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Comment by onion2k | Hacker News Reader

A founder's salary should strike a balance between maximising their ability to work on their startup and minimising the startup's burn rate. Distractions like spending time finding somewhere cheaper to live, trying to decide whether you can afford something, or having arguments about money with a spouse reduce the likelihood of the startup succeeding so the founder needs enough for those problems to just go away. That means paying yourself enough for them not to be an issue any more. Equally though, paying yourself so much that the startup's capital will only last 6 months is stupid if you're a year from getting to market. You have to be sensible.

What you could earn elsewhere, what you earn compared to your co-founders, etc are just unnecessary distractions. The startup and the future value you're building are the only things that matter at this early stage.

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Exactly this.

I get chills reading that some founders were eating ramen for a year. Imagine how much extra work could have a fed brain complete.

Some may say I am not understanding the startup life, however without founder's health and sanity startups rarely succeed, because just like you said they're distracted with things they should not be worrying about like living frugally.

On the other hand I would never jeopardize my health, family and property for a startup. Maybe that will cost me 10 million in startup funds from a "get rich die trying" mentality loving VC, but at the end of the day, too many startups have failed because they scaled too soon and because someone made a decision when they lacked glucose. I'd much rather have my physical and mental health and future success, than a short term money to spend and an uncertain life ahead. Now, I am not saying that I would not work extra, but there has to be a balance otherwise you'll burn out.

If you don't want to jeopardize your health don't join the rat race to begin with. Or be rich and do little work like most founders

>be rich and do little work like most founders

I trust you had an experience that lead you to think this way, but you clearly don't know "most founders."

I attribute some of my own startup’s success to the attitude of my cofounders and I to live a sensible schedule which gave time for loved ones and friends.

This was helped by two of my cofounders having a spouse, and one cofounder having children. Priorities and behavior are different for a single person than someone in a relationship.

Being in a relationship or having kids is not the only route to having that sensibility in life. I was single even when my cofounders were not, yet I had a pretty sensible life, in spite of dating and trying to find a partner for life while also starting to build a company. I think the influence of my other cofounders, who had dreams and aspirations outside of just the company, was a strong tempering force to me or anyone else in the company getting an unhealthy tunnel vision.

This certainly exposes a moral hazard for their investors who have an incentive to maximise output for as long as an exit takes. After that, I doubt they care that much aside from having a "successful serial entrepreneur" with a reputation to further exploit.

They have an incentive to maximise the expected value of an exit. The parents are suggesting that maximising output reduces probability of an any exit, I believe.

Please could you expand on what sort of balance you chose? I’m very interested to hear what worked for you.

A few goals we've kept clear:

* Trying to ensure all of our employees have a 40 hour week (or as close to it as possible). * Making sure the cofounders have time - whether we're single or not - to spend time with friends and loved ones. That probably translates to simply not guilting each other into working too much - it's okay (and encouraged) to take a good weekend. And that's generally been the reality, too.

Are there other balance-related questions you have, or does that kind of answer it?

> I get chills reading that some founders were eating ramen for a year.

I get sad when I realize that the HN community doesn't remember "ramen profitable".

Not making a point about ramen, obviously (except to say you can eat well and very healthy on a budget that makes even ramen "expensive"). Just that modern "starups" have an expectation of funding that would have seemed ridiculous on this site a decade ago.

"Ramen profitable" means something other than "revenue is greater than expenses by enough to live on ramen?"

ajross was responding to parent commenter bkovacev's literal interpretation of "ramen" as eating actual ramen and therefore depriving the brain of critical nutrients.

The "ramen" is just a rhetorical placeholder for "low expenses" and not about an actual diet. For example, Paul Graham is not advising entrepreneurs to literally eat ramen noodles: http://www.paulgraham.com/ramenprofitable.html

Eating enough food for your physical needs is not normally a problem. You can get your 2000 calories, bit of protein and all the vitamins you require for $3/day anywhere in the USA and there aren't many startup founders who literally starve.

Mental health and happiness is a real issue, though. I'd be miserable eating the bland meal every day and that does cause some people to underperform their potential. On the other hand, it motivates other people to work harder to escape their situation.

> I get chills reading that some founders were eating ramen for a year.

I could eat Ramen every day but good restaurant Ramen is quite expensive.

I fully agree with this. It’s not being “communistic” at all to pay a founder with kids a bit more. Rather, it’s about making sure he or she can actually focus on the business and outsource life’s overheads as necessary.

Investors should take the time to look at a founder’s life circumstances, and set their pay to optimize time-at-work, even going so far as to pay a nanny and house keeper directly to ensure the founder isn’t wasting precious hours on household chores.

> Investors should ... set their pay

I understand the gist of what you’re saying, but in the early stages, investors might provide advice about salary but certainly shouldn’t be controlling salary. That’s the company’s job.

Investors get to have a say about the CEO’s salary once they have board seats but not until then.

> even going so far as to pay a nanny

I really like this idea as a way to expand access to startup opportunities.

Have any acceleartors/incubators experimented with offering child care? I imagine that economies of scale could make that more economical than having X% of each investment go to child care with no coordination, even if it was just a group-rate contract with a local child care center.

They have. It’s called “Sweden”. Works pretty well.

Margins are pretty slim in child care. In most parts of the country, you aren't going to get a great group rate.

I think you are better off just giving the person that needs childcare enough money so he can cover it...

I don't want to be the person who earns less than someone else just because they have kids and i don't.

Perhaps someone decided to wait with kids because they want to have more time for the startup and/or more money left over for it.

I don't want to be the person who earns less than someone else just because they have kids and i don't.

You really don't want to be the person who took more money out of your startup than necessary either though. That's what you're arguing in favour of - a higher burn rate and consequently less time for building your business in order for things to be 'fair'.

If you're in that situation I'd recommend agreeing to track the difference and only pay it in the event of an exit, maybe with a multiple (say, double) to recognise the risk you took. That'd be better than increasing the burn rate just to make things equal.

I honestly don't think this reasoning makes sense. Most people raise investment because it shifts the risk ratio in their favour ("get paid to survive and work on their own idea"), at least in the early stages.

If you're doing this, either: 1) both don't take any salary and use the raised money to build out the business (this is really how it should be), or 2) both take the same salary.

All the rest makes no sense to me and will most likely cause friction, unless one of the founders is already wealthy.

I could not disagree more. Consider the following progression:

I have kids, you don't. I "should" make more.

I am trying to have kids, you already have them. My IVF treatments are expensive and mess up my partner to the point that it's expensive for me. I should make more.

I am trying to adopt because my partner is infertile. That's a long and laborious and expensive procedure. I should make more.

My partner and I want kids, but she's infertile because of ongoing chemo treatments. Life is rough. I should make more.

My partner or I don't even think about kids because we have medical issues that we do not want to advertise. What does this have to do with my salary?

The only sane way to answer the question of salary is "how replaceable are you, and what can they afford to pay?"

Anything else can and likely will leave a festering wound that will affect the company later.

In fact, a simple, approximate model for this phenomenon is inheritances split among siblings when parents die. It was (and is) quite common to have one sibling inherit more because they have had a difficult life in some way, or because boys should inherit more money than girls, or other such blather.

It rips families apart.

Do you really think that your startup will survive better?

I think you’re too focused on kids, specifically, when the real point is paying each founder enough to minimize personal stress for their individual situation (and not much more than that).

Could be kids. Could be IVF treatments. Could be student debt. Could be geography. Could be past success/failure.

Doesn’t really matter the specifics - kids are just one example - but paying founders enough so they can frugally live and not stress about their financial situation is the optimal choice, and it may result in differences in comp early on.

If the founding team has a big problem with small inequalities in salary, there are bigger issues at play that will likely eventually surface.

Why not pay everyone the same? That extra 10k in a venture founded startup won't make much of a difference in the final outcome. But I guarantee you it will cause more friction than it's worth.

You’re making my point for me.

$10K won’t make much of a difference in the final outcome.

$10K can make a massive difference in alleviating personal stress levels - and have limited marginal benefit for a founder with fewer expenses.

Any founder who genuinely doesn’t need the extra $10K, and has a problem with a co-founder who genuinely needs the extra $10K getting the $10K - and accepts that that $10K is not likely to make a difference in the final outcoming - is not acting rationally.

Causing friction in this scenario is, to me, a huge sign of immaturity, ignorance, and a lack of commitment and/or understanding of the long game.

I meant it doesn't make a big difference in the outgoings of the company. Not sure I agree with what you're saying. But I honestly also don't think (early stage) investors should even be paying the salaries of the founding team.

The reason most people raise early stage finance is to reduce their personal risk, and push that onto the investor. Which is fine if both parties understand the deal they're getting (risk reduction for potential massive upside).

But since this is mostly done to take risk away (during the riskiest phase of the company), I also believe you should equal the salaries. With equal equity stakes, one party shouldn't be taking more risk than the other by foregoing salary.

But just going equal salaries is often suboptimal.

Founder one is 19, has no-one to depend on him, can happily live for 40k a year.

Found two is 27, has a wife and a kid, has a mortgage, the lowest "stress" free amount he could live on is 80k a year.

So what are the options:

* Pay both 40k. Founder two cannot make end meets, and has to get a second consulting job on the side. He therefore puts less work into the product.

* Pay both 80k. This is "fair", but it is literally just padding the bank account of Founder one. You are cutting your runway N months short for no real gain in output.

* Pay one 40k, pay two 80k, give 1 a bit more equity. This can also be seen as "fair", but it may not be. Founder two is bringing 10 years of experience to the table. Founder one is bringing only two. So in the long haul, you are giving one more money.

* Pay one 40k, pay two 80k, give each equity based on what they bring to the table. Maybe founder one gets more equity. Maybe founder two does. Decent chance it would be founder two, as he has more experience.

To me the right play is pay people what they need to not stress, and give equity based on what they bring to the table. Obviously I am closer to founder two in the above scenario, and I suspect a few people advocating equal pay are closer to founder one.

At the end of the day, each founder is either worth it or not. Some wizard that lives in SF so needs 120k to live? Maybe he is worth it. Some guy with a party problem that needs 95k to live, despite being a junior dev? Maybe not worth it. I think it is better to evaluate each person and see if what they need is worth it, if not keep looking for someone else!

I only consider the second and third situation to make sense, and this is regardless of whether you're founder one or two.

If you lean on early stage investment to pay yourself a salary (which imo shouldn't happen in the early stages, but I do understand why people do it: to take risk away) then by default you are "padding the bank account" of the founders.

Generally equity divisions will be decided before setting up an entity and raising investment, so by the time you get there, it will have already been decided.

Given 1) the low probability of an exit when playing the venture game, and 2) the small equity stake you'll be left with at the end if you do magically manage to exit, I don't think it makes sense to forego (any) salary if your partner is taking out a much larger amount.

But again, I don't follow the line of thinking that states investors should be paying you a salary in the early stages either way.

Those are the two reasonable boundaries but you want to bias towards suffering because suffering has a way of focusing the mind in the short term that comfort just doesn't offer. It's called sweat equity for a reason.

This works for some people but not all, fwiw. I know founders of very successful companies that paid themselves well from the start because they needed to focus on the company and not whether their credit card was getting paid off on time or what they were going to eat for dinner. For some, that sort of stress is completely antithetical to building a company. For some, it's a crucible. Not everyone reacts the same way to stress.

If a founder is motivated by the mission objectives, then suffering only serves to associate those objectives with negative things. It is more likely to burn them out

It’s a fine line though. A little pressure helps focus, but too much is imho extremely detrimental.

I did two startups earning almost nothing and at first I was super focused and driven but as time went by, worrying about paying rent or being able to afford the dentist (or whatever) had a drastic negative effect on my mental health, work quality and quantity and over time increased disagreements with cofounders (when you’re super stressed for long periods of time, it gets harder to work through things). Ultimately this led to the demise of both companies.

Pressure is a very useful tool in moderation. It helps you focus on what’s important and encourages clever solutions and innovations. But too much (especially worries about your personal survival like rent) I believe drastically reduces your chances of success.

I might be leaning towards suffering maybe a little too much. Intellectually, I can justify but it but it takes its toll, perhaps needlessly.

Well, like I said, some suffering I think is motivating and focusing, but after a while it certainly takes it’s toll.

Suffering is really too strong of a word. I think most people focus best when they are out over their skis a bit. It's not suffering as much continuously challenging that requires focus.

What would be a fair division of equity (or the right salaries) when one founder starts the company in his/her basement working to develop the key product of the startup for say 3 years and entirely self-funded over the period and other cofounders join in once the system is sufficiently mature to attract top investors’ interests? (Fundraising was possible before but it wouldn’t get the same caliber of investors / cofounders.)

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