A Startup Employee's Checklist for Tough Times

A startup employee, right? Not a founder?

    1. How long am I willing to work without pay?

zero days.

    2. How long can I work without pay?

doesn't matter. see answer to #1.

    3. What concessions do I need to make working
    without pay feasible?

You shouldn't be making any concessions. Assuming you're merely an employee, the founder or cofounders should be talking about increasing your stake in the company by at least an order of magnitude.

    7. If my employer raises additional
    funding, how and when am I likely to be
    compensated for my working without pay?

See answer to 3.

edit: thanks to greenyoda and wtn for shedding some more light on the legal aspects of this. I hadn't even considered them.

All of these are quite reasonable for founders, but not really for employees.

I'd consider more-equity, reduced-pay in a startup which was bridging between rounds of financing as an employee, but only if I had a large personal buffer and had high confidence in the value of the company. At that point, you're essentially an investor. Most people who work for startups, particularly as non-founders, don't have enough net worth that startup equity should be a large percentage of their net worth, particularly purchased equity in a single company who is also their employer and who is having financial difficulties (which is why they're asking you for concessions...)

Now, something like "we need to raise more money, so we'd like you to work part-time for the next few months at a reduced wage" is totally reasonable, if you can swing it -- either do highly paid contracting, or look for a new job, or take a vacation.

Working 20h/wk for 50% pay seems like something a lot of people would like for 3 months, honestly.

For more context, writing this list was a necessary step in assessing my situation, accepting reality, and moving on. It wasn't as simple as "no pay, no work." It should've been, but it's hard when you enjoy the job, love the team, and desperately want the venture to succeed.

It's harder still when you see potential investors and clients actively meeting with the founder right up until the end of the runway. It's easy to delude yourself into thinking that one signature will bring everything back to normal.

In the end, we all missed two paychecks and, when it was clear that things weren't coming back soon, everyone dropped down to a 10% retainer (in IOUs) while simultaneously being encouraged to find freelance or full time work. I took that opportunity to learn letterpress printmaking and travel a bit while getting my professional life back in order. Not a bad deal.

But I'll never do that again.

(FWIW, the startup in question did, eventually, repay its debts)

I have experienced a payroll miss (that turned out to be a mustake at the payroll company). I was not thinking about work that day, I was thinking about and applying for other jobs. I don't work for free and the minute I stop getting paid I don't work for you.

As someone who's started and run a few companies, I am not someone who's going to ask anyone else to work without getting paid. Paying someone in equity is legitimate, but it has to be wholly agreed to beforehand. Sure, there may be exceptions, but I would like to be as proper as possible with everything that I do.

If you're going to accept an IOU I guess thats something else entirely, but as most taxpayers in California know, you can't deposit an IOU in the bank.

Anyone got even one example of a startup "coming back" from the "I can't pay my employees" hole ?

While I agree that this is a very individual choice (at least one other has referred to it as a calculated bet), it's a bit appalling to generalize this and codify it into a checklist. The situations where you should go down this line of reasoning are very, very rare. This is not general purpose advice.

General purpose advice: Learn to recognize a [sunk cost][1].

If you decide to be an early employee of a startup (especially one which is not yet profitable) build the expectation that there will be an uncertain future. Tell yourself that you're going to work fiercely hard, and be fiercely loyal as long as your employer can support you. Tell yourself that the experience gained will be worth the long hours and uncertain future. But please, please, don't tell yourself "I'll probably have to work without pay." Don't tell yourself in advance that you'll ride it out for the equity, or because it's just so interesting, or because these founders are geniuses/nice/cool/whatever. If they can't pay you, it's not time double down on what you're paying them; it's time to move on.

[1]: http://en.wikipedia.org/wiki/Sunk_costs

QUIT. I am going to join the chorus of people telling you as much. Get the fuck out now. Get. The. Fuck. Out. Staying on board after a payroll miss as an employee is a terrible fucking idea. If you stick with the effort after a pay miss or even a cut, you are an equal with the founders and you are invited to all the investor meetings (whether you want to go is up to you). No fucking exceptions ever. People will take advantage of you, not respect you for being "a nice guy", if you work for them on bad terms.

I made this fucker of a mistake. It was 2008, after the economy imploded. Unrelatedly, I have PTSD which had started throwing panic attacks at me and, for a period of about 3 months, I was unemployable (or thought I was) until I figured out how to manage the attacks. (Now they are no big deal. Very fucking annoying, but I know what they are and can resolve them in 5-20 minutes at worst.) So I was damaged, but I have this extreme work ethic which leads to a false sense of desperation that impels me sometimes to take horrible jobs just to "be employed", and this was one case of that. I had savings, but I needed to feel like I was doing something. So I joined a startup on "deferred cash" which is essentially a zero-interest loan to your employer. Don't ever fucking do that. Oh, and my salary (what I would have been paid once we got funding, which by the way never fucking happened) was still a 40% drop from what I had earned at the hedge-fund job before that. Talk about a loser fucking move. If you undersell yourself (false desperation) people will pick you the fuck off.

Then I went to Google. I had burned lots of savings and, after egregious drama and a huge financial loss, I was a fucking headcase and I made the mistake of disclosing my problem and I had a sadistic pigfucker of a boss who gaslighted me to see what would happen, and ultimately had a two-day-long hypergraphic episode on a 10k mailing list. I found out later that he had a history of using false performance problems to get people to disclose medical problems and then fucking with people who were sick because he enjoyed watching them break down. I found at least three cases, some paid substantial severances. HR knew about the problem but did nothing because the manager had a reputation for "delivering". If I hadn't been coming off a horrible startup, I wouldn't have been nearly as vulnerable and he wouldn't have been able to break me (I'm a normal person with an abnormal past, and 95+ percent of the time I can keep it in the fucking past) and that pigfucker bully would have attacked someone else.

Bad startups will ruin your fucking life. No exaggeration. I have a pre-existing aggravator but normal people melt down just as hard. In fact, I think it's worse for them because they're not used to insanity and don't recognize it as such when it hits them, so they actually buy into the insane thoughts they start having when the world goes to hell on them (I don't; I'm a veteran of that shit). You will lose lots of money and credibility. Your career will end up in the toilet. Sometimes people will maliciously damage your reputation and you'll seriously consider hiring a hit man, but you can't because you have no fucking money.

Payroll miss == Get the fuck out. Now. No exceptions. Do NOT fuck up your life for these people. They aren't worth it.

I just won't work for free. That's also why I shun overtime.

How would you handle "reduced pay" for founders with different % ownership during a dry spell?