Hours and days don’t capture the value. I have risked my house, every minute of spare time, I have put Heroku bills on my personal credit card, paid contractors out of my pocket and had to create something out of nothing within a difficult market vertical. Comparing that to a “long day at the office” doesn’t even compute.
Early employees also get paid. In my little company, I am the last person to get paid. My employees are the first even when it’s coming out of my own pocket.
It’s asinine to equate an early employee with a founder. As far as 12-16 hour days for employees — if that’s the case then you are doing it wrong. Nothing good comes from those sorts of hours — it isn’t sustainable even for a little bit.
I finally burned out and “retired” to 10x the salary at half the time and energy cost.
My point is that people will do things that are not in their financial interests because they are believers. Early employees are believers. I think you are underestimating the amount that early employees are putting on the line, including things like out of pocket costs for services for those businesses. People ARE doing it wrong, if rationally self-interested is your metric.
First of all, kudos to you for being so dedicated and courageous.
Most startup founders that I know aren't like you at all.
Often they have seed funding very early. Not only do they pay nothing out of pocket, but typically they can draw a modest salary pretty early on.
The other thing is that nobody is claiming you shouldn't get more equity, that is fair. My argument is against ridiculous assessments that "founders always work x100 harder than any employee".
Most founders I've seen weren't like you, and I've seen early employees working harder than founders in some cases.
By the time the employees start to get hired, a large part of the risk and work that a founder does to earn their hopeful future fat stacks has already been done.
Now, are startup compensation packages a little low and relying on the money making reputation of past decades? Sure. That doesnt mean there isn't a world of difference between working hard on something that has a decent amount of vetting for below market rate, and working hard on working that's almost certainly not going to pan out for zero dollars.
What you describe isn't the case for most tech startups I know.
These startups need a lot of highly involved technical work done, and often need to hire a small team early on. They typically get seed money quickly. It's not unusual to see seed money right from the start.
> Now, are startup compensation packages a little low and relying on the money making reputation of past decades? Sure.
The point in this thread is not that it's "a little low".
The numbers quoted is that if you're a good engineer at a top tech company, you can almost guarantee about $2m over 4-5 years. In a startup, you'd make less than half of that in cash, with the only compensation being some stock options, that people are rapidly realizing are worth nothing in most cases.
That's a big difference, especially over many years. And we didn't even mention the large gaps in benefits, healthcare, work-life balance, job stability...
The bottom line is that the startups were so good at squeezing the real value out of their job offers, that now only irrational developers will choose them over bigger already successful companies.
If you're 15 years in at Google then yeah, no shit you shouldnt take a job at some hinky dink no name company. You're severely demoting yourself. You wouldn't go wait tables at a restaurant and expect the compensation to be competitive with your software engineer salary. Your skills aren't that useful to the restaurant, they wouldn't make anywhere near enough money from you for it to make sense.
Senior level big software company employee vs startup employee is like that but on a less extreme scale. You're more useful to them than you are to a restaurant, but you still have a lot of skills and experience that it doesn't make sense for them to pay for that it does for a big company.
Its on me for not specifying and making assumptions, but imo when talking startup competitiveness it should be focused on fresh grads or those with a couple years experience in industry but not necessarily at big tech. That's where startups are going to find their cost effective generalists, and its where I think the compensation is "a little low and relying on past reputation".
Also, with good devs making $400-500k/year at bigco, I think it needs to be kept in mind that those numbers are with a lot of their compensation being in stock and big tech stock having risen a lot in the last decade. Someone whose compensation at Facebook happened to turn out to be $400k/year would have been getting signed each year for far less.
Using those numbers would be like evaluating startup packages as if theyre guaranteed a large ipo.
As for startups getting funding right from the start, that means they're being funded based on founder credentials rather than the qualities of the business. If you have those kind of credentials and use them to start a company then your opportunity cost is likely huge. That's the founders additional risk there.
It's a job. Early employees working 12-14 hour days are not doing themselves or the startup any favors.
If the market were rational, compensation would be more in cash and less in kool-aid, the importance of work-life balance would be understood even at the early stages, and the idea that a startup has some special kind of magic--where people sleep under their desks and believe in the dream--would be replaced by professionalism and the sober assessment of probable outcomes.
The reasons that startups have yet to learn lessons that other industries learned decades and centuries ago are easy to see in the startup culture if you look for them.
I worked in early stage startups. There is absolutely a strong sense of a small, intimate team working hard for a common goal.
Nobody is claiming or treating it as "a job". When the founders were asking the whole team to regularly work entire weekends before launch, nobody said it was "a job".
> If the market were rational [...]
You keep repeating that, but it is a sort of truism that doesn't stand up to even cursory scrutiny.
High-acceleration startups are, by definition, trying to reach ambitious goals quickly. They're not about providing a nice work-life balance to their members.
If a startup founder pitched a VC with "we all have great work-life balance, and it's our goal to stay this way!" she wouldn't get a dime.
Startups are intense, and have intense expectations.
The reality is that startups need people to work harder, sacrifice more of their lives, for a few years, in a hope of a big payout, which is where the equity component comes in.
This formula worked well in SV for decades, but recently the VCs and founders got greedy, and said "hey, why should we reserve millions of dollars for our early employees, if they'll work just as hard for empty promises of such amounts instead"?
That's the current situation, as reflected in this thread.
There's probably two areas where we might disagree here.
One is that "sacrificing more of their lives" leads to better outcomes. Reasonable people can disagree on whether, or under what circumstances, 80-hour weeks and weekends at the office actually do help the company.
When you are a founder, it is hard not to work all day every day, and you have to actually force yourself to take time off or you're likely to become less effective without even realizing it. Often this same intensity and drive filters down, but in a distorted way, by the "nobody wants to leave the office first" effect. Hard work "theater" is just as common in startups as it is anywhere else, but the hours are longer and it is even more destructive in the long run. Where the correct balance should be between "real artists ship" and professionalism and having a life outside of work--that's a big issue.
Setting that aside, the other area where we might disagree is that if you decide long hours are where it's at (and I'm not going to disagree with how you run a company if it's yours) then how do you motivate people to do that?
> When the founders were asking the whole team to regularly work entire weekends before launch, nobody said it was "a job".
Is that because nobody would do that for just "a job"? Or is that because nobody would rationally do that unless they were being fairly compensated? Finance and petroleum are very different industries but in both of them people put in long hours, risk their health, and are (sometimes) well compensated.
Leaving aside pep talks, let's say you can motivate people to work long hours by giving them either equity or cash. Even if the expected value of the equity is higher, the higher variance makes the cash a far better choice for most employees. The question is, if employees were compensated wholly in cash at whatever rate the market would set, but had the option to buy the equity they are getting for the salary they are giving up, as a totally unrelated and optional transaction, how many of them would take it?
> This formula worked well in SV for decades
How do you avoid survivorship bias here?
Regardless, we can agree that the situation has gotten worse, in the sense of people taking compensation packages that you need a finance degree to understand, but I wouldn't say it was rational for most employees taking early equity even before it got worse.
Don't act like founders are unique in this affliction.
I am not an expert, but between dilution of stock, the high risk involved with any startup, the timeline to payoff on equity and accompanying opportunity cost for non-founding engineers, and the overall lack of control which even early employees have relative to founders, it’s not unreasonable for an early employee to say “I do value the company but do not want to bet the farm on it for the next five years of my life. I will, however, as an employee, give it my all.”
Especially if said employee is > 24 years of age.
Or, you know, they can try to keep getting away with offering 0.01% non-preferred stock, and telling every employee that the startup will sell for $1BN at least, and they will become millionaires.
Simply untrue.
Many early startup employees work intense 12-14 hour days. Are you saying founders work 1,200-1,400 hour days?
Early startup employees also risk about the same as founders. Maybe a little less, financially.
> Founders generally aren't getting paid (at least until revenue or significant funding comes through)
That often happens fast, particularly in markets with well-established, well-oiled VC machines like SV.
Founders usually start out with under market pay, but it's maybe x3-5 under market, not x100 as you imply.
> Early startup employees have higher risk and generally more stress than at established companies, and if the market was rational, they would be compensated more, in cash, to offset this risk and stress.
You're talking about it as if it's some sort of impossibility. There's no natural law that says that early employees must get a fraction of 1% non-preferred shares and almost never make any money from it.
Early employees can and should get a bigger piece of the pie. If they don't, then it's not just something to be wistful about ("if only the market was rational!"), but there will be very real consequences, which we are already seeing: startups won't be able to hire top talent, because the top talent will go to companies that pay it better.
> Equity is not the solution, for many reasons. The biggest reason is that the founders will always value the equity higher than early employees. If not, they should not have founded the company.
So you're telling early employees working 12-14 hour days that they don't value the startup? Irrelevant, unsubstantiated nonsense. "You shouldn't get more equity, you probably don't want it anyway!". If they don't want it, or don't believe in the startup, what are they doing there?!