Hacker News Reader

"An employees risk is several magnitudes less than the founders across many factors. "

I read often about founder risk, but I think it is overstated for non-bootstrapped companies. If you are a founder of a funded company, you get a salary the same as everyone else. In that case, what exactly is your "magnitudes greater" risk?

The risk is on future rounds as these aren't guaranteed. The founders will be the ones to take the lowest salaries when cash gets low and possibly float the company on their own savings. Two very successful companies I'm familiar with (both with billion dollar exits) saw the founders max out their credit cards through the lean times. Not all success stories are just a straight line up and to the right -- those are the just the exceptions that get the most attention.

Founders shouldn't take on personal credit risk in order to do a startup. Even pg says not to do it.

>Founders shouldn't take on personal credit risk in order to do a startup.

Only in the Silicon Valley bubble, where everyone is all about "other people's money", would someone actually believe this. Back in the real world, entrepreneurship involves personal credit risk. You don't get anything for free.

But not open-ended liability that's the point of a Joint Stock company you might ante up some capital but not so much as to bankrupt you.

Those who drink alcohol shouldn't become alcoholics. However, it's a risk. It's easy to say that a founder shouldn't go into debt to keep their dream afloat and protect their employees, but the reality of it is very hard. If it weren't a risk, pg wouldn't have written about it. Going back to the original question, a founder reaching into their own pocket might not involve acquiring debt, but rather cutting their own salary. When faced with making a payroll, the founder(s) are likely simply not to pay themselves to get through a cash squeeze.

>If you are a founder of a funded company, you get a salary the same as everyone else.

Depends on the stage from what I have seen. Most of the other founders I know, including myself, take 10-15% less salary than many of the employees. Also once funded, investors will expect founders will take a haircut for a while.

10-15% less salary does not equal "several magnitudes" more risk. To my mind, for a funded company, the risk is the same for founders and employees. The worst that can happen for both is unemployment.

First, you're ignoring all the risk a founder has already taken just to get to a funded state.

Second, many times(always?) a founder has personal savings wrapped up in the company.

Third, an employee can always just quit and find a new job. The founder is much more tightly bound to his/her company because of obligations to investors, other employees, clients, etc. To say that "the worst case scenario" for both is unemployment is true, but you're ignoring many other factors that make it far more likely for the founder to be stuck going down with the ship while employee walks away Scott free.

How many of those factors are purely emotional/psychological/imagined ones?

One trick to figure it out is to imagine founder being hit by bus: who will be hurt? Will family be hurt (besides losing the founder himself)? Employees? Clients? Investors? Anyone else?

Agreed. Most founders I know (in SV) take $50-80k in the first 1-2 years.

Well, one funded startup I know pays founders 250% of the typical engineer's pay. But it is a wildly successful enterprise though (to say the least).

It definitely varies. We started our corp entity in 2011 and founders didn't take a salary till 2014. Needless to say, I have a lot of credit card miles.

It's because most companies start before they are getting funded and before there is funding for the company the founders quite often put a lot of work into the company for no compensation. Sometimes they even put their savings into the company.

Adding to this, founders have more information than employees, reducing their uncertainties.

>110k is double the median salary for California

This is irrelevant to the discussion. Startups aren't hiring cashiers and fry cooks. Engineers make more than the median.

I wrote about how to research labor statistics on salary here: http://www.greenwave-solutions.com/getting-labor-data-about-...

SV median salary for software development jobs (loosely defined) was about $122k in 2014. SF was about $110.

The cost of living in california also varies widely!

Right, double seems totally reasonable for your median dev with a couple years experience.

Right, double seems totally reasonable for your median dev with a couple years experience.

Well fortunately we don't have to decide salaries based on what a founder's self-serving definition of "totally reasonable" is. Instead, we have a well functioning market that finds efficient salaries.

(That is, when large tech companies aren't colluding to artificially lower salaries through illegal no-poaching agreements).

Well fortunately we don't have to decide salaries based on what a founder's self-serving definition of "totally reasonable" is

Except that's not the case. Those numbers are what the market is signaling and apparently the OP doesn't like it. That's my point.

The OP is saying, the market isn't offering enough. I say, well apparently it is otherwise it would be higher. So it much be good enough for most people.

I think you might be making the classic mistake of thinking the market is equal to what people advertise on the Internet. As I've heard a million times on Pawn Stars, "Anyone can ask for anything on the Internet. What are they selling for?"

I work in Delaware and $110k per year salary for software engineers would be an average salary for someone with some experience. According to a cost of living calculator, someone making $110k per year in Wilmington, DE would need to make $170k per year in San Francisco for the same standard of living.

San Francisco has the "sun tax" which means that salaries don't keep up with the cost of living. Its climate is much more pleasant than Delaware so people are willing to sacrifice financially to live there. That results in a lower ratio of average salary to cost of living.

There's no accounting for taste... If anything I would say Delaware's climate is better. Sure they get an occasional snow, but it actually gets warm enough in summer to wear shorts, and they don't have so much fog...

Also when it's sunny many people like to go to the beach and swim in the ocean. For water temps above 62 F, don't go to SF.

Reasonable or not, that's market salary for engineers where I live, roughly double the median salary across all jobs. It matters less what you think is reasonable and more what competing companies are willing to pay me.

It matters less what you think is reasonable and more what competing companies are willing to pay me.

Right, and apparently it's $60-110K, which is my point.

That's what startups are willing to pay. It's not competitive when considering non-startup work opportunities, which is OP's point.

It's not competitive when considering non-startup work opportunities

You seem to think these are different markets - it's the same. If people are choosing them then apparently it is competitive. It may just not be what people think they should be making.

Developers should actually expect lower wages because there are more market entrants. The whole push for everyone to learn to code, almost 100% pushed for by developers, would have exactly that effect. This is why I think it's silly when the dev community pushes back on organizing as though it's going to stay a sellers market forever - especially as they push the idea (rightfully so) that being a developer/engineer is a great job and drive people into the market.

No, I think there is one unified market. It's startup owners who think there are two markets and try to get away with paying so much less than what's competitive.

This is, by the way, why they're having such trouble filling these positions. You can't just see what salaries are offered and say "that's the market salary." Companies actually offering the market salary don't have the level of hiring difficulties that startups paying $75k in SF do.

I like that my wages are high, but I don't like that lots of other people don't have good economic options. If my wages go down because more people learn to code and it becomes less of a sellers market, I'd consider that a good outcome.

Organizing to keep new coders out would just help existing coders relative to everyone else, and as a whole we're a group that's relatively well off.

I think the OPs point is that the median salary of CA is totally irrelevant to the discussion and framing it against that is rather myopic. A mechanic working in a car shop doesn't produce the same economic value an engineer working at the "next big Facebook startup" does. There's a reason there was a lawsuit against fixing wages for these companies.[0]

[0] - http://time.com/76655/google-apple-settle-wage-fixing-lawsui...

A mechanic working in a car shop doesn't produce the same economic value an engineer working at the "next big Facebook startup" does

Talk about myopic. Apply your calculus in year 2000 and you'll see the folly there. That is insulting to everyone else making lower wages and assumes that "value" is accurately assigned.

You telling me a Nurse or teacher provides less value than a dev working for a Startup that dispatches food quicker? Please make that argument for me because this idea is what is wrong with SV.

The median salary for registered nurses in San Francisco is $127k[1], so no they aren't saying that.

[1] http://money.usnews.com/careers/best-jobs/registered-nurse/s...

From your link:

The average salary of a registered nurse working in San Francisco is $127,670

Average is often very different than median, but your point is taken. Regardless, my point stands that developers across the board provide more value than basically any other profession is shaky.

Average is often very different than median...

If we were talking about CEO pay or some other value that doesn't have an effective upper bound, average would be meaningless. But we're talking about salary for RNs. There aren't many RNs making more than $250k, so you wouldn't expect the average to be too far from the median.

It's not strictly value to society. It's not a measure of personal worth, either.

It's how much profit your work generates for the company.

He said "economic value", which is much easier to quantify than the subjective value you seem to be evaluating.

> You telling me a Nurse or teacher provides less value than a dev working for a Startup that dispatches food quicker? Please make that argument for me because this idea is what is wrong with SV.

Leverage. Its all about leverage. The more people you affect, the greater the value.

A teacher teaches a class of 30. An engineer at an education startup will create a product that teaches millions over its existence.

A first-grade teacher provides role models for students, talks to parents, connects kids with social services, talks now and then to child protection, might make sure her students have coats in the winter, etc. An education startup creates a product that might provide information and feedback for the millions of people who get to use it in its existence.

Don't get me wrong: I'm working on such products now. I love it. I don't have to deal with discipline problems or students' home lives. It's a different job and the products are not comparable.

Salary isn't related to some abstract "value" of a job

If someone works for a start up at lower rates, and very little equity, then they also carry a lot of risk. The pay-difference amounts to an investment, whose profit entirely depends on the value of the equity, which is close to 0 in most cases.

Agreed, which is why I stated as such. Determining equity/pay balance for employees is very difficult in the very early stages. This is why we lean towards the high side for pay vs equity because it is immediately tangible.

I think it is largely dependent on the hire what this ratio should be and shouldn't be a formula - despite what "the industry" says. At the end of the day it's whatever the individuals think is fair.

The biggest risk is not getting retirement started at all or matching 401k.

I often see people refer to employee/founder risk as a reason for for employee's getting less stock in the early days, but I think this is the wrong way to think about it. As an employee or a founder, your risk in working at a startup is very low. Both of you experience some degree of opportunity cost, but you're mostly "risking" the possibility of having to go work at a significantly higher base salary with more benefits, perks, and possibly the same expected value in terms of stock. So, what gives?

The answer is that we don't pay people based on risk. Fire fighters truly have a high risk job, yet they typically earn less than many skilled white collar jobs. Rightly or wrongly, we pay people roughly according to their economic output, and probably not even their fully captured economic output (see: teachers).

The reason people use this risk language when it comes to startups is because there's a place where there _is_ some economic risk being experienced, and these people talk about "de-risking" the business all the time: investors. Investors are risking capital, typically all of it, for the chance of an outsized return. As a company de-risks, meaning as it becomes more of an actual business vs a business model search engine, the return an investor might expect for their money is naturally reduced (from 100X to 10X to 2-3X over the course of funding a 'typical' SV startup).

Founders often put capital into a business as well, in the form of maxed out credit cards, deferred salary, and sometimes actual bootstrap $$$. Their monetary contribution is typically quite a bit smaller than an investor's, though, so why do they get such a huge share of the ownership? Again, it comes down to economic value. A founder is producing a huge amount of economic value simply by taking an idea and turning it into a real thing that people can evaluate, invest in, work for, etc. An employee isn't creating nearly as much value, although I think it's pretty obvious that the first employee at a YC startup is probably creating more than %.01 of the value in the company so an offer like that isn't fair.

I do find it fascinating that so much of the investment language of risk gets used when speaking about employees. I think some of this is just lazy thinking, but it's also partly psychological -- you want employees to feel like investors vs having them feel like contractors, for instance. And honestly, if a company gets really big, an employee with 1% stake in a company is still filthy rich, even if the guy he had beer with the whole way is now going to Davos on his private jet.

I don't think that's the case. It is appropriate to think and speak in terms of risk for employees. Consider the contrary case: self employment. I don't mean founders here, but freelancers, consultants, bootstrappers etc. They really are paid by the amount of value they produce, or as close to it as we can determine via the market. Success as a freelancer depends on being able to produce a large amount of value and being able to capture as much of it as possible. There's an incredible range here, from getting $0.03 to do human-OCR on Mechanical Turk to Hillary-Clinton-style $300,000 speaking engagements. It's highly variable over time as well. Freelancers are constantly looking for new clients, and badgering existing clients to actually pay them. They also have to be prepared to have dry-spells where they're not earning at all. In other words, it's risky.

Given that backdrop, the value that employers offer to employees is reduction of risk. Employees are not exposed to the downside risks of the market, nor do they participate in the upside when the business does well. Employees do risk losing their job, but that risk is generally pretty low.

Startups, though, offer less risk reduction than more established companies. Some of this is intentional, to align incentives and select for employees comfortable with the big-risk-big-reward reality of a startup. Some of it comes from the inherent instability of startups. Chances that a startup employee will abruptly lose her job, or not get paid for work already done is much higher employees of established companies. Even the "big reward" scenarios tend toward instability—for example, "Good news, we being acquired by Google! Now we all have to move to Mountain View."

Because of this, evaluating a job offer from a startup has to involve an assessment of the risk it involves. A portion of compensation is usually equity, and that equity is of completely unknown value, compared to say, RSUs as Facebook. The job being offered is inherently temporary, since the company will either fail, be acquired or transform into a completely different company within a few years. It's less risk than freelancing, but much more risk than working at a big company.

I don't know about the bay area, but fire fighters can make over $80,000 a year in Portland, OR[1], which isn't so bad

I agree with the point that we don't pay people based on the risk though, as I worked at arguably one of the most dangerous jobs in the U.S. (pizza delivery in a top-5 violent crime rate cities) for years, making far less than a fire fighter.

[1]http://www.portlandoregon.gov/bhr/article/462925

> 110k is double the median salary for California

Bay Area is not California. You can rent for less than $1K in Sacramento, and life is cheaper there. But generally you can't live in Sacramento and work in SF.

TODO: find out the median salary for Bay Area

I've worked with at least two people who commuted in from out past Sacramento (1 from Elk Grove and 1 from Lincoln).

They tended to remote when they could, but also stayed with family or motels in the near east bay certain weeknights.

That also didn't include the people who flew into SFO every Monday morning from home 1000+ miles away. They always won the "how awful my commute was" game.

Deleted comment

Not that it's actually possible for most, but what happened to hiring the absolute best person?

Because apparently they don't want to take lower salary and higher risk? I mean we try to hire the best person we can afford - full stop. That means as much as we could pay and as much equity as we can give. At the end of the say it's a market and they will find the pay/risk level they want.