Avoiding Apes By Building Equity Culture

There’s nothing quite like sitting next to a fire-breathing ape at a launch party.

The vibe in the surrounding room is a generic, genteel chic, and the ape, bored that no one seems to be paying attention to him, has taken to blasting the nearby ice sculptures of engineers, who slowly melt from the radiant heat into shimmering puddles on the marble floor.

The animals prancing about the room aren’t just for show of course – they’re on the table as well. Generous cuts of veal and venison sit atop beautiful gilded tables, a step above the daily grind of liver pâté and Armagnac.

No, this isn’t the life of a venture capitalist (we prefer fire-breathing unicorns, thank you very much), but rather the everyday scene of the neo-Gilded Age at the heart of Silicon Valley today.

Few have done better at describing this world than Nick Bilton, who witnessed 1999 firsthand as a reporter and wrote an excellent essay this month in Vanity Fair on the remarkable similarities between that bubble and now. What he has written is a clarion call for founders to reconsider their approach to succeeding in today’s high-flying times.

The FOMO-ization Of Startups

Great companies don’t start with massive office leases and hundreds of thousands of dollars thrown at a party. They start by building a culture of maximizing value with the minimal capital required to sustain huge growth.

That’s practically a platitude in startup circles, yet, few seem to want to follow that advice.

A grinding, coercive competition is forcing startups to submit to the arms race in order to avoid missing out – on talented engineers, on possible sales, on living it up in the good times. Few founders want to lose an engineering candidate because another startup has Wednesday caviar nights and a swanky new office overlooking the Bay Bridge.

Great companies don’t start with massive office leases and hundreds of thousands of dollars thrown at a party.

So expenses pile up. Wednesday caviar is followed by Thursday lobster, because we have “only the best for the best.” The office gets a multi-million dollar makeover, even though the startup will move from the location in a year or two because of hiring acceleration. Venture capital rounds get larger to match the increased spending on frivolity. Meanwhile, the core of a great startup – the product – languishes until the gravy train (literally a locomotive carrying gravy about the office) runs silent.

You can’t really blame the founders here. The problem with an arms race is that no founder can just unilaterally decide that today I’m not going to keep up. It’s a competitive world out there, and choosing not to compete is almost certainly the quickest road to a “soft landing.”

The Other Path Toward Equity Culture

Or is this new culture really as coercive as it might at first seem? The other side of an arms race is that it can often be a mirage of our own insecurity. Are our employees really so enamored with fine foods that they would switch startups just for a little more decadent crème brûlée? Or is it that we don’t have enough faith in ourselves as leaders to know that they are content and looking forward to the next few years at our company?

Startups are a leadership game, and founders have an incredible ability to set the tone and eventual culture of their companies. They can create a culture of fine tastes, or they can build a more frugal office that emphasizes their product rather than extra spaces for parties with leopards roaming the halls.

The challenge is building what might be called an equity culture. The power of startups is that small teams have the power to build incredible products and multi-billion dollar businesses just through lines of code. Everything else is a distraction to building that value for a startup’s users and consumers.

The power of startups is that small teams have the power to build incredible products and multi-billion dollar businesses just through lines of code.

WhatsApp is probably the canonical example here, which I wrote about more than a year ago: “Its logo is boring, its name uninteresting, and its basic chat theme quite unappealing.

In some ways, WhatsApp is more typical of the Silicon Valley of the past than the current incarnation that is obsessed with pretty pixels. Even more, the WhatsApp team appears to be dominated by engineers who actively shunned the limelight and focused on pure utility. That focus is perhaps why they had an 11-digit offer in the end.”

Building an equity culture isn’t easy. It requires fairly compensating employees in terms of equity, and deeply ingraining in everyone that long-term thinking and growth is the pathway to immense professional and financial success. In short, heads down today so we can have fun tomorrow.

Perhaps even more challenging, maintaining such a culture requires founders to be willing to pass on some potential candidates who might be just a little too focused on the frills, rather than the future of the product. Plus, they need to be a role model when it comes to their own salaries and spending habits, leading by example.

While Bilton and others have chronicled the gilded side of the Valley, there remains an incredible number of engineers and product builders who would rather own a part of a great company than merely gawk at a menagerie for a few minutes. Aggregate that talent, and everything else will work itself out. And if you ever feel the need to meet the fire-breathing ape, feel free – just go to your friend’s party instead.