Why Rand should take some money off the table

SEOmoz founder and figurehead Rand Fishkin wrote a typically transparent, thoughtful blog post about his struggle of whether to raise a Series B. He’s in the best possible position — the company is profitable and growing and doesn’t “need” the money, so with little dilution he could take $10m for safety, comfort, and scale.

By putting his emotions and financials out there — both business and personal, not that there’s a difference — he’s also opened himself up to armchair advisors such as myself and the great (and powerful) Dharmesh Shah, who heaped on wisdom and guidance in an open letter to Rand.

In that spirit, and because I’ve gotten requests for more articles about issues that arise after your startup is going strong, I wanted to follow Dharmesh’s lead and talk about of the questions from Rand’s post:

Should Rand take out a few million dollars for himself as part of this financing?

The typical arguments for: (a) reduce risk of ever getting rich, (b) you deserve it, (c) time-value of money, (d) now for the exit you want to “swing for the fences” along with the investors, aligning interests

The typical arguments against: (a) unfair to employees/co-founders, (b) now you’re not hungry so you care less, work less, (c) swinging for fences without attention to detail is imprudent.

All rational. But in the end, in a spirit of directness and with the greatest respect, I say:

Dear Rand,

Take some money off the table.

I will join Dharmesh and Brian Halligan in admonishing you that having $25,000 in the bank is foolhardy and perhaps even irresponsible. I’ll bet you $100 that no one at SEOMoz — not any employee nor any investor — thinks it’s a good thing or a good signal that you have no personal savings.

Devote all your waking hours to the company, yes. Siphon off money the company needs, no. But I’ll bet everyone at SEOmoz would actually be more comfortable if you had $1m in the bank right now.

It sounds like you won’t accept the “you deserve it” argument, so (although you do) let’s consider this from a cold, rational, economic business perspective.

You can’t have personal finance affecting your behavior or time-management at SEOmoz. If you paid a personal assistant to cause a sushi lunch to appear in your office, though it’s 15 times more expensive than hoofing it to the local sandwich shop, if it saves you half an hour of on-task time, you should make that choice. If you can spend $500 on a night out with the wife (babysitter + great meal + show) so you can be happier and more refreshed come Monday without any loss in time-in-office, that’s better for the business. If you can have a maid instead of scrubbing toilets on the weekend, if you can blow $20,000 on an amazing much-needed vacation (don’t you dare make the same mistake as me, Andrew Warner, and thousands of other type-A personalities that burn out only because they think stress and breaks are for losers), if you get yourself the fastest laptop and personal trainer and anything else that makes you a happier, stronger, better, and more productive human being, that’s all better for the business.

You also say that money is not the goal of all this hard work; in fact you tweeted recently that as you get older you want less stuff. (Me too.) That’s even more reason to take money off the table. Why?

Because even if (like me) you don’t care about “stuff,” there’s a base level of financial security that matters to anyone living in the 1st world. No house payments, never allowing price to matter for eating out or calling a plumber or helping someone less fortunate or putting kids through college or dealing with a surprise medical catastrophe — this peace of mind, this liberation is not to be underestimated, even if you don’t want “stuff.”

Since you don’t want to buy lots of things, that means that in an eventual exit from SEOmoz you don’t care whether your share ends up being $10m or $15m or $30m. All the same to you. All the same change (or lack of change) in lifestyle.

If you don’t care about even a 3x difference in the size of an exit, you really should take some money now: Get to that point of financial freedom ASAP since the penalty of doing so — reducing a possible eventual payout — is not an important penalty for you.

You worry that it will reduce your drive. But your drive never was about money. That’s why you only have $25k in your checking account — if it were about money you would have rewarded yourself accordingly.

You are like Michael Dell and Bill Gates and Steve Jobs and Warren Buffet and Sergey Brin and countless others who have achieved financial success so massive it’s almost impossible to wrap your brain around the implications of their net worth, and yet their work ethic, drive, and ability to innovate hasn’t flagged for a decade or more.

In fact, you’re already there! You already make enough money to do “whatever you want,” and that’s already not affecting anything negatively. Adding zeros to your net worth won’t change that day-to-day mindset, it’s just the prudent decision for your personal financial security.

So take it. Even if you don’t raise money now, still take out at least a few million over the next 18-36 months.

And congratulations in any case. You really do deserve it.

What do you think? Let’s continue the discussion in the comments.

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  • http://www.iconfinder.net Martin LeBlanc, Iconfinder.com

    Great post. I don’t agree that having $25,000 in the bank is irresponsible. I guess many people have much less in the bank. Taking some money of the table sounds like a great idea – especially if he can keep the same drive and motivation.

  • http://www.hypedsound.com jonathanjaeger

    I recommend this great interview with Rand Fishkin on This Week in Venture Capital (with Mark Suster). The extremes Rand went to in the early days are a little scary, but also inspiring: http://thisweekin.com/thisweekin-venture-capital/this-week-in-venture-capital-52-with-rand-fishkin-ceo-co-founder-of-seomoz/

    Edit: Great post by the way, and I agree.

  • http://twitter.com/joehall Joe Hall

    I am going to be completely honest with you, I quit reading after you said that $25,000 wasn’t enough in savings.

    I know a few folks at SEOmoz and I know a few more that used to work there. I don’t know what its like to work there, or even what their corporate culture is like. But I know the folks I know, couldn’t care less how much Rand has in savings, because they believe strongly in him, themselves, and their company’s mission/vision.

    That type of faith is what Rand and the rest of the SEOmoz team needs to continue to build, not capital that they really don’t even need.  

    • http://blog.asmartbear.com Jason Cohen

      It’s too bad you stopped reading, because I didn’t say what you thought I said.

      This article isn’t about whether to raise a round. It’s about whether rand should take some
      money for himself.

      This point is reenforced at the end…

      • http://twitter.com/joehall Joe Hall

        I got that point. And I still don’t think it matters if he does or not. But to further assume that the people that work for him, cares one way or the other if he takes some money for him self I think is kind of insulting to them and the organization that Rand has built.

        And the crazy thing is, I don’t even work there! LOL

        • http://darwinweb.net/ Gabe da Silveira

          The point you missed is that the employees will certainly care if financial troubles impact his performance.

        • http://twitter.com/hectorramos Héctor Ramos

          Rand himself just said that he worries about what his employees will think if he takes some money off the table. Do you still think that assumption is insulting?

          • http://twitter.com/joehall Joe Hall

            I don’t see how Rand’s comment contradicts mine.

    • Anonymous

      They may not care how much money he has in savings right now. They may not care in six months, or a year, or three years. However, they’d probably care A LOT if something were to happen in Rand’s life that caused him to be extremely distracted from his work. Many different kinds of distractions can be reduced or even eliminated by the liberal application of cash. If he doesn’t have the cash to apply to those distractions, or doesn’t have enough to do so without a second thought, it could greatly impact his performance at work.

  • http://blog.usermood.com Dave Churchville

    Thoughtful piece, but ultimately this kind of decision is going to be largely emotional, not rational.  I completely agree that the rational thing to do here is to take money off the table.  Conditions are right NOW, there’s no telling what could happen in the future, and unforeseeable events are, well, unforeseeable.

    But we humans are funny that way.  We make emotional decisions, then rationalize them after the fact.  For many entrepreneurs, the entire point is to live on the edge, not be safe and comfortable.  Safe and comfortable usually means NOT starting a business.

    Take away the excitement, the danger, the long hours, and they’d need to start jumping out of planes to get it back.  I don’t know anything about Rand, but if money, power, or “changing the world” aren’t his key motivators, maybe the excitement of the game is.  And maybe taking money and being “safe” changes that game in ways that make it less fun and exciting.

    Or this is the most spectacularly clever means of driving up his company’s valuation by means of a public discussion followed by a bidding war that I’ve ever seen :-)

  • http://twitter.com/wfjackson3 Willis F Jackson III

    In the two seconds I have allowed myself to think that far into the future, I have wondered what it would do to allow employees to take money off the table as well. Perhaps they could sell some % of their shares on a sliding scale that relates to when they joined and the risk assumed in their reduced salary.  What do you think Jason?

    • http://blog.asmartbear.com Jason Cohen

      It’s simpler than that. In his series B his stock is valued, and he can sell some of it to an investor.

      • Anonymous

        Right, but aren’t there other employees with vested shares that might also want to take money off the table? Why not allow it for everyone if the CEO and founder gets to do it?

        • http://blog.asmartbear.com Jason Cohen

          Great question.  Some answers:

          1. Yes, this doesn’t have to be exclusive.
          2. No, probably the stake an employee has is so small that tearing off a small piece is unlikely to net much of a bonus and unlikely to leave enough behind to continue being motivation (if it ever was).
          3. In this particular case there doesn’t need to be parity with founders and employees. Founder’s stock is different from ESOP participation, and this is a “stock thing,” not an “ESOP thing.”

  • http://www.VirtualZeta.com Maren Kate

    Great article! Can’t wait to get to that point myself in the next few years. It does seem like a scary decision but i think having that peace of mind is very, very important.

  • http://www.facebook.com/cpope Curtiss Pope

    I like this article. It makes a lot of sense ;after sacrificing for so long  doing the startup (burnout ) life, you need to have cash so that you can make it less of a factor in the decisions, and start leading with instinct.

  • http://www.randfishkin.com/blog Rand Fishkin

    Jason – first off, thanks so much for this. It’s a little awkward, I must admit, having folks publicly discuss my personal finances on the web, but it also feels oddly liberating and right in line with our company’s goals around TAGFEE.

    Everyone I’ve talked to, from investors to entrepreneurs to other folks around the startup ecosystem seem to agree that taking some chips off the table makes sense. My primary concern at this point, quite honestly, is around internal perceptions on the Moz team.

    I’ve always been one of the “front lines” types of CEOs. Getting my hands “dirty” so to speak in lots of ways with the business and never just being an overseer/boss. I often tell VPs or even individual team members to think of me as a tool they can point in a direction and use for their work (if and when I can be helpful), and I want to continue that style. I guess I worry a little about how perceptions would be if I were suddenly someone who “got rich” off Moz while everyone else here is still in salary mode. Granted, many mozzers are in better financial positions than I am now (excluding my stock value), but there’s still some general weirdness to get over there.

    My sense is the best solution is to talk very honestly to team members here and gauge reactions that way. Culture and team cohesion are our most important assets and if this could damage that, I need to think about that strongly.

    • http://blog.asmartbear.com Jason Cohen

      It must be weird indeed! And hopefully this (including the commentary by others) is constructive for you — I have a habit of being so direct that it could be taken as offensive.

      I ran Smart Bear exactly as you describe. I was the last one to get paid a salary. I got distributions only when everyone got bonuses. It was part of our culture.

      However, I found out later that the situation was exactly as I described in this article. The attitude you have — not the actual bank balance — is why they’re there, and in fact it’s awkward that there isn’t proportional compensation.

      I admit I don’t know anything about your folks or your culture, but I’m probably right in assuming the tenor of your blog post (and all the others) accurately represents it — open, honest, fair, reflective. If that’s true, you can have this conversation. If that’s true, it’d be hard to see why others would have a problem with it.

      Of course there’s a limit to everything.  If you’re distributing a year’s worth of profits, it’s weird.  If you’re distributing a single-digit percentage of them, and only to the extent that it “pays back” the risk you took on the company (either in a lump because the company got a cash-injection or in pieces over a few years if you don’t get that injection) it’s hard to see how that would be taken as unfair.

      It might be easier to discuss on the phone since this isn’t the sort of thing that can be decided in a relatively one-sided conversation by someone (me) who has only the barest notion of the culture and history of SEOmoz.

      Then again, if essentially everyone is telling you it makes sense, and if your folks are reasonable and share your attitude, it sounds like it will be fine.

    • Jeremy Bencken

      Rand, having spoken with you, and learning about  the financial sacrifices you made along the way in founding seoMoz (which I’m sure many on your team well appreciate), I definitely don’t think you should feel *any* concern that anyone will perceive that you “got rich” if you take a few million off the table.  

      Even if you took twice that off the table, the return you’d get would be insufficient to induce  most entrepreneurs to finance a startup with everything they have, including all their personal credit.   Kudos to you for having the cojones to truly risk everything.

      Besides, in my opinion, a few million really cannot change your lifestyle.  It can provide some peace of mind at best.

      Your investors are going to push you for growth and get preferences that emotionally and financially lock you into financial targets you may or may  not need to feel happy.  Lock in the return when you know you can get it… Deals go bad.  CEO’s get fired.  Culture gets screwed up.   Don’t let the opportunity pass to ensure one thing goes right.

    • Anonymous

      If I worked for you I would be cheering for you taking the opportunity.  Given what I know I of you, it would like make you more able to “invest down” in SEOmoz.

  • http://twitter.com/FloweMedia Flowe.co.uk

    You’ve worked bloody hard for at least a decade and helped countless thousands in the process, if you feel a little awkward about taking the money, then change your mindset and do it for the family – You deserve it and so do they.

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  • http://www.searchengineoptimizationmalaysia.com/ nicole

    Great article. I personally think he’s fine where her’s at, if he wants to take some money out to feel better, I don’t see it being a problem. 

  • http://www.facebook.com/profile.php?id=755555254 Stuart Meyler

    Rand – as a customer of SEOMoz and a fan of yours from afar, I think you should take the money for all of the reasons outlined. I want the business (and offerings) to continue to thrive. That helps our business. I believe that is more likely with you secure at the helm continuing to provide incredible value to your customers.

    I don’t know you, but if I was an employee of yours, I am certain I would be psyched for you to reward yourself. I would also be psyched to be part of such a great, dynamic company. 
    Good luck!

    Stuart Meyler

  • http://www.facebook.com/profile.php?id=755555254 Stuart Meyler

    Rand – as a customer of SEOMoz and a fan of yours from afar, I think you should take the money for all of the reasons outlined. I want the business (and offerings) to continue to thrive. That helps our business. I believe that is more likely with you secure at the helm continuing to provide incredible value to your customers.

    I don’t know you, but if I was an employee of yours, I am certain I would be psyched for you to reward yourself. I would also be psyched to be part of such a great, dynamic company. 
    Good luck!

    Stuart Meyler

  • http://www.facebook.com/profile.php?id=755555254 Stuart Meyler

    Rand – as a customer of SEOMoz and a fan of yours from afar, I think you should take the money for all of the reasons outlined. I want the business (and offerings) to continue to thrive. That helps our business. I believe that is more likely with you secure at the helm continuing to provide incredible value to your customers.

    I don’t know you, but if I was an employee of yours, I am certain I would be psyched for you to reward yourself. I would also be psyched to be part of such a great, dynamic company. 
    Good luck!

    Stuart Meyler

  • http://www.facebook.com/profile.php?id=755555254 Stuart Meyler

    Rand – as a customer of SEOMoz and a fan of yours from afar, I think you should take the money for all of the reasons outlined. I want the business (and offerings) to continue to thrive. That helps our business. I believe that is more likely with you secure at the helm continuing to provide incredible value to your customers.

    I don’t know you, but if I was an employee of yours, I am certain I would be psyched for you to reward yourself. I would also be psyched to be part of such a great, dynamic company. 
    Good luck!

    Stuart Meyler

  • http://www.facebook.com/profile.php?id=755555254 Stuart Meyler

    Rand – as a customer of SEOMoz and a fan of yours from afar, I think you should take the money for all of the reasons outlined. I want the business (and offerings) to continue to thrive. That helps our business. I believe that is more likely with you secure at the helm continuing to provide incredible value to your customers.

    I don’t know you, but if I was an employee of yours, I am certain I would be psyched for you to reward yourself. I would also be psyched to be part of such a great, dynamic company. 
    Good luck!

    Stuart Meyler

  • http://www.facebook.com/hellogerard Gerard Sychay

    Just wanted to throw a note: the vast majority of families in America do not have $25,000 in the bank (excluding retirement accounts, though including retirements probably wouldn’t increase the number much).

    • http://blog.asmartbear.com Jason Cohen

      The vast majority of Americans also didn’t build businesses doing $10m/year in revenue, risking their personal finances and career in the process.

      Taking the risk is one thing. Deciding to not realize the upside is another.

  • Christopher Hawkins

    ” I guess I worry a little about how perceptions would be if I were
    suddenly someone who “got rich” off Moz while everyone else here is
    still in salary mode.”

    Am I the only one who thinks:

    1) if Rand’s employees were to get upset about this, he’s got the wrong employees? 
    2) that Rand’s employees probably won’t get upset about it, given the kind of guy he is and the kind of employees he likely attracts?

  • Christopher Hawkins

    ” I guess I worry a little about how perceptions would be if I were
    suddenly someone who “got rich” off Moz while everyone else here is
    still in salary mode.”

    Am I the only one who thinks:

    1) if Rand’s employees were to get upset about this, he’s got the wrong employees? 
    2) that Rand’s employees probably won’t get upset about it, given the kind of guy he is and the kind of employees he likely attracts?

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