GenuineVC David Beisel's Perspective on Digital Change

June 12, 2012

A few weeks ago, a very good friend who works at a growing startup emailed me with the following question (in which I’ve masked just a few of the identifying details):

  • What does it mean when almost all of a startup’s early employees have left the company?

    By almost any measure, [our company] is doing phenomenally well. We’re coming up on our 5th birthday; we have ~250 employees with offices in New York, SF, and London; we have contracts with 70 large customers, including most of the biggest in our space; our investors are [three top Silicon Valley firms].But by the end of the month, we’ll have only 5 of our first 10 (including the two founders) employees and 10 of our first 20. We’ve been running at 20-30% attrition over the last 9 months. Our CEO is entirely dismissive that there could be any sort of attrition problem. No one has ever been promoted onto the management team, only hired in from outside.

    I guess the “myth” of the startup is that companies that beat the odds and “make it” do so in such a way that those that entered on the ground floor leave, eventually, have accumulated a great deal more responsibility. In your experience, is this myth true? As an investor, how would you evaluate a company that has such high turnover but still manages to dominate its space?

My email response to his question was (with the bolding added to this blog post):

  • You’re asking quite a bit in this email, both explicitly but implicitly underneath.

    To the direct inquiry about attrition of early folks in startups generally, I think that’s very natural. People who are suited to building a ship aren’t always the best (or have the interest in) sailing the ship, and vice versa.The skillsets required for being effective in an organization with two dozen people or less are very different from those from being effective in one with a couple hundred. The roles transition from being broad ones with high impact to specialized ones with focused results. Additionally, the financial risk-reward profile of the company changes with this progress. So it doesn’t surprise me that the early employees who joined with you are leaving; the situation has changed. That being said, it sounds like there has been a spate of departures recently, which sounds like a different set of issues which may be affecting the company.

    But I also think you’re asking a career question about tenure at a startup company, to which my answer (an opinion) is very binary: I am of the opinion the best route is go early and stay until a successful exit -or- stay until you vest your initial grant and not a day longer. Given the dynamics I mentioned, tenure at a startup should match an individual’s interests/skills, but also synch with financial/career milestones. As an early employee with the company taking off, staying through to an exit will be rewarding both financially and also from a leveraging career trajectory. But after you’ve initially vested (after three or four years?), there aren’t as many marginal benefits in either category (additional option grants are less significant and responsibility accumulation is incremental) until the company hits that very important exit scenario.

  • http://twitter.com/mitmads Mads

    Succinct post. In your binary condition, if the OR condition is replaced by U (union), that will be a great economic outcome for folks involved.

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  • Rob Go
     - 10 hours ago
    puppy-sitting for a few days. I am so out of my element
  • Rob Go
     - 9 hours ago
    Has anyone recut the re2pect commercial with Jeter's winning RBI yet?
  • Rob Go
     - 10 hours ago
    I have an old college friend going through late stage kidney failure. The courage and optimism with which he is facing this is humbling
  • David Beisel
     - 15 hours ago
    @galenmoore I buried the lede.

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