Paying one founder more than another is a good way to start a founder conflict and those you need like you need a toothache.
Having kids is a factual part of many people's lives, not an arbitrary personal decision that can be erased at startup time. A person with kids simply has higher living expenses. Of course, if you feel that strongly about it, you can choose to only found companies with single people but that needlessly reduces your pool of potential founders who are talented, experienced, disciplined, of great character and compatible personalities.
Otherwise, the issue of varied expenses can be balanced via 2 approaches:
a) All cofounders take salary equal to the amount required by the one with highest expenses and agree on the resulting consequences (smaller operating budget, higher urgency towards independence via profitability/ funding, etc).
b) Equal salary nominally assigned but the founders with less expenses agree to loan the startup the "excess" portion of their salaries. This can be structured and recorded as deferred compensation/loan agreement payable upon achieving X financial milestone, e.g. when revenue hits a certain level or target amount of funding is received.
And that may be fine for your startup. But you are limiting your talent pool, and should make sure that is worth the trade-off.
We were discussing about the fairness of that situation.
Bottomline, if you're comfortable holding this view because unlike most people, you actually have many potential partners with the necessary industry skills that have no kids and have the qualities I listed above and share your views, good for you. Otherwise, not starting a company or having it prematurely fail because you picked wrong partners partly by skipping better ones because they had kids seems ridiculous.
I also think that society should help parents with tax cuts, but this lets the whole country pay for it, not just me, because I just happen to work with a parent.
What would be next?
Paying me less because I live in a shared flat?
Because I don't own a car?
I didn't make these decisions to have more money to throw it away, but to spend it on stuff I care about.
So the decision for the cofounder becomes whether they want me involved. And my decision is whether the company will likely be successful with that burn rate. A single cofounder taking the same salary as me might push that burn rate over the edge. In which case, we just say no and move on.
I think this is a better approach to calculating these things.
It seems like a dickhead attitude that bodes poorly for the future of a business enterprise.
Just because you have an immediate need that is evidenced by children doesn't mean others don't have equally legitimate needs.
My point is that if your “partner” is going to take an extreme, aggressive stance on such a thing, that’s a red flag.
Adding that kind of special treatment for founders on top of all they already have seems kind of unfair.
The argument about the lack of responsibility because children cannot be cancelled at startup time is very curious. Absolutely everybody knows that children come with costs, some are monetary, some are about other factors. You can not retrospectively pretend that those costs shall be privately covered by others beyond all the social organisation already agreed on (tax reductions), just because of status. Yes those costs can not be erased at startup time; asking for others to erase some of them -- well if everybody involved agrees why not, but on my side I will never see that as fair without serious compensations (distribution of shares for ex.)
And what about ANY other costly choices that can not be easily cancelled at startup time? Should alimony for their ex-spouses be paid for by others too? If they have a horse they are bounded to and would be horrified to the suggestion of abandoning it, should the recurring costs it involves be covered by others too?
Founders do not live in an alternate universe were all common laws and wealth distribution are to be renegotiated in private: those questions are important but should be applied for everybody, and actually they have been debated and there are important cases where the society have decided that doing this or that would be good. If this is actually not enough in some cases, that should be changed.
If your demands mean that you’re not going to enter into business with you unless I sell my horse and fubar my family, I’m going to walk.
Hopefully you don’t need me or have enough cash to buy out whatever I bring in. Otherwise, you’re fucked for want of a few thousand dollars.
Very often the answer is yes from my observation, particularly for fathers.
In practice? Yes. Any financial obligation (debt, mortgage, family, etc) contributes to a negotiation floor.
The salary calculation mechanism and amounts cited in the post may be debatable but framing it as "special treatment for founders on top of all they already have" is strange because early startups are often characterized by what founders don't have: the security of market salary and benefits (e.g. healthcare), substantial savings (many plow it into the company), etc.
There is no argument about "lack of responsibility because children cannot be cancelled" - I simply outline it being a common circumstance and recognizing it being a factor in higher living expenses that should be accounted for in salary calculations. It's also not about massive debate on common laws, wealth distribution or society input as you cite. It is simply about agreement between a couple of partners on the road to building a company. As already explained, the issue is negotiable in different ways and most importantly, you can self-select out if it's just unacceptable to you and you're satisfied limiting your pool of partners in this way.
After all, what is the commodity the company is buying when they pay a salary and equity?
The book "Startupland"[1] that chronicles Zendesk[2] talked about this exact problem. One of the 3 founders had "family" to take care of and because of that, he wanted a higher salary. The 2 other founders were thinking, "what?!? you're not the only one making sacrifices here!"
After some discussion, the 2 other eventually agreed to it but they really resented it and it was a source of bad tension for a long time.
Zendesk eventually got to the IPO so the 3 got past that unequal salary episode but the soap opera drama doesn't seem to be something you want for a struggling company.
(Side note: I think it's unfair to downvote jacquesm for bringing this up. Even if you disagree with his opinion, it's still worth leaving the text ungreyed to discuss pros & cons.)
[1] https://www.amazon.com/Startupland-Risked-Everything-Global-...
[2] coincidentally, Zendesk is one of the companies in Point Nine's portfolio: http://www.pointninecap.com/portfolio/
(However, author Christoph Janz joined Point Nine in 2011 and Zendesk started 2007 so he may be unaware of their early salary drama.)
One can "agree" to something because of business expediency but simultaneously have a human response that it feels unfair.
As analogy, I'm sure many programmers have "agreed" to a low $55k salary and took the job but simultaneously felt that the company was unfairly compensating them because they thought they were worth $100k. Unfortunately, agreement doesn't override human feelings.
If you were interpreting my blurb from the book that the 2 founders were constantly throwing the unequal salary in the 3rd founder's face, I don't think that's what happened. The book made it seem like it was a more like a silent resentment. Also, the salary argument came up after Zendesk was already established and running. I didn't previously make it clear that this wasn't 3 founders deciding on unequal salaries when Zendesk was just an idea on a napkin. If one agrees at the founding, that should remove triggers for resentment.
FYI, Zendesk was a "pre Point Nine" angel investment from me that I made in 2008, but I wasn't aware of these discussions among the founders. Maybe they took place before I joined or they wanted to keep them to themselves.
Well sure, I agree it doesn't have to. But as this thread has shown, it's a contentious issue demonstrated by:
(1) furious downvoting & upvoting of jacquesm parent comment,
(2) many comments in this thread from opposing sides debating it
(3) chapter from Zendesk founders' book discussing the uncomfortable tensions it caused
Therefore, saying "paying one founder more than another can cause conflict. But it doesn't have to." -- sounds somewhat naive. To be clear, I'm not saying _you_ are naive. It's that your sentence sounds like it brushes the human complexity under the rug. (We can also say "paying everyone equally also can cause conflict, but it doesn't have to." -- a kind of tautology that's true but doesn't really inform us.)
Also, it's important to stress the timeline of the startup:
It's one thing for the startup to not exist yet and the 3 founders are just sitting around a dining table and agree that 1 founder should get more salary because he has kids.
It's a very different situation when the startup is already up & running for a year and the 3 equally paid founders are living on cheap ramen to keep expenses low and make the struggling company survive. If at that point in the timeline, if one founder asks for more salary because his wife is pregnant, don't be surprised if the 2 other founders will react very negatively. It's human nature.
Recruiting a parent with existing kids to create a new startup is a different dynamic than increasing a partner's salary because they have a family after they've been working. The other founders may feel like they contributed the unspoken sacrifice of not having kids so subsidizing another person's family at a critical time can seem unfair.
Could extend that thinking to living in the middle of an ultra-expensive locale like SF or London and take that multiplier away too ;-)
I do kinda agree, though. If one founder needs more salary, they should pay for it with (slightly) less equity IMHO.
No - at least in the US, you avoid pricing your start up until it's necessary, in order to plausibly say the equity is worth as close to $0 as possible, so equity grants result in the smallest possible tax liability. In practice, this means raising early rounds in convertible notes, which don't require the company be priced.
This is about startups that can afford to pay founders a salary, and those startups have either raised money at a specific value or are profitable enough that you can't claim the equity is worth $0.
This is one of my main reasons for advising against founders that are in very different phases of their lives, there is an element in there that you can not easily get rid of that might cause issues in the longer term.
I think you can argue either way, but I will tell you as a founder with kids that if the startup can't pay me enough to take care of my family, I won't be part of that startup for long. You can't pay tuition with equity.
That said, this may be a valid filter for you. The most important thing is that the discussion about compensation happens aboveboard and that everyone feels the situation is fair.
I’m not stating whether I agree or disagree. Just pointing out a similar system already in place.
BTW in almost all situations that I've been in where this would have mattered I was the one with the children.
Granted, the dorm isn't great, but it's not a straight salary difference.
Dorm residents don't pay for the room or food, if they choose to eat at the mess hall. They also usually get free use of washing machines, a common room with TV, etc.
Basically, it varies. In some locations the married soldier might be better off. In others they aren't. Either way, the difference isn't striking.
You also give up the housing allowance if you live in base housing as a married couple. These units are typically pretty modest.
There are, of course, exceptions. Areas where single soldiers get a housing allowance because no barrack exists. And areas where the married allowance is higher than it should be, for various reasons.
The point is, though, that it's not a direct comparison to the story. The single founders didn't get a compensating free room and board.
This can play out as one founder having to take off for dr appointments b/c things are stretched so thin their spouse can’t take off or they can’t afford a nanny, etc.
It also plays out that the founder in the tighter spot is going to be making decisions geared to a faster influx of minimal cash vs long-term value building. This is the same as VCs letting founders take some money off the table in later rounds b/c “the first million is worth more” and the investors want to swing for the fence.
Happiness doesn’t change much over $50k, but that number goes up with kids. BUT, that also means if you are going to take into account family situation, you should also take into account family money, if you have kids and a spouse with a big salary, you may not need more.
Every time I hear this I cringe. I was much happier making $180K than I was making $60K. I could go out more often, purchase more of my wants and needs without worrying about mounting credit card debt. Afford to live in a non-shit-tier apartment, and still have money left over to tuck away a decent emergency savings fund without it taking a decade to reach 6 months living expense backup savings. Who came up with this figure I wonder?
That takes a lot of work. Investors discount a person because he has a family due to some perception that therefore he or she won't work as hard on the company are either ignorant or unforgivably stupid.
And besides, they already do.
It is so, so very simple for a business to account for children among its workforce. Any staff aged under ~45 on your books? Well, guess what? A percentage (look up your regional variation) are going to have kids, soon.
A business that refuses to financially support its staff through predicatble life changes is flagrantly abusing those staff. Even unpredictable life changes can be mitigated and supported.
A business that cannot afford to support these staff is failing, and again abusing the staff by shifting the blame onto them.
People work for remuneration which reasonably exceeds their expenses.
A predictable percentage of the population will have children.
Children increase drain on financial and time resources.
It's reasonable that people with children might look for work that offers reduced/compressed hours, or higher remuneration in order to manage increased financial/time costs.
If your org does not offer these options, why not? Is it deliberately witholding employment from ~50% of the population?
If your org cannot offer these options, why not? The figures are eminently predictable. Why are they not in the business plan?