023. Startup equity: The obvious, yet often-bungled way to motivate employees

If you work at a startup, you don't want to miss this post.

This week’s post is a collaboration I’ve been wanting to share with you for a long time – a conversation with Marco Rogers, an Engineering leader and someone whose mind I admire – to shed light on a topic that I haven’t seen discussed anywhere, to help people who work in and care about the tech industry. Below is an edited transcript of our conversation. 

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Jennifer Kim: All right Marco, when we brainstormed potential topics for today, one really stood out to me: “We stopped pushing startup employees to value their equity, what do we have to offer them?” Let’s explore this topic – What does that even mean? What are we seeing? What’s the real problem? – Then, see what solutions emerge from our conversation. 

Marco Rogers: Great, excited to get into it!

Jen: But first.. Some context for the readers on how we know each other! Around 2016, I was just starting to get into Tech Twitter, and I stumbled upon your writing. I became a huge fan, specifically around the clarity of your thinking, pithiness, and boldness in engaging with knuckle-headed bad-faith commenters. You were constantly wiping the floor with them but never in a mean-spirited way, it really is an art form.

Marco: Haha, thanks. I’m not sure if I want to be known for, but I’ll take the compliment. 

Jen: So I was a fan from afar – I used to have regular Slack conversations with coworkers, “Did you see what Marco posted yesterday?!” like the way people talk about sports! Then suddenly, you were on the market as a Director of Eng and I got to help recruit you into the startup I was at! I tried not to fangirl too hard as I introduced myself, oh-so-casually in the kitchen –  I think you were grabbing a bagel. At one point I blurted out, “How are you so good at Twitter?” And you simply replied, “A lot of practice.”

I’ve never told you this, but that answer has had a big impact on my career since. From afar, it seemed like you were born with fire shooting from fingers to a keyboard. But when you – the real person, not the internet persona – explained that it took a lot of deliberate effort to get to where you were, it opened up something in me. Fast forward a few months, I found myself in a difficult place where I needed to “reclaim” my work, so I decided to start actively participating in tech twitter, not just consuming. I started posting in earnest, working on my craft, and growing followers. Now, we’re here! The point is, I’m grateful for your leadership and honesty as it’s had a large impact on the trajectory of my career. 

Marco: We live in an era where it has never been easier or more rewarding to find your voice. But it does take work. I’m glad you’ve found that kind of clarity, and that I might have played a small part.

Jen: All right, that was just the setup. Funnily enough, you joined that startup as I was on my way out, so we never actually got to work together. And today is the first time we’re getting to put our brains together, and talking about … equity and employee motivation. 

Marco: Right. I think we’re in a phase in the tech industry where startups are de-emphasizing the value of equity to employees. And employees are increasingly skeptical, so the opportunity is for leaders to talk about equity, but in a much more honest way – to invite employees to share in the success of the company. 

Jen: Let’s start from the beginning. Why is this topic so important to you? 

Marco: My motivation for talking about this is partly from my own experience, and realizing how naive I was at the beginning of my tech career. I was living in Washington DC when a Bay Area startup recruited me. I jumped on it only because it meant more pay. I had no idea the context and culture that I would get immersed into. 

This new job also came with a piece of paper that said I had equity in the company. And again, I had no idea what it meant and put it out of my mind. Well, the startup was Yammer, and it ended up being really successful and acquired by Microsoft in 2012.

Jen: Oh yeah. Most Gen Z have never heard of Yammer, but there was a time when it was one of the well-known companies in Silicon Valley.

Marco: Yeah, so it was kind of a bizarre experience, all of a sudden finding myself at a “hot” startup. But even more surreal is that the little piece of paper of “equity” suddenly turned into money. Like a very big check. I finally realized what the game was, and decided then, “I should try to do that again, but this time on purpose.”

Jen: Your story could have turned out very differently, right? It could have been a startup that went to zero, and you could have said, “Hmm, that was an experience but maybe I should go back to DC.” That’s what happens to a lot of people. 

Marco: 100 percent, and that’s the impetus for this conversation. The core of what I've found as a leader and a people manager is that employees don't trust the system. They don't value that piece of their compensation and that equity, and because of that, they are missing a vital piece of motivation for why they are supposed to be here. It is a motivation issue, and you and I both know that motivation is hugely important for employee productivity and growth. Without this tool in your manager toolbox, you’re at a disadvantage. 

Jen: It's easy to forget how different things were a decade ago. You were part of the generation before startup culture was mainstream, and it was all just weirdos doing weirdo things. But after a few big moments like the Facebook IPO, where famously a thousand new millionaires were minted, people realized, “Oh shoot, this is a lottery and I should get in.” Then followed a period where equity became a very big deal, and the cultural narrative was, “Get on the rocketship, don’t ask what seat,” and “Your options are going to make you megarich, look at all these Facebookers!”  

Now a decade later, the pendulum has swung the other way, and the conventional wisdom has become, “Assume your equity will be worth nothing.” It feels prudent, but is this actually helpful? Or just another oversimplification?

Marco: I think both things are true – your options could, indeed, be worth nothing. But the thing we should talk about is how to give people the info they need to think critically about equity. That means thinking about the probability of options being worth a lot vs. nothing vs. somewhere in the middle.

Guiding employees on their decision-making process for valuing equity has always been difficult to explain. So I’m attempting to start from a simpler place, by asking: Are employees thinking about it at all? Can you even have a conversation where you talk about equity as a motivational piece? And not just on an individual level – how should managers and companies go about this? 

Jen: It’s almost as if… in the previous generation of startups, equity was the motivator for getting employees to work their butts off. But employees being too obsessed with equity isn’t healthy either, and it led to a new set of problems. So now we’re in a state of overcorrection. But maybe what it comes down to is: We need to be more sophisticated than 'equity is everything' vs. 'equity is nothing,’ and that’s the opportunity for good leadership.  

Marco: Absolutely. The nuance matters.

I want to talk about the Mailchimp debacle from a few years back. Mailchimp had a hugely successful exit, being acquired by Intuit, and it was almost entirely privately owned and bootstrapped. Because it was almost wholly owned by the founders, for a long time they leaned hard into the recruiting strategy of telling people: “You don’t need to care about this whole complicated ‘startup equity’ thing, it's just a lottery ticket. We’ll just give you lots of cash.” This sounded great to a lot of people who were really down on the traditional startup equity model. They bought into this alternative. Many of them are friends of mine.

But then the $12B acquisition got announced – and employees got nothing, because they were owed nothing. Billions of dollars changed hands on the backs of their work, but they didn’t see a penny of it. And so all of a sudden, the same employees who were saying, “I don't care anything about equity,” immediately changed tune: “Wait, this is unfair, right? I’m owed something, right?”

Jen: I can feel a hot take incoming and I’m ready for it.

Marco: The MailChimp situation shows us that we do care about equity, but we don't want to think about it.

Jen: Right. Either we don’t want to, or we’re not equipped to talk about it. So we avoid it, and end up feeling “screwed.” 

Marco: My strong opinion is that employees do deserve something in these kinds of positive outcomes for the company. But “deserve” is not a legally binding contract. It’s not the same thing as being “owed.”  MailChimp employees were really, really upset. And this could have happened to any of us. I think we have to interrogate what we need to be actually thinking about when we think about equity before we push it aside or convince ourselves that it’s not important.

Jen: I can understand the perspective of long-time Mailchimp employees, who have the lived experience of sweating over their computers for years, then seeing the founders, and the founders alone, become mega rich. How do you reconcile the fact that most of the time, startup equity is worth nothing but when it IS worth something, it can be life-changing? I think at the early stage companies, management tells people not to worry about it because they themselves haven’t figured out how to connect those dots in a meaningful way.

Marco: That's right. I appreciate you framing it that way, because I think equity should be an important part of employee compensation. I don’t think everyone agrees with me on that. But instead of talking about that directly, it’s: “Don’t think about equity, it’s just a lottery ticket.”

Jen: Yeah, if I’m really honest about the times I’ve said it to myself previously, it’s because I didn't want to be disappointed. It’s an emotional defense, like a high schooler saying, “I don't want to go to prom, prom is lame.” When in fact, it’s really about how sad it would feel to not be asked by anyone.

Marco: Yes, I appreciate you calling out the emotional part of it. It’s what makes it difficult to talk about for most people. I mean, we could have another, much longer conversation about the emotions people have about money in general. 

Jen: We like to pretend we’re all rational beings, making very rational decisions in our careers, but the inescapable truth is that human beings are emotional creatures. You buy into a startup because they tell you it’s going to be huge. And when that happens, you’re going to reap the rewards. The money, mission, impact, all of that. You sign a startup’s offer letter with utmost optimism, but years later, when things don’t go the way you expected (and this is the norm), that earlier feeling of hope is difficult to reconcile, even embarrassing. 

Maybe that’s why we’ve overcorrected to, “I don't even think about equity. Equity doesn't matter.” It's a way to protect ourselves from self-blame, “Why did I believe this could be something?” When the truth is, no one can see the signs for certain. That’s why early-stage investing is so hard.

Marco: I think that's true. And building on that – when employees try to learn more about equity, they can  end up feeling like they’re not smart enough to understand the value of their equity and I think that's on purpose.

Jen: I know for a fact that recruiters at many companies don’t want you to ask too many questions. 

Marco: I would go even further than that – you’ve known me long enough to know that I don't mince words, It’s not just about people feeling stupid, but the information imbalance has the deck stacked against employees. Companies don’t provide all the information that employees need to make informed decisions. So that’s one reason people simply opt out of the conversation altogether. Otherwise, the information gaps get filled in by emotional decision-making. 

I think there are a lot of threads we're pulling on here, but I want to bring it back to something concrete: I believe a lot of tech startups are shooting themselves in the foot. Because we led employees to this place where they don’t know how to meaningfully think about equity, so they don’t care about it. And we don't have enough other factors to motivate them to join one startup over another, and work hard. Equity is supposed to be the thing that motivates people to ride through the downtimes. Startups used to understand that, but have stopped.

Jen: Right, without equity, a startup job is just another job! Companies may see employees walking away from equity as letting them keep more for themselves. But this is terribly short-sighted, it takes away a major motivational factor for employees to work hard and stick with the company. 

Marco: It's hard to talk about the intent of founders and executives here. But what we can talk about is math. Equity is essentially dividing the company up into shares, and your ownership is coming out of a finite pool. When that runs out, it's a very serious conversation about raising more money, dilution, etc. So if the goal is to make these shares worth as much as possible, how much of that math is dependent on some percentage of employees giving their equity back to the pool? Walking away from it? These are counted in projections, but if more employees were to value equity more and exercise, then a lot of those spreadsheet projections will start breaking.

Jen: So, can you share how you approach this personally, as a manager? 

Marco: When an employee is leaving my team, I try to have a conversation and ask, “Are you able to purchase your options? Is that something you're thinking about?” As a caveat, you want to be careful about this because there are legalities and confidentiality involved. 

Jen: I want to give you some credit here. I don’t think most managers will bring that up proactively, but it’s a way of looking out for your people – making sure they have at least an opportunity to think about it, because many won’t. For example, the previous startup we were both at – I know people who did not exercise, because of 1) the dominant narrative that equity doesn’t matter, and 2) they were leaving because they were unsatisfied with the direction of the company. So they were making an emotional decision, and no one higher-up said, “Hey, can I help provide a space for talking through this?” So they walked away, and as you know, the company did go on to have a successful exit, but they got nothing.  

Marco: That's right, and I have another anecdote about this. After Yammer, I joined another startup as the first engineer, and I ended up vesting quite a bit of equity. When it was time to leave, I had some very serious conversations with my family. We made the bet and put down a lot of money to exercise, then spent 3.5 years waiting. Finally, the news came that the company was going public, and I got an even bigger check than I had from Yammer. So I’m now two for two, feeling fantastic. I started reconnecting with coworkers and it was… heartbreaking.

Jen: Oh no…

Marco: Heartbreaking. People told me, “I didn't understand equity, it seemed too expensive to exercise, so I didn’t do anything.” It’s tough, because the period I worked for that company was pretty grueling, but I can tell you what makes up for it: money. Money makes up for a lot of regret. It really solidified the stance that I'm laying out right now, which is that you can't ignore the value of equity.

Jen: This is important to talk about precisely because people don’t. It’s not like these old coworkers of yours are going on podcasts or writing blog posts, announcing, “I did not exercise, that was a huge mistake, and I feel like an idiot!” People suffer regret and resentment in silence.

Marco: I think it's similar to how people react when they get scammed. Scams are widespread, in large part because the victims feel a lot of shame and don’t tell anyone. 

Jen: This is so interesting. You and I are lucky in that our startups have led to payouts, because there are a ton of people whose startups weren’t worth anything – but there’s also this special category of shame, people who COULD have won, but said, “no thank you” and that was the wrong choice.

Marco: Yeah, so startups should be directly guiding people to value their equity more. Yes there’s the business advantage of employee motivation, but it’s also ethically the right thing to do for your employees.

Jen: Right. We’re all taking on the risk of startups together – employees, founders, investors. To different degrees of course, but let’s stop counting employees out of this equation.

Marco:  It is a collective risk. It’s not a lottery ticket, it’s an investment. And an investment means you could lose it. The difference is, when you buy a single stock in the stock market, you don’t have much control. But this is different. Startup employees have a lot more control than they realize, they’re the ones building the ship. 

Jen: What I'm hearing is an invitation to let go of the very casual way that we’ve been comparing equity to lottery tickets. But maybe that metaphor only came about to describe the scale of riches that are possible. But people play the lottery from an emotional place! So this narrative of “Don’t worry about it, don’t get attached to it,” could be well-intended, but we need to provide the alternative narrative, which is to consider it an investment. 

Marco: You've given me a really important new thought, which is that employees need a way to engage with the emotional parts of their job that they don't have control over, and companies need to find a way to support them on that emotional rollercoaster.

Jen: Yep, that’s what good People work / management is. Ok, we gotta start wrapping up! I’d love to hear some of your ideas and solutions. Even if they won’t be able to change the landscape overnight… we've gotta start somewhere.

Marco: We should be helping employees value their equity. Equity is and should be treated as part of your compensation and we, as managers and HR, need to be aware of the responsibility in guiding people about their compensation.

Jen: Sounds like an invitation for managers to engage more, instead of turning away. If you’re a leader, ask for support. And as an employee, resist the temptation of the “just don’t worry about it” narrative.

Marco: That's right. We’re in an era where motivating employees is getting harder, particularly at startups. We're never going to be able to pay as much cash as the bigger companies. And the new generation of employees isn't as sold on this scrappy startup idea. So while it's hard to talk about because it's complicated, employee equity is needed more than ever. It's how employees can share in the success of the business. It aligns everyone's incentives. If the company is doing well, you make money, if the company doesn't do well everyone is in it together. This is the social contract.

Jen: This reminds me of a useful comparison, early exercise (the practice of allowing people to exercise options before they vest, for major tax benefits). 10 years ago, EE was a rare “perk” that was only available to founders, executives, and key advisors. The only reason is that it’s an enormously cumbersome process that puts administrative burden on HR, legal, etc. So most startups just didn’t do it, and only made the tax savings available to a few “special” people.

But at the previous startup I was at, we decided to offer it to every employee, and open-sourced our process and blogged about it. Nowadays, early exercise is much more common, but that’s because we were one of the few companies that actively talked about it. And we were able to do that because I carved out bandwidth for managing the manual process (I’m getting flashbacks to the mountains of coordination work required… and my monthly runs to the post office to send everybody’s Certified Mail to the IRS…), and I had the CEO’s support. So I think something similar is possible here – to actually shift industry best practices. But it takes leaders stepping forward together. 

Marco: Unfortunately, as a manager, I have not gotten a lot of support. At a previous startup, I approached the leadership, pointing out the missed opportunity of employees not knowing how to value their equity. But I got a lot of blank stares. I fought for it, and they carved out 5 minutes for me to provide some guidance during an All-Hands. 

I want to be very clear to leaders who want to step up about this – this topic can be fraught, so please get buy-in from the rest of the executives. I didn’t have support from my C-suite or finance, but I’m a maverick and did it anyway. I came in and told some of the stories I mentioned today, just showing how things worked out for me. And while nothing is a guarantee, people should know what the possibilities are and more importantly, that they have control over their decisions.

Jen: You know what’s so f’ing ironic? You, Marco, being one of the leaders who cares about your people and steps up, is what makes people realize, “Oh, there are smart, caring leaders here” – and that's what makes employees feel motivated and work harder. That's what makes them believe in the future of the company. The fact that you have to fight for what is hugely impactful is frustrating, but I appreciate that you’re a maverick. Now, where do we go from here?

Marco: I feel like you, Jen, are someone who’s really pushing people to think differently about People/Talent. You’re one of the few people from “the other side table” who I can trust to meet me in the conversation, so I really, really appreciate it. 

Another reason that what you and I are doing right now is important – is that I think there are a lot of leaders who are thinking about this, but it's difficult for them to talk about it from inside of a company.

Jen: Gotta walk the company line.

Marco: Yeah, so I’m hoping this is the start of talking more about it, to educate people who are on the inside. There's a lot of impact that they can make internally if they have some guidance, and I hope we can help them formalize these thoughts. So, I really appreciate you inviting me to come and talk more candidly to help those folks.

Jen: Yeah. It’s interesting, we missed getting to actually work with each other at Lever, but here we are, seven years later (!) and finally collaborating, with you representing the management side and me representing People/Talent. Wow, are we destined… to start a podcast?!

Marco: I'm into it.

Jen: To be continued! In the meantime, this was fun.

Marco: This conversation was exactly what I wanted it to be. I’ve been wanting to unpack this topic that’s been burning a hole in my brain and really get into the nuances, which I think we did. 

Jen: I, too, have a brain full of burning holes… so let’s do this again soon 🙂

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If you learned something new from this post, Marco and I would appreciate it if you could share it with a friend, or in your communities! And leave a comment if you want to see that podcast come to life 😉

Jennifer Kim is the CEO/Founder of Workflow, an education and consulting company that trains the next generation of startup leaders on all things Recruiting, People Ops, and DEI. Through its flagship program, the HireEd Accelerator, Jen and her team have taught hundreds of startup leaders to make hiring a competitive advantage. Previously, Jen was Head of People at Lever and advised dozens of top startups. She is known for her hot takes on tech industry and culture as @jenistyping.