Maybe the problem isn't with the engineers, but with your startup.
Being compensated through equity is a gamble. Most times it doesn't pay off. So many more startups fail than succeed that the odds are heavily stacked against those options ever being worth anything.
Sometimes people are willing to take that gamble anyway, in spite of the horrible odds, because they believe in the business. They look at the product, the founders, and the rest of the team, and think "this is going to be one of the ones that succeeds" -- strongly enough that they're willing to bet their own money (in possibly lost compensation) on the outcome.
If you're showing talented people your idea, or your product, or your team -- or yourself -- and they're not coming away convinced that what you're showing them is good enough to justify taking that risk, maybe it doesn't mean that they're lamers who don't understand startup culture. Maybe it means they looked at what you showed them and decided that it wasn't a horse worth betting on. So they'll work for you for salary, which they can put in the bank the moment you give it to them, but not equity.
If that happens consistently, maybe it's time to step back and look more holistically at your business. If you can't convince potential employees to bet on you, you might have set your product up in such a way that you'll have trouble convincing potential customers to bet on you too.
Side note, but there are other reasons people will take that gamble.
Sometimes, the reason employees take equity is because they think they will have a nontrivial impact on the business and want to feel like an owner. The actual financial consideration of the equity can be triumphed by the emotional connection it gives them with the team and their work.
This might explain why some early employees don't even know what percent of the company they own.
By the time you get diluted you effectively are a stockholder with way too much of your net worth locked into one likely extremely volatile company. If you are lucky enough to be in a succesful startup you still have to survive the inevitable whiplash when your liquidity frees up.
Ironically and sadly I have a couple old-timer friends who have been through IPOs where they have lost money on the whole damn thing mostly due to taxes and poor timing.
Treating employee-level equity as anything other than the chance for a nice bonus some day is a sucker's game. Especially for early employees who'll take a significant haircut on salary for the privilege of getting "points on the package" (to quote The Wire)
Edit: and that really sucks for your friends. I feel bad for them :(
He ... took the two offers we gave them (big salary/small equity and small salary/big equity) and created a custom big salary / big equity + bonus counter offer that was laughable at best.
They didn't give a figure though, the salary offer might have still been below what the guy considered his market value so he countered by wanting to bump up the equity to go with it.
Talented engineers are well served by a rule of thumb not to reach for more equity, but rather to negotiate in terms of their actual rate. The startup that can't reason about your comp in terms of the going rate for engineers, that instead reflexively assumes you're wasting their time, is a startup you want to avoid working for.
Employee private stock outcomes are generally very poor even when the startup "succeeds". No party to the financing of a startup is served less faithfully than the ones who contribute via deferred or diminished salaries.
That doesn't mean you can't compensate engineers by giving them "skin in the game", but it does mean that when you write derisively about a candidate using their going rate as a starting point, you risk communicating something very unfavorable about your business and hiring practices.
Should you expect your going rate at an established company plus equity? That seemed to be one complaint from the article; they offered him a big salary with less equity:
"He...took the two offers we gave them (big salary/small equity and small salary/big equity) and created a custom big salary / big equity + bonus counter offer that was laughable at best."
[edit] I agree that most engineers overvalue equity, just like most people overvalue a lottery ticket.
Your going rate at established companies is probably simply your going rate. Start there; it's what the market values your services at. That number is your floor, not your ceiling.
At a financed, leveraged startup, you're not going to get that number in cash. But you need to get that number, risk-adjusted, in some fashion. Generally, engineers should not expect to be "worth less" to startups. They're just compensated using different instruments.
The problem with berating engineers for framing comp discussions in terms of their going rate is that engineers can't value equity the way founders can. It's an asymmetric information problem. The founders know more about the value of their equity and have more control over the variables that will change those values. So the onus is on the company, not the candidate, to justify the equity grants being used to offset salary.
The way that should probably work for most startups is a conversation about expected future revenues. Acquired startups aren't really valued in terms of forward revenue multiples, but that is the scoring system used by most bystanders to evaluate a deal. So a compensation discussion that involves equity should involve quarterly revenue projections and a notion of what multiple of that revenue the company might be acquired at (or, if you're shooting for Mars and not the moon, where you'd IPO at --- but the IPO story is usually so B.S. that it's a warning sign).
A founder who can't have that conversation with a candidate or can't do it convincingly has no business trying to sell equity to a candidate. Which, make no mistake, is exactly what founders are doing when they compensate employees with equity: they are selling stock in their company, and it's the least valuable stock in the company.
> At a financed, leveraged startup, you're not going to get that number in cash. But you need to get that number, risk-adjusted, in some fashion. Generally, engineers should not expect to be "worth less" to startups. They're just compensated using different instruments.
Completely agree.
> The problem with berating engineers for framing comp discussions in terms of their going rate is that engineers can't value equity the way founders can. It's an asymmetric information problem. The founders know more about the value of their equity and have more control over the variables that will change those values.
And this is the part where I personally believe in 100% transparency. I am here to build a business that will make everyone involved happy. I am not afraid to show you the things that are going well, or the things that are going terrible or to share any other number with you. Of course, you don't know if I am lying to you or not. But guess what? The same is true of any job. It is naive of the founder to believe that they can permanently hide the state of the startup to the people they are hiring. If I lied to you, you will find out soon enough and leave. There are so many amazing startups in Silicon Valley, that is dumb for a founder to lie about these things. So the better approach is to be 100% transparent from the beginning.
That's great, and I believe you, but you should know when you write things like this that every startup founder ever says the same thing. You can make a more compelling case with actual numbers.
The bigger issue though is, when someone comes in too expensive for you to hire, that's not a flaw in them. I am guessing you hire fewer people than I do, so, words and words and words to the wise: people are going to come in higher than you can afford. Some of them will be people you'd want to hire, others not. You are probably no more reliable at valuing them than they are. Don't get irritated about it and don't preach. Just shrug and walk away. Thank them for their time. Don't get mad at them for wasting your time. If you are serious about recruiting, nobody can waste your time. And nobody looks good trying to tell people they're worth less than they think they are. Ever.
At your going rate, I would expect some not much. The risk of start up failure is greater than the risk of lay offs and large company failure(in a time frame that would be relevant to an employee who values the safety of large company life.)
> Employee private stock outcomes are generally very poor even when the startup "succeeds". No party to the financing of a startup is served less faithfully than the ones who contribute via deferred or diminished salaries.
A six-figure salary is by no means "deferred". And, of course, I understand that there is a big difference between 100K and 150K/year. The whole point of the blog post is that if you want the 150K, then you can easily go to a Series C funded startup and get that (alongside the lower equity offer). If you want a higher stake, then you can go to the earlier stage startup, get your 90K and huge chunk of equity. If the parties want to have a custom "in between", then that is reasonable, too. Some startups can do it, others cannot depending on cash-flow. Expecting early stage-like equity and later-stage-like salary doesn't make sense. Not to mention the other equally important issues that we had with the candidate.
Your first sentence is a non sequitur. It's grammatically correct but contains no detectable semantic meaning. Salary is deferred when it would ordinarily be due immediately but is paid later. Formally, a deferred salary is a commitment to pay a precise amount of money at some point in the future. Colloquially, any promise of compensation that would ordinarily be due in the next pay period but will instead come 1-2 years from now at "exit" is a deferred payment.
Your reasoning about "Series C" versus "Series A" startups and salary expectations is also suspect. We pay market salaries to a large number of very talented, very specialized engineers and haven't raised a dollar of funding.
The problem with your reasoning is that it isn't based on the market, but rather on some kind of status hierarchy about startups. The mistake I think you're making is that you frame things in terms of "90k and a huge chunk of equity", rather than "your market rate of 150k, 2/3rds in salary, 1/3rd in equity, risk-adjusted based on expected liquidity from revenues we forecast at N, N+1, N+k over the next k quarters, at acquisition multiple y".
If you write the blog post that way, so that you can make a case that a 150k candidate is effectively demanding 300k, your post starts to make sense (but it's a little boring, right?). But when you write it in terms of "Series A employees should get 90k", you go way off the rails.
Later edit: you can also reason through your equity valuation with a candidate the way 'ChuckMcM does, but it seems like to do that honestly, your equity would need to be liquid enough that you could place another x00,000 shares; in particular, you can't just treat your last valuation as gospel; just like your B investors can reduce your valuation, so can candidates.
Your analyses are very good and your posts pedagogical.
I'd like to add that, just as you have the company presenting this in a certain light, the engineer needs to look at this investment of $60,000 a year of his personal money as cash salary to buy stock in a startup the same as a $150,000 a year earning person would view any other $60,000 a year stock investment in an extremely high risk unproven early startup. As a point of comparison, we know that Y Combinator gets significant equity for one time investments of only $10,000 in early stage startups. An investment of $60,000 a year should be valued similarly. Clearly the employee is directly contributing more than six times as much as Y Combinator does and should receive six times the equity for that first year.
> Expecting early stage-like equity and later-stage-like salary doesn't make sense.
Not for you maybe, but for the lucky sob who gets it, it definitely makes sense! Just like employers generally aren't in it to be "nice" to their employees, employees are not trying to be "nice" either. Now if you have a scarce resource, you are supposed to try and get a as high price as possible for it. Free market and all that.
Also, this James fellow, if he actually was an amazing engineer, one of the best in the area and Google-material, then I don't think it is unreasonable for him to ask for both a high salary and a big chunk of equity. If he also worked "crazy hours" that one of him would replace a team of 3-5 average engineers. If so, you were the one pasing on a great bargain. :)
The less he talks about these red flags the happier he will be. Just the concept of interviewing someone and then writing a negative blog post about it is skeezy.
I've had non-founder equity in four "startup" companies including a couple of which most people here would have heard of and some of them even had exits that were "publicly successful", and I've never seen a dime of money beyond my base pay.
In one case, the company simply failed to fully gain traction despite a good 6 year run, no harm no foul. In the other cases various forms of dilution and manipulation put everyone not in the preferred stock category underwater despite what were seen as positive exits. In the worst case I took a fairly substantial (though temporary) tax hit due to AMT on stock that was never worth a real penny at any time when I could legally sell it.
I'm still open to the idea of someday working for a startup at the founder level, but I'd advise all "James"-like engineers to avoid the situation he was trying to get hired for. Being an early stage employee but not a founder is the worst of all worlds and basically amounts to buying a $60k ($150k - $90k OP was looking to pay) lottery ticket, one where the rules of the lottery might be changed in all sorts of ways after you sign on the dotted line.
one where the rules of the lottery might be changed in all sorts of ways after you sign on the dotted line.
There is a pattern:
Company: We will give you 1% of the company.
Employee: Sounds good.
And the Company probably believes this in good faith, and that the employee will not be diluted
<years later things go bad>
Company: You now have 0.01% of the company.
Employee: I had 1%.
Company: Not anymore. That wasn't any kind of promise against dilution. Check the paperwork.
Switching from the "let's trust each other" to the "let's go by what's written in black-and-white" is a common trope. You, as the Company, don't even need be engaged in bad faith for it to happen. But it's often considered rude to tell the employer "these shares are probably worthless."
Being an early stage employee but not a founder is the worst of all worlds
Founders usually are completely averse to giving anyone hired after them a better deal then they have. (I've done it as a founder, too, so I understand those feels.) But non-founder non-investor shares are extremely vulnerable. If you aren't prepared to fund very close to market salaries, you need to give something spectacular.
Dilution in bad faith is lawsuit-worthy. Most founders these days have common stock just like everyone else, and get diluted in the same situations.
Dilution during fundraising isn't an absolute bad thing, either. There are shenanigans, and investors with preferred stock definitely get paid first, but the basic theory is that 20% equity dilution comes along with an investment that immediately makes the company 20% more valuable. It's basically a zero sum transaction ... except for preferred shares, options pools, etc.
"Most founders these days have common stock just like everyone else, and get diluted in the same situations."
True but given the vast differences in allocations that may turn their theoretical 100s of millions into dozens of millions while turning employee shares from a "really, really good bonus" into "not worth the transaction fees".
It's also easier to defend your stuff when you are sitting in the board room.
I've seen it happen to former employees at previous companies; once I even asked at a meeting if anything was being done about their massive dilution and the CEO gave a prepared spiel that was pretty close to Paul Graham's piece about how VC's like to wipe out angels: http://www.paulgraham.com/startupfunding.html#f9n
I ran the numbers for this guy, but I'll make some up here to show the process I went through. It went like this:
Here is an offer $100K/yr 100K shares vesting over 4.
Counter $150K/yr, 100K shares.
My counter $150K/yr, no equity.
This is this math, I've got a fixed amount of money in the bank, its going toward zero. I can sell your 100,000 shares to one of our investors for $2/share, giving the company $200,000 which I will then pay out to you $50K per year on top of your $100,000 a year salary. You get $150K per year, the investor gets the 100,000 shares. Or I can give the 100,000 shares to you with a strike price of $0.25/share, vesting over 4 years. So at the end of the four years you will have one of three outcomes.
1) $130,000 in the bank (that is $50 - 35% marginal tax rate) * four years.
2) A right to buy $xxxK of stock for $25,000.
3) A different job.
So realistically the stock needs to be worth $300K and saleable for you to make money. ($300K - $25K exercise - approx $137.50K in taxes) So $3/share. If I have investors willing to pay $2/share for common stock today, you (the engineer) need to believe that in four years the common stock will become 50% more valuable. You've got to ask yourself one question, "Do I feel lucky?"
For lots of people though its also more 'fun' to work in a startup in terms of engaging problems to solve and level of impact on the company is involved.
If you have recently sold stock at a $2 valuation, you should be very wary about issuing options at $0.25. This will put you across the ISO/NSO line and has tax implications for the employee.
If you haven't actually sold stock recently, you are probably better off using ptacek's formula and computing future value rather than present value, and avoiding pricing your stock at all.
The numbers were fictitious in order to work the example. Our CFO in conjunction with our general counsel determines the effective valuation which is ratified at the appropriate board meeting and becomes the official strike price until the next valuation 'event'.
There are two numbers in play, one is the value of common stock and one is the value of preferred stock. Preferred stock is used in conjunction with raising capital and often has terms and covenants attached to it which make it significantly more valuable than common stock early in the company's life cycle where they effectively converge on the same value at the IPO (or 'liquidity event')
That said, the example is illustrative but not strictly accurate (accurate in principle but not in execution). What really happens is that you run out of money faster with a higher salary load, and that means you may need to raise additional funds sooner. That fund raising round would proceed like any other round, caveat your 'target' now includes an additional $200K to cover the salary you're paying out. Worse that stock you sell will be preferred and not common stock, and as such might have preferences like 2x return which would further reduce the benefit to common stock holders in the event of a sale or merger.
Its truly a good prisoner's dilemma game setup. If all of the employees take large common stock grants and low salaries they all benefit more on a non-IPO type event, if a few take big salaries they can make the threshold for everyone else benefiting higher, thus by not co-operating get a better salary and reduce total compensation of their peers.
Seems like mostly a bunch of whining about how because you are a startup it is ridiculous to think you'd pay people decent salaries. This could have been condensed to "I'm a startup, therefore I pay pennies on the dollar; don't expect anything else." Full stop. ... All right, there was a tiny bit about people should expect to work on a variety of things rather than just Javascript or whatever, fine, but common sense to me.
I believe there is this stigma that says "equity conversation" == "I will pay you crap". Personally, I don't believe this to be true. If you are switching to my startup, it is so you can be in a better situation and I have to acknowledge that. How we pull/push the equity vs cash lever should make both parties happy.
I know you're taking a fair amount of criticism about this post, with some saying that your attitude toward employee compensation reflects poorly on you and/or you company. However, as someone who doesn't know you, I'm pretty damn impressed with your ability to respond in a very cool, calm, and rational manner to very pointed criticism. If I lived on your side of the country, I'd certainly look into your company since that kind of attitude in a founder tends to permeate a company. I would take (and have taken) a 20%+ pay cut to work with calm, rational bosses and co-workers.
I felt like that at first but I think the issue is that the potential employee wanted his normal salary in addition to equity. He would not undertake any risk for that equity and that can definitely lead to problems in company camaraderie.
Having said that, I think that the post has a slightly angry tone which I do not like. People can ask whatever they want in exchange for their work. If they are not worth it, don't hire them. If they are, get them on board. No need to write a blog post about it though.
The risk is in abandoning your good job at a stable firm working for a known, reasonable entity for a pot shot that could be just about anything and statistically will most likely fail, taking you down with it since you're being paid $60,000 below market according to the owner's own admission.
It's amazing that people don't think that is worth considering.
Yes but according to the article, he wanted his normal salary and the equity. So the only part of your comment that applies is leaving a stable job for an unstable one.
This is a risk but not a big risk at all if the engineer was "one of the best engineers in his area" because he would be able to find another job easily.
I think it would depend on what kind of trade off he was offering James. Offering 120k and equity instead of 135k is a different thing to offering 80k and equity instead of 135k.
A top 10% engineer should expect more than $135k/year, a top 10% executive founder should have no problem raising enough money to pay those kind of salaries. Sounds like an average (at best) founder looking to recruit out of his league.
I have a group of friends and ex-coworkers who are part of the Los Angeles startup scene. Every so often I get to be asked to be part of startups. We've had something like the above conversation. Floating my family situation requires that I get more salary than they are able to afford. Their equity offers were generous. I wished my life was different because I believed in them and thought they had a good chance of making it. Sometimes they do.
At least 3 times now, I've passed up the opportunity to make millions. I don't regret it - it was what I had to do. But I do sometimes wish that my life had worked out differently.
That said, for every startup that I would personally take seriously enough to consider the offer, there are dozens who would try to make it to me, and I would laugh. Unless I know, and respect, the people making me the offer, I treat equity as a fancy piece of paper that I'll ignore.
You have a social circle where founding a startup and eventually making millions is a regular occurrence? Outside of the bay area? Can I be your friend?
Why not skimp and save for a few years worth of survival and take a shot at one of these companies so that you have the financial cushion to give the college try and move on if you have to?
Edit: Guys, calm down. I was teasing him for casually claiming that he was surrounded by inspired millionaires but had to wear the hair-shirt.
I understand the lifestyle tradeoffs different people have to make and I don't begrudge people for prioritizing family. I don't have one, but I imagine that if I did, I'd go the safe/secure route too.
I'm sorry I made you feel like your life choices were questioned by a stranger on the internet.
I am replying out of order for reasons that should become obvious.
Why not skimp and save for a few years worth of survival and take a shot at one of these companies so that you have the financial cushion to give the college try and move on if you have to?
I tell you what.
Why don't you get married. Pay for your wife's medical school. Have 2 kids. Discover what full-time high-quality child care costs. Have your wife get injured and have to leave residency. Have her get better, only to get in a bad car accident. Have her recover from that, only to go into another very intensive residency (no money, tons of time).
After a few years of being a primary breadwinner and effectively a single parent under very stressful circumstances, I'll get someone to make a comment like this to you in a public forum, just so you can understand what it feels like.
Does that answer your question?
People have lives. They are not always as simple as they look like they should be on paper. If someone indicates that their life has had complications, the polite thing to do is to take what they chose to share at face value and move on. There is often more to the story than you really want to know.
You have a social circle where founding a startup and eventually making millions is a regular occurrence? Outside of the bay area? Can I be your friend?
Obviously you don't believe me.
Yes, my social circle does include the founders of companies like ZipRecruiter and Campus Explorer. Those were founded in Santa Monica, which is indeed outside of the Bay area.
And no, you can't be my friend. I don't like people who are acting like assholes to me.
Maybe in an hour I'll calm down and agree with you. But right now I really wish he had the honesty to have simply called me a liar rather than trying to paper that over with sarcasm. And there is simply no way that his "advice" could not have been something that I didn't know.
According to his bio he's 24. There is a lot he doesn't know. Hopefully he will be a little more careful in the future about stepping into emotional minefields like this.
You're assuming sarcasm rather than a "whoa, seriously?" response, which given your social circle is I think fairly unusual isn't accusing you of lying so much as asking if he read it correctly.
And he didn't -advise- you, he asked why you -didn't- do that.
Of course, assuming bad faith and then using his age as an argument as to why your knee jerk reaction was ok apparently is also an option - but not up to your usual standard. I think perhaps the 'emotional minefield' part is crucial here, and next time you should step away for that hour before replying at all.
You're assuming sarcasm rather than a "whoa, seriously?" response, which given your social circle is I think fairly unusual isn't accusing you of lying so much as asking if he read it correctly.
I certainly did that.
Of course, assuming bad faith and then using his age as an argument as to why your knee jerk reaction was ok apparently is also an option - but not up to your usual standard. I think perhaps the 'emotional minefield' part is crucial here, and next time you should step away for that hour before replying at all.
In this case stepping away for an hour would not have helped. Because with a strong emotional frame in my head, I had no path from there to seeing any other reaction. It was going to take someone else, in this case you, to show me another possible way to frame it. I'll need to take time to digest that fact before I try to figure out how to avoid responding that way in the future.
Thank you for your helpful response. I'm sorry that I had the reaction that I did. These things happen with humans. Some days more easily than others. Some humans more easily than others.
PS: Ironically, knowing a few successful startup founders is one of the most normal things about my social circle.
Reacted emotionally because of care for your family and then did your best to be more logical about it when given a chance to do so? I'm not sorry, and I'd anticipate their not being sorry either.
(a slightly gratuitous additional reframing perhaps, but one I think deserves to be given voice)
> You're assuming sarcasm rather than a "whoa, seriously?" response
There is a difference between "whoa, seriously?" and "whoa, seriously? if that's so, then why aren't you swimming in money?". The former is ok, the latter is generally given to people who tell you that they speak with Elvis or they can travel freely to the future and back.
You are correct, and this is one reason why it was difficult for me to see a better frame. Of course once I am aware that a better frame exists, I should give the benefit of the doubt by assuming that one until proven otherwise. (Even if I suspect it is not what was truly going on.)
I can only say I admire your determination here. In this specific case I have no or very little doubt that your suspicion is correct, especially in the light of later edits above. I think that I personally wouldn't be able to reframe the situation and change my way of thinking just because I was shown that it is possible. I suspect I wouldn't even want to, and it's not a noble thing to do, and I know this, but I think I still wouldn't be able to stop. I just wanted to say that I'm really impressed that you were able to overcome these emotions, really, honestly impressed.
Given the answer to "whoa, seriously?" is "yes" in your case, a good faith answer to a bad faith question is also the most effective smackdown; I find arranging things such to be useful where I have such suspicions :)
At best, it was somebody who doesn't know what it's like to know that your partner and kid(s) are depending on you to make things work - somebody who doesn't know what it's like to see your disposal income cease to exist and be basically happy about that fact.
At best, it was somebody who doesn't understand that 'choosing between something for yourself and savings' and 'choosing between something for your family and savings' are a very, very different thing.
He's 24. He hit an emotional button. But the button is yours, and you shouldn't expect him to've been able to tell it was there; I wasn't particularly surprised by your response once I'd read it but I really didn't expect you to jump up and down on his head like that either.
He was asking whether you could support your family and, slowly, put away enough money to take a startup shot as well. The answer is apparently 'no'. You could just have said that.
I don't really like the term 'hiring' when you're talking about someone that is barely drawing a salary and is taking a large amount of equity. In that situation, you are partnering with them.
It sounds like the guy in the article just wants to make a reasonable amount of money while hacking away at a problem. That's fine. You need to let go of the notion that every employee you have is going to be as heavily invested in your product as you are, because very few will be. If they are and they want equity, awesome. If not, they could still turn in some fantastic work for you if you're just willing to pay them a decent wage.
It seems like you didn't want to pay to have the best engineers or you advertised the position in the wrong way. To be honest it feels like you believe you are entitled to have the best while not having much to offer in return.
It does kind of read like the kind of company who advertises for "the best of the best." Then again, when was the last time you saw a job req that covered adequacy in a realistic fashion? "You should eat and breathe Big Data and stomp the kittens of database caching in your sleep." I could go to Craigslist (or HN YC job postings) or wherever for in-the-wild examples here, but I'm sure we're all remembering the same things.
The last couple "startups" I've talked to about working with have deigned to offer "1% equity", and expected me to be happy with that, along with no money. Or... "a good salary when the first/next round comes through".
Didn't seem to faze them that I'd be working alongside them for months with $0 pay, actually potentially working more (in both cases, a 'founder' had a day job as well).
I'm not sure if they understood why they were having trouble getting good people to work productively with them.
They weren't working for 1% - that's what I was offered. A chance to work for $0 for an undetermined amount of time on something with no other technical resources or colleagues, all in exchange for perhaps getting 1% of something I have little control over.
I've said "thanks but no thanks" both times.
In one case, I mentioned that typically someone working for $0 with no end in sight, essentially building a prototype from scratch is more considered a founder/cofounder, and would generally be given a more equitable split. I got told that I didn't understand, because person X had already put a lot of time in to the project, and since I wasn't there on day 1 (when they were thinking about it in the garage), then I wasn't cofounder material (or words to that effect).
Odd how much the 'startup myth' prevents some people from moving forward.
Believe me, after a few meetings with people, that comes out pretty quick. The couple times I've let it get that far, I've kicked myself for the time wasting.
Should I have known on day 1? Possibly, and sometimes I do, but I don't want to live my entire life distrusting 100% of what people tell me on day 1.
The 'job security' part is the one that worries me the most in stories like this. I'm not alone. I need to support a family. While I'd love to sink time (and money, to a degree) in a company, the risks turn me off to even apply.
It seems that the general consensus is that you need a really good savings account not just for starting your own business, but for joining a new startup as well.
I _know_ that I'll find a job around here again. That's not a problem. The time frame is. Let's assume I can (ignoring all legal issues for a second) join a startup, remote, from this small town in Germany. Wherever they are, they probably can cut me out quite easily (even here, if the headcount is low enough), quickly.
The companies that I'd turn to for safety are slooooooow. So you risk being out on the streets waiting for bigger, safer companies to return your calls and get back to you. Which might, which WILL happen if you're a decent programmer/engineer/whateverpatiowouldsuggestmewritinghere.
But .. in time? Fast enough to not worry about your family? I'm a chicken here. I wouldn't bet on that.
In Germany perhaps this strange beast called "job security" can still be found in the wild. In the US there is no such thing outside of government work, and at a startup the idea is laughable. "Career security" is what you want to think about, making sure you are always up to date and desirable. And also, building up a savings account no matter how difficult that may seem.
Maybe my whole point of view is skewed: I'm reasonably safe in my job even without a savings account (got none. Is that a bad idea? Yeah, probably. But that's a different point).
That said, Germany isn't alone in the rules I'd take as granted. What I rely on here is just a decent time between being let go and being without salary. I don't claim to have a lot of experience here, but I know that this exists in various other EU countries and was told that this is common in IL as well, for example.
If you want to fire me, you still need to pay me for a ~reasonable~ amount of time (and I need to work, of course). I'll try to find another job during that time.
Startups seem to have a tendency to go down in flames (what law could order a company that has no money to pay salaries?) or are exempt of a lot of laws that make me feel safe (as I said, here in Germany the law makes it far easier to drop people while you're below a certain, single digit(?) head count).
I'm ignoring your 'build up savings' suggestions. It's a good one. I agree. And if I'll ever manage to do that, I'll either keep it for my family or .. for my own startup (if that might be realistic). It still wouldn't be a cushion to join a startup myself. The point of the OP of this thread seemed to be that you have to find a ratio between decent pay and nice equity. I understand. I agree.
I just think that this totally ignores the cost of searching for another job in this silly "I pay you X. That means that you make X * 12 / year. Let's compare that to the shares now, with various outcomes in the list" kind of posts.
That's ignoring a big issue for the guy signing the contract. Saying 'Yeah, if it goes down you lost $marketValue - $startupSalary' is just .. well .. stupid. Unless you _know_ that there's an instant job opportunity for the guy at the end. No? Nothing nearby / close to family? Nothing that allows enough free time or fits the _basic_ interests of the guy that was let go?
Ah well, that's what a savings account is for, right?
Disclaimer: No personal grudges here, I just don't think that these discussions are .. sensible. In general. Most of the time these arguments are lead from the mind of a 23 year old single with a lot of self esteem and confidence.
I handed my membership card in, a couple of years ago. It's nice on this side of the fence, but the perspective really changes a lot.
When you have a family, I understand why you would be extra conservative. Admittedly, in the Bay Area it is a different environment. Engineers get hired by VC-backed startups at lighting speed. Try this: look at a company that just funding in Crunchbase, shoot them your resume, and see how fast they get back at you. You will be surprised.
I don't quite believe that people with a family are taking a lot of risks, just because it's "the valley". Can you confirm that this is indeed the case, or are we degrading into the age debate (a.k.a. "What? You have kids already, Grandpa?")?
Shooting anyone in the bay area a resume wouldn't make sense. While I said that I'm interested in startups, I also clearly indicated that I'm (for now?) risk averse. And ignoring that, I'd be _mightily_ surprised if any startup would say "Yeah, cool. Join us and just work from Germany". Relocation to the US? That's several levels more insane, given my initial post. Even if I'd be interested to live or travel there (nope!) that is making the situation I described worse.
Wasting their and my time by sending a resume just to see how fast they get back seems .. evil. I cannot accept. They lose time. Why would I do that?
You won't see many engineers with kids at a company that has $100k in angel funding and 6 likes on Facebook, but many VC-backed startups can afford to give their employees weekends and reasonably competitive salaries.
But is that actually answering my post? I was giving an example for reasons that might lead to the 'is the job secure' discussions, as pointed out in the article.
Your post isn't related. Weekends and salaries were not part of the discussion before your post. Job security (a.k.a. "Sorry, Jim. We need to let you go") was.
So I don't quite get it. If you wanted to reemphasize that it makes no sense to apply to a tiny startup in a situation like mine: Okay, I didn't need that support, but I'm happy you're agreeing. If you wanted to tell me that it's not that bad, since - hey - many startups can 'give their employees weekends' (did you think before writing that? Are you really convinced that 'giving' is involved here?) and offer competitive salaries (which might be the case. It just totally, utterly ignores the point I was trying to make: Job security matters, financially. I didn't even start talking about the emotional level here: Lack of job security will make your life more miserable (unless you've got enough FU money on the bank)).
Why are you asking engineers to be investors in your company? Don't you need engineers to build your secret sauce and you have investors to invest?
If you need money ask VCs for money and hire the people which will make you rich. It is really that simple. It is 10x easier to get 20K more in investment than finding an engineer which will work for 20K less than market salary.
Sorry, but the original poster made a huge mistake. The only part of his reasoning that makes sense is the part about the guy only wanting to work on one thing. That is definitely unacceptable, but it is unacceptable at any programming job (except the crappiest ones).
Someone who is an expert and highly valued is exactly who you want at your early stage startup.
It sounds like this guy actually knew what he was talking about with regards to equity.
Equity is crap. It's a lottery ticket, like someone said. it's fun to think about what might happen if you win, but don't bank on it.
I've been in 4 startups, two of which were bought out "successfully". My equity payout? Zero. Sorry, your common stock is worthless while the founders' preferred stock makes them millionaires. Luckily, I didn't lose out financially, since I didn't take a pay cut to work at these startups.
I agree, job security is a non-issue. We're programmers, and if we're any good at all, we're in demand.
However, no one with half a brain is going to take a 60k pay cut on $150k. Do you think we don't have bills? Someone who has been living on $150k probably owns a half million dollar house. Are we supposed to sell our house to work for your startup? If I'm a founder, I might be willing to do that. Otherwise, no.
Talk to me about the expected return on investment for this $60,000 in stock I buy every year. Since 95% of startups fail... I better be getting enough founder stock (yes, not common stock) that if we have a mildly successful IPO (I'm talking like $10 a share) that I make more than 20 times my ~240k investment.... that's over 5 million dollars - 500,000 shares of founder stock, at least.
Let's talk reality, though. Stock is what lets you compete with Google. Google gives you nearly infinite resources, a fantastic stamp of approval on your resume, the chance to work with tons of really smart people, and crazy good benefits. In order to compete with that, you need to pay equal or nearly equal, and use the stock to make up for the stuff you can't actually afford.
This is why so many startups fail. They only hire the people dumb enough to think equity is really worth something.
I've been in the same position as this James guy and as a founder doing the hiring. No founder is going to find an over-achieving experienced engineer that will work for pennies on the dollar, make a statistically stupid bet with your equity, and work on something she is not ridiculously passionate about. One, or all of those, have to be flexible if you want the top talent.
On the surface it seems financially ridiculous to have not given the tiny bit extra James wanted. I have to assume the culture clash was the main driver. If he were truly exceptional, he would have been potentially worth more than 10 other guys you will hire that are not negotiating with you. He would have attracted more great talent. He would have pulled off many heroic acts. This short sighted thinking, more than anything, is what frustrates me about the job market.
There comes a time when you reach that point in your individual contributor career where some lightbulb turns on and you realize how valuable you are. You realize you don't get what you don't ask for and start negotiating. But if you're in the job market you have to be able to back up your lofty compensation requirements. This is obviously not a newly realized situation and it has been discussed endlessly in the past. There's a reason great talent in Hollywood makes 100x more than the rest of the cast and crew, and great sales people can do the same, even though they are just employees. The top performers are obvious. The talent in software doesn't have this luxury without going out of the way to self promote. Unfortunately, putting enough proof out there is only possible when you work largely on your own and promote that fact for people to see. Otherwise there are too many varying factors and nobody can know if you were the core reason for the project success.
So, James, go do something on your own, publicly. Make it not suck. Then watch the above-market salary and equity offers come rolling in. Or, start your own startup.
And for all you founders out there. Either loosen those purse strings and be ready to terminate employees that don't work out, or work on truly interesting problems. Otherwise you're just going to end up with a whole bunch of average or inexperienced engineers. Not that there is anything wrong with that talent strategy, just know that it will happen, and realize the implications of that situation.
Who else thinks we need Software Engineering talent agencies?
James did not ask me once about health insurance and did not really care when I told him about the plan
A year ago I left a cushy job as a software engineer at ClearChannel to go work for a startup, and I didn't bat an eye when they said they didn't offer health insurance. But my wife is a nurse at Kaiser, and we get a Cadillac plan through them with no out of pocket cost. That gave me the flexibility to accept the offer.
We could just as easily be reading a post from "James" about how his time was wasted by some punk who has no clue how much value he would bring to a startup. And I would consider that equally tacky.
He asked for what he wanted - it was not in line with what you wanted to pay. End of story. Not all job interviews end with a hire.
I don't think you would hire me given the amount of snark in your post and my waning tolerance for it, but if I were to be a "good fit" for your company, I would probably pass on the interview for fear that I might become fodder for your next rant.
Do you suppose you could have generalized this post into a lesson with a little bit of ranting versus a rant with a little bit of lesson?
If I were James, I would feel like crap reading this. What did that gain him in reality and what did it gain you?
I got burned out by the start up scene in the original internet boom in the '90s. Probably lost 200K in salary due to betting on the startups, only to have the founders make bonehead mistakes or shaft the programmers.
Be careful with point 2, "Let’s not even talk about job-security".
I know, I know, the startup ecosystem (more specifically, web startups, so I suppose the term engineer refers to that too) are booming right now and nobody can imagine how bad things could ever happen. Yet, often enough, bad and unforeseen things do happen, a boom ends rapidly, lots of people are without jobs. Don't scold the guy for wanting to know where he will be at in a couple of years.
The point the author makes under that heading is: One need not worry about job security at a specific startup, because if it goes bust one can always join another startup.
Except when they "all" go bust. There is only so much VC money to go around and when that contracts open positions do too. We've been in a good period for a while but tech is also very cyclical.
The flipside of this is you hire inexperienced developers who take a bad deal out of sheer inexperience. I was stupid after college and did took a terrible salary with what I learned a few months later was a small options package. I saw others do it too, and it just created bad energy, retention, and talent acquisition problems.
Start ups need people who know what they are doing. These people make well above the median. Making market salary in an expensive area like the Bay Area is not negotiable, and it's certainly not traded for equity.
The equity is what gets talent to accept the tremendous risk of leaving a solid position with an established company, for an unstable one at a high risk venture.
If you can't afford to pay market rate, that means you're not funded enough to be hiring. Equity is in addition to market salary.
> People will go back to being happy just for being employed
Those who actually know how to do things never face this scenario. It's true for the incompetent though.
In the OP's scenario, we have a real treat. He testifies that this engineer is extremely skilled and a nice guy that is easy to get along with. The only issue of dispute is whether he will agree to be paid vastly below his market rate. The engineer, obviously well employed, acting rationally, is unwilling to do so, and the incompetent start up so-called "entrepreneur" is unwilling to pay market rate for the talent his enterprise needs more than anything else to succeed.
I agree with you a storm is coming. In my view, it is these "entrepreneurs" with nothing to offer who will be happy after the shakeout to be employed at all - making $8 an hour at McDonalds, if they can even manage to hold that down.
The exceptionally talented engineers don't ever have a problem finding employment.
You would think people (even engineers) would do their homework and find out if you want to do the "startup thing" you should go in expecting to take a pay cut and work 50 hours out of the box.
It seems like the engineer in the article had a romantic notion about what it would be like to work for a startup and had not done his homework.
Its your job to coax the useful skills out of him. Besides doing 2x the work of a normal employee, many people who are brilliant at computer science are good with strategy and customers as when they are asked to write it down. This was your loss.
Getting a truly talented developer is not easy, and given their productivity, you should offer both equity and a high salary, because you will get your money's worth from them tenfold.
You will know within 2 weeks if they are genuinely talented.
He was going to be a senior engineer and I was afraid he was not going to respect the other engineer's personal times. One of the many deal-killers he showed.
That song from Weeds is awesome, it could very well be the theme song for entrepreneurs and other misfits.
To everyone arguing with the author: I'd say he knows best who is a fit for his startup. You guys can run your own startup any way you like. Go for it.
Being compensated through equity is a gamble. Most times it doesn't pay off. So many more startups fail than succeed that the odds are heavily stacked against those options ever being worth anything.
Sometimes people are willing to take that gamble anyway, in spite of the horrible odds, because they believe in the business. They look at the product, the founders, and the rest of the team, and think "this is going to be one of the ones that succeeds" -- strongly enough that they're willing to bet their own money (in possibly lost compensation) on the outcome.
If you're showing talented people your idea, or your product, or your team -- or yourself -- and they're not coming away convinced that what you're showing them is good enough to justify taking that risk, maybe it doesn't mean that they're lamers who don't understand startup culture. Maybe it means they looked at what you showed them and decided that it wasn't a horse worth betting on. So they'll work for you for salary, which they can put in the bank the moment you give it to them, but not equity.
If that happens consistently, maybe it's time to step back and look more holistically at your business. If you can't convince potential employees to bet on you, you might have set your product up in such a way that you'll have trouble convincing potential customers to bet on you too.