On “Paying” Your Mentors and Advisors: The 2.5x Rule

cubanRecently, I met with a CXO of a very cool SaaS company doing about $6m in ARR and expanding nicely — but with some real growing pains.  This CXO asked me if I could help him find a few good advisors to help them on the revenue side.  I said I knew a few that would be a good fit.  I took some notes on my Moto X to make the connections.  Two really great people that could really help as seasoned advisors.

And then the CXO added: “But I don’t have any equity budget to pay them.”

Ah.

Delete.

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To go big, especially in SaaS, you absolutely need a mentor if you can get one, and/or at least a couple of great advisors, to excel.  Maybe you know it all in SaaS.  But most of us don’t.  Do you really understand building and growing a SaaS sales team?  How demand gen marketing really works?  What enterprise grade tech ops really means?  How to drive customer success?  Very few of us know it all.  Even fewer truly have experience in bringing it all together, and then scaling it to success.

The good news is you will find great mentors and advisors if you work at it.  They key especially if you are in Silicon Valley is just to meet as many talented and senior people as you can, ideally through a qualified introduction.

If you are doing something interesting, and you hustle and try to meet as many great people as you can … you probably will eventually connect with someone that could be a good mentor or mini-mentor.

Don’t suck up to them too much.  A little, yes.  That always works.

But what they’ll really be interested in is what you are doing.  Why it’s interesting, big … and relevant to what they are interested in.

If it’s a good fit, and you are doing something big enough, valuable and of interest to this potential mentor, and timing is perfect … it will come together.

Because mentors are looking, even if they don’t know it, for 1-2 “mentees”.

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OK but once you’ve found them — don’t screw it up.  And don’t get confused by the fact that at first, advice seems “free”.  But what can you offer in return?

Well, first it’s not cash.  Your successful entrepreneur advisor / mentor already has enough cash.  At least most of them do.  You can’t pay them $X00 an hour or whatever.  It doesn’t matter or move any needle if they’ve got millions in the bank.  (There are exceptions.  But I’d reserve cash for consultants, not mentors and advisors).

Second, it’s not just the wonderful experience of talking to you.  That’s not enough either.  Maybe they want to learn through you, and do want to help.  But time is precious and valuable.  There’s a reason even Marc Cuban charges $170+- a minute to talk to him.

Screen Shot 2013-06-20 at 12.58.56 PM>> So I’ve come up with a 2.5x “rule” or at least axiom.

With advisors and such, I think after 2 1/2 meetings, after 2 1/2 intros to VCs or potential VP hires, after 2 1/2 times they “help” … you need to “pay” or they go away.  Until then, you don’t have to pay.  And many people if they are interested in you will make a few connections and help for free.  2-3 times.

Then you do have to “pay”.

And since cash doesn’t really work, the only way you can really pay most folks like this is to (x) give them some (a material number but the exact amount doesn’t matter) stock options and (y) if you can, let them invest in your seed, A and B rounds IF they want to.  Don’t connect the two.  The first is a (for now) unquantifiable “payment” for helping.  The second is a “thank you”.  Don’t confuse the two, but try to do both.

FWIW if it helps.

Again, while I don’t think you have to pay for 2.5 meetings, favors and intros … don’t wait to “pay” too long.  Because after that, the (prospective) mentor will fade away.

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10 comments

  1. Could’nt agree with you more Jason. It happens all the time. People expect others to take time out and the discussions stay with “can you do this for me” and “can you do this after that”. Once they get help people assume that the person is fine helping endlessly. I make whitelist and blacklist for those who make endless requests without valuing the relationship. More than the material returns from the relationship for me personally, it also shows how they value the relationship.

  2. Amen. How many times are you going to call to “pick my brain” or “ask for a referral to really good salespeople?” And then when I suggest a referral fee or advisory shares after several of these requests, you “don’t typically do things that way?” Uh huh. Delete.

  3. Jason, i still have the equity budget :)

  4. Jason – Great advice! Any suggestion on how much to give? Is there a simple rule of thumb based on stage of company, or other variables?

    • Ron, one way is to find out what their cash hourly rate is, then multiply that number by some multiple. Techcrunch suggested using a multiple between 1 and 4. For example, if their time is worth $100/hour, pay them ~$100 for each 15 minutes of their time, in equity. ~25 hours per year would be ~$2,500 in equity (i.e. 0.25% equity if at a $1M, enterprise value).

  5. Good stuff here. Most people know that giving before expecting something in return helps to signal value and commitment. It’s good to know this model applies to mentors too. The 2.5x figure also seems like its in an appropriate range.

    I am curious though to hear your thoughts on “a material number but the exact amount doesn’t matter”. What would a ballpark figure be for something like this? I’m guessing it would vary widely on the mentor. Either way, great content as always.

  6. Good stuff here. Most people know that giving before expecting something in return helps to signal value and commitment. It’s good to know this model applies to mentors too. The 2.5x figure also seems like its in an appropriate range.

    I am curious though to hear your thoughts on “a material number but the exact amount doesn’t matter”. What would a ballpark figure be for something like this? I’m guessing it would vary widely on the mentor. Either way, great content as always.

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