Glen Wakeman: Salary Issues for Startups
Q1: How does one determine an employee’s salary at a startup?
A1: The short answer is that you pay what you can afford. The longer answer is that you try to directly align the pay to expected contribution to your start up. Your salary decisions and the money you spend should only be for things that are essential to business success and you can’t do them by yourself. Try to avoid wasting money on nice to haves. As yourself if you really can’t live without it.
Q2: Is it ever a good idea to take ZERO Salary at a startup?
A2: Absolutely. If you can exchange a salary for equity owenership, and can afford the loss of cash flow, taking ZERO salary may be advantageous. Of course, you have to firmly believe in the prospects of success for the company. And make sure you define success in dollar terms.
Q3: When determining pay structure, what part does Net Worth play in determining salaries at a startup?
A3: Net Worth is not an important variable at start up, at all. Net Worth is a consequence of the success of your start up. Don’t try to define success as getting rich on day 1. Instead, define success in terms of building a growing enterprise. Net Worth will come. But only after you build it (and maybe sell it).
Q4: What type of benefits in addition to salary should employees of startups look for?
A4: The short answer is, anything and everything, but be prepared to substitute. Look at your monthly cash outflow and try to substitute salary and benefits for the costs. Insurance is always on the list. but don’t forget about transportation, housing, food, and even entertainment. Try to offset as many of your discretionary expenses as possible by reusing the things that your employer may have as extra capacities. Think of it as bartering for your time.
Q5: How does one determine a founder’s salary at a startup?
A5: There is no magic to this. It depends on what the business can afford and whether it is enough to keep you interested. In fact, it is usually a wise approach to take as little salary as possible in order to invest as much of the cash as possible in building the business. Make a budget. Focus on the essentials. Be prepared to lower your living standards while you invest in your company.
Follow Glen Wakeman on Linkedin