Make Big Moves

He was a mid-level manager who paid his dues working at various blue-chip companies. Because his reputation was sterling, my friend called him in for an interview at his company – a young start-up with a potentially huge upside.

Everyone liked the manager. He was given the standard offer: A significant pay cut with a nice slice of equity. He would earn less but be a part owner in the company.

“I talked it over with my wife. We can’t afford to take a 20% pay cut. It’s too risky.”

My friend begged him to reconsider. “You will fit in well at the company. The stock offer is generous. It’s a chance for you to potentially get rich.”

“My wife said we can’t swing it.”

Everyone was sorry to hear the manager’s answer.

Three months later, the stock split. This wasn’t a total surprise, as the stock had split twice before. The company brutalized its employees. But employees were true owners. To get paid as an owner you had better be prepared to work like one.

The manager’s shares had quadrupled in value. At last check, his shares would have been worth $1,044,450.

After taxes.

Thirty-five years old. One-million dollars. Cash.  Money in the bank.

The manger could blame his wife, the wind, or his God. He could tell himself that the grapes on the highest branches are the least sweet.

While he sings himself childish lullabies to help him sleep at night, others are deciding where to take their next vacation. Many are taking permanent vacations, retiring from work or taking on easier jobs with lower salaries and collecting yield.

In this lifetime, a man gets one or two chances to make a big move.

You’ll know it’s time to make your move when the decision hurts.

If the manager had left his stable job, he’d have taken a pay cut. He’d have to had cut costs substantially. His wife would have nagged him. Whenever they couldn’t pay a bill or eat out or pay for a babysitter, she’d have reminded him how much more money he’d have made at his old job.

If he had been willing to endure the pain of yesterday, today he’d be rich.

When it’s time, make your move.

(If the video doesn’t load at the right time, fast forward to 31:05.)

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  • reilo

    Kind of in the same situation, except I work in the startup right now and want to move to another company close to the city and not be stuck in the boring suburbs 45 minutes away from the city. It can be another startup, but still. It can take years to cash out that stock.

  • Faust

    Nice story, and a point to take to heart.

    I just want to draw attention to one point in it: What’s a mid-level manager at a blue-chip company pulling? I’m gonna hazard a guess and say 80k a year. Maybe that’s totally off, but let’s just say that. A 20% pay cut is 64,000$ a year in income. They “couldn’t survive” on 64,000$ a year? Of course they could. She just didn’t want to give up her yearly vacation to the Hamptons.

    Well, she gets to keep her vacation. At least until the axe falls at his current company, which with the way things are going is likely to happen sooner or later. Then… well, sometimes taking the “safe” path is a risky choice in itself.

    • Danger & Play

      The numbers were higher, but you’ll see that you grow into a larger salary.

      If you’re earning what seems like a lot, say, 100K, you’ll find a way to spend it if you aren’t extremely careful. You like wine? Why go to Trader Joe’s when you can go to Napa.

      Your wife likes to shop? Well now she needs a nicer hang bag, better shoes, etc.

      Add in a wife who doesn’t work and a kid and even 150K (in the kinds of cities where start-ups are) will feel like a squeeze.

      The pay cut would have hurt. That’s a given. But I’ll bet checking the stock price hurts even worse…

  • Asdf

    My friend I was with yesterday passed up cashing out 500k in options at his company to try and be a millionaire. Now they are worthless. It cuts both ways.

    • Danger & Play

      There is greedy and then there is stupid. Sounds like your friend was the latter.

      • raliv

        Bulls and Bears make money. Hogs get slaughtered.

      • asdf

        Stupid is just greedy that doesn’t work out.

  • http://wallstreetplayboys.com Wall Street Playboys

    This has actually inspired an article to come on a combined approach. The D&P approach and our general advice of slicing out 1/3 and getting out of dodge in a decade.

    Effectively, you can hedge out what ASDF is suggesting when your return on NET WORTH is in the 10% range.

    Making your stock bet your last all-in bet and if it it fails.. well you’ll still have a stack of cash to fall on.

  • dc1000

    80k/yr aint taking no vacations in the hamptons!

    a man comes to a fork in the road. one way points to security the other to independence. most chose the former, only to lose both.

    • Danger & Play

      And let’s be real. Unless you’re a CEO (and the kind of guy who doesn’t have the balls to take a start-up job ain’t gonna be CEO), what’s the shelf life of most working men?

      In the guy in the story’s area of industry, we’re talking 50. Tops.

      A lot of men are laboring under the delusion that we will be working into our 60s.

      Where?

      Excluding some fields like law and medicine (which have their own structural problems), finding work after 50 is extremely difficult.

      Corporations are all looking for ways to cut off the heads of older workers.

      So how many years does a man realistically have to work in a stable company for a nice salary?

  • Blaster

    Correct me if I’m wrong, but I’m fairly certain that a “stock split” means that the number of shares changes, but the total value of the stock does not change due to the split. You have twice as many shares worth half as much, for example.

    • Danger & Play

      In a rational market, yeah. When it’s a hot stock, it doesn’t work out quite that way. Say a stock is worth $60 and splits by 4. People don’t (rationally) price it at $15. Instead the stock creeps up closer to $60 due to anchoring effects and other cognitive biases.

  • KN

    At about 36 he talks about what makes a marriage that lasts – classic

  • Fer81

    D&P, unless the startup went public (unlikely, if not impossible, in just 3 months) or got acquired, the FMV for the stock is something that investors and shareholders agree upon. But even if the FMV price really did increase 4x, all the guy would have is 1m worth of stock options. If he exercises them, he’ll have a huge tax bill, yet no way of selling them. The company isn’t public and investors are surely not going to buy stock from one of the owners (let alone after 3 months). An owner trying to sell his stock would be taken as a huge red flag by everyone. So it’ll still take a lot of sacrifice and hard work before being able to cash out (if the stock is still worth anything by then). And even then, only 10% of startups make it, on average.
    Does that mean it’s not worth it? Of course not. But it’s not nearly as simple as you put it. Until the startup successfully accomplishes an exit, which is rare and takes a long time for most companies, your friend will not own anything tangible.
    That being said, I have been in various startups myself, and still are, and am all for taking chances and giving it a shot; just wanted to clarify that it’s not quite as simple as that, and any idea and proposal should be carefully evaluated.
    Good luck in your biz endeavors.

    • Danger & Play

      You just wasted a lot of words.

      How could I have calculated the stock value unless there were a market for it? Think.

      You should spend more trying to comprehend what you read (why mention tax bill when I said the value was after taxes?) and less time trying to “correct” someone.

  • Fer81

    Bro, do you even know what a vesting plan is? When you join a startup you’re not just given your shares and allowed to sell them 3 months later. Shares typically vest over a 4-yr period with a 1-yr cliff, meaning unless you’ve worked a year at the company you don’t own shit.
    Even founders.

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