Comment by twostorytower | Hacker News Reader

Comment by twostorytower | Hacker News Reader

I have to respectfully disagree with this article. While it may be spot on in some scenarios, it couldn't be further away in others.

As a co-founder, I didn't take a salary until a year into the startup (same with my other two co-founders). Even when we received our accelerator funding, all of it went towards our first hire's (an engineer) salary and operating expenses. At this point, our risk was significantly higher, not slightly. If the company didn't succeed, I can tell you our first hire was next in line for a cushy market job, and he was being actively poached, not us.

After we graduated the accelerator we raised a ~$1M seed round. We hired more two early team members at market salaries. Each of the co-founders were taking $33K salaries. Why? We wanted the budget to hire great people. So no, they definitely not a similar pay cut. In fact, it's increasingly hard for early stage startups to hire good talent at less than market rates because there are plenty of amazing startups hiring above market. Our risk at this stage was even higher, because failing would burn most of our bridges with our new investors (maybe a couple wouldn't hold it against us), where as if our engineers went on to start something, no investor would think twice about their history working at a failed VC-funded startup.

We didn't increase our salaries again until we were generating revenue. Even now, ~four years in, I'm taking $20K less than the starting salary for a junior person in the role I have. While I want to increase that a little more as our revenue grows, I don't think it's fair to take a market salary at our stage.

I'm not complaining, but to say being an early employee is a rotten deal is unfair. If our startup goes under, I definitely have the more rotten deal. It only looks like I had the better deal if we succeed.

And if you want to start a startup, I encourage it, that's the only way you'll know how truly hard it is.

NOTE: This comment is a rehash of a comment I made on a similar statement. I am reposting it because I feel like it addresses this and sheds a little light on the other side of things.

I think your situation differs significantly from the one the author is depicting. You sound like you treat your employees correctly, offering them market rate compensation instead of a carrot on a stick.

It's honestly an engineer's market. Nobody is forcing them to take these below-market jobs for crappy options. If they keep taking them, nothing will change. If you would rather have market salary and little to no equity, most founders are willing to accommodate. But I guarantee that years later when the startup is worth something or exits they complain that they got a shitty deal (when they weren't willing to take on the risk).

I don't understand what you disagree with. You can hire talent both with cash and with shares. If you are paying market salary - fine. The article clearly talks about situations 40% below market pay and such. If you don't like the 33K salary and your risk level then just pay yourself more money and give the equivalent book value shares to the employees. That's a fair deal too.

I have worked at companies where more balanced policies obtained. For examples, founders paid themselves the current median engineering salary; but no raises were offered to engineering staff. So who ended up with the paycut?

I don't think the author is saying all startups are pushing disproportionate risk on to the employees -- only that most are.

To be able to make an argument like the author is making, we can't work from one or two individual experiences -- which is what both you and I are doing with our examples -- but rather take in the field as a whole. Standardized agreements and standardized terms provide such an aggregate view; they are the best estimates of informed participants as to what they can get away with. The point about inflexibility as regards equity compensation is a bellwether.

When you weren't taking a salary, how did you support yourself and pay for your [living] expenses?

Savings from my first job out of college (was able to save by living with my parents at the time) and major sacrifices. By the time we started taking salaries, my savings was nearly completed drained. I will say that I was lucky enough not to have to take student loans so I did graduate debt free.

If you don't mind me asking, if the company failed to turn a profit what was your next step? Savings gone, no money coming in, living with your parents and not being actively sought after. It sounds like you went "all in" which is very admirable.

Honestly, I had no backup plan. All I could think about is making my startup succeed. Because I made failure not an option, I was willing to pivot twice instead of giving up. But I had nightmares about running out of cash. I was scared.

While you may have made poor financial choices that does not mean you represent the aggregate market. Further, the risk your stock is worth nothing is lower than the risks your initial employees stock is worthless. EX: Many smart founders take a little money off the table when they get a large funding round. Early employees don't get that option.

Finally, founders tend to have better long term career opportunity's which reduces risks. (Much like how spending money on collage is less of a risk than spending the same money playing blackjack.

PS: While often overlooked, having a deeper incite into a companies finances also allows you to better hedge long term risks.

"Many smart founders take a little money off the table when they get a large funding round. Early employees don't get that option." it usually takes years to get to that point.

O, I agree. My point was simply the odds of your stock being worth nothing are slightly less than the odds of your employees stock being worthless.

There is a huge temptation for founders to put a lot of their own money at risk. But, from a risk reward standpoint founders are better off minimizing there personal risk ASAP as in rarely impacts the odds of long term success just slightly boost the potential magnitude of that success.

"I can tell you our first hire was next in line for a cushy market job, and he was being actively poached, not us."

Was this really your experience? Mine has been that if you had to move on to a cushy market job you would have gotten a much better one than your employees. Founders are rarely actively poached but that's only because everyone assumes the attempt would fail.

What is the name of your company? I want to buy whatever you make.

I agree with the spirit of your comment.

twostorytowerseems seems like an articulate fellow, and even if his or her industry is not of interest to me, I'd like to keep tabs on what's he or she is working on.

A link to the company in a his or her HN profile would help here.

This does make sense, primarily you take a bunch of stress and less money now. In the long or medium term, what punishment or repercussions would there be for you if it failed? You too are probably 'next in line for a cushy market job'. What is the opportunity cost you're passing up, but what are you gaining, including experience and connections?

"You too are probably 'next in line for a cushy market job'" - Now, maybe. But it wasn't like that during the first year, or even the second. I can honestly tell you I was very very afraid of what my life would be like if we failed back then. I promise you, I wasn't getting emails from Google recruiters back then. It's only now (four years and pivots later) that we've gained traction that I have opportunities.

Yes, you might face a greater economic risk than any one employee, but how does your risk compare to that for all of them? The employees, after all, are more numerous. How much total salary, both present and future, did the whole set of them lose vs. if they'd gone elsewhere? Are you sure that, in aggregate, it's not more than you've been set back personally? How does that change for a couple of employees vs. ten, or twenty?

Let's also not forget that this is about risk, not just salary. The thing about risk is that it's not merely additive. A catastrophic outcome that's only 10% likely for one person is not still 10% likely for ten. It's 65% likely to affect at least one. You might not even have faced some of the risks that your employees do, such as arguments about financial decisions landing someone in "family" court. Who's taking the biggest risk, in aggregate, again?

Comparing risk for one vs. risk for many is a tricky proposition at best. The article might well be wrong for taking one position, and you just as wrong for taking its opposite. The real point of the article might be that founders should not turn a blind eye to employees' risk, regardless of whether or not it's greater than their own. Did it succeed at least that much?

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