Take a paycut to work at a startup
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In other words, these are the theoretical advantages of working at a startup - but does this reflect the real situation on ground?
Background: I lived in NYC and am friends with far too many lawyers and wall street bankers with no idea why they are a banker or a lawyer.
Almost without fail, I was happier than every single one of them, even though they made twice or more of my salary every year.
They work more hours than us in the startup world. We boast about that phase of living at the office and falling asleep at our desk, but at least that war story is half made up and is supposed to end. That's what they do forever.
I have a friend. He is 32, a laywer at a corporate law firm. He is not a partner at the firm. He works rediculous hours, often up till 2am on weekends. He works those hours becuase if he doesn't, he will be fired. He doesn't like his job, his boss, his company, or even being a lawyer. But he is working 60+ hours a week because without it he'll lose his $200k a year job. And most of that money goes to paying for his great penthouse apartment. When I graduated college he gave me the advice "whatever you do, save as much money as you can so you can go and do whatever you want if you find out you don't like your career" with the seriousness and tone of a kidnapping victim.
A lot of weekends, I come into the office and work. But I roll in at 1 and leave at 8pm, after I had the morning off. My banker friends have conference calls with their boss at 8am on a Sunday the night after we went out. It sucks!
All of those guys (and girls) make double what I do. But at the end of the day I'm not sure they put more money in the bank. Their echo chamber values things that ours simply doesn't. We love people making it to be ramen profitable. They think you are a loser if you don't have a BMW, a real rolex, go to bottle clubs on the weekends to drop $300 at a bar, and have a $3000 a month apartment somewhere in the city. I spent half of that, and do basically the exact same things except with a Subaru, a regular bar, and a $1400 a month apartment.
At least the doctors have rewarding work most of the time.
But I would tell my kids to be an engineer, or a freaking high school teacher, or a circus juggler, long before I told them to try and work on wall street or be a lawyer.
You can buy a lot of material goods with their inflated salaries, but I have yet to find one that was actually happy with their job or their life. So they strive to become partner at the firm or a big enough bonus that they could leave and do something less stressful. But when they finally get there, then they raise the bar yet again and sucked back in for a few more years. It looks unbearable.
If I could tell my kids to do anything, it would to do what you are doing. Own a business that you can run from anywhere and be your own boss. You probably won't make as much money as working for Goldman, but if you want to surf you can setup shop next to the beach in hawaii and start the day with 2 hours on the beach and work the rest. If you like skiing, move to the mountains and do the same. If you want to travel, pack your laptop and spend half of each day working and half exploring. I imagine you are infinitely happier than people making 5x as much doing the grind in those fields.
[Edited the horribly rambling mess into a rambling mess]
I climb mountains, and the going up part sucks. I do it for backcountry skiing so it is always cold, usually windy, and very wet. But getting to the top feels amazing, and going down on skis is even better.
The startup is like the mountain climb, there is a top (hypothetically).
For bankers and lawyers, there is no top. There is never a point when you say "that is enough". It is a treadmill, not a mountain climb. You just stay on it slogging for more cash and more cash. First you have an apartment, then you want to have kids so you need to move out to Westchester and buy a 2 million dollar house, then you need nice cars to drive to the train station (which soon will have to be replaced when the lease runs out), and boats, and then a porsche, and then private school for your kids, and then a vacation house in the mountains, and then private college for your kids, then money for retirement, and if you have a lot of money you give your kid the seed money for his hedge fund. It never stops.
However, don't dismiss the fact that there aren't people passionate about finance. I am personally involved in this industry and I hustled since I was in high school to work in the industry. I spent 2 straight years of high school working part-time and full-time summers at trading firms and realized this is exactly what I want to do.
What we need is shut down this "prestige whoredom" prevalent across all elite colleges in America and have graduates try different careers to figure out what in the world they want to do with their lives. Sadly, a lot of the current generation of college degree holders will slave away their lives doing things they don't like doing - not that its different from any previous generation to be honest.
Yet it's still perfectly acceptable to join the startup world, so long as you're getting something else out of it besides money.
Maybe more people need to realize that they are in fact making a trade-off.
Bonus tip: You're probably not as good at evaluating the difference between startups as you think you are.
Look really, really hard at the size of the market you're entering, and the track record of the founders.
For employees, a company that's going to peak at a few million dollars in sales probably won't make you much money based on your equity. Working for people with no track record of success lessens your odds.
You're going to learn a lot, no matter what, but it might not be the lessons you're looking for.
I've never worked at a startup, so I'm speaking from ignorance. That said, what always struck me as a problem with the work for equity is just that. Investors are professionals (or competent amateurs) at evaluating startups and understanding the deal. They have access to more information and have more leverage in demanding it.
They also do a lot more choosing too. I think this is the one that get lost in an analysis like this. Most startup investors invest in a small portion of the deals that are a signature away and evaluate many more. Employees are much more limited.
Sweat is a lot less liquid than money. The problem of receiving risky stock in exchange for labour is like the problem of trying to trade without money in general. A graphic designer is limited to accountants that need designing and want you. An employee is limited to investing in companies that want to hire them.
Is it just that a lot of people here have been burned by enough startups that they're cynical?
I can imagine that if I ran off and joined a startup solely based on the rosy outlook that I got from reading all these success stories, and then found out the hard way how things really are, I might be a bit cynical too.
I like startups, but you definitely have to go in with your eyes open, and most new grads don't know anything about business or negotiation. There are a ton of douchebags in this world who are only too happy to exploit cheap labor to line their own pockets. If you've got the means, starting a company is nearly always a better risk/reward trade-off than working for someone who is starting a company.
Well yes, of course. But there is a sweet spot for this for people that want to learn a lot, and do not have the means or motivation for running their own business. So many great technical people are of this persuasion at some point in their lives.
Working at a startup that you care about is a great way to fill in the gaps: figuring out what you do not know yet but would like to understand.
Working at a large company has its advantages too. You learn how those orgs work, and how to navigate different situations than what you see at startups.
Other folks on HN have said it before and better than I, but ultimately if you want to go into business for yourself, until you understand both, you may not understand the full potential of your business.
If this is the worst case scenario and the company fails, I'll have zero regrets.
Actually, when growing the team, startups must assume that they will pay more than competitors.
Paycut is ok if it is augmented with generous equity (really generous): which basically means first couple of employees. And startups should treat these early employees (which took paycut) as important investors and co-founders.
Taking a pay cut on the idea that a high valuation of your stock options will make up for it is both naive and silly.
You have to be extremely lucky to find a startup that:
1) actually has the funding they say they currently/will have
2) actually will pay you what they told you they would pay you
Your best bet as a new grad is finding some impressive startup people who have great track records. Do some cool stuff for them, and tutor/wait tables for real cash on the side.
Part-time jobs will reduce your risk of running out of money. Working for the right startup founders will improve the chances that your startup succeeds. I can't find the source on this, but people who have previously failed to start companies are much more likely than not to fail again; people who have been successful in the past are more likely to succeed in the future at starting a company.
It's way easier said than done to find the right people. The amount of deception out there for new grads is sickening. People know that new grads don't know jack. You're up against a lot, even if you are smart and you regularly browse HN. Be careful out there.
I wish you the best of luck.
As everyone knows, most startups eventually "fail". They use up their "runway", and everyone scatters to do other stuff. There's nothing wrong with this. That's just the way it is. What you come away with is a bunch of connections, the opportunity to do cutting edge work with minimal red-tape, and a chance to work with really driven people who are following their dreams.
If you're working at a start-up strictly for the promise of riches, you'll be disappointed. There are many good reasons to work at a start-up, but pay IS NOT one of them.
I'm always direct with my startup hires:
"You are unlikely to get rich with these shares. You are unlikely to even make up the difference between what you would earn working at a large company.
If you want to be able to make a difference and learn a lot, have a lot of responsibility early on an potentially learn how to run your own startup, then this job (and corresponding lower salary) will be worth it."
Do you find that this filters out a certain kind of candidate, perhaps the more generally experienced, or even, specifically, experienced with startups?
How is that working out for you? (Only a hint of snarkiness intended. I'm actually curious what the results of the filter have been)
Working at someone else's startup is a recipe for getting exploited - overworked and underpaid. And the worst thing about it is that it's all couched in an atmosphere of guilt trips and taking-it-for-the-team.
Perhaps there are exceptions. I just haven't seen any.
I'd rather work for The Man in my day job in a cold corporate environment where everything is explicit from the get-go, get well paid for it and crank out code for my own startup in my free time.
Plus I find it hard to feign the appropriate level of passion for leveraging social graphs in a disruptive manner or making business logic sexy.
I'm always been a cynical type but the majority of places I've had experience with have given me reason to bolster that outlook :)
I've also worked with four "has hope" startups (aka I take some cash) and the lessons there are huge.
The startups you describe are "no hope" startups. Try to find one that has users, growth and money. You'll dig it and learn a lot.
Don't mean to be harsh but giving responsibility for your decisions to others is a recipe for unhappiness (and cynicism).
Isn't working at anybody's startup a recipe for being overworked and underpaid?
Nice things about working for someone else's startup for a while: (a) you're not as overworked or underpaid as they are [1]; (b) you have less of your ego invested so you might sleep better; (c) you'll learn to see the world from the startup perspective; (d) you get a taste of the startup lifestyle, which will help you know if you're cut out for it; (e) you'll meet a bunch of other people who enjoy startups -- which is to say, people who are willing to be overworked and underpaid in exchange for some ineffable quality in their working life. Those people can be hard to find once you are out of school. You want to meet them, because if you have your own startup someday you'll need to know who and where they are.
(When you are in school, of course, you are always being overworked and underpaid. That's a big reason why startups are always on the hunt for new graduates: They're completely inured to the lifestyle.)
And, yes, if you've got the personality for it you can bootstrap a startup in a small amount of spare time while working in your corporate environment. But not everyone enjoys that, and there are many kinds of startup that can't really be done that way.
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[1] If you're working as hard as the founders and getting the same compensation then you are a founder. If you're getting less equity than a founder they had better make up a lot of the difference with cash. If you're working for lousy equity and no cash... yes, you're being exploited. I guess you could argue that the problem with startups is that they have a pronounced tendency to try to lure you into accepting lousy equity and lousy cash, but that can happen at any job.
If you have your own startup, you can do all of these..except in the end, if the company gets bought out or it really takes off, you will get more than a sliver of the pie.
All startups in my area have horrible pay+small equity in the company. The problem I have is that someone else is making all of the final decisions. After 2 years, they could run the company into the ground and I will get nothing out of it except experience, which I can get in many other fulfilling ways. If I'm going to be forced to live a frugal life, it will be because of my own startup.
"After 2 years, they could run the company into the ground and I will get nothing out of it except experience"
I can relate to some of the frustration you express. I spent most of 6 years working with the entrepreneur behind Bluewall (http://www.bluewallmedia.com/). I worked there 2002-2008 (on and off). We occasionally built some projects that seemed to do well, initially, and which possibly would have grown if the business had had some focus and discipline and follow-up. (We built a decent video store for the yoga site http://www.ihanuman.com/store.php and we could have used the same software to build out a whole network of similar niche/community focused video sites.)
I saw a lot of projects abandoned, some of which seemed to have big potential. It was frustrating to watch as $2 million dollars were wasted on what seemed like a long series of bad decisions.
However, I can not fully agree with this part of what you write:
"I will get nothing out of it except experience, which I can get in many other fulfilling ways."
Strictly speaking, your statement is true, there are many other things you can do, all of which will bring you experiences. However, startup experiences are unique and not easily fungible for other experiences. The question then, simply, is whether you want startup experiences. If not, then you probably should not be working at startups at all, even if the pay was great. But if yes, then I think you'll walk away with experiences that will seem very valuable to you, and worth the opportunity cost.
The other way to get startup experience is to start one yourself. You get the experience running a startup and the risk/reward ratio is much better.
I found a great startup that was a perfect fit technically and culturally, I dont care about money as long as I have enough to live comfortably, and working anything but hard isnt a choice for me.
I have been there quite a few months now and couldnt be happier, I am working on technology I love with awesome people, I am making relationships that will benefit me in the future, strengthening my ability to execute a new companies strategy all with a percentage of the stress and strain that my own startup produced.
Pay developers what they are worth. If you can't afford it, then you are doing something wrong.
Smart, experienced[1], disciplined employees will expect this to be a choice. Some may take the equity. Others will insist on the cash.
I agree that if one can't afford the latter, one is doing something wrong.
[1] In the ways of startups and the tech industry in general
I worked at a startup that was funded, and paid well. I'd say the difference in pay between that and somewhere else was minimal, maybe 10-15% difference, it is hard to say. But I certainly was making real money.
Yes, I worked a heck of a lot hours there. But if I worked 50-60 hours a week there and I currently work 45-50 now, it really wasn't that big of a difference. Especially when the startup was flexible about things like working from home, telecommuting, they gave more vacation time, etc. And I liked every one of those hours a whole lot more at the startup than I do now at the corporate job.
I left for other reasons that really were not related to the job, the hours, or the pay. I needed experience for my career in a different direction to go where I ultimately want to go. I went to that startup to learn about startups, now I'm in the job I am in today to learn about this industry. Ultimately I'd like to start my startup in this industry, having experience in both areas for a few years first. But if it was just about the job and not where I am planning to go, I'd go back to the startup in a heartbeat.
Consider all of the YC companies, or every startup you read about on HN or TechCrunch where you think, "wow, they are doing cool stuff". Many of those companies have at least a few (and probably more than a few) non-founder employees. If you polled all of those people, how many would say they feel like they are exploited, underpaid, overworked, guilt tripped, etc? It might be a non-trivial amount, but I'm pretty sure it's far less than 100%
"I would say the only startup worth working on is your own."
I think you are, without realizing it, criticizing the small amount of equity normally given out to people who join startups. Yes, if you are getting less than 1% of a startup, and making a big sacrifice for that startup, then the sacrifice may not make any sense.
Ellen Beldner does the same thing, in the indirectly linked article. She writes:
"Senior engineers / VPs / early directors may get somewhere between 50 and 150 basis points (0.5 - 1.5%)."
Those are very small amounts of equity. Such small amounts do not make sense if the idea of the startup is utterly unproven. It is valid to criticize those amounts, but the conclusion should be that early employees should get larger stakes.
For the first 3 or 4 people working with a startup, I agree with you that they should be working on "their" startup. And that is the point of equity - to make it theirs. But clearly, early on, with the idea unproven, the equity stakes need to more like 10% or 20% rather than less than 1%. Give someone 10% - 20% of the company and then they are doing what you suggest: the only startup worth working on is your own. They are substantial owners at that point (10% to 20%).
And yes, the equity stakes will get diluted later on, if the company is successful, but that is fine, since that is such a great problem to have to worry about - it means you've been successful.
Right now, I'm trying to get friends to work with me on my startup. The shares we are considering are all in the 5% to 10% range, rather than the less than 1% range. (It helps too that my startup has already had a few customers, so the idea is not completely unproven.)
http://news.ycombinator.com/item?id=1536877
Good thing you only plagiarized yourself! :)
And to answer, of course, especially if you're young and inexperienced, who knows maybe it'll work out, and if not, it's another app in your resumé.