Saturday, February 28, 2015

The Problem of Money

Earlier this week, there is news about another reporter quitting eBay Founder Pierre Omidyar's start-up media organization, First Look Media. Pando covers this with more detail, as the larger story has been something that Paul Carr has been following for a while.

For me, there is another thematic thread here. If you think back to when they were building this organization -- the promises and the prospects -- it was kind of like the story of building a modern dream team of media players. Rock star investigative journalists all pooled together in one old-media crushing modern empire that would rewrite the laws of news and journalism. And the first thing would be to sign these all-star players to big fat new contracts.

As is often the case, fat money is a harbinger of doom. Whether you want to look at sports and the performance of athletes in a contract year versus the year after they sign their fat new contracts or those newly signed top draft picks that never actually turn out to be the next Michael Jordan.

But what's driving the mega-contract opening bid? After all, anyone who's ever bid on eBay knows that you don't open big; instead, you swoop in near the end in an effort to win by inches.

But there's a second part to this equation; what's going on inside of the head of someone that signs one of these huge contracts. On the one hand, as employees negotiating salary, it's often essential to try and get the most money that we can on the way in the door. If it's a long term hire, this number works as a base that will, most likely, be followed with a very low percentage incremental increase year after year. And if the opportunity has a short life span, it's well worth getting what you can from it while you can. That being said, the kind of hire we're talking about here is different.

Like many other Silicon Valley opportunities, when these media people are moving into this new venture, they are going start-up. They stand at the beginning of the road to building something. In the start-up world, this often translates into equity versus salary. Equity versus salary isn't just about money, it's about gambling whether money today is worth more that potential returns down the road. And that, fundamentally, is about belief in the idea, belief in the potential. To buy into return, you must see a future. This isn't like investing money. You have only one of you, one unit of your time and effort that you can commit at a time. Equity is a win or lose investment.

To that end, when you're in for equity, salary matters less because you've already bought in. You've drank the Kool-aid. Which brings us to the second question in this "all-star" relationship -- if you believe in the idea, why would you want or need fat money to make the move? And, more to the point, what does that huge offer say to you?

From the guy with the money to the guys signing on, I don't think that there was ever a shared Kool-aid experience. This has been about guns for hire and the offer you can't refuse. And when you find that kind of offer on the table in front of you, you probably don't want to refuse. Unlike a select few, most of us need an income. But when the fat money comes, remember, you're probably in for a short ride -- don't expect an in-flight meal and no need to bother with the Kool-aid.

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