startups

UX and Startups: How Much Equity is Enough?

Published on October 3, 2013

As an independent Information Architecture consultant, I am frequently asked by others in the profession, or those trying to get into the profession, about the money. What money specifically? The money they will or will not be making as a UX or IA person. In today’s piece I wanted to touch on the money topic, but in a different way. I wanted to talk about the promised land and, more specifically, the money you can earn there. That promised land? Working for a startup of course. The money you earn there? Yep many times it comes in the form of equity. This is what I refer to as “the old pay me later model”, to be more precise. Today I wanted to talk about determining how to 1. think about and get your head around the idea of getting paid with equity, and 2. how this thinking helps you figure out how much equity to take so that you can be properly compensated.

"Paid in full" stamp

The current state for many of us UXers, or just many of us professionals, is that we work full time in companies where our intake, aka our salaries, are predetermined for us. Many of us know what we should be earning if we are working full time for someone else. Of course, we always have the ability to negotiate more salary or more time off, but the great part is that in an industry of full time workers, there is usually a standard for us to base our compensation off of, and thus we don’t have to take too much time to figure that number out. (Now finding out that standard isn’t always easy, but that is for another day).

The other part of our current state as full time UX professionals inside a company or agency is that we, many of us anyway, despise the businesses we work for. They are old places, with red tape and unnecessary rules that stifle our creativity! (OK maybe despise is too strong of a word, but many of us do dream of working in places that “get it”. Places where the clients and work is innovative, and UX is more than wireframes). Thus, many of us long to play in this land of startups, where you have nap rooms, and ping pong tables, and more importantly where you can be truly creative (I’ll leave the question of if you can truly be creative at many startups to another post.). Of course, if we could, many of us would quit our jobs right now to do work in startup land, however this land surfaces for us several problems which keep us tied to our full time corporate or agency life. The biggest problem is compensation. How do we get compensated at a business that is raising money to stay afloat? One way startups make this attractive is by offering equity as compensation, but the problem for us is, what the hell does that even mean?

Because we don’t know how to, turn equity into salary or meaningful compensation, several other problems unfold. First, we end up not realizing our true value. We undervalue ourselves a great deal, and we therefore if we go into a startup, we don’t get paid what we should (I’ll also leave the discussion of undervaluing ourselves in full time jobs to another discussion, however, UXer Whitney Hess has written some great pieces on knowing your value and getting paid. You can find one here Ironclad Contracts: Tougher Than a Pinky Swear.

The second problem that unfolds is that we choose to stay in the “safe” world of full time and not support startups or small businesses with our talents because we just don’t think we’ll be able to get paid enough (which actually may be true). Thus, we stay in businesses that don’t understand UX, that give us the uncool work, and that don’t respect our value, which turns us in to the classic disgruntled worker.

I won’t be telling you to venture out and leave your job in this post. But, what I am here to help you with is to understand a way to figure out how much equity you would need to take in order to live and get paid properly so that the scary world of startups might seem a little less frightening. At the very least, I hope to educate you on how I’ve made it work for myself, in hopes that you can create a model of your own, if you so choose.

Thus here we do, a 5 step plan to determining the amount of equity to take that is right for your value.

Step 1: Understand your value

As I mentioned before one of the best pieces I’ve read that have helped me to understand my own value is Whitney’s post Ironclad Contracts: Tougher Than a Pinky Swear. I have also recently taken the Skillshare class Mo’ Money No Problem in which instructor Brennan Dunn has a whole section on figuring out your value.

The long and short of it is this. We have been conditioned to think of ourselves as an expense, a cost. We say to ourselves, “I’m going to cost this company $50,000 a year so I should make sure not to ask for too much else, because I’m asking enough as it is”. But, in reality, your work brings a company WAY more value that $50,000. You are designing for projects that are aimed at lowering costs, increasing users or revenue, basically making the product better. And this work will scale to a level that will, of course, make your company a profit that is way higher than $50,000. Your work then, has created a great deal of value. Your worth is much higher than you think. In this way you can begin to think about how having you on the team is an investment for the business, not a cost.

When you think about working with startups, you, as a UX person, are going to be helping to implement a process, make the product more usable, make the product enjoyable, basically you are going to be bringing a great deal of value. In this way you should think in order to figure out what you are worth.

Step 2: Understand their value

What is the startup worth? This is where the word valuation comes to the surface. The valuation of the company, in UX speak, is basically how much another company would pay to acquire the startup. If a company is worth 1 million dollars, that means another company would pay 1 million dollars to buy them. Valuations are REALLY controversial, however the important point for you is to understand that valuation of the startup that you are looking work for. Ask about this number. “What are you valued at now?” and “With my help what are you hoping to be valued at”. Also ask things like “How are you calculating this valuation? What variables affect this valuation?”. Knowing this will help you to work into our next step.

Step 3: Figure out how much value can you add.

So you are interviewing at a startup that is worth $1 million dollars. And they know this because they are bringing in $500,000 in ad sales and have 500,000 users. But wait a minute, if they change up their ad placement, and make the sign up process more contextual, as we UXers can help with, we can easily increase those numbers to $600,000 in ad sales and 550,000 users. In effect, our help will increase that valuation to $1,150,000, basically by $150,000 or something like 15% (I’m not the best at this part) in the first year! Thus, if we plan on working at this startup overtime, we can project that this rate will only grow.

Step 4: Understand the types of equity

In this step, we have to realize that there are different types of equity. There are stocks, there are stock options, and there is a big difference between the two. Basically a stock is something certain. If you get a 1% equity share that is in stocks, that means you are certain to have 1% of the company if it gets acquired. BUT if you have 1% stock options, that means you have the OPTION to get 1% of the company. Basically think of this as a fixed versus variable interest rate. Obviously the stock is the better thing to have because it’s more concrete. Of course, stocks are a lot less easy to obtain, so most of the time you’ll be receiving options. What this means for our purposes is that you should be getting a higher percent when taking options, because the future of those is less certain.

Step 5: Figuring out your compensation

Wow this is easy right? At this point you may be thinking, Lis what the hell does all of this mean? I just want to know how to get paid well so that I can go work for this cool startup! Well this is what it means.

Understanding your value: Let’s say you are worth about $100,000 a year based on market standards.
Understanding their value: And, you are interested in working for a company valued at $10 million dollars
Understanding how much value you add: You can bring their valuation from $10 million to $15 million. Of course you aren’t doing this alone, but with the team so let’s say you are adding 20% of value to the bottom line (this is a guesstimate)
Type of Equity: And they are offering you options
Your compensation: You want to make $100,000 per year. However, your startup can only afford to pay you $50,000 per year in cash but is offering the rest in equity. How much equity percentage points is that?

You take the valuation $10 million and divide by $50,000 and get .05%, we then increase that by the 20% value that we add .05% *1.2 and get an equity percentage of .06%. Now keep in mind that the .06% only covers you for one year, and if you want to be there for three years, to be compensated properly you’ll want to earn about .2% equity in that timeframe (rounding up).

In short, you should negotiate for .2% of the company

I get that this was a lot of math, but you can see that there is a way to break down equity so that you can ensure you are getting properly compensated. The outcomes of breaking it down in this way, is that you can understand how and what you are getting paid, you can ensure you are getting compensated for your value, and can be a little more closer to working with that cool guy you met at the last meetup. Being informed and educated is the key to getting where you want to be.

I hope that seeing this model has helped you to think differently about taking equity in startups. It is, of course, not perfect, however it is one way that we can look at making sure that if we work for a startup, we don’t lose our house. I encourage you to bring other ways and thoughts to the table as well, so that we can make this model even better! (Or find a better one all together). Good luck UXers and remember, you are valuable, and don’t let anyone tell you different!

Startups: The right time for UX

Published on April 18, 2012

Several months ago I had the pleasure of meeting with a founder of a NYC startup in one of my ohours sessions. This happens quite a bit, as NYC has an amazing startup scene with a good majority of these startups looking for UX help. A lot of times startups (due to the nature of their business) are not sure when to engage UX. They know that they want to have UX as a part of their business, but their budgets are tight and they aren’t sure of the best way to allocate that budget for UX in order to receive the biggest return on their investment. As UX professionals, we have been trained to tell people that UX should be involved from the very beginning and stay on until the very end, and although I agree, the simple fact is that the cost benefit analysis for startups doesn’t allow for this. So when startups come to me asking for advice on when to include UX, what I end up walking them through is a process for figuring out how much they can do on their own before they bring in someone with my background and expertise. This is usually extremely helpful to them as it helps them to insert UX into their product but also keeps their budgets in line. It is also helpful in changing their thinking from their current state into that of design thinking.

The problem that we see with startups not knowing the “right” time to bring UX into the fold is, simply, that they bring UX in at the wrong time. Most times this means bringing UX thinking in too late, and at a point where we can’t do any user analysis or problem analysis and are expected to just make the interface more usable. Or, they may bring us in at an awkward time in the process flow where they expect us to solve a problem that is ill defined, and then refuse to listen to our reasoning and solutioning due to schedule conflicts. Whatever the case, UX is not properly understood which causes frustration on our end, and waste of funding on the startup’s end. It also can cause even further misunderstanding of UX and its value.

The first step in attempting to solve this issue of when to bring UX into the startup fold is for the startup to figure out how much about UX it really wants to learn. Some founders do not have time to learn much at all, while other clients of mine have done a great job of figuring out the ins and outs of our UX work. Either way, I think that in order for founders to be successful, they need to show some attempt (however small) to figure out what UX can contribute to their bottom line. As a UX consultant, I know that this is part of my sell, and it is a service and narrative that I provide, however I would recommend that startup founders at least start to orient their mind to what UX really is. The biggest step that a founder can take is to begin to open up their mind to moving UX and Design beyond the interface. I read this great post the other day, What is Design Thinking and Why Do Entrepreneurs Need to Care?, that reminded me of how non-UX folks can start to change their points of view. Doing so, even at a small level, is a useful start.

Next, once founders have changed their thinking, it’s about figuring out how much they want to and can take on themselves. This always depends on budget, but there are many “low hanging fruit” that startup founders can find just by understanding design thinking and UX principles at a high level. If one is less inclined to learn UX they better have a bigger budget so they can bring us in early on and keep us there throughout the process. If one wants to learn more or lacks the funding to bring a UXer on, they can pick up a good deal of this low hanging fruit on their own. I usually suggest that startups call me when it gets to a point where they are no longer able to clearly define the problem, understand their user, and improve the experience. This is the point where higher UX thinking and expertise will help to catapult their business.

The outcome of following these steps is not only that startups will begin to save money and time by bringing UX in at the right time, but they will also have a better understanding of UX and this will lead to more successful products. By taking the time to change one’s thinking in order to institute design thinking one successfully takes the first step in understanding how UX can help a business. Once they know where UX fits in, they can strategically use it to improve the experience of their product while maintaining a solid budget. Until then UX is just a buzzword, or a phantom that one expects to come in and solve all of their problems… magically, on time, within budget, etc. Well, I hate to say this, but what we do isn’t magic (ok maybe a little of it it), it involves thinking, knowledge and process that aims to take the experience for a user from zero…. to hero!

It’s official! 8coupons Official Microsoft Bing Partner

Published on January 16, 2012

It is a news item worth repeating even thought it has been a little over a week since this was announced. It’s true what you are reading. Microsoft has ended their partnership with The Dealmap, and has inked a new deal (pun intended) making none other than 8coupons its official deal partner! It’s a very exciting relationship that will prove to introduce some great new opportunities and challenges. Can’t wait to see what the future months bring!

Wanna know more? Be sure to read Bing Ditches Google’s Dealmap — Inks New Deal with 8coupons

The Problem with “It depends”

Published on December 14, 2011

Today, was just another day for this UX Consultant. I had another amazing opportunity to meet with a NYC based startup in order to sell my User Experience wares. Walking away from this particular meeting (and feeling slightly discouraged… *sigh*) I was thinking about how to improve the outcome of similar meetings, and how to move UX forward in the fast paced world of startups. There was one realization that stuck out in my mind… using the term “it depends” just doesn’t work in this world.

We, as UXers, are some how secretly trained to use the term it depends to answer questions about our work. This is not necessarily a bad thing and we usually do this for very good reasons. Those reasons being 1. we don’t want to over promise to our clients and/or partners in other parts of our organizations, and 2. we want to be sure that they understand the breadth of UX’s ability to solve problems so we can promote UX to others and make sure people know its value. Thus, when we are asked how long it will take to design a page, do user interviews and testing, figure out the solution, etc we respond with it depends. We then go into our long winded explanation of how there are so many different techniques that could be appropriate to this situation, that it really depends on nailing down the situation at hand, and defining the problem appropriately. This, of course, is still a valid way for us to sell our capabilities in larger organizations or to well established clients, but is probably a bad idea to do so in world of startups.

In startup world things move fast. Very fast. The business could be void of revenue one day, and the next have 1 – 2 million dollars in funding to spend. Thus, things in startup land really do happen overnight. Therefore, the problems with using “it depends” in this world are two fold. First, startups have no time to listen to our long winded explanations about our process and how great UX is. And, to be honest, they really don’t care. They, instead, care about their product being awesome and serving their users as best it can. Knowing the UX technique to use to get them there is your skill and is the main part of the service you are offering them. Therefore, save your explanation with these guys and gals because they don’t want the “it depends” answer. What do they want instead? The answer. The second issue with using it depends in the world of startups, is that by not tailoring the answer right away to the startup you are talking with, you are showing that you have not taken the time to listen to what they have been saying, and are not expert enough to tailor your UX process, on the spot, to their needs. Why would they spend their precious funding or revenue on you as a resource if you cannot pull this rabbit out of your hat?

Lucky for us, it’s not about magic or pulling anything out or your hat (except maybe a flushed out proposal). It’s very easy to solve the problems that it depends brings you in the world of startups. First, stop using “it depends”. At least, stop using it in the way that you have been. Instead of using it depends to preface a long explanation about how amazing UX is, use it depends to serve up options that are relevant to the specific problem the startup is looking to solve. For example, when a startup asks you how they motivate users from a competitors product to instead use their product, don’t answer like this “Well, it depends. We could do user interviews or focus groups or contextual inquiry. There are so many different methods in our tool belt to choose from!” Instead answer like this “Well, it depends on what we want to learn. If we want to get a throughout understanding of this, we could interview our target users to understand their mental models and behaviors. If we wanted to get a throughout understanding of this as well as know how our product stacks up we could do user interviews as well as some targeted usability testing with tasks that can be done on both websites. These are really the two options that are relevant to this product. In your case, given you needs, I would recommend the second option.”. See the difference? With or without it depends you need to tailor your response to your potential client. Of course, you are not going to have the exact answer, however, you should know the technique that applies to the outline of the situation that has been provided to you. If you don’t have a clear idea of the situation, use your knowledge gathering skills to get it.

How then do you get to a point where you can surface up tailored information and feedback on the spot? Easy, learn the whys behind each and every part of your process (for more on this see: The Ultimate Key to UX Success). It is only then that you can eliminate the inappropriate use of it depends with startups. By knowing the whys, you can match the information that the startup is giving you about their problem with the appropriate tool in your tool belt. You don’t have to take the time to sell UX to them, instead you are taking their time to sell a tailored service to them and calling it UX.

By changing or eliminating your use of it depends when working with startups you are getting to the point and saving them time, as well as coming off as much more of a service professional. The only way for one to get to a point where they can tailor their wares on the spot, is to really understand the whys behind the different parts of their process. By learning these whys, you set yourself up for success. It stops being about educating others (who have little time or interest anyway) on what UX can do, and instead becomes about what you, as a UX designer, can do for others. You can know immediately what would work for this particular client and why, and this not only makes you much more of an expert in your field, but it also does one thing that the startup will be ever thankful for, saves them from having to think (pounds to Steven Krug).

UX… Let’s Stop Being Unicorns

Published on November 16, 2011

I’ve mentioned several times before how I have the opportunity to attend many UX and technology events (mostly because I live in NYC and am a consultant, but also because I try my hardest take advantage of these situations). I’ve also mentioned before that I got to attend this year’s NY Internet Week (see UX… so you wanna work with startups for more thoughts on this event). What I haven’t mentioned here before is that I have discovered that we, as User Experience Designers, are unicorns. Meaning, we have skills and talents that technology companies want, need, but don’t truly understand, AND we are super hard to find.

Now, these technology companies, especially startups, are creating a ton of new products and updating a great deal of old products all the time, and they are going to these technology events and discussing lessons learned and tips to success from their experiences. Unfortunately, when they are doing their creating and updating and reporting back to the tech community, they aren’t talking about user needs, goals and tasks in the least. Not one company, at least in the events I’ve attended, has talked about how they went out and did user research to understand current user behavior. They do market research, at times, but that isn’t what I’m talking about. I’m talking about the real, down low, getting to know your users. Instead, these companies talk about giving users new functionality they didn’t know they wanted or giving them functionality that they should want without knowing why or how the user might use it in real life.

Of course, in the UX world, this is a problem that we are well aware of. By not taking user behavior, tasks, needs and goals into account, these companies are designing for solutions to problems they haven’t yet defined. How can they be successful in this regard? We’ll leave that discussion for another day. The problem I want to talk about today is one for our UX world. That being, these companies have no idea who we are, what value we can bring, and that we are sitting right in front of them watching, listening, and shaking our heads in disappointment. This is a problem for our community, because it means that the people and companies that need us the most have no idea how to engage us. Thus, we are unicorns. We have the power to heal these companies “sickness”, to make their products better… but they don’t know how we do it (must be magic!). Further, we can only be captured by a virgin… ok that’s a long shot but the idea is that we are really hard to find. This is something we need to change.

So, what is our solution, how do we stop being unicorns? First thing is first, we need to be in the room. We need to be around the people whom we want to help (see UX… so you wanna work with startups for more thoughts on this). Whether startups or larger corporations, we have to get out of our shell and make our presence known. We can do this by attending events local to us, participating online in conversations that are related to the work we want to do, and ensuring we are branching out, beyond UX, in our search of knowledge.

Second, when we are in the room (or online), we need to be vocal. We can’t be flies on the wall. Instead, we need to speak up and make sure we are adding the UX perspective and educating others about the value that we bring. This, of course, should not be in a condescending way (don’t say “you idiot, you aren’t even thinking about the user.” but instead “how have you integrated the user perspective into your product roadmap?”).

Third, we need to have empathy for the business and technology folks that we want to work with. We need to understand why they aren’t looking towards UX, or if they are what are they hoping to find. A lot of companies, especially startups, don’t realize that we can help them with their product definition and roadmapping. They just think we are UI! We need to gain understanding of their point of view of what UX is so that we can solve the problem of them not thinking of UX in the early stages.

By taking these steps, we stop being that unicorn. We make our presence in the technology and corporate community known, and we make sure that those involved realize all the value that we bring. We become tangible, real, but no less valuable. Once companies are better able to find us and understand us, then it becomes easier for UX to work with the businesses that we want to. This, of course, allows us to do what we do best; help define and solve problems for the betterment of our user base. No unicorn can do that.

UX… so you wanna work with startups?

Published on October 26, 2011

Earlier this year, I attended Internet Week New York; an event centered around the world of technology and startups that helps to uncover and expose new thinking and trends in the industry. I was one of a handful of UX professionals that attended over the week, something that I think should change.

As UX designers, we are focused on our world. We come up with new ideas around the type of work we want to do, the type of companies we want to work with, and the type of products we want to work on. Many times this thinking points us in the direction of the explosive world of startups. This happens because in the world of startups we see the ability to break out of the political and corporate molds and really define the design process to be used as well as the product to be built. Finally we can use all the methodologies and techniques that we have been reading about and, even better, the products and websites are so cool!

However, we are not doing our best to insert ourselves into this world and thus aren’t seeing the benefits of working in it. At times, we are expecting startups to come to us, instead of us going to them. Afterall, these startups are the people that need our expertise right? Wrong. Startups and more flexible businesses aren’t sitting around waiting for UX knowledge to descend on them. Instead they are doing work, and a lot of it, which helps them to get their product ideas out the door and into the hands of users so that they can either exit (get acquired or IPO) or get more funding. Don’t get me wrong, they would love our help… who wouldn’t? But because we aren’t inserting ourselves into their ecosystem and learning the ins and outs of their world, we are too much of a risk to add to the team. We come in with all these ideas and methodologies that work, but don’t know how to cater them to this particular field, and thus it can take us alot of time to come up to speed. And, in the world of startups, this is precious time that they don’t always have.

Thus, if we want to be a part of this exciting environment, we need to begin to learn about and become a a part of the culture. Part of this is attending events like Internet Week (or whatever local entrepreneurial events are available) and observing and asking questions. Also, take the time to reach out to people in the startup realm and interview them about what being in a startup means, really means. What are their goals, needs, tasks (sound familiar. Personas anyone), and then think about how what you do or want to do may or may not fit in with these needs goals and talks, or work to enhance them.

Only by becoming aware of this culture can UX really be helpful and succeed within it. Otherwise we are just applying apple thinking to an orange environment. By coming up to speed with technology, product and business work in the startup world, and understanding how you can affect that world, only then can you begin to join it and be successful in it.