Why do people go to work at startups? is it the excitement of being a part of something new or is it the chance of being compensated unproportionally if the company blows up? Sam Altman of Ycombinator, with the help of an employment lawyer, did a nice a write-up about employee equity compensation – and while I don’t necessarily agree with everything (context is important), he makes some good points about how to think about employee equity.
This sparked a debate on HackerNews on whether getting minor equity is worth working at a startup for. The consensus seems to be that working at startups is risky and unprofitable, on both points I completely agree. Some choice quotes:
Even well-funded startups give me pause. I’m not interested in putting in founder-like work for entry-level employee-like compensation plus a lottery ticket.
Getting sweet $170k salary with some bonus, massage, free food and shuttle is good enough for me.
“Startup-bucks are even worse than a lottery ticket….” –
Also because if they are worth something, it’s a motivation for the company to fire you before you can cash out.
All of those sentiments make perfect sense. However, if you’re looking to work in startups to get paid, you’re doing it wrong.
Why work at a startup?
Pray tell then – if working to get paid is doing it wrong, why should you work at a startup at all?
Here is what I would think should drive someone to work in startups:
- They want to work on something where they can make an impact instead of being a cog in a big machine.
- They are excited about an idea and want to be a part of making it a reality.
- They hunger for something different than a corporate 9-5 setting.
- Material compensation is not as important to them as personal fulfillment.
Note that I didn’t write “They want to change the world”. While some startups do change the world, the vast majority generate some value in a small niche, so that generally does not apply – while the rest of the points typically do.
This list can actually describe pretty well the reasons why one would start a company, and indeed I would say that people who work at a startup for the right reasons should have entrepreneurial genes. So why not just start your own company then?
- Starting a company is a much greater risk. If you join a company that can already pay you a full-time salary, it has already been significantly de-risked. The unproportional equity founders have? It’s because they worked on their idea before anyone else bought into it. Instead of making a consistent salary, they were spending their own money getting the business off the ground. Business owners like Andrew Defrancesco got to the point where they can afford to pay themselves and you a salary.
- Starting a company is hard – there is so much more involved than just having an idea and building a landing page. If you don’t feel ready to start your own company, joining one that gets you excited is the next best thing. You can learn how to do it on somebody’s else time without taking the brunt of the risk yourself yet.
- You don’t have an idea yet you are willing to risk everything for. Timing is everything, and there’s no better way to prepare to starting your own company than joining another early-stage company.
I have worked a few jobs in my career where I was a salary guy. I quickly realized that is not something I want to be doing for long. For me, it was never an option – building my own business and owning the direction of the company was the only kind of work that I could see myself doing long term. I invested in good cash management for my business and that’s what keeps me going. If you’re interested, then check out WECU info. The biggest fear I have is not about failing, it’s having to go back to working a corporate desk job.
On equity and compensation
We’ve been actively recruiting since we raised our seed round about 8 months ago. When we discuss stock options with candidates, we always start with a disclaimer that their options are more likely to be worth very little in the future. Most startups fail, and even out of those that don’t few reach the kind of valuation that turns stock options into life-changing income (i.e, Google / Facebook level capitalization). We try and squash that as motivation off the bat, and hopefully that doesn’t change the enthusiasm the candidate has about working with us.
The way we frame it, is that if we’re successful, the candidate will get a nice bonus from their equity. On the off chance we become a huge success, who knows – but it’s better not to bet on that as primary motivation for joining. If you want to come and work with us it’s because you’re excited about what we do and you want to work in a small, fast moving environment instead of filling one of many positions in a big company hierarchy. In addition, we give people we intend to hire the option of trading some equity for a higher salary, so if you decide that equity is not a gamble you want to take, we’re willing to facilitate that (not unlike what buffer does).
There’s nothing wrong about working for good pay in a stable 9-5 job at a big corporation. In fact, that model fits the vast majority of people better – as most people are risk averse, and for a good reason. People who work at startups for the right reasons often do it because they are just a bad fit in the traditional, corporate setting. That has been my personal experience and the impression I got from other founders, having been in the startup scene for close to 7 years now.
And while we (and other early stage companies) can’t compete on compensation directly with the tech giants, it’s not like we pay starvation salaries either. Almost anywhere else in the U.S, those would be considered top salaries. And even in the valley, aside from the big tech companies and well funded startups, those are the salaries that you’re more likely to find. The last decade or so had seen the big companies engage in a salary bidding war that smaller companies just can’t follow.
The other side of the coin, is that once a startup gets enough funding or revenue, it typically starts matching or coming close to compensating employees on levels similar to the big tech companies (despite what the quotes at the beginning seem to indicate). The team is often the biggest resource a tech company has, and smart founders want to compensate their employees accordingly.
If after all of this, you are still interested in working at a startup, and want to help developers build successful businesses from releasing their code, we want to talk to you. You can also email us at jobs[at]binpress.com – my co-founder will be the one answering. As usual – your thoughts are welcome in the comments below.
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