Recently there was some interesting news that online shoe retailer Zappos offers new hires $1,000 to quit at the end of their first week on the job. In that same spirit, I think companies would be better served to gracefully accept resignations without trying to talk an employee out of it.

Early in my career as a manager, if a key employee came in to my office to tender a resignation, I would try to talk her out of it. I would try to understand the motivations behind her decision, and combat each point with a counterpoint for staying. Sometimes I was successful, but only in the short run.

Over time I’ve learned two things. First, when an employee resigns I’m at least six months too late in starting to create an environment where the employee can succeed and wants to stay and contribute. Second, talking someone into staying never works in the long run. You’re better off dealing with the pain as quickly as possible.

In the last few years I’ve seldom been surprised by a resignation. I’ve seen it coming early enough to either change the environment or the individual’s workload in ways to stimulate and reinvigorate the employee, or to recognize that the person (and maybe our company) would be better served to move along.

Talking someone out of quitting is a bad idea. By the time they walk into your office and hand you their resignation letter, they’ve already processed the idea thousands of times. They were emotionally checked out long ago. I’m sure some of you will ask “but what about the person who quits or takes another job offer as a means to force a discussion about a raise?” I’ve only seen that tactic used a couple of times in my career and in 100% of those cases , I was better off without those individuals. The outstanding employees I wanted to keep never needed a resignation or a better offer as fuel for such a conversation. I guess what I’m saying is that top employees usually have the full package, including knowing how to manage their own careers without having to resign in order to demonstrate their value.

Finally, as a good manager we need to plan for the occasion when a top employee will move on. Succession planning - ensuring that business continues as usual after someone departs - is part of what defines a manager as a leader.

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In 2004 when I was CEO of MessageRite we received a very fair offer to be acquired by FrontBridge Technologies. This wasn’t the first acquisition offer we had received, but it was the first offer that boldly proclaimed “we see you as strategic to our goals.” I wrestled with the idea and did what I often do. I called my mentor Bill Kendall.

Before I tell you what Bill said, I need to provide some context. From late 2003 through mid 2004 my primary focus was on raising capital. In MessageRite I picked a capital hungry company to found - email archiving as a service. I started the company when my own personal net worth was insufficient to carry the company to profitability. During that 6-month capital raising period I received term sheets from two VC firms you wouldn’t recognize. They were bottom tier firms who offered incredibly unfair terms. I turned them down.

Back to the offer to be acquired.

Bill’s advice was as follows “Kevin, you are one of the most objective people I’ve ever known and you would be the first to admit that you’ve struggled to raise capital. If FrontBridge’s offer exceeds what you think the company is worth then you should consider doing the deal. There are two reasons for my recommendation. First, it will be perceived as a successful exit, making you all the easier to back next time you start a company. Second, it will provide the capital to personally fund the next company if you decide you don’t want to work with VCs. If MessageRite were your second company I’d have different advice, but in that it’s your first I think you should accept the offer.”

I did the deal and Bill was right. Find wise advisors and learn to heed their advice.

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Please forgive this slightly more personal post; it’s Saturday. It highlights an important issue for startups - having good life balance and weighing opportunity costs.

blist is my second startup, so my family has lived through the long hours and dedication it takes to get a successful company off the ground. My wife, Karen, is phenomenally supportive and manages our busy household with 4 kids between 3 and 16. Three of our kids are starting at new schools this year. Karen asked me on Thursday morning if I would be able to go in the evening to the fall harvest party with Bryce, my kindergartner. I asked her for the details. “It’s from 6:30 to 7:30 p.m. The kids are going are going to carve pumpkins. It’s designed to integrate dad’s more into school, as mom’s are there all the time. It’s optional. Not all the kids are going. Bryce hasn’t asked if you are going to go. So think about it and let me know.”

I was out of the office all day Thursday with important back-to-back meetings. My last meeting was in Seattle and was to end around 5:30. I’d been skipping the Seattle Tech Startups meetings on the 3rd Thursday of the month, but wanted to go this time because the topic - scalability - is one I’m deeply interested in. Not to mention, I thought this talk might attract other folks who are interested in this topic and I could do some casual network-based recruiting.

As much as I wanted to go to the scalability talk, I knew it would mean more to Bryce for me to go to the fall social. I called home in between meetings and talked to Bryce. I asked him if he wanted to go. Of course he did. He was bursting with excitement. I chatted briefly with my wife and told her my schedule was tight and that I’d pick him just before the social and asked if she could have him ready when I arrived. Of course she could.

When I pulled into our driveway, I could see Bryce standing on the sill of my office window, in full Halloween costume, eagerly waiting for me to arrive. I wouldn’t have known it was him except for his unmistakable ear-to-ear smile and his always-happy-to-see-you wave. It was instantly clear I made the right choice.

Karen had Bryce ready to go and had pre-packed a big grocery bag with a pumpkin, carving tools, paper towels, snacks to share, etc. These are the kinds of small, devotional acts she does every day for all 6 of us.

The fall social was a blast. The kids were up on stage and sang 5 or 6 Christmas songs, but with the lyrics rewritten with fall themes “5 Little Pumpkins Sitting on Gate…”

I was wrong about one thing though. Initially I thought it would mean more to Bryce if I went to the fall social. Actually it meant more to me.

Once you cross the line and become an entrepreneur, there is no more dualism separating a work sphere from a personal sphere. You get 168 hours a week and they all come from the same pot. Driving a startup to success requires long hours and a lot of sacrifice. But it also depends on a healthy, happy loving and supportive family. Manage your time and priorities wisely.

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Next week I’ll be at the Paul Allen Center at the University of Washington Computer Science & Engineering department at a recruiting event. One of my two objectives is to meet a few top notch computer science students who might want to come work for blist as summer interns next May. To a startup, May 2008 might as well be June 2044. They seem equidistant. Why would the CEO of a fast charging startup take a day from a frenetic schedule to hang out in a conference hall with college students?

The short answer is threefold:

1) They can code
2) They can contribute meaningfully
3) Hiring them as interns may be our best shot to attract them when they graduate

Some of you may have an impression that a 20-year young adult isn’t good for much more than making photocopies, filing, picking up lunch for the team and perhaps click-the-mouse circa 1992 testing. You’re so wrong if that’s your impression. The reality is, a 20-year old computer science student likely has 5 to 7 years of programming experience and at least two years of formal education to reinforce (or relearn) core constructs. Actually, they can probably out-code a lot of professionals in terms of pure coding speed.

But you only get them for four months, right? Four months is a long time in software engineering. At blist, we run 2-week sprints. Typically we work on 50 to 60 projects in two weeks. A summer is plenty of time for an intern to make really meaningful contributions.

Aside from the meaningful contributions and the great energy and enthusiasm interns bring, it’s important to recognize that top students are going to be heavily recruited in their senior year. By engaging them with meaningful work earlier in their academic careers, we’re hopeful these interns will consider blist after they graduate.

If you’re a computer science major at UW or perhaps another school but you plan to spend the summer in Seattle, blist is talking to interns now for next May. Our internships are paid, of course. Drop me a note at kevin.merritt _at_ blist.com if you’re interested.

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This morning was fun. I was interviewed by John Cook of the Seattle P-I, who tracks the Seattle VC and startup scene. He wanted to dig in and learn a little more about blist now that we are starting to share more detail about what we’re doing. You can read his write-up here.

Sooner or later reporters will want to interview you in order to learn more about your startup and share their insight with their readers. I thought it might be helpful to share some tips for conducting yourself when being interviewed by reporters:

1) Be honest. I wish it didn’t need to be said.

2) Recognize that the reporter is a professional interviewer and you are an amateur interviewee. His job is to get you to answer questions he thinks his readers will want to know.

3) Prepare for an interview like you would for any other important meeting in which you are representing your startup. We’re not yet represented by an outside PR firm, but if you are, by all means rely on them to help prepare you. Think about the 2 or 3 key points you want to convey. Prepare to answer the 2 or 3 hard questions you think he’s going to ask.

4) Realize that anything you tell the reporter is fair game to be printed or posted. You might sometimes be granted an exception, in advance, by asking to answer a question off the record. If you think that’s what you want to do, just answer the question with “We aren’t ready to divulge that yet.” My point is that answering off the record doesn’t give the reporter anything, so you might as well not answer.

5) Don’t immediately answer any question. We’re programmed to believe that answering questions faster makes us look smarter. Have you ever seen an article in which the reporter disclosed how long it took someone to answer a question? Me neither. Being fast just means you might not answer as thoughtfully as you’d like.

You’re also competing against a lot of background noise to have your message heard. Work with the media - old and new - to help get the word out.

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I spent 6 years as CIO of an investment bank, followed by 3 years as CEO of a company selling software-as-a-service to hedge funds, investment banks and brokerage houses. Two terms you hear often in the world of high finance are buy-side and sell-side. Buy-side analysts usually work for mutual fund companies and help decide what stocks to buy for their fund’s portfolios. Sell-side analysts usually work for brokerage houses and make recommendations on what stocks individuals should buy, hold or sell. Sell-side analysts are peddling stocks. Buy-side analysts are accumulating stocks.

Many of us are trying to assemble great teams. We fill our teams via recruiting, which has many steps:

* Candidate sourcing
* Preliminary candidate screening
* Interviews
* Hire/no-hire decisions
* Offers
* Negotiations
* Start of employment

In my opinion, the reason good companies are good at recruiting is because they treat the process as a sell-side transaction. Companies filled with mediocre talent treat the recruiting process as a buy-side transaction. The basis for my opinion is that really talented individuals have their choice of opportunities. They pick where they want to work. Who among us wouldn’t jump at the opportunity if an awesome engineer called and said “I’m thinking of changing companies and love what you’re doing. Can I come in to see if there’s a potential fit?”

Crappy companies look at recruiting like buying produce at the grocery store. Thump, squeeze and sniff to find the best canteloupe or avocado. Throw it in a plastic sack, set it in the cart and off you go. Good companies look at recruiting like finding a soul mate. Court, woo, wine & dine to find the best mate. Now let’s assume you’re a great employee. Would you rather be hastily thumped, squeezed, sniffed and sacked or patiently courted, wooed, wined & dined? Would you rather be thought of as perishable produce or a soul mate?

There you have it. The first step in recruiting a great team is to change your orientation from buying to selling.

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Last night I went to a sneak preview of ClayValet.com, hosted by founder and all around wonderful guy Mikhail Seregine. If you haven’t checked it out yet, I encourage you to do so.

Before the event got into full swing I was chatting with a couple of other entrepreneurs. Two different entrepreneurs - in totally separate conversations - each shared with me something that just seems totally inconceivable from a doing-business-smartly perspective.

Both have startups that weren’t able to secure the .com domain to match their company name. Let’s call them Trovel and Sniffl. Both names are fictitious. Sorry if that’s really your company name. Trovel was able to get trovel.net but not the .com domain. Trovel hasn’t launched. Nobody knows them from a hole in the wall yet. Sniffl was able to secure sniffl.us but not the .com domain. They’ve been in the market for a couple of years and have a huge brand asset in the Sniffl name.

The current owners of the respective .com domains have offered to lease the domains to the respective startups. For Trovel, the offer is $10,000 for a 1-year lease and then the right to buy the trovel.com domain later, but price will be negotiated at that time. Sniffl’s offer was even worse. The current owner offered to lease the domain for 3 years at $17,000 per year. The offer includes a right-to-buy but the current owner won’t negotiate the price until the end of the lease.

I have two pieces of advice:

1) Don’t name your company anything, unless you can get the .com domain that you actually want. Think of your .com search just like your trademark search. You wouldn’t name your company anything without ensuring you could get a trademark for it. Make sure you can get the .com domain too.

2) Don’t lease the .com domain if you don’t know how much it will ultimately cost you to buy it outright. Your .com domain isn’t like an office lease where you can just pack up and move at the end of the lease. The more successful you are and the more time goes by, the more that domain is going to cost you.

A right to buy without establishing today the price it will be at time of sale is a right to nothing. What a horrendous mistake it is to do this deal. If you have a blowout year, the current owner of the domain has you by the cajones and is really going to make you pay.

So you might be wondering what these two entrepreneurs are going to do. Trovel is going to go ahead and lease the .com domain for $10,000 for 1 year. Sniffl has hired a marketing consultant and has decided to change the name of their company soon, so they can finally get the .com they want.

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All companies, but especially startups, operate within the constraints of finite resources. Usually the two most precious resources are time and money. Web 2.0 has, in part, encouraged startups to bootstrap and has inspired them to revel in their thriftiness. The 90’s mantra to “get big fast” has been replaced by the more pragmatic exhortation to “get real.” Develop the core feature set and iterate quickly post launch. Sublease office space downtown and commute via public transportation. Buy used Aeron chairs on Craigslist. Use Skype for phone service. The list goes on.

Todays entrepreneurs have gotten real and are doing a great job of managing real cash - the green kind. What I’m not seeing though is strategic opportunity cost management and I’d argue that the success of a startup hinges as much on good opportunity cost management as it does on good physical cash management.

Let’s say you and your co-founder have pulled together $200,000 in startup capital. You each can afford to go without salary for 12 months, after that each of you need $5,000/month to survive. You are a pretty good coder. The other co-founder is an online marketing wiz and product visionary. It feels like you need two really strong software engineers to complete the team in order to launch your service six months from now and catapult your company to success. If you meet that goal, you think you can get revenues up to $25,000/month within 12 months after launching the service. What’s the real constraint in this scenario? What’s the magic number?

Most of you are probably looking for a piece of scratch paper or you’re opening up EditGrid to forecast cash flow out for 18 or 24 months. You’re looking at the wrong variable.

The magic number is 2. That’s how many really good software engineers you need to succeed. That’s the more critical constraint. Hire one mediocre engineer, and you’ve got only one bullet left in the chamber. Shoot that at another so-so programmer and you’ve just ensured failure for your startup. When you’re interviewing candidates, you should not only be asking yourself “is this programmer worth $90,000/year?” but as importantly you should be asking yourself “is this one of the two extraordinary programmers we need to succeed?”

At blist, we’ve been saving our last two bullets for a while. Are you one of those exceptional software engineers who is the difference between success and failure? If so, we’re hiring.

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Some startups agonize over finding good software engineering talent. Here’s an idea that worked well for us at blist and it might work well for your startup too.

In February we started drawing up sketches and narratives of what blist is and what it would become. To turn these diagrams into a working service, we needed a few really good software engineers. By now hopefully you know one thing that all programmers love is free food! We scheduled what we called an “Inception Mixer” for the early evening of Friday, March 2. Then for the rest of February I networked, recruited and met with as many qualified candidates as I could. I conducted an informal, introductory meeting with each one. In that meeting I painted a little of the vision for blist and told them we’d be hosting an inception party to share more details. It was by invitation only. Good engineers only. We arbitrarily set the limit at 20 guests.

Leading up to the event on March 2, a real frenzy started happening. Software engineers heard through the grapevine that we were a “startup to watch” and they wanted to come, too. I told them the event was by invitation and for qualified engineers only and asked if they could meet me for an informational discussion. That last week leading up to the event I met with another 12 or 14 engineers. One local reporter, two VC’s and one distinguished local entrepreneur all got wind of the event and asked for an invite. Nope. It’s by invitation and only top notch engineers are invited.

We rented out the back room of a pizza restaurant. I told the restaurant folks to keep the pizza and salad coming and the beer flowing. I brought a half dozen bottles of wine from home.

The event was a huge success. We had about 30 engineers show up. Believe it or not I ran through a 179-slide presentation in less than 15 minutes in a style that would make Dick Hardt of Sxip proud. We unveiled our logo, about the only thing we had to show that we existed.

The event worked great in a few ways:

1) An artificial deadline forced those we’d already interviewed to act. We actually hired two engineers before the event, including one at 4:00 p.m. the day of. The enticement was “c’mon, you know there’s going to be some really strong engineers there who are going to get really excited. Don’t you want to be employee #1? Wouldn’t it be great to introduce you to the crowd as the guy with the courage to jump in?”

2) The event fueled the fires of the others to make a declaration. The event ended around 10:00 p.m. and between 10 and 4:00 a.m. I received 6 emails saying “I’m interested. How do I go to the next step?” 30 engineers are smart enough to recognize that a startup can maybe swing hiring a few of them. It created a reverse auction for the few slots.

3) It filled our long term recruiting pipeline. A good 1/2 of the engineers left there excited by our vision, but didn’t have the stomach lining to have an employee # less than 10. A growing company needs good engineers at different stages and it requires very little effort to ping these folks every 6 weeks or so to check in.

The entire night cost us about $300 - way cheaper, way more effective and way more fun than hiring a headhunter. If you’re starting a company and need good software engineers, think about hosting an inception mixer.

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Successful startups need good advisors. These folks are seasoned professionals who provide sound advice based on real world experience. What makes a good advisor, how do you find them and how do you get them to join your advisory board?

Think about your own strengths and weaknesses as an entrepreneur. Use your advisory board to fortify areas where you are weak or inexperienced. These areas might include: technology development, data center operations, capitalization, business strategy, accounting & finance, marketing or sales. You probably don’t need to cover all the areas. If you’re marketing a free, consumer Internet service you probably don’t need an advisor with experience in enterprise software sales. For sure you need at least one advisor who has previously been a successful entrepreur.

Finding advisors requires some networking. Ask your attorney, banker, accountant and other entrepreneurs for introductions to potential board advisors. Be direct and tell them what you’re trying to accomplish. Use Linked In to make introductions as well. Active angel investors are good candidates as advisors, too. I’ve found most folks to be fairly receptive and flattered to be considered for an advisory role. Here’s what I look for in potential advisors:

1) Repeatedly demonstrates a propensity to be extremely candid
2) Distinguished and well-respected within his or her domain
3) Track record of multiple successes within his or her domain
4) His or her participation lends credibility with your target audience(s)
5) Has the intelligence to map his prior experiences to your startup’s needs
6) Can add value commensurate with or in excess of the cost of getting the advisor

Point #6 really is the summary point. A lot of advisors don’t add as much value as they cost, in my opinion. You want someone about whom you feel is worth the x number of shares it costs to attract them.

While #6 is the summary point, #1 is the one most neglected but is far more important than #2 through #5. Your business processes, strategies, presentations and messaging will improve dramatically if your advisors are candid enough to offer insightful, constructive criticism. And that’s the whole point of having advisors in the first place. Good ones improve your chance of success.

Landing good advisors takes time and the establishment of mutual respect and trust. When meeting potential advisors, tell them your motives and that you’d like to get to know them over time. They’ll want to do the same - after all, their reputation is diminished if they become an advisor and you turn out to be not such a great entrepreneur. Nurture the relationship over time and when the time is right, ask the individual to become a formal advisor. From there, avoid the second most common mistake - under-utilization of board advisors.

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