Aniq's Blog

If you want to know if a ship is going to sink, watch what the richest passengers do.

iTunes and file sharing killed Tower Records. The key symptom: the best customers switched. Of course people who were buying 200 records a year would switch. They had the most incentive. The alternatives were cheaper and faster mostly for the heavy users.

Amazon and the Kindle have killed the bookstore. Why? Because people who buy 100 or 300 books a year are gone forever. The typical American buys just one book a year for pleasure. Those people are meaningless to a bookstore. It's the heavy users that matter, and now officially, as 2009 ends, they have abandoned the bookstore. It's over.

When law firms started switching to fax machines, Fedex realized that the cash cow part of their business (100 or 1000 or more envelopes per firm per day) was over and switched fast to packages. Good for them.

If your ship is sinking, get out now. By the time the rats start packing, it's way too late.

Recently re-read Christensen's Innovator's Dilemma and found this interesting. This also ties in with Moore's "Darwin and the Demon" for me - your early adopters are often the ones that buy the most (if not, the people that adopt at the end of the curve probably buy less).

EDIT: Actually, I disagree with Seth Godin here a little bit. I don't think that the people that buy 1 book a year for pleasure are "meaningless" to the business. All of your users matter and nobody should ever underestimate the power of the "long tail." That said, I think that the trends are ultimately dictated by the early adopters and the influencers, who are probably the ones that buy 100 or 300 books a year.

Innovation shouldn't be limited to catering the needs of just your best customers though. Sure, the airlines have first class, but they don't also operate super fast luxury planes that exclusively cater to the needs of those people.

Employers use stock options as an effective recruitment and retention incentive for senior or hard-to-fill positions. It's flattering to be offered stock options, but without clear understanding, they can be hazardous to your financial health.

Options give you the right to purchase a set amount of stock in the company at a predetermined price (usually attractive) and over a fixed period of time. Employees are typically offered Incentive Stock Options. With this type of option, you only have to pay taxes on your gains when you sell the stock; and if you keep the stock for at least a year after the purchase, you will not have to pay capital gains tax.

When negotiating stock options, always bear in mind that they are a gamble. The employer is going to talk about the offered stock options as if they were money in the bank; they are not. Stay focused on the current market value of the stock, especially if you are asked to accept options in lieu of salary, you can't eat stock options.

With a publicly traded company, learning the value and performance of stock is a matter of public record. If the company is privately held, your judgment equals your faith in the company, the immanence of their going public, and whether the company is a start-up or a well established entity.

With private companies, you'll want to consider market segment, business strategy, operations, liquidity and senior management track record very, very carefully. If the stock options do not impact your take-home pay, it can't hurt to get as many as you can, because there is a big difference between getting the options and actually exercising your right to buy and sell them. Your considerations will include: what the purchase price will be, when you can exercise your options, and the restrictions on when you can buy and sell the stock. These matters will be laid out in the separate Options Agreement; read it carefully with advice of counsel or accountant before you start negotiating.

Stock options always have a vesting period. This is the length of time you must work for the company before you can exercise your options (read buy the stock). The employer will want the vesting period to be as long as possible, thus tying you to the company. You, on the other hand, will want to shorten the vesting period.

Ask to get an Incremental Vesting Schedule, which allows you to buy a few shares every month or quarter. It will probably get you fully vested in the same period of time, but in smaller more frequent steps along the way. Also ask for Accelerated Vesting in the event your employer merges or is bought by another company. This way, you become fully vested at the time of the acquisition.

Your agreement will also limit the time period in which you can exercise your options, including when you can first exercise them, and the point at which your option ends, usually on termination of employment. You will want to extend this period as far as you can, beyond the time you leave the company. For example, if you have a non-compete , or a non-disclosure clause, you are essentially still tied to the company for a specific period of time, so you should negotiate to exercise your options through the same period of time covered by your non-compete and non- disclosure clauses.

If you are not offered a "cashless exercise provision" you should certainly negotiate for one. A cashless exercise provision allows you to buy stock without spending any of your hard-earned salary. When you buy a block of stock, you are simultaneously allowed to sell as many shares as are required to cover the costs of buying the stock- leaving you with the stock, but not out of pocket. Getting the stock options is one thing, exercising them is another step that you will not want to take without professional financial counsel.

Stock options will only become an issue when a job offer is firmly on the table. It is both the most complex, and for the employer, most flexible issue you will negotiate. As such, it should be left until an easier time so that you don't muddy the water on other issues. Follow the advice of your counsel, and be sure to ask for each of the reasonable provisions I have discussed with you here.

Was interested in accelerated vesting and cashless exercise provision and ended up seeing some other stuff in here that may be of use to others...