, are your ambitions and passions playing second fiddle now due to some changes? Will you stay this course or do you have plans to change?

My [new] wife and I are out in Hawaii checking out the sands and crashing waves of the North Shore, and we’re approached by a man looking straight at me saying, “you look like you’re from around here”. I’m dressed like I am definitely not–pure “tourist” on me. But I know what he’s up to. Before he walked up to us, he grabs a binder, and his face is beaming.

This man proceeded to pitch my wife and I on the problems of rusty, beaten-up old barrels the government is using as trashcans on beaches. Well, he started off showing his business license (a welcome surprise to help bring some legitimacy to his walk-up pitches). Then, the man shows us pictures of these horrendous barrels (much like those used for oil) that are rusty. They’re not only ugly but they are dangerous with their sharp rusty hulls and polluting our environment. He’s got a solution, of course–safe, durable plastic barrels. Oh, but there’s more! They can also be wrapped with beautiful art. In fact, this is his main pitch. He wants to not only provide / fund better containers, but he really means to slap artwork on barrels. He also has a picture of himself and others with the mayor of the local town. Not sure what they’re taking a picture of. After all, I could’ve taken a picture with an A-list celebrity on my flight to LA the other day, but that does not mean he and I are best buds even if I tell you it’s true.

I told him I was “skeptical of people who walk up to me asking for money” without legitimate opportunity to validate. With that, the man agreed that he probably wouldn’t give a couple dollars to someone like him either and promptly thanked us for our time and left.

My wife laughed out how upfront I was, but I mentioned to her that I knew what he was trying to do before he said a word. She asked me how I knew, and it’s quite simple. His opening salvo is employed by countless walk-up salespeople. When I was in Dubai a few weeks ago in the Old City Souq (marketplace much like a bazaar), I was constantly bombarded by merchants trying to lure me into their shops to buy herbs, scarves, etc. Much like this man at the beach, the salespeople at the souq would try to entice me with:

  • “Hi friend! Where are you from?”
  • “Ni hao!” (Mandarin for, “hello”.)
  • “Have you seen such a beautiful scarf?”
  • “Where are you heading today?”
  • “You look like you exercise.”
  • “I think you’re from Trump country.” (I heard this term too often.)

In several instances, merchants would try to lasso me in by actually hooking scarves around my neck to try them on. Subtle, these folks were not.

Today’s encounter made me think about these pitches.

  • Most of these pitches are for low-conversion, high-volume transactional sales. They’re just looking for one thing and are ready to move on.
  • Today’s man was actually quite nice, but he also realizes a “no” when he hears one. Hence, he was quick to give his thanks and take off. He’s ready to find someone else to sell to.
  • His business license made my head turn that he could be legitimate. In the least, I can hear out his plan further. However, my skepticism prevailed.
  • His opening line saying I could be from here was, likely, based on my ethnicity and skin tone. This is much like in the souq when folks would try to lure me by saying hello in various Asian languages. Playing on race is usually not a good way to start things off.
  • By launching full on into a pitch does a couple main things: (1) creates defensiveness to the audience and immediately creates a negative environment; (2) gives the pitcher the opportunity to lay out the message before the listener can say no and risk the defensiveness.

Folks get these pitches all the time. Some are more subtle in everyday life such as a grocery store food sample station or while walking around at a car dealership. They just keep coming.

How have you been pitched? Was there a pitch that worked on you? Why?

I’ve spoken to a few marketers and entrepreneurs recently about reinvigorating old customers in more transactional sales. These types of sales can be layups if done right, and though, would likely not yield 100% conversion, these opportunities can still have a high conversion rate. At least, if customers had a positive experience before.

In one case, a mooted marketing campaign involved a give-away with minimal reward but to buy a new “package” would’ve required planning and an investment over several thousands of dollars. In fact, this type of sale was more luxury-oriented and highly experiential. Though the marketing ploy could’ve been fun, I didn’t feel it would bear much fruit. More importantly, there was a better opportunity—create a campaign around the customers’ prior experiences.  

This luxury service offering meant the cost of acquisition could be higher. This also meant there was a good opportunity to leverage more personalized messaging. A more effective campaign would be to lean on the prior experience. That is, provoke the customer to think back and relive the experience. Building on the pleasurable experience will entice the customer back.

In traditional B2B sales, building a sales opportunity involves provoking the pain point. Then, show the customer how a proposed solution would relieve the pain.

Play up the emotional experience.

Recently, I’ve had a couple confrontations / differences where I reacted very differently. Upon reflection, these two reactions are exactly why I am not yet a great sales person.

There are plenty of research in the field of sales that are key to being a great sales person including:

In general, less skilled sales professionals speak 70% or more in any sale. Less skilled sales professionals feel they need to sell on features and what the product does, rather than on why—let alone listen to the other side. It’s about the sales person, typically, less so on the other side or even both parties.

As I reflect on these discussions, in the “poor sales guy” example, I was quick to jump in with what I have done and what I am doing, etc. I was not quick to pause and ask why. I was not quick to learn more. I was focused on me. I was focused on what I am doing. And as you can imagine, the discussion quickly deteriorated to a non-productive discussion.

I felt the sense that I should’ve taken the pause, but the emotional side of me wanted to jump in and almost overwhelm the other person. And like any sale, good or poor, both parties are not trying to necessarily “outdo” the other person. Instead, typical sales has both parties vying for their respective interests, not the interests of the whole. For me, my interests were to share what I had achieved, rather than hearing more from the other side.

You can take a lot of great sales principles into everyday life and vice versa. For me, interactions on both sides continue to reflect that, though I may be making progress to be a better sales professional, I still have a ways to go.

For the last couple weeks, I’ve been in Dubai as part of the Dubai Future Accelerators program, but the last week has been alone – that is, my colleague left for other appointments at home. It’s been a great experience continuing to spread my proverbial wings and practice entrepreneurship in its simplest root – performing customer discovery. It’s also meant I’ve had the chance to better understand the challenges, opportunities, and the delta between what our cloud-platform can provide and what the use case calls for. I’m having a lot of fun. However, it also means I must practice a lot of brainstorming in silo and keep an eye on both tactical and strategic objectives. That’s a bit tougher. It requires self-regulation.

Most everyday, I am immersing myself with the client and use case. I’m really employing my former consulting experience here while fine-tuning to the needs of a startup (read: entrepreneurship). Every so often, I get a chance to catch up with my colleagues back home. As a non-programmer, I must balance what is wanted, what is required, what can be accomplished with limited resources (especially time)… all the while managing expectations as a sales professional.

On my first day, I went deep into the process. From consulting, it’s akin to “stapling myself to an order”. That is, living through the life of what is happening to better understand the granular challenges. We were asked early on what the strategic goal was. It’s interesting to see how the challenges and desire for solution(s) can be misaligned seemingly. It goes back to the balance and identify of tactical vs. strategic objectives. It’s easy to get absorbed into the weeds of a challenge. When you’re deep in the weeds, you can’t see what’s truly happening or the cause of problems because you can also see what’s happening in front of you. That’s why it’s important to step up and out and assess what’s happening at the macro-level. This is a great reason why asking “Why?” five times is a great approach.

In some ways, it’s like having that “out-of-body” assessment as I mentioned a couple months ago in “Customer Discovery Through the Out-of-Body Experience”. Except, instead of asking the customer to do this, it’s for me to do it.

Working in isolation can be tough even when one can say working with the customer is team work. But the truth is the customer doesn’t always know the company’s capabilities, what are off limit, how this opportunity affects other opportunities, etc. That’s why having that second set of eyes and ears is so important. But if that’s not there, then it’s up to the solo artist (me, in this case at the moment) to have the self-regulation to throttle speed–speed up or slow down—as needed.

More of a self-reflection post, but an anecdote most solopreneurs can do well to consider.

A few weeks ago, I wrote about my struggle with consistency right now. Things are very busy with a lot changing in my life. One piece I did not share before because I didn’t know it would come to fruition was a work trip to Dubai… for three weeks in March and then another in April. Add more to the plate that is already full.

As I write this, I’m sitting in my hotel room in Dubai. I’ve been here for more than a week, and have another two weeks left before I return to Atlanta sandwiching a trip to Hawaii before heading back here for another three weeks. This work trip is as part of the Dubai Future Accelerators (DFA).

DFA is a nine-week “accelerator” program whereby the government’s arm, the Dubai Future Foundation, to spearhead innovation and bring the United Arab Emirates (UAE) to the status of “best country in the world” by 2071 – its centennial vision. Here, my startup Verusen is one of seven total startups around the world taking part of three challenges for Emirates airlines – owned by the Dubai government.

It’s been an interesting experience so far to be a part of this program and learning of the government’s role in leading the country, and specifically, how Dubai is spearheading this initiative for the UAE as a city and one of the emirates.

In the U.S. and in Atlanta, GA, much of innovation and transformation is led by corporations. The government applies regulation and enforcement of laws. However, it’s all commercial. Meanwhile, the governments and corporations are very well established with hundreds of years of experience, and with layers of bureaucracy.

In contrast, the UAE was established in 1971 – almost 200 years after the U.S. Dubai was founded almost 100 years earlier, but really started taking hold after UAE was formed. Meanwhile, the governing body has been under tight control under the family of Sheikhs with almost full authority. Under the visionary leadership of Mohammed bin Rashid Al Maktoum and before him, his father, Rashid bin Saeed Al Maktoum.

What I’ve noticed is an incredible joint effort between government and corporations to execute. Dubai has been able to push through many changes in the spirit of innovation. It’s one of the ways the city is quickly diversifying its revenue streams including building up tremendous tourism. The city is already home to some of the “World’s XX-est” superlatives including the Burj Khalifa as the tallest tower in the world, Dubai Mall as the world’s biggest mall, etc.

The ability to execute is second to none in this city where speed and innovation reign. Though, I admit the internet connections throughout the city have been fractions of what is found in the U.S. or Japan. The speed of growth is also the reason why so many expats are located here as they look to capitalize on Dubai’s success so far and growth into the future. Wikipedia shares that back in 2013, “only about 15% of the population of the emirate was made up of UAE nationals” (Wikipedia) leaving the rest made up of expats. When I ask Dubai citizens today, they resoundingly believe the ratio has skewed closer to 10% with the expats hailing from more than 200 countries around the world. It’s not hard to see that fact in the incredible diversity in the city.

Being a part of this accelerator has opened up my eyes to how Dubai is trying to change the landscape not just for itself, the country, or the region. It wants to lead the world. Dubai is fostering innovation from the top.

Pushing the boundaries with today’s speed of technology innovation seems like a great fit for now. The questions will come soon whether other cities (looking at you, Atlanta) embrace a more collaborative partnership between government and corporations with execution at speed. But also, will Dubai’s rapid growth and eventual maturity bring about the typical pains and layers of bureaucracy found in established cities around the world?

Till then, it’s great to be in this accelerator program and see what type of change can be brought to make lives better.

I’ve recently talked to the leaders of a couple professional organizations. One goal the organizations share is bringing like-minded professionals together to share knowledge – call it networking. Of course, growth is the goal. However, there are a couple challenges that exist when it comes to these types of organizations. 

  1. How to attract the “doers” and the “knowledge workers” from industry, not just those who sell and service them. Much like trade shows, events can quickly deteriorate away from knowledge transfer and selling exercises. Thus, the industry workers of the ecosystem become underrepresented.  
  1. Build an events calendar and annual strategy that member will attend. What do the members care about? Or more importantly, what events would members attend?  

I admit the first challenge is a very difficult one. I’m getting introduced into these organizations from my role as a solutions provider. Though, my purpose is to network and learn more about my industry and my customers, not to directly sell at any event. But I remember, too, when running spaces at trade shows for Body Boss, it was clear that we were vendors. However, events in the professional strength and conditioning industry were filled 75%+ of industry doers – the coaches and trainers. There was a small portion of solution and services providers, but there was a clear value for coaches to keep attending events without being inundated by sales people. In the business world, the ratio can be flipped. 

The second challenge is a great opportunity. It requires knowing the members. In many ways, this also represents a wonderful time to rebuild a foundation. This may require culling a membership list. However, it provides for a more targeted, engaged member base.  

How the organizations get to know the members can be done in many ways. One simple way is simply running surveys. Flesh out what questions need to be answered to build a strategy and calendar where there will be more certainty of audience. As the members become more engaged, growth of the base will also occur. But it all comes from knowing the audience. 

And by knowing the audience, events can become more focused on in-the-industry knowledge with clear agendas to share knowledge. With a focus on content and context, more time will be spent on knowledge sharing and transfer – less time on sales-y networking. That’s possible, too. 

During my last month and a half since I joined Verusen (re-branded from AUTIT), I’ve been impressed by the opportunities afforded by the Atlanta Technology and Development Center (ATDC).

I never worked here, but I had visited ATDC in years past. It seemed like a real button-up, stodgy workplace. I can’t say that it’s completely not that. But what I have been most impressed with is the incredible network and companies who come through the center.

I’ve spent the last several years at Atlanta Tech Village (ATV). I was at ATV weeks after David Cummings bought the building in 2012. It was a place I had always wanted to be a member of before joining SalesWise in 2016. And indeed, it was a fun environment with lots of chances to meet like-minded entrepreneurs and startups. Culturally, it was a great environment. But ATDC taught me what was missing… opportunities to truly connect with big corporations. ATDC has been a fantastic resource for real contribution to pipeline opportunities.

When I say contribution to pipeline, this also depends on what a business is about. Namely, what is the market a business sells to. For Verusen, we are work with large organizations with complex supply chains. With Georgia Tech tied to the hip of ATDC and the vast number of innovation centers for Fortune 500 companies (i.e. AT&T, Delta, The Home Depot, etc.) in proximity, getting introductions to similar corporations is almost an every-week occurrence. This is far and away more than the introductions I had ever gotten at ATV despite being one of the well-funded companies in the building.

With ATDC, there are personnel whose charter is to cultivate relationships with businesses – bring them to the space to discuss innovation and meet resident companies. To date, we have had introductions to Daimler-Chrysler (Mercedes), Honeywell, United States Navy, Bosch Global, Delta, Georgia-Pacific, and many more. It’s surprising. The goal of most introductions (“industry connects”) is fast-tracking to proof of concepts (POC).

There are many factors to consider when selecting a space to work out of including rent cost, the ability to attract talent, and of course, the market a business serves. But for a B2B company, ATDC has been a powerful partner.

Back when I was more of a novice in startups, I would say a “cool environment” was important to me because that’s what startups were supposed to be about, right? Except, in the real-world, startups are businesses. They need to earn a keep to survive and to even have fun. As a more seasoned professional and entrepreneur, paths to revenue and profitability are so much more important to me. Just build a good culture within the company, not as a perk of an office.