The right and wrong way to lie in business, Part 1

There’s a New York Times article entitled “The Surprisingly Large Cost of Telling Small Lies”. According to it, the best strategy for success in business is never to lie. Not surprisingly, few people can get through even a short conversation without telling a lie. I don’t disagree with the premise that honesty is often the best approach to forming a genuine, long-term relationship. However, it wouldn’t be honest for me to give the advice that one should never lie in business. In fact, there are times when it’s the optimal approach, and even cases when it’s ethically the right thing to do.

It’s rare that someone will say, under his or her real name, that people should lie on their CVs or have peers pose as ex-managers on reference calls or otherwise misrepresent their prior social status. I won’t exactly go that far. If the purpose of your lie is to turn a truthful 90th-percentile CV into a pants-on-fire 99th-percentile one, you should usually spare yourself the headache and not lie. If you have an ex-boss who hates you and has cost you jobs with negative references, you probably should have a peer fill in for him. These are judgment calls that come down to a case-by-case basis, and I don’t think the general problem has a simple solution.

What I can offer are three principles for lying in business: lie big, lie harmlessly, and own the lie.

1. Lying big

By “lie big”, what I really mean is, “lie effectively”. The lie has to be big enough to matter, because unskilled and small lies will drag a person down with unanticipated complexity. You can easily paint yourself into a corner. We just don’t have, as humans, the cognitive bandwidth to keep up ten unrelated lies at the same time without becoming utterly exhausted.

The cost of a lie isn’t, usually, being caught. Perhaps 99% of the lies people tell to inflate their social status are never explicitly caught, but they can do damage on a subconscious level. Social interaction is a real-time problem, and the psychological overhead involved in keeping up a network of lies is often detectable. The lies themselves aren’t detected, and the conscious thought, “he is lying”, probably never occurs. However, the liar appears less genuine. Astute people will find him “fishy” or “sketchy”. He might seem like he’s trying too hard to impress people, or that he’s a “politician”. Nothing formally sticks to him, but he doesn’t warm hearts or earn trust. That is the most common case of the person who lies too much: never caught, but never really trusted. He’s a blowhard, full of himself, and probably doesn’t have the best motivations.

That, above, is the logical endpoint of too many lies. How to people get to blowhard status? Small lies. Pointless, minuscule lies that inflate the liar’s status but in a meaningless way, like cheating at a golf game. In sitcoms, these “white lies” blow up in some hilarious way and are resolved inside of 20 minutes (“oh, that Jack!”) In real life, they tend to just accumulate. People don’t like confrontation, and it’s more fun to egg the liar on anyway, so they prefer not to call the blowhard out on his shit. They’d rather watch him make a fool of himself. The only people who’ll do that for the blowhard are his best friends; but some people are so addicted to the petty thrill of tiny lies that they alienate everyone and have no friends. Then, they’re past the point of no return.

One big lie that achieves a strategic effect is infinitely superior to the cognitive load and social upkeep of a hundred little lies toward the same effect. Make the lie count, or don’t lie.

So, what are some good reasons to lie? This is going to sound completely fucked-up, but the best reason to lie is to earn basic trust (a technical term that I’ll define later). Now that I said something that sounds obnoxious, let me explain why it’s not. People lie, most of the time, for one basic reason: social status modulation. This establishes a taxonomy of lies that gives us four categories: (I) up-modulating status to equality, (II) up-modulating status past equality, or to superiority, (III) down-modulating status to equality, and (IV) down-modulating status to inferiority. I’m not going to focus on down-regulation here. Type III lies are usually harmless omissions, justifiable as social humility, and Type IV is sycophantic and rarely useful. So, let’s focus on the upward lies: types I and II. Type I lies are to establish equality, and those I recommend. If you’re an entrepreneur dealing with an investor who’s never been fired, then you’ve never been fired (even if you have). Type II lies are the lies of the blowhard. Avoid those. Once you are lying just to seem smarter, better, or more connected than the people you are lying to, you’re going to come under a hundred times more scrutiny. If you only lie to establish equality, the level of scrutiny is much lower, because to scrutinize your claims is to assert superiority, and people (even in positions of power) generally aren’t comfortable doing that.

So, the best reason to lie is to up-regulate one’s status to equality, and not beyond it. People who fixate on superiority become small liars. Rather than lying strategically, they’re so focused on being dominant at everything that they lie even when the stakes are petty, and eventually make fools of themselves.

That said, when is it right to lie? Examine your past, your job history, and reputation. Are you a social equal with the other party, and would you expect him to feel that way? You need not be more accomplished; he might be older or just luckier. You need not be richer. You do need to be a social equal. Figure out what that means in your given context. Next, are you looking to form a long-term friendship or a “weak tie”? If the former, try to avoid generating new lies. If you’re interested in forging genuine friendships, honesty really is the best policy. Weak ties have different rules. A weak tie is a tacit understanding of social equality and credibility. It’s only about what I’ve termed “basic trust”. You don’t get a lot of time in which to form (or not form) it. You’re going to be judged superficially. It’s not enough to be a person of merit; you have to look like one.

A theme that continually recurs around the question of honesty is complexity. Small lies generate a nasty complexity load. Even though you won’t be caught on specific lies– because if you’re a known blowhard, no one cares– you’ll start to lose your general credibility (basic trust). Astute people can practically smell the smoke of an overheated mind. Complexity is the devil. In software, it’s a source of bugs. In data science, it’s a source of “over-fitted” models with no predictive power. In politics, it’s a source of exploits and loopholes. In social interactions, it’s a source of general enervation. People throw their hands up and say, “I can’t figure this shit out”, and it’s just lose-lose. When you want them siding with you, they back away slowly.

So when is it the absolute right strategy to lie? Sometimes, the truth is too complex for people to handle. The lie might be simpler, and this might favor it, especially under the superficial judgments that form (or break) weak ties in business.

Take the biggest disappointment of your career, dear reader. Chances are, there were multiple contributing factors. Some were your fault, some weren’t. There were probably months of warning signs along the way. This setback or disappointment will be different for everyone, so let’s come up with a model example: a two-year-long “hero story” that still leads to a negative outcome, such as being fired. On the social market where weak ties are formed, are most people willing to hear a story that complex, and expend the cognitive energy necessary to come down on the right side? Nope. They hear the words “I was fired” and the “bozo bit” goes into the on position. Everything else becomes a story of a weak or unlucky person trying to justify himself. In these cases, it’s better to present a simple lie that goes down easy than the complex truth. It might even be more socially acceptable. For example, “bad-mouthing” an ex-employer is usually more disliked than telling a bilaterally face-saving story (that is, a lie).

This importance of weak ties and simplicity to the heart of it, which is the (above-mentioned) notion of basic trust. Basic trust doesn’t mean that a person is trusted in all things. Would you, as reader, trust me with a million dollars in cash? Probably not. However, you’re reading what I am writing, which means you trust that what I have to say is worth your time. Basic trust is the belief that someone is essentially competent and has integrity. The person is worth hearing out, and treating as a social equal. This is more bluntly termed the “bozo bit”, or “flipping the switch”. If the bozo bit is “on”, that person’s input is ignored. If it’s “off”, that person will usually be treated as a social equal, regardless of differences in rank or wealth.

Organizations can be trust-sparse or trust-dense, and tend to “flip the switch”, collectively, at once. Elite colleges are trust-dense, insofar as students generally trust each other to have valid intellectual input. Some people may lose that trust (because there are idiots everywhere, even at top schools) but new people start out with the bozo bit in the “off” position. There’s a basic trust in them. Most companies become trust-sparse at around 50 people. The way one can tell is to examine its attitude toward internal mobility. Formal performance reviews are already a sign of trust-sparsity, but when those become part of the transfer packet, the organization is stating that it only considers managerial input in personnel decisions. Trust sparsity is the rule, and non-managerial employees (i.e. those who haven’t been vetted and placed on a trusted white-list) have their bozo bit “on”. At a later point, organizations become trust-sparse even within the managerial subset, and begin requiring “VP-level approval” for even minor actions. This means that the organization has reached such size that even the managerial set exhibits trust sparsity, and only a smaller subset (those with VP-level titles) are trusted by the organization.

Trust sparsity is unpleasant, but something one must contend with. If you cold-call a company or send a resume without a personal introduction, you have to prove that you’re not a loser. One might find high-status arrogant people with shitty prejudices (“I don’t hire unlucky people”) abhorrent. Abstractly, I might agree with that dislike of them. That doesn’t mean they’re never useful. I wouldn’t want to have a meaningful relationship with a hiring manager who thinks anyone with a less-than-perfect career history is a loser, but he is a gatekeeper, and I might lie for the purpose of using him.

When should you lie in business? There is one good reason. You lie to “flip the switch” on your bozo bit. It’s that simple. In a trust-sparse organization, or the world at large, it often takes a reasonably big lie to achieve that. Lying by saying that you earned “Employee of the Month” in July 2007 won’t do it, because that’s one of those small lies that really doesn’t mean anything; you need affirmation that your previous company considered you a genuine high-potential employee. (You were placed in the semi-secret “high-potential program” and had lunch once a month with the CEO.) So lie big. Make the lies count, so you can make them few, and keep that complexity load down. Massage your past and reputation, if needed. Change a termination to a voluntary departure. If it suits your story, back-recognize yourself as a leader or a high-potential employee by the organization where you last were. Flip that bozo bit into the “off” position, establishing social equality with the other party. And lie no more than that.

2. Lying harmlessly.

It is my reckless honesty that has me speaking on the rectitude of certain classes of lies in business. Good lies are those that get past peoples’ prejudices to establish basic social equality and form useful “weak ties”. I do not advocate being unethical. If you make a promise you can’t possibly deliver, you’re doing the wrong thing and deserve the punishments that fall upon you. If you claim to be a licensed doctor and you’ve never set foot in a medical school, that’s job fraud and you deserve to go to jail. That’s not what I’m talking about.

If you massage dates on your resume to cover a gap (remember that a simple lie can be better, socially, than a complex truth) then that’s ethically OK; you’re not doing anything wrong. (Still, don’t get caught on that one. Many in business have Category 5 man-periods over even the smallest resume lies. Best to keep lies out of writing.) If you falsely claim to been in the top bonus bucket during your analyst program, because the private equity firm to which you’re applying won’t interview you otherwise, you’re doing no wrong. They deserve to be lied to, for having such a shitty prejudice.

Lies that hurt people are more likely to be caught than those that don’t, and most lies that hurt people are flat-out unethical. Avoid that kind. Your goal in lying should be to make yourself win, not to have others lose.

In a trust-dense setting, one should never have to lie, and one generally shouldn’t lie, at all. It’s lies that bring the organization or subculture toward trust-sparsity in the first place! On the other hand, trust-sparsity admits opportunities in which one can lie while causing no harm to anyone. In trust-sparse settings, people are assumed to be low-status idiots (“bozos”) unless formally recognized otherwise, with accolades such as job titles and managerial authority, and they’re almost never given the opportunity to prove otherwise. If a person of essentially good character and ability can use strategic non-truths to establish credibility, and lies no more than is necessary to do that, then no harm was done. In fact, it can be ethically the right thing to do. The person simply took ownership of his own reputation by inserting a harmless non-truth. This “flipping one’s own switch” is subversive of the general trust-sparsity, but trust-sparsity is goddamn inefficient at any rate, and society needs this sort of lubrication or else it will simply cease to function. This is why, in the MacLeod analysis of the organization, so-called Sociopaths (who are not all bad people, but generally political and willing to employ the forms of dishonesty I uphold) are so necessary. Without lies, nothing gets done in a trust-sparse world.

The problem is that people often do lie harmfully. There are two major kinds of harmful lies. The first is a false promise. This ranges from outright job fraud (claiming a capacity one does not have) to the sympathetic but reckless, but not consciously dishonest, optimism of the typical entrepreneur. I am in no way advocating promises that one cannot keep. Rather, I’m advising people to bring their reputation and status to where they belong, but not past that point. Don’t claim to be a surgeon if you’re not. The second (very common) kind is the lie to hurt others: rumors invented to disparage and humiliate. In addition to being generally unethical and toxic, they’re almost always counter-productive. No one likes a rumormonger or a bearer of bad news, even when that news is believed to be truthful.

Occasionally, one is in an adversarial situation where lying about another person is required. An example would be a bad reference. It’s best to avoid bad references by having peers substitute as ex-managers, but one might get caught in the blue, betrayed unexpectedly or nabbed by a “back channel” reference check. (Note: subvert back-channel reference checks by faking a competing offer and imposing time pressure. If you ever face a back-channel reference check, you failed in getting the offer fast enough.) In that case, my advice is: discredit, don’t humiliate.

You might be very angry when you find a negative reference. You have the right to be angry. You’ve been sucker punched. You might be tempted to say, “That’s because I caught him sleeping with his secretary.” Don’t do that! (At least, don’t sabotage his personal life while looking for a new job; keep your projects separate.) You’re better off with a lie to the effect of, “That’s funny, because he asked me to come back three months after I left. I declined respectfully, but he must be bitter.” That discredits him, but it doesn’t embarrass him any more than is necessary to do the job. You can’t appear to enjoy delivering news that makes someone look bad. With the affair with the secretary, you’re reveling in your ex-boss’s (made-up) demise. With the latter, you’re painting yourself as a top performer (even your ex-boss recognized it) and leaving the other party to connect the dots (that the bad reference is an artifact of the ex’s bitterness).

Also, one must always assume that, when lying about another person, that person will learn of the lie. So “discredit, don’t humiliate” is an aspect of a more general principle, “intimidate, don’t frighten”. You want your adversaries to be intimidated. Timid people shrink from action. They’ll shut the fuck up about you and let you focus on better things (like selling yourself, not justifying yourself in light of rumors). Frightened people, on the other hand, are humiliated, angry, and unpredictable. Even though fright is more of a psychic punishment than timidity, having severely-punished people on the stage is not good for you.

Lies (or truths) that destroy people tend to have enough kinetic energy to boomerang. Even the people who had the news first, unless they’re investigative journalists and the news is truthful, will be hit hard. Negative rumors are best avoided in all contexts: don’t start them, don’t spread them, and don’t even hear them in public. That is the general rule. There are (very rare) times when it is best to break it, and those involve frank combat. In frank combat, you don’t seek to humiliate or frighten your enemies. You have to destroy them, before they destroy you.

Competition is not enough to justify lying harmfully. If the only way to win among multiple candidates for a promotion is to lie harmfully, it’s probably worth passing on that round. (Maybe the other candidate actually is a better fit for the role.) If someone’s legitimately outperforming you and you lie harmfully to bring her down, you’re committing a grave wrong. It’s a much better use of the energy to befriend and learn from her. Jobs are short, but careers are long, and a rival in one bardo is often a great friend in the next. Good-faith competition is not frank combat, and the rule of “lie harmlessly” (or, better yet, not lying at all) still applies. Frank combat exists not when you are being outperformed in good faith, but when your reputation is being attacked. You didn’t choose war, but it chose you.

In frank combat, the best policy is still to lie with minimal harm, but not to shrink away from force if you need to use it. If a stun gun will work, use it instead of the revolver. Only use lethal force if the assailant won’t respond to anything else. The guideline of “discredit, don’t humiliate” applies when it can, but some people just won’t accept that they’ve been discredited (i.e. shut the fuck up) until they’re down for the count. That is a rare case, but it’s the one in which nasty, negative rumors might be the best way to go. Even then, there’s a subtlety to it. Not only must the rumor be believable, but you have to deny it in the public. Negative rumors, most of the time, aren’t so devastating because people actually believe the non-truths. Rather, it’s because they lower the target’s status, generate complexity (leading to people, as discussed above, just giving up rather than rendering judgments) and paint the person as one who “fits the mold” for the rumor, even though you, personally, haven’t taken a stand and won’t call it true.

All this said, frank combat is quite rare and always best avoided. Like a bar fight, no one wins. There’s pain, there’s losing, and there’s losing big. Winning at frank combat is like winning an earthquake. Go out of your way to avoid it.

Most ineffective liars don’t intentionally put themselves into frank combat. The problem of harmful liars is that, like the small liars, they enjoy the petty win over the other person and lose sight of the one valid purpose of lying in business: to flip one’s own “bozo bit”. Unless someone is calling you a bozo, you gain nothing by setting his “bozo bit” back into the “on” position, and you make the world worse (trust sparsity). People who lie harmfully contribute to trust sparsity, also known as discord, and Dante has them in the Eighth Circle of Hell for a reason.

(Part 2 will come out later this week.)

Never sign a PIP. Here’s why.

I alluded to this topic in Friday’s post, and now I’ll address it directly. This search query comes to my blog fairly often: “should I sign a PIP?” The answer is no.

Why? Chances are, performance doesn’t mean what you think it does. Most people think of “performance improvement” as something well-intended, because they take performance to mean “how good I am at my job”. Well, who doesn’t want to get better at his or her job? Even the laziest people would be able to get away with more laziness if they were more competent. Who wouldn’t want to level up? Indeed, that’s how these plans are presented: as structures to help someone improve professional capability. However, that’s not what “performance” means in the context of a employment contract. When a contract exists, non-performance is falling short of an agreed-upon provision of the contract. It doesn’t mean that the contract was fulfilled but in a mediocre way. It means that the contract was breached.

So when someone signs a PIP, he might think he’s agreeing that, “Yeah, I could do a few things better.” That’s not what he’s actually saying, at least not to the courts. He’s agreeing to be identified as a non-performing– again, in the legal sense of the word– employee, in the same category as one who doesn’t show up or who breaks fundamental ethical guidelines. Signing a PIP isn’t an admission that one could have been better at one’s job, but that one wasn’t doing one’s job. Since white-collar work is subjective and job descriptions are often ill-defined, making the binary question of professional and contractual performance difficult to assess in the first place, this sort of admission is gold for an employer looking to fire someone without paying severance. The employer will have a hell of a time proving contractual non-performance (which is not strictly required in order to fire someone, but makes the employer’s case stronger) without such a signature, given that most white-collar work has ill-defined requirements and performance measures.

Managers often claim that signing such paperwork only constitutes admission to having read it, not agreeing to the assessment. Even if true, it’s still a bad idea to sign it. This is now an adversarial relationship, which means that what makes the manager’s work (in the firing process) easier makes your life worse. Verbally, you should say “I agree to perform the duties requested of me, and to make the changes indicated, to the best of my ability, but there are factual inaccuracies and I cannot sign this without speaking to an attorney.” If you are pressed to sign, or threatened with termination, then you may sign it, but include the words “under duress”. (The shorthand “u.d.” will not suffice.) What this means is that, since you were threatened with summary termination, you were not free to decline the PIP, and therefore your signature is meaningless.

Whether you sign the PIP or not, you will probably be fired in time, unless you get another job before the process gets to that point. Not signing it doesn’t make it impossible for them to fire you. It only makes it somewhat harder. So why is it harmful to sign it? You want two things. First, you want time. The longer you have to look for a new job while being employed the old company, the better. If your manager sees you as a risk of messy termination, he’s more likely to let you leave on your own terms because it generates minimal work for him. PIPs are humiliating and appear to be an assertion of power, but they’re an exhausting slog for a manager. Second, you want severance if you don’t find a job in time and do get fired. Severance should never be your goal– non-executives don’t get large severances, so it’s generally better for your career and life to get another job– but you shouldn’t give that away for free.

There isn’t any upside to signing the PIP because, once one is presented, the decision to fire has already been made. A manager who genuinely wants to improve a person’s performance will communicate off the record. Once the manager is “documenting”, the relationship’s over. Also, people very rarely pass PIPs. Some people get the hint and leave, others fail and are fired, and in the remainder of cases, the PIP is ruled “inconclusive”, which means “not enough evidence to terminate at this time”. That’s not exactly an endorsement. For a PIP to be passed would require HR to side with the employee over management, and that will never happen. If the employee is under the same manager in 6 months, there will be another PIP. If the employee tries to move to another team, that will be almost impossible, because a “passed” PIP doesn’t mean exoneration. The reputation for instability created by a PIP lingers on for years. What I am essentially saying here is that, once a PIP appears, you should not sign it for the sake of maintaining a professional relationship. There is no relationship at that point.

Signing the PIP means you don’t know how to play the termination endgame. It means that you have no idea what’s happening to you, and you can be taken advantage of.

This said, there’s a way of not signing it. If you appear to be declining to sign out of bitterness or anger, that doesn’t work in your favor. Then you come off as childish. Childish people are easy to get rid of: just put them in increasingly ridiculous circumstances until they lose their cool and fire themselves by doing something stupid, like throwing a stapler at someone. The image you want to project is of a confident, capable adult– one who will not sign the PIP, because he knows it’s not in his advantage to do so, and who knows his rights under the law. This makes you intimidating. You don’t want to frighten adversaries like this– a frightened enemy is dangerous unpredictable– but you do want to intimidate them, so they get out of your way.

There’s a lot more to say about PIPs, which are dishonestly named processes since their real purpose is to create a paper trail to justify firing someone. That I’ll cover in a future post. For now, I think I’ve covered the most important PIP question. Don’t sign the fucking thing. Be professional (that’s more intimidating than being bitter) but decline to sign and, as fast as you can, get another job. If you see a PIP, moving on is your job.

Discredit, don’t humiliate

I wrote yesterday on the rhetorical power of “I don’t know”. I want to take this into a more aggressive arena. Yesterday, I wrote about debate, which can be stately and high-minded. When you debate someone, you often like that person. You don’t want to hurt or embarrass her; you just disagree with her. Today, I’m going to talk about battle. Battle is when there are people who want to hurt you, and you often have to hurt them first.

In a debate, you can bring the discussion back to facts by saying “I don’t know”, implying that no one has preternatural knowledge, and then presenting a compelling argument. In battle, you have to know. It’s a different game. You must present the appearance that you know what is going on and the reasons why, and you must present the cause of the problem in a way that is favorable to you, in order to win support.

For one example, most people will face managerial adversity at least once in their careers. Verbal criticism isn’t managerial adversity, nor is a bad review if that review is confidential between manager and employee. However, if the review will limit the employee’s project allocation and transfer opportunities, for example, or make it easier to fire that employee later, then it is managerial adversity, and the employee needs to be prepared for a fight. Decent managers will criticize in private, verbally, and confidentially, but give glowing reviews to keep the employee’s reputation strong. They will never make a move that damages the employee’s reputation within the firm. But there are a lot of indecent bosses out there. Managerial adversity exists when a boss disfavors one’s career needs, and it’s one of the most common kinds of battle that adults face. The warning sign is a manager who begins delivering criticism in writing. Once anything negative is put in email, battle has begun.

So how should one fight it? Managerial adversity is not the only kind of battle, but there’s a reason I’m focusing on it. It’s humiliating, and that creates a tendency to overreact– to humiliate the manager in kind. A common approach is to go “over his head” or, worse yet, to HR in a vain attempt to reverse the power dynamic. It almost never works. The boss’s boss picked the boss and is not going to toss him aside to favor some peon. People would rather be wrong but consistent than become inconsistent for the rather useless purpose of being right, and this favor for imbecilic consistency is a species of idiocy that becomes more prominent in powerful individuals. Going “to HR” is worse, since their job is to help the company cheaply fire people. What works a lot better is to get out of the boss’s way: to work out a transfer (note: you should have someone who already wants you before you notify your manager or officially enter the transfer process) and leave. Still, people who make this move are often expected to explain a bad review or an atypical transfer. So how?

Three words: discredit, don’t humiliate. There is a strong tendency to make one’s manager appear to be incompetent and unethical. In fact, he probably is. It doesn’t matter. The goal is least necessary harm. Embarrass him enough to discredit his assessment outright, but no more. Assert that what he is saying is untrue, and back it up, but don’t use the word “unethical”. Let the other parties decide how they feel about him. Why? I’m not saying this because I think people should use the kid gloves with bad bosses. In fact, we’d have a better world if it were more socially acceptable to throw an unethical manager under the bus, but for now we have to live with the world we’ve got. I’m saying it because the last thing a person needs when under managerial adversity is volatility. A mildly discredited adversary will not fight as hard as one facing humiliation.

One of the most important career principles to learn is to avoid outrunning the bear. Every company has an employee who works very hard, 70 hours per week, for about six months, but he doesn’t get the recognition he expected, and so he burns out hard and stalls. Then he gets fired “for performance” because, although he had six good months, his 7th was a bit slack. What did he do wrong? He tried to outrun the bear. You can’t outrun a bear, but you don’t have to. You just have to outrun the other guy. The same applies to managerial adversity. If you mildly discredit your boss’s assessment of you, enough to get back into good standing and have another chance, you’re pitting 100% of yourself against 10% of him, because he has other battles to fight. You stand a good shot of winning, because he won’t know what’s happening until it’s too late, and after you’ve successfully moved on, he won’t care. On the other hand, if you attempt to ruin your boss’s career, you’re going to be fighting 100% of him.

This also applies to the social expectation that people refrain from “badmouthing” ex-employers when they interview for other jobs, and to use the “seeking more challenging work” explanation for the departure. This advice doesn’t always work. People are expected to stick with a small company for at least 9 months, and a large one (where internal transfer is a possibility) for at least 18, and the going assumption is that stable people won’t leave jobs sooner than that (in part, because it looks bad; it’s a recursive phenomenon). If the job tenure is too short, someone looks bad. Make sure it’s not you. A better policy might be stated as “don’t badmouth unless asked” or “don’t appear vengeful”. Divulge negative information (truthful if possible, creative if necessary) is just a large enough dose to discredit the negative performance assessment implied by the short tenure, and not one iota more.

The best discreditation that I can come up with, for explaining away a bad review, is this: “Because of my qualifications (list them) I was overqualified for the work I was being asked to do, and so not a lot of time was invested in me because they thought I’d move on to something more glamorous, even though I gave them no reason to suspect that. And so, while I worked hard and loyally, no one ever took the time to clarify for me what the team’s priorities were. Hence, the review before you. I was deeply surprised and hurt by this, and so now I am looking for better work.” Then move back to a discussion of your qualifications and why you are a fit for the team you are trying to join. You’re not saying, “My boss and co-workers were unethical and they screwed me.” That never works. You’re saying, “Shit happens but I’m good.”

Perversely, the “discredit, don’t humiliate” policy often means that you’re working on behalf of the bad guys. Often, what makes it so tempting to humiliate a boss when under managerial adversity is the fact that the truth actually is humiliating to him. It feels more ethical to go to the extreme and air dirty laundry. Many people naively believe that bringing their unethical managers to the attention of HR will actually bring the boss to discipline and improve the company. I used to think this way, and have made a few mistakes in that vein (*cough* eng-misc) but enough experience has convinced me that it’s more ethical to take the milder approach. Why? Because if you shoot past refutation and into humiliation territory, your boss will come to the battle better-armed, greatly increasing the chances that you lose. And if you lose, your credibility goes to zero and you are in no position to discipline, much less humiliate, anyone. It’s best to move on and leave the vigilante justice to someone else. 

Don’t waste your time in crappy startup jobs.

What I’m about to say is true now, as of July 2012. It wasn’t necessarily true 15 years ago, and it may not be true next year. Right now, for most people, it’s utterly correct– enough that I feel compelled to say it. The current VC-funded startup scene, which I’ve affectionately started calling “VC-istan”, is– not to be soft with it– a total waste of time for most of the people involved.

Startups. For all the glamour and “sexiness” associated with the concept, the truth is that startups are no more and no less than what they sound like: new, growing businesses. There are a variety of good and bad reasons to join or start businesses, but for most of human history, it wasn’t viewed as a “sexy” process. Getting incorporated, setting up a payroll system, and hiring accountants are just not inspiring duties for most people. They’re mundane tasks that people are more than willing to do in pursuit of an important goal, but starting a business has not typically been considered to be  inherently “sexy”. What changed, after about 1996, is that people started seeing “startups” as an end in themselves. Rather than an awkward growth phase for an emerging, risky business, “startup” became a lifestyle. This was all fine because, for decades, positions at established businesses were systemically overvalued by young talent, and those at growing small companies were undervalued. It made economic sense for ambitious young people to brave the risk of a startup company. Thus, the savviest talent gravitated toward the startups, where they had access to responsibilities and career options that they’d have to wait for years to get in a more traditional setting.

Now, the reverse seems to be true. In 1995, a lot of talented young people went into large corporations because they saw no other option in the private sector– when, in fact, there were credible alternatives, startups being a great option. In 2012, a lot of young talent is going into startups for the same reason: a belief that it’s the only legitimate work opportunity for top talent, and that their careers are likely to stagnate if they work in more established businesses. They’re wrong, I think, and this mistaken belief allows them to be taken advantage of. The typical equity offer for a software engineer is dismally short of what he’s giving up in terms of reduced salary, and the career path offered by startups is not always what it’s made out to be.

For all this, I don’t intend to argue that people shouldn’t join startups. If the offer’s good, and the job looks interesting, it’s worth trying out. I just don’t think that the current, unconditional “startups are awesome!” mentality serves us well. It’s not good for any of us, because there’s no tyrant worse than a peer selling himself short, and right now there are a lot of great people selling themselves very short for a shot at the “startup experience”– whatever that is.

Here are 7 misconceptions about startups that I’d like to dispel.

1. A startup will make you rich. True, for founders, whose equity shares are measured in points. Not true for most employees, who are offered dimes or pennies.

Most equity offerings for engineers are, quite frankly, tiny. A “nickel” (0.05 percent) of an 80-person business is nothing to write home about. It’s not partnership or ownership. Most engineers have the mistaken belief that the initial offering is only a teaser, and that it will be improved once they “prove themselves”, but it’s pretty rare that this actually happens.

Moreover, raises and bonuses are very uncommon in startups. It’s typical for high performers to be making the same salary after 3 years as they earned when they started. (What happens to low performers, and to high performers who fail politically? They get fired, often with no warning or severance.) Substantial equity improvements are even rarer. When things are going well in a startup, the valuation of the equity package is increasing and that is the raise. When things are going badly, that’s the wrong time to be asking for anything.

There are exceptions. One is that, if the company finds itself in very tough straits and can’t afford to pay salaries at all, it will usually grant more equity to employees in order to make up for the direct economic hardship it’s causing them by not being able to pay a salary. This isn’t a good situation, because the equity is usually offered at-valuation (more specifically, at the valuation of the last funding round, when the company was probably in better shape) and typically employees would be better off with the cash. Another is that it’s not atypical for a company to “refresh” or lengthen a vesting period with a proportionate increase. A 0.1% grant, vesting over four years, can be viewed as compensation at 0.025% per year. It’s not atypical for a company to continue that same rate in the years after that. That means that a person spending six years might get up to 0.15%. What is atypical is for an employee brought in with 0.1% to be raised to 1% because of good performance. The only time that happens is when there’s a promotion involved, and internal promotions (more on this, later) are surprisingly rare in startups.

2. The “actual” valuation is several times the official one. This is a common line, repeated both by companies in recruiting and by engineers justifying their decision to work for a startup. (“My total comp. is actually $250,000 because the startup really should be worth $5 billion.) People love to think they’re smarter than markets. Usually, they aren’t. Moreover, the few who are capable of being smarter than markets are not taking (or trying to convince others to take) junior-level positions where the equity allotment is 0.05% of an unproven business. People who’ve legitimately developed that skill (of reliably outguessing markets) deal at a much higher level than that.

So, when someone says, “the actual valuation should be… “, it’s reasonable to conclude with high probability that this person doesn’t know what the fuck he or she is talking about.

In fact, an engineer’s individual valuation should, by rights, be substantially lower than the valuation at which the round of funding is made. When a VC offers $10 million for 20% of a business, the firm is stating that it believes the company (pre-money) is worth $40 million to them. Now, startup equity is always worth strictly more (and by a substantial amount) to a VC than it is worth to an engineer. So the fair economic value (for an engineer) of a 0.1% slice is probably not $40,000. It might be $10-20,000.

There are several reasons for this disparity of value. First, the VC’s stake gives them control. It gives them board seats, influence over senior management, and the opportunity to hand out a few executive positions to their children or to people whom they owe favors. An engineer’s 0.1% slice, vesting over four years, doesn’t give him any control, respect, or prestige. It’s a lottery ticket, not a vote. Second, startup equity is a high-risk asset, and VCs have a different risk profile from average people. An average person would rather have a guarantee of $2 million than a 50% chance of earning $5 million, even though the expected value of the latter offer is higher. VCs, in general, wouldn’t, because they’re diversified enough to take the higher-expectancy, riskier choices. Third, the engineer has no protection against dilution, and will be on the losing side of any preference structure that the investors have set up (and startups rarely volunteer information pertaining to what preferences exist against common stock, which is what the engineers will have). Fourth, venture capitalists who invest in highly successful businesses get prestige and huge returns on investment, whereas mere employees might get a moderate-sized windfall, but little prestige unless they achieved an executive position. Otherwise, they just worked there.

In truth, startup employees should value equity and options at about one-fourth the valuation that VCs will give it. If they’re giving up $25,000 per year in salary, they should only do so in exchange for $100,000 per year (at current valuation) in equity. Out of a $40-million company with a four-year vesting cycle, that means they should ask for 1%.

3. If you join a startup early, you’re a shoe-in for executive positions. Nope.

Points #1-2 aren’t going to surprise many people. Most software engineers know enough math to know that they won’t get filthy rich on their equity grants, but join startups under the belief that coming into the company early will guarantee a VP-level position at the company (at which point compensation will improve) once it’s big. Not so. In fact, one of the best ways not to get a leadership position in a startup is to be there early.

Startups often involve, for engineers, very long hours, rapidly changing requirements, and tight deadlines, which means the quality of the code they write is generally very poor in comparison to what they’d be able to produce in saner conditions. It’s not that they’re bad at their jobs, but that it’s almost impossible to produce quality software under those kinds of deadlines. So code rots quickly in a typical startup environment, especially if requirements and deadlines are being set by a non-technical manager. Three years and 50 employees later, what they’ve built is now a horrific, ad-hoc, legacy system hacked by at least ten people and built under intense deadline pressure, and even the original architects don’t understand it. It may have been a heroic effort to build such a powerful system in so little time, but from an outside perspective, it becomes an embarrassment. It doesn’t make the case for a high-level position.

Those engineers should, by rights, get credit and respect for having built the system in the first place. For all its flaws, if the system works, then the company owes no small part of its success to them. Sadly, though, the “What have you done for me lately?” impulse is strong, and these engineers are typically associated with how their namesake projects end (as deadline-built legacy monstrosities) rather than what it took to produce them.

Moreover, the truth about most VC-funded startups is that they aren’t technically deep, so it seems to most people that it’s marketing rather than technical strength that determines which companies get off the ground and which don’t. The result of this is that the engineer’s job isn’t to build great infrastructure that will last 10 years… because if the company fails on the marketing front, there will be no “in 10 years”. The engineer’s job is to crank out features quickly, and keep the house of cards from falling down long enough to make the next milestone. If this means that he loads up on “technical debt”, that’s what he does.

If the company succeeds, it’s the marketers, executives, and biz-dev people who get most of the glory. The engineers? Well, they did their jobs, but they built that disliked legacy system that “just barely works” and “can’t scale”. Once the company is rich and the social-climbing mentality (of always wanting “better” people) sets in, the programmers will be replaced with more experienced engineers brought in to “scale our infrastructure”. Those new hires will do a better job, not because they’re superior, but because the requirements are better defined and they aren’t working under tight deadline pressure. When they take what the old-timers did and do it properly, with the benefit of learning from history, it looks like they’re simply superior, and managerial blessing shifts to “the new crowd”. The old engineers probably won’t be fired, but they’ll be sidelined, and more and more people will be hired above them.

Furthermore, startups are always short on cash and they rarely have the money to pay for the people they really want, so when they’re negotiating with these people in trying to hire them, they usually offer leadership roles instead. When they go into the scaling phase, they’re typically offering $100,000 to $150,000 per year for an engineer– but trying to hire people who would earn $150,000 to $200,000 at Google or on Wall Street. In order to make their deals palatable, they offer leadership roles, important titles and “freedom from legacy” (which means the political pull to scorched-earth existing infrastructure if they dislike it or it gets in their way) to make up for the difference. If new hires are being offered leadership positions, this leaves few for the old-timers. The end result of this is that the leadership positions that early engineers expect to receive are actually going to be offered away to future hires.

Frankly put, being a J.A.P. (“Just A Programmer”) in a startup is usually a shitty deal. Unless the company makes unusual cultural efforts to respect engineering talent (as Google and Facebook have) it will devolve into the sort of place where people doing hard things (i.e. software engineers) get the blame and the people who are good at marketing themselves advance.

4. In startups, there’s no boss. This one’s patently absurd, but often repeated. Those who champion startups often say that one who goes and “works for a company” ends up slaving away for “a boss” or “working for The Man”, whereas startups are a path to autonomy and financial freedom.

The truth is that almost everyone has a boss, even in startups. CEOs have the board, the VPs and C*Os have the CEO, and the rest have actual, you know, managers. That’s not always a bad thing. A competent manager can do a lot for a person’s career that he wouldn’t realistically be able to do on his own. Still, the idea that joining a startup means not having a boss is just nonsense.

Actually, I think founders often have the worst kind of “boss” in venture capitalists. To explain this, it’s important to note that the U.S. actually has a fairly low “power distance” in professional workplaces– this is not true in all cultures– by which I mean bosses aren’t typically treated as intrinsic social superiors to their direct reports. Yes, they have more power and higher salaries, but they’re also older and typically have been there for longer. A boss who openly treats his reports with contempt, as if he were innately superior, isn’t going to last for very long. Also, difficult bosses can be escaped: take another job. And the most adverse thing they can (legally) do is fire someone, which has the same effect. Beyond that, bosses can’t legally have a long-term negative effect on someone’s career.

With VCs, the power distance is much greater and the sense of social superiority is much stronger. For example, when a company receives funding it is expected to pay both parties’ legal fees. This is only a minor expenditure in most cases, but it exists to send a strong social message: you’re not our kind, dear, and this is what you’ll deal with in order to have the privilege of speaking with us at all. 

This is made worse by the incestuous nature of venture capital, which leads to the worst case of groupthink ever observed in a supposedly progressive, intelligent community. VCs like a startup if other VCs like it. The most well-regarded VCs all know each other, they all talk to each other, and rather than competing for the best deals, they collude. This leaves the venture capitalists holding all the cards. A person who turns down a term sheet with multiple liquidation preferences and participating preferred (disgusting terms that I won’t get into because they border on violence, and I’d prefer this post to be work-safe) is unlikely to get another one.

A manager who presents a prospective employee with a lowball offer and says, “If you don’t take this, I’ll make a phone call and no one in the industry will hire you” is breaking the law. That’s extortion. In venture capital? They don’t have to say this. It’s unspoken that if you turn down a terrible term sheet with a 5x liquidation preference, you’re taking a serious risk that a phone call will be made and that supposedly unrelated interest will dry up as well. That’s why VCs can get away with multiple liquidation preferences and participating preferred.

People who really don’t want to have “a boss” should not be looking into VC-funded startups. There are great, ethical venture capitalists who wouldn’t go within a million miles of the extortive shenanigans I’ve described above. It’s probably true that most are. Even still, the power relationship between a founder and investor is far more lopsided than that between a typical employee and manager. No manager can legally disrupt an employee’s career outside of one firm; but venture capitalists can (and sometimes do) block people from being fundable.

Instead, those who really want not to have a boss should be thinking about smaller “lifestyle” businesses in which they’ll maintain a controlling interest. VC has absolutely no interest in funding these sorts of companies, so this is going to require angel investment or personal savings, but for those who really want that autonomy, I think this is the best way to go.

For all this, what I’ve said here about the relationship between founders and VCs isn’t applicable to typical engineers. An engineer joining a startup of larger than about 20 people will have a manager, in practice if not in reality. That’s not a bad thing. It’s no worse or better than it would be in any other company. It does make the “no boss” vs. “working for The Man” selling point of startups a bit absurd, though.

5. Engineers at startups will be “changing the world”. With some exceptions, startups are generally not vehicles for world-changing visions. Startups need to think about earning revenue within the existing world, not “changing humanity as we know it”.

“The vision thing” is an aspect of the pitch that is used to convince 22-year-old engineers to work for 65 percent of what they’d earn at a more established company, plus some laughable token equity offering. It’s not real.

The problem with changing the world is that the world doesn’t really want to change, and to the extent that it it’s willing to do so, few people who have the resources necessary to push for improvements. What fundamental change does occur is usually gradual– not revolutionary– and requires too much cooperation to be forced through by a single agent.

Scientific research changes the world. Large-scale infrastructure projects change the world. Most businesses, on the other hand, are incremental projects, and there’s nothing wrong with that. Startups are not a good vehicle for “changing the world”. What they are excellent at is finding ways to profit from inexorable, pre-existing trends by doing things that (a) have recently become possible, but that (b) no one had thought of doing (or been able to do) before. By doing so, they often improve the world incrementally: they wouldn’t survive if they didn’t provide value to someone. In other words, most of them are application-level concepts that fill out an existing world-changing trend (like the Internet) but not primary drivers. That’s fine, but people should understand that their chances of individually effecting global change, even at a startup, are very small.

6. If you work at a startup, you can be a founder next time around. What I’ve said so far is that it’s usually a shitty deal to be an employee at a startup: you’re taking high risk and low compensation for a job that (probably) won’t make you rich, lead to an executive position, bring great autonomy, or change the world. So what about being a founder? It’s a much better deal. Founders can get rich, and they will make important connections that will set up their careers. So why aren’t more people becoming founders of VC-funded startups? Well, they can’t. Venture capital acceptance rates are well below 1 percent.

The deferred dream is probably the oldest pitch in the book, so this one deserves address. A common pitch delivered to prospective employees in VC-istan is that “this position will set you up to be a founder (or executive) at your next startup”. Frankly, that’s just not true. The only thing that a job can offer that will set a person up with the access necessary to be a founder in the future is investor contact, and a software engineer who insists on investor contact when joining an already-funded startup is going to be laughed out the door as a “prima donna”.

A non-executive position without investor contact at a startup provides no more of the access that a founder will need than any other office job. People who really want to become startup founders are better off working in finance (with an aim at venture capital) or pursuing MBA programs than taking subordinate positions at startups.

7. You’ll learn more in a startup. This last one can be true; I disagree with the contention that it’s always true. Companies tend to regress to the mean as they get bigger, so the outliers on both sides are startups. And there are things that can be learned in the best small companies when they are small that can’t be learned anywhere else. In other words, there are learning opportunities that are very hard to come by outside of a startup.

What’s wrong here is the idea that startup jobs inherently more educational simply because they exist at startups. There’s genuinely interesting work going on at startups, but there’s also a hell of a lot of grunt work, just like anywhere else. On the whole, I think startups invest less in career development than more established companies. Established companies have had great people leave after 5 years, so they’ve had more than enough time to “get it” on the matter of their best people wanting more challenges. Startups are generally too busy fighting fires, marketing themselves, and expanding to have time to worry about whether their employees are learning.

So… where to go from here?

I am not trying to impart the message that people should not work for startups. Some startups are great companies. Some pay well and offer career advancement opportunities that are unparalleled. Some have really great ideas and, if they can execute, actually will make early employees rich or change the world. People should take jobs at startups, if they’re getting good deals.

Experience has led me to conclude that there isn’t much of a difference in mean quality between large and small companies, but there is a lot more variation in the small ones, for rather obvious reasons. The best and worst companies tend to be startups. The worst ones don’t usually live long enough to become big companies, so there’s a survivorship bias that leads us to think of startups as innately superior. It’s not the case.

As I said, the worst tyrant in a marketplace is a peer selling himself short. Those who take terrible deals aren’t just doing themselves a disservice to themselves, but to all the rest of us as well. The reason young engineers are being offered subordinate J.A.P. jobs with 0.03% equity and poorly-defined career tracks is because there are others who are unwise enough to take them.

In 2012, is there “a bubble” in internet startups? Yes and no. In terms of valuations, I don’t think there’s a bubble. Or, at least, it’s not obvious to me that one exists. I think it’s rare that a person who’s relatively uninformed (such as myself, when it comes to pricing technology companies) can outguess a market, and I see no evidence that the valuations assigned to these companies are unreasonable. Where there is undeniably a bubble is in the extremely high value that young talent is ascribing to subordinate positions at mediocre startups.

So what is a fair deal, and how does a person get one? I’ll give some very basic guidelines.

1. If you’re taking substantial financial risk to work at the company, you’re a Founder. Expect to be treated like one. By “substantial financial risk”, I mean earning less  than (a) the baseline cost-of-living in one’s area or (b) 75% of one’s market compensation.

If you’re taking that kind of risk, you’re an investor and you better be seen as a partner. It means you should demand the autonomy and respect given to a founder. It means not to take the job unless there’s investor contact. It means you have a right to know the entire capitalization structure (an inappropriate question for an employee, but a reasonable one for a founder) and determine if it’s fair, in the context of a four-year vesting period. (If the first technical hire gets 1% for doing all the work and the CEO gets 99% because he has the connections, that’s not fair. If the first technical hire gets 1% while the CEO gets 5% and the other 94% has been set aside for employees and investors, and the CEO has been going without salary for a year already, well, that’s much more fair.) It means you should have the right to represent yourself to the public as a Founder.

2. If you have at least 5 years of programming experience and the company isn’t thoroughly “de-risked”, get a VP-level title. An early technical hire is going to be spending most of his time programming– not managing or sitting in meetings or talking with the press as an “executive” would. Most of us (myself included) would consider that arrangement, of getting to program full-time at high productivity, quite desirable. This might make it seem like “official” job titles (except for CEO) don’t matter and that they aren’t worth negotiating for. Wrong.

Titles don’t mean much when 4 people at the company. Not in the least. So get that VP-level title locked-in now, before it’s valuable and much harder to get. Once there are more than about 25 people, titles start to have real value and for a programmer to ask for a VP title might seem like an unreasonable demand.

People may claim that titles are old-fashioned and useless and elitist, and they often have strong points behind their claims. Still, people in organizations place a high value on institutional consistency (meaning that there’s additional cognitive load for them to contradict the company’s “official” statements, through titles, about the status of its people) and the high status, however superficial and meaningless, conferred by an impressive title can easily become self-perpetuating. As the company becomes larger and more opaque, the benefit conferred by the title increases.

Another benefit of having a VP-level title is the implicit value inherent of being VP of something. It means that one will be interpreted as representing some critical component of the company. It also makes it embarrassing to the top executives and the company if this person isn’t well treated. For an example, let’s take “VP of Culture”. Doesn’t it sound like a total bullshit title? In a small company, it probably is. So meaningless, in fact, that most CEOs would be happy to give it away. “You want to be ‘VP of Culture’, but you’ll be doing the same work for the same salary? By all means.”  Yet what does it mean if a CEO berates the VP of Culture? That culture isn’t very important at this company. What about if the VP of Culture is pressured to resign or fired? From a public view, the company just “lost” its VP of Culture. That’s far more indicative than if a “J.A.P.” engineer leaves.

More relevantly, a VP title puts an implicit limit on the number of people who can be hired above a person, because most companies don’t want the image of having 50 of their 70 people being “VP” or “SVP”. It dilutes the title, and makes the company look bloated (except in finance, where “VP” is understood to represent a middling and usually not executive level.) If you’re J.A.P., the company is free to hire scads of people above you. If you’re a VP, anyone hired above you has to be at least a VP, if not an SVP, and companies tend to be conservative with those titles once they start to actually matter.

The short story to this is that, yes, titles are important and you should get one if the company’s young and not yet de-risked. People will say that titles don’t mean anything, and that “leadership is action, not position”, and there’s some truth in that, but you want the title nonetheless. Get it early when it doesn’t matter, because someday it will. And if you’re a competent mid-career (5+ years) software engineer and the company’s still establishing itself, then having some VP-level title is a perfectly reasonable term to negotiate.

3. Value your equity or options at one-fourth of the at-valuation level.  This has been discussed above. Because this very risky asset is worth much more to diversified, rich investors than it is to an employee, it should be discounted by a factor of 3-4. This means that it’s only worth it to take a job at $25,000 below market in exchange for $100,000 per year in equity or options (at valuation).

Also worth keeping in mind is that raises and bonuses are uncommon in startups, and that working at a startup can have an affect on one’s salary trajectory. Realistically, a person should assess a startup offer in the light of what he expects to earn over the next 3 to 5 years, not what he can command now.

4. If there’s deferred cash involved, get terms nailed down. This one doesn’t apply to most startups, because it’s an uncommon arrangement after a company is funded for it to be paying deferred cash. Usually, established startups pay a mix of salary and equity.

If deferred cash is involved in the package, it’s important to get a precise agreement on when this payment becomes due. Deferred cash is, in truth, zero-interest debt of the company to the employee. Left to its own devices, no rationally acting company would ever repay a zero-interest loan. So this is important to get figured out. What events make deferred cash due? (Startups never have “enough” money, so “when we have enough” is not valid.) What percentage of a VC-funding round is dedicated to pay off this debt? What about customer revenue? It’s important to get a real contract to figure this out; otherwise, the deferred payment is just a promise, and sadly those aren’t always worth much.

The most important matter to address when it comes to deferred cash is termination, because being owed money by a company one has left (or been fired from) is a mess. No one ever expects to be fired, but good people get fired all the time. In fact, there’s more risk of this in a small company, where transfers tend to be impossible on account of the firm’s small size, and where politics and personality cults can be a lot more unruly than they are in established companies.

Moreover, severance payments are extremely uncommon in startups. Startups don’t fear termination lawsuits, because those take years and startups assume they will either be (a) dead, or (b) very rich by the time any such suit would end– and either way, it doesn’t much matter to them. Being fired in established companies usually involves a notice (“improvement plan”) period (in which anyone intelligent will line up another job) or severance, or both, because established companies really don’t want to deal with termination lawsuits. In startups, people who are fired usually get neither notice nor severance.

People tend to think that the risk of startups is limited to the threat of them going out of business, but the truth is that they also tend to fire a lot more people, and often with less justification for doing so. This isn’t always a bad thing (firing too few people can be just as corrosive as firing too many) but it is a risk people need to be aware of.

I wouldn’t suggest asking for a contractual severance arrangement in negotiation with a startup; that request will almost certainly be denied (and might be taken as cause to rescind the offer). However, if there’s deferred cash involved, I would ask for a contractual agreement, if there is deferred cash, that it becomes due immediately on event of involuntary termination. Day-of, full amount, with the last paycheck.

5. Until the company’s well established (e.g. IPO) don’t accept a “cliff” without a deferred-cash arrangement in event of involuntary termination. The “cliff” is a standard arrangement in VC-funded startups whereby no vesting occurs if the employee leaves or is fired in the first year. The problem with the cliff is that it creates a perverse incentive for the company to fire people before they can collect any equity.

Address the cliff as follows. If employee is involuntarily terminated, and the cliff is enforced, whatever equity would have vested is converted (at most recent valuation) to cash and due upon date of termination.

This is a non-conventional term, and many startups will flat-out refuse it. Fine. Don’t work for them. This is important; the last thing you want is for the company to have an incentive to fire you because of a badly-structured compensation package.

6. Keep moving your career forward. Just being “at a startup” is not enough. The most credible appeal of working at a startup is the opportunity to learn a lot, and one can, it’s not a guarantee. Startups tend to be more “self-serve” in terms of career development. People who go out of their way to explore and use new technologies and approaches to problems will learn a lot. People who let themselves get stuck with the bulk of the junior-level grunt work won’t.

I think it’s useful to explicitly negotiate project allocation after the first year– once the “cliff” period is over. Raises being rare at startups, the gap between an employee’s market value and actual compensation is only growing as time goes by. When the request for a raise is denied is a good time to bring up the fact that you really would like to be working on that neat machine learning project or that you’re really interested in trying out a new approach to a problem the company faces.

7. If blocked on the above, then leave. The above are reasonable demands, but they’re going to meet some refusal because there’s no shortage of young talent that is right now willing to take very unreasonable terms for the chance to work “at a startup”. So expect some percentage of these negotiations to end in denial, even to the point of rescinded job offers. For example, some startup CEOs will balk at the idea that a “mere” programmer, even if he’s the first technical hire, wants investor contact. Well, that’s a sign that he sees you as “J.A.P.” Run, don’t walk, away from him.

People tend to find negotiation to be unpleasant or even dishonorable, but everyone in business negotiates. It’s important. Negotiations are indicative, because in business politeness means little, and so only when you are negotiating with someone do you have a firm sense of how he really sees you. The CEO may pay you a million compliments and make a thousand promises about your bright future in the company, but if he’s not willing to negotiate a good deal, then he really doesn’t see you as amounting to much. So leave, instead of spending a year or two in a go-nowhere startup job.

In the light of this post’s alarmingly high word count, I think I’ll call it here. If the number of special cases and exceptions indicates a lack of a clear message, it’s because there are some startup jobs worth taking, and the last thing I want to do is categorically state that they’re all a waste of time. Don’t get me wrong, because I think most of VC-istan (especially in the so-called “social media” space) is a pointless waste of talent and energy, but there are gems out there waiting to be discovered. Probably. And if no one worked at startups, no one could found startups and there’d be no new companies, and that would suck for everyone. I guess the real message is: take good offers and work good jobs (which seems obvious to the point of uselessness) and the difficulty (as observed in the obscene length of this post) is in determining what’s “good”. That is what I, with my experience and observations, have attempted to do.

Stop writing about success and start writing about failure.

The internet, especially in the entrepreneurial blogosphere, seems to have an order of magnitude more people producing literature about success (i.e. “success crack”) than actually succeeding. Every day I see the peddlers of reckless optimism swarming Hacker News with dangerous naivete about entrepreneurial pursuits. Don’t get me wrong: startups and self-employment are great, but people should be aware of the risks and pitfalls, which too many people gloss over. This isn’t limited to startups; every sector of business has its own cottage industry of how-to manuals for breakout success, usually chock full of unrealistic promises (which, I guess, lends credence to their authors being successful in business, such promises being the currency of their world). Is this “fake it till you make it” syndrome on the part of the “crack” peddlers? I’m not so cynical as to suspect that. Blog posts and books about “success” are written by well-intended people who want to share insights they’ve had about life and about their own successes. The problem is that their insights are rarely very deep. You have to lose in order to get a sense of what’s really happening in the world.

I’ve designed games before, and when I play-test, I strongly prefer to lose. Why? No one likes losing, not even me (and I play so many board and card games that I ought to be used to it). When I lose at my own game, it’s even more harsh. But it’s the (very mild) embarrassment and emotional unpleasantness associated with losing that gives me insight into design flaws that I would overlook as a happy-go-lucky, full-of-himself winner. For a game designer, it’s a blessing to lose. If I feel like I deserved to lose, I know the rules that contributed to my loss are good. If I lose because of a bad rule, it’s a double-loss (I lost the game, and my rule sucks) but the “bug” in my design gets squashed before the next release. Every game is fun for the winning player, but if it’s not fun for the losing player– or if not “fun”, at least enticing enough to make her want to improve her skill and become better– it’s a mediocre game. Thus, losing is a boon for the insight it provides to a game’s designer. It’s the only way the designer can develop certain insights into the character of the game. The same’s true of life.

A very small set of people, just on account of the planet’s immense size, have untarnished track records of success and never develop the desire to look deeper into the processes that led to their outcomes. With six billion people in the world, the existence of champion coin-flippers is a statistical guarantee. Many people desperately want to be like those perennial winners, which is why such peoples’ optimism is so appealing, even inspiring, to others. Far more people than that (in fact, almost everyone, including most of the “success crack” vendors) get a fair mix of failures and successes. The problem is that failures are embarrassing and under-reported, while the successes are magnified to outlandish proportions. In 1999, at the height of the technology boom when “everyone” was getting rich, how many technology companies actually did IPOs? 5,000? 100,000? Two in every garage? Nope. A few hundred, with the precise number varying depending on how one defines “technology company” but uncontroversially under 1,000. Also, many recent years had less than 100.

Success crack is harmful, because it leads both to ill-considered efforts and too-early discouragement. It makes success look easy, but not in the conventional sense, because aside from Tim Ferriss, few of its peddlers actually argue that their success comes without hard work. The problem with success crack is that it seems to believe “work hard” and “work smart” are enough, as if being intelligent and putting in 10 hours a day, six days per week, suffice to lead to break-out success. That’s not true. People have to prepare for adversity, uncertainty, discouragement, and a high likelihood that, even if they do everything right, they’ll fail. These dangers are virtually guaranteed to a person undertaking anything interesting. That’s not a pleasant thing to hear, but it’s reality.

One observation I’ll make is that, when the locus of control is internal, one generally learns more from one’s successes than from one’s failures. An example is music practice: playing an instrument incorrectly is damaging to one’s long-term performance, because it reinforces bad habits. Playing it correctly, and experiencing the “click” when it sounds perfect, is when learning occurs. The same pattern I noticed in high school with contest math (e.g. AMC, USAMO): I would learn more when I solved a problem, even if I couldn’t solve it within the alloted time or made a mistake and got the wrong answer, than when I failed to solve it and had to read the solution. In these arenas, success teaches more than failure, and consequently, the best thing one can do when one wants to become better at the craft is to find the most successful people and learn from them.

When the locus of control is largely external, such as in most workplaces where one’s success or failure is largely a function of how one’s work and ability are perceived, not what they actually are, the opposite becomes true. More is learned through failure than through success, as those who succeed rarely peer into a system’s dysfunctions and discover the pitfalls. This is why, whenever I take a new job, I always make sure to quietly befriend the person at the bottom of the social hierarchy. This is only mildly motivated by an altruistic sense of wanting to help the omega pup, and there’s a purely selfish reason for my doing this: in terms of office politics, he actually knows what’s going on. And if you befriend him, he’ll tell you. His report may be biased and bitter, if not unduly negative, but it’s also the most insightful and, if not always accurate, the most precise. Apply appropriate filters, but listen to what he has to say. In any organization, the least popular person is the most knowledgeable about its character. Learn from him.

Most of the notions of achievement we develop in childhood come from a time in which success is largely objective and one’s success is derived from an internal locus of control: music practice, athletics, contest math. Even in schools, with their often-decried (and greatly exaggerated, since even high schools are utopian compared to the average corporate workplace) emphasis on obedience at the expense of creativity, a student’s success is primarily a function of intellectual talent and his or her work ethic. Deadlines are well-tested, people are working on similar projects, and people in authority (e.g. teachers) are required to grade fairly and can lose their jobs if they don’t. There are, of course, some students who get bad grades because they run afoul of professors’ idiosyncratic prejudices but, by far, the most common cause of bad grades (I say this having earned a few, and having deserved almost all of them) is mediocre work. Therefore, in childhood and adolescence, learning from the most successful is an excellent strategy in order to become better.

However, the “real world” is far more interdependent and capricious, and it’s nearly impossible to succeed without convincing others that one deserves the resources necessary to try– and competence and the ability to sell oneself to others rarely occur in the same person. This is what no one wants to tell bright-eyed college students: that they’re about to enter a world where their success is likely to depend, in a serious way, on being given resources and opportunity by others, and that working hard and being smart are only marginally important. In fact, at the overkill levels seen in the best students at elite schools, intelligence and a strong work ethic can easily become social liabilities. Because the locus of control is so often external in the “real world”, peoples’ failures have more to teach us than their successes.

The fundamental problem with success crack is that, while it makes for engaging light reading, it’s written either by those who know the least about the world, having never been down in the muck, or (more commonly) by those who have suffered, but still wish to mimic the wide-eyed optimism of those who haven’t– it’s somewhat of a status symbol to believe, as an extremely fortunate person might, the world to be better than it actually is– and therefore censor out the unpleasant but important details they know but have expelled from consideration. Thus, we have a slew of terrible advice floating about such as “Do what you love, and the money will follow” that is accepted because it seems appealing in spite of being utterly untrue. Like some charismatic religions, it sounds pretty, and half of that is because the author is trying to convince him- or herself that he or she actually believes it: that desire to believe the incredible and wrong is a powerful force capable of motivating some of the world’s beautiful, but also utterly untrue, prose.

In this light, I hope to see more attention given to pitfalls and patterns to avoid, so that true learning may occur, and far less in the way of vague, feel-good directives about “success”.

Yes, rich kids already won the career game. Here’s why.

Americans like to believe that the modern workplace, like school, is a meritocracy. Sure, some people have a lot of money and don’t have to work, but Americans prefer to believe that, among those who do work, side-by-side in the same environment, it’s a fair competition. To their chagrin, they observe that their co-workers from wealthy backgrounds advance three times as fast, and wonder what the hell is going on. Why does one person, no more skilled than any of his co-workers, advance so effortlessly because of who his daddy is?

I don’t intend to insinuate that companies or managers are knowingly being elitist. No company or manager would intentionally give favor to one who has already enjoyed so many external advantages, especially if that person’s level of talent did not merit it. People in offices are out for themselves, not trying to preserve (or to combat) the social status quo. Rather, this is a subconscious and irresistible force, and it comes from one root cause: rich kids don’t fear the boss. That’s extremely important.

Consider two analysts at a prestigious financial firm, both 24 years old and of equal drive, intelligence, and talent. One is from a double-income family in suburban Connecticut earning $125,000 per year– a decent sum by average standards, but less than the analysts hope to be making by 26. The other’s father is a hedge fund manager earning $10 million per year. Let’s also assume, for now, that none of their co-workers or managers know either analyst’s family background, except through their behavior. The middle-class kid spends the bulk of his time trying not to offend, not to behave in a way that might jeopardize the job he worked so hard to get and could not easily replace if he lost it. He doesn’t invite himself to meetings, avoids contact with high-ranking executives, and doesn’t offer suggestions when in meetings. Thanks to the fear he experiences on a daily basis, he’s seen as “socially awkward” and “mousy” by higher-ups. Nothing recommends him, and he will not advance.

Middle-class kids generally fuck up their first few years of the career game in one of two ways. Either they fear authority tremendously, which is crippling from a career perspective and renders them devoid of creative energy, or they show an open distaste for managerial authority, described by the wealthy as having a proletarian “chip” on one’s shoulder, and fail to advance on account of the dislike they thus inspire. Even when they are cognitively aware of how to manage authority, the stakes of the career game for a middle-class striver, who will fall into humiliation and possibly poverty if he fails it, are so severe that only the well-trained and steel-nerved few can prevent these calamitously high risks from, at least to some degree, disrupting their game.

The rich kid, on the other hand, relates even to the highest-ranking executives as equals, because he knows that they are his social equals. He’ll answer to them, but with an understanding that his subordination is limited and offered in exchange for mentoring and protection. He views them as partners and colleagues, not judges or potential adversaries. Perhaps this is counterintuitive, but most of his bosses like this. (Most bosses aren’t assholes and don’t like to be feared, at all. In fact, they’d be happy to forget that they are bosses.) His career advances fast. He’s “up and coming”. This occurs even if no one has any idea that he’s from a wealthy background.

The rich kid, fearless on account of not needing to keep his job, can effortlessly walk the middle path. He’s neither a cowering weakling who crumbles at the sight of authority, nor an obnoxious brat whose sense of entitlement and dislike for managerial authority limit his progress prematurely. He respects others and himself and has an uncanny air of effortless “coolness” (by which I mean freedom from anxiety) that enables him to actually get things done. It becomes common knowledge that he’s “up-and-coming”, a rising star in his company. Even if his performance is smack-average or somewhat below, his effortless rise will not be deterred. It is assumed. With that advantage, he can concentrate on actually getting work done, yet another uncommon advantage.

This “middle path” between self-defeat and entitled arrogance is narrow– a tightrope, metaphorically speaking. It is, I should note, of equal width and tension for both rich and poor. There is no intentional preference given to one class over the other. The difference is that children of wealth traverse it at a height of one meter over a mattress, while the middle-class and poor traverse it at a height of 20 meters over a lava pit.

Thus, I have described the inevitable advantages the children of wealth hold in the career game. This assumes that there is no knowledge of their economic standing. The rich kid, even when no one knows that he is rich, still wins. He has the right air about him, and the same freedom from anxiety and free-flowing creative energy of a college student because, for him, college (i.e. the time of life in which most middle-class peoples’ lives peak) never ended. His entry-level job is not a place of stress, but a continuation of school; a place where he can learn and grow.

If the employees’ economic situations were known, it might be expected that some advantage would be conferred to the industrious “striver” from the middle class. In practice, this isn’t really true. While the worst scions of wealth, rich brats as seen in documentaries like Born Rich, disgust people and generally negate the advantages conferred by their social capital; the majority of rich kids who are well-behaved and decent are valued more highly when their circumstances are discovered. In practice, one finds that people would rather gain the connections and favors available to the rich than satisfy any small sense of altruism by extending benefits to the hard-working middle and lower classes.

What’s more, the attitude shown to the wealthy in the workplace is one of appreciation. Consider the example above, of two fairly identical analysts in a high-stress financial job, and assume that their familial economic standings are known (as is usually the case). The middle-class analyst is assumed to be there because he likes the money. This doesn’t endear him to anyone, and if he asks his boss why he isn’t getting his way in project allocation or career advancement, he can be given a reply like, “That’s why we pay you the big bucks.” (If he responds justly to that comment and makes its issuer a better person, he’ll be summarily fired and, if this action earns him a reputation, unemployable.)  Such an insulting reply, except with gauche irony, would never be given to his counterpart, if his economic standing were known. By contrast, as it’s known that the rich kid has no need to work, he is appreciated for doing so. He is assumed (unlike the middle-class striver) to have a strong work ethic just because he shows up sober to work every day. He doesn’t have to go over the top to establish that he has a decent work ethic; that he is working at a level of reliability taken for granted from his middle-class counterparts is taken to prove his work ethic and stamina.

This advantage held by the wealthy, more prominent on the East Coast and outside of technology, is nearly impossible to compete against in most companies. I wouldn’t advise a person even to try. “Faking rich” is going to lead a person to seem pathetic and materialistic, not refined and free of anxiety. Moreover, feigning the cavalier attitude toward executive authority that rich kids hold effortless is very dangerous if one lacks the requisite social skills. Overdone, it can lead quickly to the unemployment line.

For the individual, I can offer no personal solution to this deep sociological problem. As far as I know, there’s none. I would advise those who are sufficiently talented to work in technology, which tends to be more meritocratic than other industries, and to avoid old-style business. Beyond that, I know of no solution.

So why did I write this essay, if I can offer no solution? First, it’s because I believe my generation will overthrow the arbitrary and brutal authority of corporate capitalism and bigoted conservatism in favor of rationalistic, libertarian socialism driven by a scientific approach and a concern for universal social justice, and I want to encourage this to happen. If I raise awareness of a defective and unfair situation, perhaps I can encourage people to change it. Second: although this is one of corporate capitalism’s milder flaws, leading a multitude to moderate disappointment but with little-to-no acute danger or loss of life, a rising awareness of the career game’s unfairness might result in less energy wasted, across the whole of society, attempting to ascend the proverbial “corporate ladder”. Establishing that a gambling house provides only rigged games is the first step toward depriving it of players, and therefore setting in motion the first stages of its destruction.