Hacker News Reader

Maybe engineers are more replaceable than founders? That would explain why founders walk away with a lot more cash and credit. After all, there are a lot of good engineers who probably would do a good job as an early employee. And relatively few people who have the vision, motivation, and skill to create a successful company.

That said, I sometimes feel that being a successful founder has less to do with skill and more with being at the right place at the right time.

Would be interested to see what others think.

This is such a laughably unprovable claim. "Few people who have the vision, motivation, and skill" is equivalent to saying "few startups succeed". It's just a truthism. It's equally likely that few companies are lucky enough to have a talented and motivated team of engineers.

Finding someone who thinks they have it all and will be the next big billionaire is easy. Finding a group of people who know what work needs to be done and can put their nose to the grindstone to match the "vision motivation and skill" is the hard part. Just look to google, the holy grail of tech visionaries. No one doubts that Page and Brin have vision/motivation/skill but they readily admit that their initial team of engineers is what carried them and they rewarded them like it.

What you're advocating probably feels good for the ego though... everyone loves imagining having demi-god-like status. For me it's always interesting to look at what people are fighting for. "The founder deserves 100 million, not 80 million, pay the engineers less!" At the end of the day it's just greed.

As an engineer of middling competence (I don't do poorly, but there are people smarter than me), I think you're wrong. The reason engineers receive less than they're worth by and large is because A. they cannot negotiate very well and B. they do not know their own worth. If you combine these two with some idealism, which is the only real reason you'd work for a startup (high-risk, low-reward work - if it's not for ideals you have no reason to do it), you get a prime exploitative opportunity for any employer.

Suppose getting a good engineer would contribute $2 million / year profit to a company. That company would offer a higher salary than the going market rate, and thus steal engineers from competing employers (in fact, that's exactly what FB, Google, LinkedIn, etc. do: you can ask them to match or beat the other company's offer). Since regardless of how badly engineers negotiate, they would still be attracted by a higher offer. Then other companies would also offer higher salaries, to avoid missing out in hiring. This cycle won't stop until compensation gets to a good fraction of that $2m/year; say, $500-800k/year or so, leaving room for overhead (office rental, benefits, etc.) and profits. The fact that it doesn't happen tells me that me that most engineers probably aren't worth $2m/year to companies.

I do agree with your last point: engineers are often idealists and/or they have very strong preferences about what they want / don't want to work on. So they may often be willing to give up much better comp in order to satisfy such preferences. That's why startups get away with paying maybe half of what large corporations pay. Still that's not nearly enough to explain the gap between engineer and executive compensation.

I get the sense that with the right set of employees all a founder has to do to be successful is not to run in the way. One might argue that in that case they were so brilliant at hiring they deserve the payout. Anyway, who is to say where the line is drawn between founders and employees re: who contributes most? As long as both sides know what they’re getting in to nobody is taken advantage of.

Hear hear all you young uns. This is what happens when you work your ass off for someone at low cost. Never ever work for less than you are worth. Your income minus stock should always be par or above with the market.

I agree, especially on your last point. Even when I think of my own career highs and lows, most of the highs has to do with lucking out with being given a chance or opportunity. By contrast, most of the lows has to with being denied a chance or opportunity. Of course you have to take advantage of any opportunity and work hard for it to pay off. But being lucky enough to be in the RPART is, huge!

Interestingly YC has encouraged startups to offer more equity to early employees and I'm not sure it's had an effect. See pg's recommendation in http://paulgraham.com/equity.html

I vaguely remember reading that article while I was at said company making basically the same salary (with the same company valuation at the time) and realizing my equity was far below that and scratching my head.

If I had PG's recommended equity instead of what I had I would have gone from neutral EV to basically pay-off-my-house money. Like I said, it's things like these that make me never want to work for a startup again and only come in as a founder.

If it had an effect, it would be apparent after 11 years.

The thing to really appreciate is you are one of the ones that got lucky. The majority would not be able to recoup the money they would have made by not working for a start-up.

Essentially a start-up is a school, don't join if you don't intend to learn a lot while getting paid a little so that if one day you want to do a start-up of your own you will at least be a little bit prepared.

THIS.

Its all about the founders. The VCs don't care, the acquirer doesn't care and largely, the industry doesn't care. I have been at 3 startups and they all feel more like "come change my world" instead of "come change the world".

Equity is so lop-sided that its almost laughable.

I earlier thought that a successful startup exit actually carries weight on one's resume but that's only on the founder's resume.

Nobody cares in SV if you were an EE at a non-unicorn startup with a reasonable exit. After an exit happens, founders still get to keep their badge of honor and propel their careers, not the EEs.

I would recommend making a distinction between a startup that manages to get acquired as a small team for building a good product (Instagram is an extreme example... but I know of a few startups that few here have ever heard of where the outcome for employees was substantially better over the same period than if they had worked for Google or Facebook).

There is perhaps a warranted disdain for the behavior of founders on this thread, but I would also like to point out there are founders that genuinely care about the people on their team and would either ensure the equity was sufficient upfront or--if the total size and scale of the startup was miscalculated initially such as assuming the startup needed 100 employees when it really only needed 10--ensuring they receive ample compensation from the acquirer or not taking the deal. These types of founders do exist too, and I think there is an onus on an employee to figure out what kind of boss they have signed up to work for. If I had a few interactions with Steve Jobs, for example, I'm 100% sure I would have quit.

What's an "early employee" for you? (That is, who gets "a lot more equity?")

I ask because I've noticed with some high-dollar acquisitions a lot of times "engineer #50" makes his/her "F-You Money" on the acquisition, but having been "engineer #2" and "#4" and even "#1" (sadly, no big exits) I am skeptical that #50 took on much more risk or contributed more than, say, #200.

Pre-series A. Once Series A comes into play, you can get paid "market" - which is to say, the normal rate outside of FAANG.

"Market" is weird to measure, because you're not really asking what market rate is, you're asking what your baseline is. If you can get a FANG job, the number you care about is effectively the average of what FANG would pay. If you can't, then it's effectively average rate outside of FANG.

AND, arguably, "market rate" in SV is below market rate elsewhere, especially when you factor in cost of living.

So anyone who is good enough to work for a big company you have no interest in?

#2-#9 (roughly) are taking on more financial risk (this corresponds to the startup's market risk).

#50 is probably being hired for very specific skills and experience (to mitigate technical risk) that increases their opportunity cost considerably, and you aren't going to get an engineer with a track record of scaling operations like yours unless they get a decent salary and a shot at a significant upside.

For certain skillsets and track records, when a startup is having severe growing pains, it becomes a sellers' market.

The trick to this is find a company with large upside potential that is either about to IPO or has just recently IPO'd.

The list is small, but there are some obvious choices, even now.

Tangentially, I _really_ lucked out. I had other options that were lead engineer, or engineer #2-4, but this was unequivocally the best choice. The work is more interesting here too.

I had an extremely similar experience, but I do have a beef with the founders for not compensating me fairly with respect to the work I did in helping them create something they could eventually sell to a large company. [Before anybody throws shade, the site was developed by a Flash dev, a Java team for webdev, and me building the backend and running things as a solo sysadmin.]

None of these people are your friends, get as much as you can.

That doesn't have to be true, there are many decent and honorable people that decide to start companies. But I do certainly think you need to walk away as soon as you feel a founder doesn't recognize or value you or your contributions

My experience does have to be true, but sure, not everybody has to be like this. They often are, though.

I agree. There is a culture that founders are special but everyone else is replaceable which makes it self-fulfilling. If a founder leaves, it's bad and VCs won't invest in the startup - However, if a top engineer leaves, no big deal, they're only an engineer...

For me personally, I have a really bad perception of incubators, venture capitalists and big tech corporations. It's all a zero sum game to increase concentration of wealth in the hands of the few but there is little meritocracy behind it.

In a high traction startup, founders are often the dumbest people in the company but they get treated like they're genius visionaries. I've even heard really smart colleagues/engineers say stuff like "A good CEO needs to be enthusiastic and shouldn't be too smart" - For me this sentence means that we've accepted that the system is not a meritocracy but we've found a way to rationalize it.

Working at a startup and I feel you a 100%. Won’t name the startup but it seems we’re doing better after CEO-founder left.

Thank you for your comment. I am a founder currently deciding how much equity to give to our beloved first engineer. Any tips are welcome!

A baseline would be making up for the employee's salary reduction with equity. If you're taking VC money then you have some dollar value per share to work from, otherwise base it on 3-5x annual revenue linearly projected from historical monthly revenue.

Formula: (Fair total dollar compensation - agreed salary) / (dollars / share) * 4 yr vesting

A sliding scale for salary : equity is built in and you can compensate based on hire desirability or local market conditions by weighting dollars per share appropriately. This system is fair as long as both the employer and employee agree upon the share value (some information asymmetry there benefiting employers that decent companies will try to correct for).

Saying this as startup first engineer ;)

PGs comments on equity resonate with me, and actually align with what I would have wanted. One of the replies to my original comment actually has the article.

I think the amounts should flow from the right attitude: that they are joining the team to help it succeed, rather than they are being hired to perform a task.

Not everybody that is an early employee adds to the company value! Some people are not so bad they get fired but they are living off of other people's input. Before you start giving away more equity to early employees, you need to seriously think about how you are going to make the employee earn that e.g. if they leave before 3 years, they lose it, if they fail appraisals, they lose it etc. Many companies go bad because they do give away too much equity then there's not enough left for subsequent raises.

Many companies go bad because they do give away too much equity then there's not enough left for subsequent raises

Citation please, because this sounds outlandish.

Selling equity to employees for their time is exactly like selling equity to investors for their money. Founders can only dilute their stake to a certain point before they’ll own too little to make fundraising worthwhile.

For a rough example, if the company gives 20% to early employees and 20% to investors, and want to raise $1MM A round at a $5MM valuation, they’d dilute down to 48% already. If they’d given 10% to early employees, they’d dilute down to 56%. That majority control could be significant. You can extrapolate lower numbers if a company needs significant cash and has to raise at a low valuation.

Hopefully the mechanics make sense and yes, there are companies that give too much away on paper and hurt the value of the equity long term because they didn’t have room to raise money or grant shares without giving up personal stakes.

100% correct and I say that as a startup founder that thinks SV startups ripoff their early employees.

As the startup gets traction and more money from VCs, wouldn't it be wise to give raises in cash to early employees?

Most companies don't give 50% raises when you finally raise money (which is to say, most companies won't simply bring you up to market if you came in super early).

No, but if you came in super early, wouldn’t you have (negotiated at the start) more equity anyways? A super early employee with decent equity ought to be treated as a late stage founder - so if the founders don’t take 50% raises, neither should the super early employee with decent equity. It would of course be silly for someone super early to not negotiate significantly more equity than the usual couple of basis points (0.0x % of the company)

> If the founders don’t take 50% raises, neither should the super early employee with decent equity.

You're missing the point of my original post. If a founder owns x100 the equity, why should an early employee be bound to the same salary restrictions?

If anything, since I have 1/100th the equity, that means I should be able to get a multiple of some raise when series A comes through.

Remember, equity is a lottery ticket (especially for an employee). If you're a founder, even if your startup fails, you can get a job as a highly-paid EIR or your founder reputation will allow you to join some other startup in a high level role (VP, Director, etc). This does not apply for engineer/employee #1.

If founder has x100 the equity of employee #1, employee #1 screwed up.

Welcome to this entire conversation on why early employee compensation isn't fair.

My point is Employee #1 should’ve asked for more. 1% isn’t enough. Maybe 5 or 10% is.

Yes, let's blame the person that structurally has less power in the dynamic for having that power imbalance used against them.

Of course you can try to negotiate for more. Enough people want to work at a startup however that if you ask too much, you'll get passed on, and they'll just hire the next candidate who doesn't act so entitled to a meaningful piece of the founders' pie. It's exactly the same phenomenon that lets the big game studios chew up and spit out engineers: there's always someone else willing to take the job for less, or even just put up with the status quo.

That's a massive part of the problem, and telling people to negotiate better doesn't address it — or even acknowledge it.

Well, but then don't look for generic cookie cutter startups that everyone wants to work at :) Go after the startup where you as employee #1 are uniquely positioned to negotiate for. If you're employee #1 and you just graduated from college and this is your first job, and you have no special abilities beyond every other CS graduate across the United States, then yeah, you really don't have much negotiating power... nor do you at any other large company like Google either.

Let them take the worse candidate then. The startup is probably going to fail anyway. Jobs are easier to find than good engineers, especially your first few engineers. That requires taking a leap.

I’m not too sure why you’re being downvoted, but it is probably because you phrased your statement a bit awkwardly.

But you’re right that (if there is only a very small number of co-founders) employee #1 should never be accepting 1/100 the total equity the founders have. Employee #1 screwed up in negotiating at least half way decent deal for themselves.

I was a bit blunt.

However, it is up to potential employees to refuse offers that are not in their best interest.

They aren't treated as founders of any sort. They get paltry equity and then don't get raises.

They do get raises. They just have to be persistent. Most engineers don't speak up and are bad negotiators.

And most of the few that do happen to be arrogant entitled pricks. People on this thread who're saying that the founders should try and be fairer towards engineers might actually have a point, although until recently I’d not have agreed with that sentiment myself, and might in fact have argued against it.

TLDR: 30 years experience, I learned: don’t go work for a SV style startup. Be a founder, even if you have no experience. Don’t take VC money for more than %10 of your equity in total. Better off, right out of school, founding a company and failing than working for a startup, especially if they take VC.

It’s lopsided against the founders too. They might walk away with big checks but the risk is too high.

This is the problem with the SV model. VCs take way too much off the table, founders and employees are not adequately compensated.

This is partly YCs fault because they basically groom startups and usher them into the maw of VCs while glorifying the exploitative VC model. But that model makes YC partners rich st startups expense.

Founders and employees in the SV model sell themselves way short. This is also why so many startups are BS non-innovative companies— they are chasing funding rather than the future.

Better model: - slicing pie with no bonus for money contributions- this rewards people fairly. - crowd funding, consultancy funding, boot strapping, angel money with no liquidation preferences, and no VC termsheet BS.

Having founded and worked for startups for 30 years, I won’t ever take a meeting with a VC again. I have not met any good ones (and people who say theirs is great are generally just kissing ass to keep money flowing.)

Worse- the number one cause of failures of startups in my experience is bad strategic decisions forced on them by VCs. The number two cause is conflict among the founders, and the number one cause of that conflict is VCs trying to force a bad decision in the company (and one of the founders realizing it.)

This is partly YCs fault because they basically groom startups and usher them into the maw of VCs while glorifying the exploitative VC model

I believe this is a part of culture that VCs are creating. I've been interviewing lately and I've noticed certain personality traits among YC founders that I'll call "Business Sheldon." I saw it a bit 5 years ago when I went to Startup School, but it's pretty pervasive now, so much so that I see it as a red flag. If you've seen the latest season of Silicon Valley, the character that Dan Mintz played touches upon this: https://www.youtube.com/watch?v=fzbwLktN60c

> Be a founder, even if you have no experience.

Easier said than done. Lots of people leave school without the faintest clue what they want to do. Getting a job somewhere gives people training and experience and maybe even credibility before they strike it out on their own.

Me and my previous co-founder founded a startup with both of us having no experience. It was a very bad decision for the company, but extremely valuable for our personal growth. It also allowed us to skip the biggest parts of the usual career ladder.

It's certainly not the best route for everyone, but definitely one worth considering.

It's great for you. It's pretty bad for any employees who have to pay for your mistakes as you get your personal growth on and skip career ladders.

I think being a founder is a great option right out of school--if you are working for yourself, responsible for your own mistakes, and not actively harming anyone else in your quest for personal achievement.

FWIW I've worked with "experienced" founders who also had no idea what they were doing (in many but not all ways). There's never a guarantee that you won't be working for people who will make you deal with their mistakes.

Heck, there is no guarantee that you won't be working for someone like that in any type of company, regardless of "maturity" or sector.

Bad managers (and most bad management - from death marches to protoduction - can be boiled down to "makes the people who report to them pay for the manager's mistakes") exist even in supposedly mature companies with good corporate cultures.

Con of startups, these are the people you might end up working for.

What's good for your personal growth was other people trying to make a living at a company being run by people who don't know what they are doing. Maybe it's fine, but that level of uncertainty is definitely a con.

I very much agree with you (as someone who has since worked for such people too).

Luckily we mostly had temporary interns as employees, and I can confidently say that they had a good experience, as we are still in touch.

The biggest problems of the inexperience were that we had to ramp up our skills on the job (for me programming), including the mistakes you make there, which killed a lot of the runway, and the lack of business knowledge which ultimately lead to us running out of money.

> Easier said than done. Lots of people leave school without the faintest clue what they want to do.

The rest of the startup game - building a product, pivoting correctly, building a team, overcoming oowerful rivals - is such a huge challenge, that gaining entry level experience before finishing school is perhaps the most straightforward piece of the puzzle.

  Anyone can start a business, and anyone should.  The things you mentioned - "pivoting" "overcoming powerful rivals" - goodness.  How about simply starting a business that earns more money then it spends. Do that and you will learn most any lesson you need to know about being a "founder."

The economics of internet-scale software businesses make this harder than opening a hardware store and selling nails and rope for more than they cost from the wholesaler. It often does require lots of risk capital. If you don't have it, you need a rich partner who does. If you don't know any rich people that want to go into business with you, you need to employ people who provide this service at a price -- and often that price is that you, in effect, become their employee, rather than their partner. This is the silicon valley VC model.

It's possible to build "boutique" scale internet software businesses, but it's harder than ever, and you still need to be well-off enough to "risk" some time that you would otherwise be working on definitely-getting-a-paycheck type work.

In short "start a profitable business instead working for one" and "start a business that's profitable right away instead of taking VC funding" are both rather useless pieces of advice for somebody who doesn't have the means or background to do either.

There are of course more choices about what to do with your life. You should explore those too. Maybe you'd be happier as an auto mechanic or a nurse. That kind of work is available almost anywhere in the country so you won't have the "three body problem" of having to live away from your or your spouse's family, or both.

I disagree with your entire post. It has never been easier to start q business online or otherwise. It has never been easier to start a business with virtually no investment or financial stake. It has never been easier to learn how to start a business in most any field and never been easier to find customers.

I'm not sure what you are defining as risk or difficulty. I can list a dozen day-one-profitable businesses right here that a person could start before tomorrow morning for less than $100 investment.

You could start them with little investment, but your time is also worth (a lot of) money. That's not coming from anywhere if you work for any startup, including your own. You might make that money back later, you might not. In the end that is part of your investment and it's a gamble. If you do not have the financial cushion required to sustain you for the amount of months it needs to become profitable for you, you cannot do it.

Baloney. Those are excuses. If you have no money the opportunity to make some/plenty is abundant and all around you. Everything else is excuses and procrastination. You dont need other people's money. You need to sell something.

That would be great! What are they?

Buy a WHMCS license and a VPS. Go to YouTube to learn how to use it. Set up a simple brochure site. Join a $0 start fee affiliate program. You are now in the hosting business.

Too tough?

Spend $100 on a Beaver Builder license. YouTube to learn. You are now in the small business website building service.

Too tough?

Call a business and tell them you can help their local SEO for a price greater than $20/month. Once the check clears, get them an Advice local account. Pocket the difference.

Too tough?

Call a local business and tell them (true) that 92% of all visitors will seek out their business in a second source other than their home page. For $100 you will setup their Facebook page. For another 100 you will train them to post to it and reply to reviews.

Too tough?

Call a local company and tell them you can handle their social media strategy. If they have T, FB, LI, and IG then great. If not then charge 100 to build them. Signup for Hootsuite. Post to their accounts for the entire week on a Monday morning.

Too tough?

Call a small business and tell them that the number one way to generate repeat business is through a regular email newsletter to previous customers. Sell for $250/month. Signup for Outbound Engine agency program. Profit.

Too tough? Call a business and tell them that chat tech on the front of their site can increase lead flow by as much as 11x. Signup for Apex Chat account, charge $20 per less. (Apex charges you $10)

On and on. It's never been harder to start Facebook or Amazon or Google because we already have Facebook and Amazon and google. But divest yourself from needing approval and applause and you start to see one big truth: its really really easy to make a lot of money online.

> It's possible to build "boutique" scale internet software businesses, but it's harder than ever,

Can you expand a bit on the "harder than ever" point? I've observed a couple of phase changes since the 90s, but I don't think I've seen that particular needle move very much in the past ten years.

> Don’t take VC money for more than %10 of your equity in total.

Good luck man.

Build things for which there's actual demand and real hard problems are being solved and they won't need it.

Build Uber for X and rightly it'll fail without VC money.

Agreed. Yesterday, I replied back with similar sentiments. I was immediately down voted. I second that theory of yours where all the risk seems rational when you are one of the founders.

Seconded.

Why wouldn't you have beef with the founders? Their decisions left them rich and you with nothing in exchange for years of your life lived with excessive risk and a lower standard of living.