Mastering Startup Operations & Early Stage HR - with Adam Spector, Founder & COO of AbstractOps

Hey everyone, and welcome to this Founder Institute webinar on mastering startup operations and early-stage HR with Adam Spector. My name is Ryan Micheletti, and I'm Head of Global Operations for the Founder Institute. For those of you who do not know, Founder Institute is the world's largest early-stage startup accelerator. Since 2009, we've launched over 5,000 companies across 200 cities around the world. We have the largest mentor network in the world of 21,000 mentors. And so if you're interested in learning more about Founder Institute, we're enrolling in programs across 6 continents. So you can see the list of different cities by going to fi.co/enrolling. And so just to quickly introduce the topic today, while startup operations are critical to a startup's success, it's often one of the most overlooked and least understood topics, and that can result in catastrophic failure. And so Adam and I were talking about this. Adam's a mentor for the Founder Institute Silicon Valley, and we decided to create a series called Mastering Startup Operations where we can dive into different topics, you know, maybe once a month or so around operations. And so today we're going to focus on early-stage HR, and we're going to dig into what startup operations means, what— how do you optimize for best practices, and some pitfalls to avoid. So We have a great international audience today. Be sure to say hi in the chat and let me give you a quick overview of the agenda. So in a moment, I'll introduce Adam. He's gonna go into a presentation on early-stage HR and startup operations. And, you know, we usually do Q&A at the very end, but we wanna do something a little bit different today. The slides are pretty dense. There's a lot of really good information. And because there's so many different kind of, you know, subtopics within the greater topic of early-stage HR, We wanna do Q&A kind of based on the slides. So if at any point in the presentation you have a question, go ahead and put it in the chat. Our producer Felicia, who's here in the background, is gonna send that over to me, and we'll try to answer your questions sort of dynamically throughout the presentation. And if there's a question that's more general, we'll wait until the end to answer it. That way we can get through the presentation. So without further ado, it's my pleasure to introduce Adam Spector, Adam is a friend, a Founder Institute Silicon Valley mentor, a 3-time founder and COO, and he's a 40-time seed angel investor. And so he's invested in exited companies that include Datalog, August Smart Lock, and more. So, uh, Adam, do you want to do a quick introduction?

Yeah, thank you so much, Ryan. Um, as always, it's super exciting for me to be here. The, the Founder Institute, um, crowd that you guys bring in is always just They're like my family in a sense, because I love early-stage startup people. And it actually like really jives with why sort of why we're doing this presentation in the first place. My company AbstractOps, our entire focus is on automating the back office so that founders can get back to doing what they do best, which is actually building amazing products, finding customers for those products, and hopefully changing the world. Because the real challenge, frankly, is like No one starts a company and it's like, oh my God, I'm super pumped and excited to go deal with the back office startup operation stuff. Like, no, you do it because you have an amazing idea and you want to be a great entrepreneur. Um, so if you can take that off your plate by moving it over to somebody like Abstract Ops, it's a win for everybody. But of course, not everyone can afford it, so it doesn't always make sense. We also want to do these presentations to help people learn how to master startup operations, since in the end you can't really go talk to your lawyers, your bookkeepers, your accountants, even your investors to get help. And frankly, most of your friends who are also startup founders might not have the right answers either. So my hope is that through this presentation, you're able to get a decent idea of how to master one element, in this case human resources, of startup operations. And so once again, as Ryan mentioned, The slides— I hate doing dense slides. They are relatively dense today though because there's just so much to cover and we don't have that much time. But I'm going to try to go through them. Ask questions during it. I'll make sure to pause at the end of every slide and hopefully be able to dig into various topics as people want to ask questions related to it. Unfortunately, also a colleague of mine who's an amazing HR person, Jessica, has some major travel issues today and she's unable to join. So you just get me, but hopefully that will work out well for everybody in general. So without further ado, let's dive in. So there we go. Come on, dive in. There we go. So look, at a high level, these are kind of the realm of what folks should be thinking about related to early-stage, early-startup human resource basic stuff. You have things that you need to deal with, like your payroll stuff, right? How do I pay my employees? Um, how do I deal with contractors and how do I do payments for them? Um, health insurance is a big one, right? Like, literally there's not even a good logo I could put in there. I had to put like just brokers. Um, there's no good— there's like no good logos and good options. Um, equity, how do you deal with that? Other benefits. Um, how do you create also a great culture? How do you do recruiting? These all relate to HR. Um, and by the way, this slide is a good summary of some of the tools that we actually at AbstractOps recommend. for early-stage US-based startups. There's different providers internationally, of course, as well, but these are some of the best ones, um, that we recommend today for folks to be thinking about, uh, as if they just need one slide of like, what are the best tools? You don't have to stress or worry about doing all the research, talking to salespeople. Here you go. These are the tools you should use. Don't ask questions. Just go get, go get one of these. Arguably, probably the top one in each one of these categories is the best, but Any of these are also really good. So the first topic, of course, is like you can't really have HR unless you start building a team and recruiting that team. At most early-stage startups, that team is usually comprised of what we would call, like I would call sort of EPD, engineering, product, and design. And then of course, business people. Usually, depending on the business, there might be a 50/50 ratio. It might be higher engineering. In many cases, as businesses get kind of older and more established, they actually start hiring more business people to help with sales and things like that, but it really varies. The thing is though, how you recruit those people, the cost to recruiting, the speed of the recruiting are really critical. So what I mean by that are, A recruiter can cost a ton of money. So generally today, recruiters are going to cost you 20% to 25% of first-year salary. So to do the numbers really easily, right, if you're paying an engineer $100K a year, which is a low-cost engineer in many cases, that's going to be $25,000 that you're going to pay out of pocket directly to a recruiter to find that person. Um, so that's expensive if you're an early-stage company. That's a lot of money. that you could put to a lot of other things. So there are ways you can go about doing your recruiting instead. What I mean by that are things like, we recommend a tool called Robot. We've actually used it ourselves. I think it's pretty great. It's way less money. Let me know if you want a referral. I can introduce you to the team there. AngelList. Most people on this call probably have heard of AngelList. We actually, as well, for our company, we do a ton of recruiting on AngelList because they are targeting Most people who are interested in technology know about AngelList, or tech startups know about AngelList, and go look at jobs on the AngelList board. You can post there for free. They do have sort of a more— it's called A-List. It's more of a personalized sort of service that's a little bit more like a recruiter, but still less money than the recruiting. But frankly, like, the best way to get folks is, especially early stage, is via your network. If you are somebody who is as good as you think you are, because you're a founder now of a company, you think you have a great idea, you probably know some other people who would be like, oh my God, I would love to go work with this person because it'd be fun. So as an example, at my company, 2 people who are at the company today are there because I've known them for various periods of time and recruited them directly. And they were like, yeah, we want to come work with you. So that saved us right there. Let's call them both— let's say both were making $100K. That saved us $50,000 by doing that. We knew they were great. They still went through the normal interview process, but we knew they were great. I mean, it made it a lot faster. So really, really work your network early on is super critical. The other thing that is really important to doing recruiting well, and this, by the way, will be a theme throughout the presentation, but is the idea that having a clear job description is critical not only to the candidate that you're recruiting, but arguably to your company as well. Because a key part of HR is making sure that your people are successful, right? Why go through all the trouble, expense, and challenges of hiring a person if you don't make them successful as well? So basically what that means is like you need to go like write this great job description so they know exactly what they're getting into. And it also— then that job description can be turned into their first 30, 60, 90-day work list of like, hey, like, here was a job proposal, here are the things that we expect you to accomplish within this time period. And it actually— you can use, use that to help you build out your overall flow for that candidate employee. Um, and what ends up happening is that person is happier, they're more successful because the job is really clear. They knew exactly what they were getting into when they started. It shows how you can think as a clear thinker and leader, which is also really like— I don't want to go to work at a company where the founders can't even describe the job that I'm going into. Like, that would be a really negative signal to me. So I'd want to go somewhere they say, we know exactly what the work is that you're doing, how you're doing it, and why, and what that entails. Um, so, so highly recommend doing that the right way. Um, sort of related to that, one of the books that gave, gave me some ideas about that, and you should think about, is reading a book called Who. I think it's a really, really good book, highly recommended. Um, yes, you'll be doing more work up front to create the job role the right way, but the time savings and monetary savings you have from properly building that job description and properly onboarding that employee are massive savings overall. And I'll add one last piece there, which is, uh, I haven't looked at the numbers recently, but it's something like 50% of that employee's like first-year salary, or even more, maybe like close to 80%, is lost. Um, if you— if that person leaves, so you bring them on, in 6 months they leave after you bring them on for 6 months, you lose a huge amount of that, um, person's value because you have to train them. Recruit— recruiting, training, onboarding, team disruption, all this stuff. So someone leaves and churns out really fast because you did a bad job on it, just a job description. which maybe took you an hour to write. It's— long story short, do a great job description. It's so much better. Um, uh, there's also a bunch of other things that I'd add here too, but the high level last one I'd put in here is we love doing a good intake form, like a detailed intake form, like question after question, like who are you going to be, what are you doing. Um, ours, it's not super detailed, it takes about 15 to 20 minutes, but it also gives people an idea of how we think. So I will pause there because I realize we got a bunch of slides to go through and I just— I could keep talking about recruiting for forever. But, um, Ryan, are there any questions about kind of recruiting? Yeah, I think we're good. There's

no questions here, but, but you bring up some really great points. I mean, you know, one of the things that we always recommend is, you know, you got, even before you, you find the person or know what the role is that you're hiring for, like, you've got to make that job description and, you know, lean on your advisors, lean on other people that are similar to that sort of archetype, because they're going to help you sort of formulate the exact, like, archetype for that, uh, potential job and that hire is. And then, you know, we've had a lot of success with like posting it on AngelList, post it on your company website, but most of all, like use that as just a reference to then go and find people who are within your network, right? Warm leads, people who are referrals, those are always the best types of people to join your company.

Yeah, no, that's exactly right. And actually, I'll add as well, because I know a lot of the people on this call are really early stage, if you're looking for a co-founder as an example too, So let's say you don't really know what the job description is going to be in a year because like we're startups, things change really fast. So you don't always know what that person will do in the future. However, what you can do, let's say with a co-founder where you're like, as a co-founder, you're going to do everything. Even for that role, you should be able to create a list of like, there's co-founder dating questions that you can actually go through and go through them with this person and like write them down for yourself. Who are you as a person? And do you want to work with this other person closely? So there's a lot you can do to understand yourself, understand who you're trying to hire and why, which will lead to a much higher chance for success, which literally, um, having 1 or 2 bad employees when you're a 2 to 4 person team can be utterly devastating. So you want to get this part right. So start, start, start the right way, and it leads to lots of good stuff going forward. Um, so getting paid. Um, look, once you— obviously, like, you, you don't really need to worry about paying anybody until you actually have some money to pay folks. So I'm going to assume that, um, this is relevant if you've raised some money, um, and it's enough that you can actually start making payroll. If it's just raised enough money to do a little bit of marketing, um, or things like that, then don't sweat it too much. Um, but once you actually have some money in the bank from investors you're starting to pay salaries, um, you absolutely should start using, um, really good software to do that. So the 2 on the left, Gusto and Rippling, are 2 that are great. We think Gusto is really, really good for early-stage startups. Rippling is good, but like Gusto is, I think, the gold standard right now, um, and we work with both really closely, uh, but, um, you should be thinking about like, look, the simple fact is there's no reason to put off getting a payroll system once you have cash in the bank to do it. The simple fact is they're relatively cheap, and we're talking like $40 a month to, uh, to do like for the software, plus in some cases like $6 per user. So yeah, I mean, it's not free, but the ROI on deal— on not having to deal with your own payroll or even trying to figure out how to do payroll when there's great low-cost tools out there Is ridiculously high. Um, so like, don't overthink it, just get some software going ASAP.

Can I jump in here as well? Because, um, you know, outside of Founder Institute, I also have other companies, and the— we use Gusto a lot, and we actually made the mistake of switching from Gusto to a vertical-specific payroll provider because it was in the security industry, and we're like, okay, it's this all-in-one thing. The most painful experience I've ever had in my life. Like, one, trying to switch from Gusto to this other payroll, and then 2, when we realized how bad the other payroll provider was and how great Gusto was, trying to switch back to Gusto. Because you're talking tax, you're talking like employee like files and Social Security numbers. I mean, it was a nightmare. So you— so Adam, you're 100%, you've got to get this right in the beginning because the switching cost of that— I mean, I definitely have some gray hairs as a result of dealing with that.

Yep. No, totally. And by the way, Ryan, in the future, AbstractOps could actually help you with those switching. But what we would also say is like, as experts, and part of what I'm trying to impart here for everybody, you know, for free, for everyone on this call is like, don't make the mistake that Founders Institute and Ryan's teams made. Just choose the best of breed tool. Don't overthink it and start using it. And payroll is a really complex area. You don't want to make a mistake. Get one of the top tools and leave it at that. Some other key things to think about when it comes to like actually getting paid, right, is compensation structures and what goes into that. So there's a few key things there. Related to compensation, you think, well, how much— what is the market rate for this person, right? What does that actually look like overall for that position, for that role? What are they coming from? What is their appetite for For appetite for risk, right? So what is the breakdown between equity versus cash? And everybody's going to be a little bit different. As an example, for AbstractOps, we actually give every single one of our employees 3 compensation options where we literally say, here's option A, it's higher cash, lower equity. Option B, which is sort of middle range for both, and option C is more less cash and higher equity. And we think that's great because, look, everyone has their own personal needs that they're trying to work through, and I don't want to judge that. I want everyone to be able to afford their life, be able to do what they want to do, while also taking a decent bet from the equity side of what we're doing as a company. And we'll talk more about equity in a bit, but another key considering is where are your employees based? So, um, are you going to pay different amounts based on cost of living adjustments? So San Francisco or New York, very expensive. Chicago or Miami, less expensive. Canada, less expensive. India or other places in the world, even less expensive. Or do you play everyone equally everywhere that they are? And there's a lot of debates around this, and we can have a whole long discussion about it. If people— we can talk about if we want about how do you do it. There is no perfect answer. It really depends on the company and what you feel is appropriate, um, and what you think the person can get market-wise. Although generally what we do, as an example, at Abstract Ops, after a lot of thought, is we actually do pay a slightly different compensate— compensation structure based on your location. Because the simple fact is, um, it's not fair to the people who decide to live in the high-expense places that the people in lower-expense places are getting paid in a sense, more if they're getting paid an equal amount because cost of living is so different. So we believe that's the fairest way to do it, is pay people a little bit different based on location, but we actually don't do equity in it much different overall. So equity is pretty, pretty standard across the board, whereas compensation does fluctuate. Another thing to consider is, are the people full-time employees or are they contractors? And when it comes to that, like, there are a lot of nuances around what someone should be defined as, contractor or a full-time person. But it's really in some ways also a business decision that you have to make based on the various decisions that go into it. But if you have someone who's a contractor working for you, you probably should pay them a decent amount more than they would get paid as a full-time employee, mostly because they're not getting the same sort of benefits that a full-time employee would get. So as a contractor, you have to cover your own taxes, you have to cover your own benefits. So there's a lot of extra costs that go into it. And so actually, when we have contractors, we pay them about a 15% higher premium than if they were a full-time employee to help try to offset some of the extra costs that they have to go through for that. So I'll pause there. Are there questions on this slide?

Yeah, Artem asked a good question. He mentions that Gusto is just for the US. So do you have any recommendations for EU or Germany?

Yeah, great question. So I don't off the top of my head have great recommendations for EU or Germany. It's an area that we haven't done quite as much research on at AbstractOps yet. So unfortunately, Artem, I don't have a good answer for you there. But I— but if you want to ping me afterwards, I'm actually happy to check with our team and see if we can get you some good answers, because it's something that we need to get smarter on overall over time.

Mike asks— it's sort of a vague question, but he asked, How about a performance-related salary system?

Yeah, so I think what you're asking there basically is like, it depends on the role for performance-related. And so what I mean by that is basically, like, most performance systems that I've seen usually focus on salespeople, and those are the people who are the folks that you pay based on performance, where you'll say, okay, well, um, 50% of your compensation is, uh, commission-based, meaning essentially like if you sell $100K in our product, you will get a certain percentage of that back as your own income, um, in payment for that. And that's really performance-based. I think it can be a lot harder to do for other roles Not because it's not possible, but the reason it's difficult is because you have to think deeply, how do I break down the performance metrics so that they're fair and that I can actually track them? With engineers, are you tracking submits to GitHub? Are you tracking tickets completed? And then also bear in mind, for a lot of roles, what you measure— there's a great book around this, sort of related to OKRs, but What you measure is what you— what the outcome is going to be. So if you're measuring submits to GitHub with an engineer, maybe they're just going to put— write really bad code, and it's going to lead to lots of submits that they'll be doing, but really bad code that someone else is going to clean up later. So there, there's a dangerous trade-off that you have to worry about depending on the role. But certain ones like sales, once again, very clearly can be based on very specific metrics, and you actually can pay for performance there.

So there's, there's another good question here. This one's, uh, by an anonymous attendee. When it— when is the ideal time for a founder to take a salary? And what if some founders are full-time and others are not?

Yeah, totally. So, um, I think the ideal— well, to first start with, it depends when you have cash in the bank, right? So if you, if you have, um, $25,000 in the bank That's not going to be much of a salary. I would not pay yourself that and suddenly go bankrupt. I would keep that for other, probably more important things. Um, and really, but by the way, like, that's the number I just threw out, $25K. Maybe it's $100K, maybe it's $500K. It really depends on your business, um, and, and how much of a risk and risk appetite you have, right? Let's say you even raise $1 million. Um, you could say as a founder, I'm gonna spend that $1 million on hiring lots of other people. and not on my own salary because I, I'm going to take the risk, but I have— I own 50% of the equity. So like, for me, the equity is worth so much more, and I have enough savings in my bank, my personal bank account, that I can wait a year to get paid more, um, or wait till our next fundraise. So it really depends on you in some cases, and you need to just run the math on it. Like, I would actually build a really basic financial model and think through like, okay, well, how— what's our runway look like if I pay myself this? Or what if I pay myself sort of a ramen money, right? Which is enough to like cover maybe like food and like basic rent, but like nothing else. Ask yourself those questions. Related to co-founders who are part-time, I think you should have a really frank conversation with them and say, look, you're part-time and still making money at your other job. I'm full-time, not making any money on any other job. And so I think I should get a salary to help cover it. It won't be even close to what I was probably making at some other company, But it's something, and I think that makes sense given that I'm full-time and you're not full-time. And obviously the ratio of how much that is varies a little bit, but I would consider— I would just have a frank discussion about that topic.

One other question here. Karambir asks about hiring overseas. He says, suppose I'm in India and want to launch a startup in North America. Like, how do you hire your team? And this kind of goes back to the first slide, tying into this slide. Any recommendations?

Yeah, totally. If you want to— it's funny, a good friend of mine has a pretty big business in India and they want to open up in the US. Basically the way to do it, and I'll actually talk a little bit more about this later, but for an Indian company opening a company in the US, you either open a subsidiary to your main Indian company, or you actually open just a— it wouldn't be a wholly owned separate entity, but a sort of a quasi-separate entity that is affiliated with the core main business. In that case though, it can get relatively complex. So you'll have to spend a bunch of time talking with legal counsel in the US to help you set up that entity and make sure that it's functioning the right way, that you're dealing with compensation, equity, all those key pieces the right way. And I would also add, and I've seen this for companies that are in India starting to go to the US, be prepared for pretty big differences in compensation expectations and even team and management expectations. There's a fairly big difference in those 2 things. So just be prepared for what folks expect.

So, uh, I want to be mindful of the rest of the slides. One other question here from Amit is, uh, should advisors of startups be paid, and if yes, in cash or equity?

Uh, great question. Um, the short answer is, uh, I don't think they should be paid in cash, um, unless they are like— otherwise, they're— if they're getting paid in cash, they're essentially a contractor for you, which is fine. I wouldn't really call them an advisor then. I'd call them a contractor. Like, legally, I'd call them a contractor in that situation, um, because then they're getting paid. If you're getting— you should basically just— they should be an hourly contractor. They might be really amazing and impressive, but they should be an hourly contractor. Um, the difference, of course, if there is good— if they're good enough to be an advisor, you probably don't want to have them at their hourly rate because their hourly rate would be really, really expensive. Um, so your equity is far cheaper and lower cost to give them. Um, and if they're advising you and they're excited by the business, they'll be excited by getting a lot of equity. early on. If I were the advisor to Stripe, early advisor to Stripe, I'd be worth millions and millions of dollars today because of that. So that would be a great trade-off. So I do think though that you should give your advisors equity and you should make sure they get covered for some of the work they're doing there. So yeah, I would give them equity. And the percentages, by the way, vary by stage, but anywhere from like 0.1% So all the way up to maybe 1%, depending on your stage.

Sounds good. So in the interest of time, we can keep going. There's some other questions here, but I'll ask them throughout the presentation.

Awesome. So payroll compliance, right? I think that's— yep, payroll compliance. So look, to be clear, right, none of this is legal advice. I'm not acting as a lawyer. I actually do have a law degree, but I'm not acting as a lawyer by any chance right now. So want to be clear on that front. Um, but a bunch of things to consider, um, here that you should be thinking about when it comes to compliance, because payroll and HR compliance is really important, um, and critical to long-term— the long-term success of your business. If you get some of this stuff wrong, it can be really, really costly for you. Um, so some of the key things to think about, uh, once again, we talked about this a bit, like full-time employees versus contractors, right? Uh, how long are they working for you? Um, how much management do they have from, um, the kind of core team? How much work are they expected to do and how much control do they have are some of the key determinations around contractors. And it depends a little bit on jurisdiction as well. So the definition of a contractor in California might be really different than a contractor in Canada or in India and other places, but it's something to think about there. Another big one to consider, and this is sort of related to compliance, is do you have a P— PEO or an EOR, right? So a PEO is a professional employer organization, and an EOR is an employer of record, versus you just being the core employer. The big things there, by the way, and this is something to legitimately consider, a PEO really helps you take care of a bunch of HR-related things. They can be really helpful, but they do cost some extra money. I don't think most startups really need a PEO. Um, they might need someone to help them with some HR stuff, but not a ton where you actually need a full-time PEO in most cases, um, especially because a lot of the more annoying things like getting your own insurance, um, and talking to specialists is really on you. Um, like HR specialists is really on you. I mean, EOR can be amazing, um, but it's very expensive. We're talking probably like $500 to $800 per employee per month just to have an EOR. It's also, I don't personally believe, wonderful for startups to do it that way because literally your employee is an employee of the EOR. They are the employer of record. So they've signed a contract with that EOR. That could lead to weird issues related to equity, to confidentiality, a bunch of other things. So it's great because it can help you get started quickly. It's scalable. It gives you options to get sort of US-wide insurance really easily. So it does have some real benefits, but I generally don't recommend it for early-stage companies. Um, and then just you being the employer, like once again, get Gusto, then you go get your insurance, uh, via Vouch or Newfront, which we both recommend. Um, you get your general liability and workers' compensation insurance from them, you're good to go. Uh, and workers' compensation actually you can get through, uh, Gusto as well. I mean, tools that tie into their system. Then it's pretty straightforward. And then make sure, by the way, with other compliance issues that part of going back to the point of having a payroll service is that you actually then can make sure you are issuing W-2s and 1099s is really critical. And they take care of all that for you. So a lot of the documentation in key state, US state registrations are really valuable to take care of there. The other thing as well, we'll talk about this in a second, is around international contractors and how you deal with that. piece. Um, the last part I'll mention related to compliance is registering in every state, uh, can be, uh, really frustrating and really time-consuming. There are no great technology solutions out there today for this, although AbstractOps, we're also dealing with— we're actually automating a lot of this for our customers. So, um, you know, if you get to a certain stage and size and this becomes annoying to you, let us know. But the high level there is Especially as companies are becoming work-from-home companies and you have people who are everywhere, um, you need to make sure that you have registered in every single state where you have an employee. Um, that state wants to know that employee is employed by you in that state. The application processes are relatively straightforward, but it may take 30 minutes to an hour to do. If you make a mistake, which a lot of people make— as an example, one of our own customers actually put in their phone number instead of their EIN. And that led to major issues, us trying to clean up this mistake. And so you don't wanna have that happen, but basically like you need to register in every state. So either you do it yourself as a founder, or you find someone like an abstract ops to take care of it. There are other things as well that you need to try to take care of. They're not quite as critical, although important, such as like posters. That sounds crazy. You're not going to put a poster up on your wall when your company's all remote. But now there's actually digital posters that you can actually get to stay compliant with state laws so your employees know what's legally viable. And finally, having a handbook is a really good practice to help outline what people should expect and why and when. So I'll pause there as well.

I don't see any other questions here, so let's keep going.

Great. So international and state compliance, right? We already talked about state compliance. I'm not going to go over that one. But one of the big things to think about is— we, in one of the other questions, were about, right, contractors, or do you have a subsidiary in some other country? So I've actually worked for a company before that had a subsidiary in Canada. And it was great. We had about 10 to 15 people in Canada. It worked out fine, but it is legally complex to manage. So it can be tough, and I wouldn't actually recommend— we have one of our other customers who is dealing with this now. I generally wouldn't recommend getting a— building a subsidiary in another country unless you feel extremely confident you're going to be hiring 5 or more people in that country in a relatively short period of time. You could probably start with hiring them via an EOR, right? So EORs do tend to work in a lot of other countries, and you can get an EOR, and that employee, employee sort of is an employee of that EOR, which takes care of all the compliance in that country. It's more expensive, but it's a great way to go as an option. And then maybe once you get big enough in that country, you actually will get your own subsidiary because you'll save a bunch of money despite the added headaches that are involved. The other thing too to think about is how to deal with contractors who are remote and outside of the US. So in-US contractors, you can pay those via Gusto or Rippling very easily. Rippling is also starting to do payments for international contractors as well. But you also need to think about, okay, what about— like, how do I take care of What contract is that employee on? Are they on my offer letter that I like to send out that my lawyers have approved? Are they on my, um, the company's, let's say, deals contract that they put out there? Or is the contractor on, um, some other contract? So you have to take those into consideration, and there's some questions to ask there. But really, in the end, as long as the person's signing a fairly strong confidentiality agreement, you're probably good. The other big challenge, which we've done a ton of research on it and have yet to find a conclusive good answer, is how do you get equity to your international team members? Um, the short version is our best answer today from our own research is you give those international team members the same equity offers, you know, once again depending on how much, but like the, the same legal offer that you'd make to your US people. And then when you have an exit, they will have to figure out their own local taxes to deal with the hopefully ton of money heading their way once that exit happens. So it's not easy to deal with, but basically just make competitive offers on, in this case, your own company, the same standard equity offers using your own paper, and they will have to figure it out on their own. in their local country and jurisdiction once they get that sort of big, big hopefully pile of money from your company having a massive exit.

So a couple questions here, Adam. One founder asks, am I obliged to pay myself the minimum national salary in an EU country?

Yeah, so I don't know a ton about EU law, so with that disclaimer, I will add that I believe that is the case. that you do have to pay yourself something in those countries. And by the way, the same in many cases goes in the US, where you do have to pay. It depends on the state. So it very much depends. You are obliged to do that. With that said, from a business perspective, the likelihood of the state coming after a broke founder because you didn't pay yourself is fairly small. They generally are looking for bigger fish to fry because you don't have enough money to pay yourself, so it doesn't make a lot of sense for them to come after you. And also, those are one of the things that probably starts becoming more important as you get to be a bigger and more successful company, in which case you can go back and correct it later on, which isn't ideal. Like, it will cost some money legally to take care of. You might have to face some fines in your country. because you weren't doing it the right way early on. But as long as you go back in later and say, look, I messed this up, we didn't have— we didn't have cash at the time, so that's why I messed it up. I couldn't actually even pay myself. Um, but we want to make this good, we want to fix it now. Um, and you go, you know, honestly to the state or the country and say, we're taking care of this, here's what we'd like to do. Um, once again, they might assess some, some fines, but most, most countries that we've seen in most states are pretty forgiving on that front of people trying to do their best to comply, because they realize like you're an early-stage company. Most countries want founders to be successful and don't want to be overly burdensome. So it's a business decision, but in most cases, it's, uh, you can ask for forgiveness later, um, and do it the right way and do it nicely. And once you have cash, it's much easier to pay that fine and move on, and as long as you've built a real business. Like, building your own business is the most important to start with. Otherwise, you don't have money for a fine anyways.

So, uh, Hatem asks, or he says, I don't like to deal with these things. Uh, does it mean I need a business co-founder?

Great question. Um, so, uh, no, it doesn't mean you need a business co-founder, because I'm relatively biased, to be very honest and upfront. I'm biased, which is that, uh, even a business co-founder should be focused on building the business. They should be focused on talking to customers, finding those customers, getting them signed up. That is a great business co-founder to have if they are good at sales, understand marketing, understand sort of business operations. From the back office work, such as all this HR stuff, there are companies that are emerging today like AbstractOps. Like, we actually literally created AbstractOps so you don't have to go spend all this extra money to go hire various people to go help you with run the back office, 'cause no one enjoys this. Like, no one starts their business and is like, oh yes, I'm so excited to deal with back office, right? This is painful stuff that needs to be done the right way. And our goal is to take care of it as quickly and as efficiently as possible for folks. So no, you don't need to do it. And even if you do hire a business or get a business co-founder, use them for their skill to help you build your business, not to run the back office.

Awesome. So, uh, let's keep going, uh, just in the interest of time. We have 18 minutes.

Yeah, totally. Um, so equity— this is to me really exciting, right? Equity is great. It's part of what makes the, the, I think, startup ecosystem go around, where you're essentially giving people equity. Um, it's like a future promise, um, that if they help you build out your business and make it successful, um, it's going to lead to a lot of value for them over time. And it's a bet. It's very much a bet. There is no guarantee of what you're getting. But once I sort of mentioned this a little bit, but like the stage in the vision, so where you are, as you get to be a bigger company, the amount of equity that you're giving out is going to go down. And that's understandable because the value of your equity will presumably be going up, right? So giving out 1% of a $10 million company is very different than giving out 1% of a billion-dollar company. And you want to make sure the compensation is commensurate with the stage of the company, the size of it, and what's viable and makes sense for that employee when they're coming over to your team. So those are real big questions you should be considering. And once again, the percentage also really, really depends on the stage of the company. as well, and kind of the job role itself, right? So engineers might get more equity. A senior person, like a VP in a sense, might get a lot more equity than a junior person. Also, one thing to talk about as well that's confusing for a lot of people, but it's granting schedules for that equity. So a standard grant for most employees, at least in Silicon Valley and most of the US, is a 4-year grant with a 1-year cliff. What that means is basically the employee starts vesting the moment they start, but they don't get any of their equity until they hit their 1-year cliff. And that cliff is essentially like, you now hit 1 year and you essentially got now 12 months of equity. And if you don't make it to 1 year because it's not working out, you're not getting along with people, you essentially forfeit that equity. And it's fairly standard today. And then after that, by the way, so then for the next 3 years of your 4-year grant, every single month you will vest, in this case, 1/48th of your grant over that 4 years. So the next 3 years, you still have 1/48th to go, and every month will be another 1/48th that is vested, and you essentially own it then. Now, there are some different things around how you could lose it if you leave the company and don't purchase your equity, but that's probably too detailed for now. One thing we do recommend in some cases, and this is sort of new, and we're trying to push this idea because I think it's really healthy for companies, especially early-stage ones, is when you give a big grant to senior people, so let's say a co-founder, your senior engineering team, or other senior people, put them on a 5 or 6-year vest schedule. That sounds like it's a really long time, but the truth is what you should do, the reason it's valuable is because it actually starts helping them Think for the long term and recognize that frankly your team might change over time, and they need to step up over time to keep changing with that team. So giving them a longer grant schedule, although what you also do is— so I actually didn't put it here, but let's say it's a 6-year vest, but you might have 2 or 3 different grants. So grant 1 starts on year 1, grant 2 starts on year 2, grant 3 starts on year 3. So that means then you're vesting A lot— your main part of your vest, when you have all 3 of your 3 grants are all vesting at the same time, happen kind of in the middle period when the company should really be moving fast, when you should really be stepping up and growing things. And part of another reason you want to do this, by the way, for founders as well as teammates, not just employees, is frankly, like, if things don't work out, let's say you have a co-founder and they're on a 4-year vest schedule and they have 50% of the company. That means literally if they don't work out, if they're there for 2 years, and I think everyone knows 2 years your company might just be barely starting to take off, and then you have to let them go or you disagree, they, they've walked away with 25% of your company. Now, yes, it's for 2 years of work, but they barely helped to get to the stage where it's like maybe barely crawling. And that's just really dangerous and really painful. So a longer vesting schedule, especially for senior people, can be really important. Um, once again, it's important to do— ask your teammates, especially early on, to do their 83s, which is a US tax code item, which you want everyone to do when your equity is low priced. It's a really, really tax-advantaged thing to do. You have a very clear, specific 30-day window to do it within when you're essentially purchasing your equity upfront. They might lose some of the money they spent to purchase it, but if your equity is your really early stage, It might only be like $10 or even let's say $1,000 at the most to purchase that equity. And it's a huge tax savings long-term for them. So that's really key. The last thing I'll say that's really, really important, so I wanna highlight this to people, is when you're giving people their compensation and making a compensation offer saying like, hey, we're gonna pay you $100,000, but $50,000 of that is in cash $50,000 is in equity. You have to be really careful how you say that because of course your equity doesn't have real value yet. It has value in your mind, but it doesn't have real value. So you have to be very careful how you promise the value of that equity. So some terminology that is helpful is you might want to say, look, the target value of that stock is $50,000 over 4 years, to be clear, right? So it's— or, you know, or it's far more than that if you're doing it $100K overall. Or you might say, like, if we were to exit today, we think your equity would be worth this much. But you want to be very careful not making complete promises that, yes, 100%, your equity is worth $50,000, because the truth is you don't know, and you can't make promises around something that you're not totally sure about.

So there's a question here from Amit. What happens to the equity that Is left if a co-founder leaves before the cliff or before any of it's vested?

Yeah, great question. The equity goes back to the company. So they've lost it, and that happens for everybody if they leave before their cliff, or even after their cliff, they leave and they haven't vested. So everything that is unvested, and in a sense, unvested is what's before your cliff as well, even though it is vesting, but you've left before your cliff. Um, that equity essentially goes back to the employee pool and it's back to the company. So, um, uh, in that sense, it's great for the company. It's obviously not very good for the employee, um, but hopefully if, if the employee is leaving within 1 year, um, maybe it meant it didn't work out for all parties, and so it's, uh, okay.

So, uh, one other question here from Graydon. Can you explain profit sharing and how it relates to equity?

Yeah, so profit sharing is interesting. It's not something we see too often with startups, but what I would say is profit sharing, like, that is really— it's about profits, so it's about your cash. So I would make sure I very clearly define guidelines for how the profits are being shared. Now, maybe it might be a very simple agreement that says all 4 people at the company each get 25%. of the profits. So it's a very even split, in which case I would have it follow the same lines for equity. Or on the flip side, maybe before you start having profits, you might say, look, you own 10% of the company, Ryan owns 50% of the company, and someone else owns 20%, and then there's 30% left for employees. I think if I did that right, about 70% there. So you could also break it down that way and say, here's the equity ownership that we set up at the beginning, And profits should be distributed by the same ownership amount of the company, which by the way, tracks pretty similarly to what public companies do. When companies pay dividends, which is essentially profit sharing, when they pay a dividend, you get the amount of— your dividend return is based on the amount of stock that you own. So that's very similar to public company comps.

So, and in addition to that, especially at the early stage, I mean, more likely than not, you're not going to have profit because if you have profit to be distributed, you should really be using that money to grow the company and like hire more people and grow. And so for, for a lot of you, um, and, you know, I get a lot of questions around like Delaware C-corps and the whole double taxation issue, uh, reinvest your profits in growth, right? That's kind of your, your advantage as a startup. Um, there are some other questions here around like equity specifically. Nadir, you asked a really good question about like dividing like the equity between founders, employee pool, advisors, investors. We are— our next event is going to deep dive into equity, um, so we are going to cover that. And Adam, just to be respectful of your time, we have 9 minutes left, and then, you know, we're going to invite everyone to join us on Airmeet for an optional networking session afterwards. But how many more slides do you have, and should we keep going with the presentation?

Yeah, just, just 2 more slides, so I can go through those quickly. I'll add one last point on this, which is basically like everyone should get on this call, if you're a startup, go get yourself an equity plan to manage it. You shouldn't really be doing it on an Excel spreadsheet or yourself. So Pulli and Carta are the 2 best out there. We happen to like Pulli a lot more. It's an interesting startup. They're doing really cool work. Via AbstractOps, let us know. We can help you get a free account with them. But basically, you should be managing your equity on a product that helps you manage it. So other benefits to consider as well. So I'll try not to go through all these given time, but some of the key questions are remote. Like there's big discussions, there's almost probably its own debate at some point, but have you a remote team or an office, and which one do you want to have? What should you do? How should you do it? Some things that we love doing, we're really trying hard at Abstract Ops to be a really good, high-functioning remote team. But make sure everyone gets a good stipend to make sure their home office is a really good setup. So if you're remote, you're saving a ton of money, a huge amount of money by not having an office. But that means you want people to work really well from wherever they are working. So make sure they can get a good second monitor. So I have a second monitor right behind me right here. Make sure they can have a standing desk. So I have a standing desk. I can raise this up if I need to. I should be really comfortable. And yeah, it costs some money, But it's relatively low cost compared to the cost of having an office. Um, I would think deeply about culture, which is the next slide, so we'll talk a little bit more about that. Um, be flexible, right? Don't expect that you need to be watching over everybody all the time. Um, if you're remote, you need to be accepting of the fact that people are, um, they're remote, so they have, they have different life things. Maybe they want to go take a 2-hour lunch break, but they also work until 3 AM in the morning. Cool. From my perspective, like, that's, that's a great way to do it. On the flip side, there are benefits to an office. You have better, potentially better culture building. People can be more collaborative in some cases. But I would offer things like a commuter benefit, more food and drinks, things like that, and figure out how many— hey, how many hours we really expect people to be here, especially since everyone got used to working remotely over the past year, and it might be hard for some people to go back to that. 401, I think it's relatively unusual at the very earliest stages. Although you don't have to actually do a matching 401, which most people are used to, you can still have a 401 so people have a tax-advantaged way to save money. There's some great companies out there like Human Interest that help make this possible for a very low cost. So totally an option. Vacation policies, I think deeply about whether you have flexible ones versus set. policies, like, so like 2 weeks off versus just like take as much time as you need, we trust you. Um, parental leave is something you'll definitely have to deal with as you start getting bigger, uh, right? Do you let both parents take off? Um, uh, you know, or it's like sort of, is it for the, for the, um, patern— uh, maternity or paternity leave? What do you offer there? A lot of questions there. Make sure to get your team a good computer. You know, like the, the difference between getting a, a used MacBook Pro and like a brand new one might be $500 or $600, which, you know, sure, you want to pinch pennies, but it's not worth it. Get somebody— they're on their computer all the time working for you. Don't be cheap. Health insurance, super critical. There aren't a lot of good options out there. To keep it moving quickly, we recommend Savvy in the US. What they do is allow you to hire people anywhere in the United States. They can purchase from their local state exchanges. Um, it's a new law that was passed 2 years ago that makes this even possible. And we actually, as an example, at AbstractOps, we actually cover up to $600 per month of healthcare costs for every single employee, and then up to $450 for the first 2 dependents as well, which up to $600 should almost be 100%, or more, frankly, for a lot of people, more than they need. But it's up to you as a business, but that can be a real benefit because obviously I think, as everyone in the US at least knows, health insurance can be a real challenge and really expensive, frankly, if you don't have coverage from your business. So you want to make sure to cover people. In the end, you want to make sure you're doing it in a competitive way, because people do ask. Almost every single employee on our team says, hey, what are the benefits that I get? What can I do? How do I make this work? So it's something to be considerate of. I'll pause there quickly. Any other questions from that, Ryan? I can't— Ryan, you're muted.

There's some here around like co-founders and how do you go about like discussing equity among the co-founders? What's like a fair split? I don't know if we want to dive into that here or if we should wait until the next—

I can give a quick answer. The quick answer there is basically like, have an honest conversation. If you and your co-founders can't have an honest conversation, you have bigger issues than worrying about equity. So have an honest conversation about it. Like, who started the idea? Who's doing different types of work? Generally speaking, if it's just 2 of you, 50/50 split. is pretty fair. Um, we're like 51% and 49%, so at least someone can vote the other out if necessary. Um, uh, that's basically at a high level what I think about. Um,

cool.

So the last one is on culture, because I kind of try to bring it back to where we started to some extent, right? Is the company you create and the culture you set, which includes how you deal with HR issues, it really will enable your company to scale the right way. Because once you start getting past the co-founders, you're starting to have other people on the team who are going to make decisions without you as founders involved. And they are going to make those decisions based on the culture that you've set. So it's essentially a guideline and guidelines for what decisions they should make, how they should make those decisions, and be able to move quickly. So it really— culture comes from the founding team. It does take some time to form, but like the type of team that you set, the hours that you work, when you work, how you work, that will impact the culture that you have. And it's whatever you think is best. There's definitely— there's a variety of different ways to do it. But then you want to reinforce those values as you keep growing so people don't forget those. So we try at Abstract Ops to do this very often. We actually do our performance reviews based on how people are achieving our values. We publicly published our values. We— first thing we give people when they come on board, it's, here's our list of values, please read these over, we want you to understand these. But they're also a work in progress, so help us correct them and change them over time, if that makes sense. Keep in mind as well that actions speak way louder than words, and so that's really important and something to consider too. And then finally, to kind of end it with you know, an article I think that Tony Hsieh wrote, who obviously may rest in peace, but a great person who thought deeply about culture and how to build a really high cultural value company. Your culture really is your brand, right? And to me, that truly is accurate because frankly, like the— sorry, the people that you have on board are actually like the people you build The company— the people you bring on board, the company you build, um, really leads to the type of work that you do, the brand that people think of you as, and then it becomes a self-reinforcing activity. You bring on great people who love your company and they love working there because you do HR right, will lead to them recommending their friends to come work for you. So you can actually start getting referrals, which saves more time. And then those referrals say, oh my God, I love working for this company. It's amazing. It's so much fun, I love the team, which then leads to more referrals. And then will lead to customers because you have happy employees. So all these things truly come— in many ways, culture is the underpinning that helps you as a company grow in a really big way. So I would just say, like, think deeply about this and pay attention as founders, pay deep attention to the actions that you take, because those actions are are picked up by your employees and they will emulate them. And so you're creating that company culture by your own actions. So thank you guys so much. I really appreciate all the questions. Um, I know this was dense and a lot. It's hard. It's a big topic to cover. Um, but I really appreciate it. Feel free to reach out to us at Twitter @AbstractOps. Um, you can just email me directly, of course, as well, um, if you have questions there too. Um, and, uh, uh, Thank you.

Yeah, Adam, thank you so much. This was awesome. We had some great questions from the audience, really great content. I look forward to doing the next one. So for everyone today, we're going to move over to an Airmeet session, which is a platform we use for networking so you can meet other people here in the audience and start having these co-founder conversations. And so we'll be following up with the recording of the event today, and stay tuned for more information. Felicia, if you could paste the Airmeet link in the chat, which I see here. We'll leave this open for another minute or 2 just so people can make the smooth transition, and Adam, we'll see you on the next one.

Yeah, thank you all so much again. Really appreciate it, Ryan, Founder Institute team, and good luck to all the founders out there. Being a founder can be a really lonely journey and tough, but there are a ton of resources out there for you, and don't hesitate to reach out to me, LinkedIn, Twitter, um, directly at abstractops, um, if you have any questions, if we can be helpful. So thank you so much.

Thanks, Adam. See you, everyone.