Ep 415 Jason Cohen on Starting Two Unicorns Worth More Than $1 Billion; Deciding When to Sell, the Freedom Line, Box Games and Whether It’s Better to Be Rich or King
Nov 10, 2023
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Jason Cohen shares his experiences of founding two unicorns valued at over $1 billion. Discusses the dilemma of choosing between being rich or king, the importance of purpose in company success, decision-making based on financial thresholds, navigating criticisms after selling a company, and nurturing success through good product taste and capable leadership.
Wealth and happiness may not correlate linearly, prompting consideration of the 'freedom line' in decision-making.
Expected value theory in decision-making may not accurately reflect real-life scenarios, as single events vary from averages.
Emotional complexities arise when employees are hesitant about company sales, showcasing personal attachments and uncertainties.
Fair compensation for employees post-sale is crucial, utilizing creative methods like equity pools to align incentives and recognition.
Deep dives
Philosophical Consideration of Wealth and Decision Making
Wealth is not linear and the decision to sell a company can be influenced by the freedom line, where increasing wealth may not significantly impact happiness. The concept of expected value in decision-making is flawed, as real-life single events differ from averages. The box game illustrates how individuals approach risk and reward differently.
Employee Reactions to Selling SmartBear
Employees at SmartBear were hesitant about the decision to sell, not wanting to do so despite the stated goal. Some felt the move was undesirable, showcasing the emotional complexities involved in such a transition. Not all employees accepted the decision readily, reflecting the personal attachments and uncertainties surrounding company sales.
Employee Compensation and Moral Obligations
While legal obligations may not require it, there is a moral consideration for fair compensation, especially if employees have contributed beyond their market-rate salaries. Various compensation methods, like equity pools or unit allocations, can align employee incentives and recognition without complex options or legal issues. Creative approaches to rewarding employees can foster motivation and fairness.
Tax Implications on Employee Bonuses
It's essential to consider tax implications when rewarding employees, especially upon company sales. Regular income tax on employee bonuses can result in significantly reduced payments compared to long-term capital gains. Differences in tax jurisdictions highlight the importance of consulting local regulations for employee compensation and understanding tax complexities.
Global Applications of Compensation Strategies
Incorporating performance-based bonuses and equitable compensation methods can enhance employee motivation and recognition. However, nuances in tax laws across countries can influence the effectiveness of these strategies. Adapting employee compensation approaches to diverse regulatory environments contributes to fair and impactful rewards globally.
Success of SmartBear and WP Engine
The podcast discusses the journey of SmartBear, which was sold and later resold, continuing to be successful under different ownership, highlighting the importance of great teams and quality tools in the software development industry. It also explores the significant growth of WP Engine, becoming a unicorn company with 1200 employees and a successful CEO appointment, emphasizing the role of good taste in product and the impact of excellent leadership on long-term success.
Staying with Your Company After Sale
The episode delves into the founder's role post-sale, using a framework of joy, skill, and company needs to navigate responsibilities effectively. It discusses the importance of aligning personal strengths and company requirements, outlining traps to avoid, such as focusing on tasks not valued by the company. The conversation stresses the value of self-awareness and the ability to delegate based on company needs and personal competencies to ensure continued success post-acquisition.
Jason Cohen is the founder of both SmartBear and WP Engine, both companies that have achieved a valuation of more than $1 billion, making them “unicorns” in the parlance of Silicon Valley. This is our first installment in a series we’re referring to as Legends of the Deal, which will chronicle the life lessons of extraordinary achievers in the world of value building.
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