Team Pay In Detail (With Examples)
Invisible works in the spirit of partnership.
As core team members, we are all owners of the company.
If you joined, you would get up to 2.5% of the company in equity (based on skill level) and share our profits.
No Base Pay
All salaries are tied to revenue.
Let’s look at a quick example using some real numbers.
The formula is very simple: Revenue * 0.5 (estimated profit margin) / # of team members.
For example:
In February, our revenue was around $22,500
We multiply that by 0.5 to estimate our profit margin
Then divide that by 14 (the number of team members, including partial pay for people who joined mid-February)
So, for February, each team member would have been paid about $800 USD.
There’s no sugarcoating it, this sucks. 800 USD is very little for an engineer to be making in a month. I hate it.
But that’s kind of the point. We want everyone on the team to be motivated to make this number go up.
y tho
Most companies (even startups) insulate you from feeling the pain the company is going through. They are willing to go into debt and/or spend investor money to provide you with a steady paycheck, at about 80% your market rate, and much less equity.
We have turned this on its head, offering you pay tied to revenue, and a relatively large amount of equity. The reason for both is simple: we want to create alignment. We want chronic pains to be made acute, so that you can see them and do something about it.
In the case of revenue, I’m in the same boat as everyone else on the team. I can’t live on $800 a month, so I’m going to do everything I can to make that number grow. I want our company to thrive, but also, I’m getting sick of ramen.
How long will I have to eat ramen?
Unknown! Maybe a few months, maybe a year.
Here are our aggressive revenue targets:
$5K in December (Done)
$15K in January (Done)
$30K in February (missed this target, for reasons)
$45K in March (despite February, actually on track)
$60K in April
$80K in May ($1M run rate)
$120K in June
$140K in July
$160K in August ($2M run rate)
$180K in September
$200K in October
$250K in November ($3M run rate)
$425K in December ($5M run rate, we are targeting a big increase in December because of some tech initiatives that will be done by then)
We missed our aggressive target for February, but we still increased revenue by 40% month over month. And because we had invested sales resources into February, but just weren’t ready to close, many of those clients are ready to go for March.
Now, I don’t put that much faith in projections, so take all these numbers with a massive canister of salt, but we are targeting $45,000 of revenue in March.
(45000/2)/20 = 1125
Plugging that into our formula, this would bring the team member pay up to $1125, which still sucks.
However, we also have a policy that for every month that we hit our aggressive revenue targets, each team member will earn a $1000 bonus (and we are using investor money for this). So, if we hit our targets, and so far we are on track to do so, each team member would make $2125 in March.
That’s better, but not great. At least it’s reasonable for those of us living outside of the USA.
If you jump ahead to May, and we hit our targets, and don’t hire any additional team members (a lot of caveats), then we’d have
(80000/2)/(20) = 2000
Plus the $1000 bonus gets us to $3000. That’s reasonable even for people living inside the USA, as long as it’s not San Francisco. For me, I’d be saving money.
I won’t repeat this exercise with each month, you get the idea.
I can’t work for $800/month
That is perfectly understandable. I don’t want to, either.
In a way, we’re hurting ourselves because we’re turning away talented people who have bills to pay, and we’re biasing ourselves towards people who have already made a bunch of money or who live with their parents.
This is definitely a downside of our model. I acknowledge that. But it’s still better than the alternatives.
Why can’t you just raise a metric ton of money and then pay me 80% of what I’m worth?
There are actually two questions here.
- Why can’t you just raise a shit ton of money?
We can! And we will! We’re raising money right now, in fact. But, institutions are notoriously risk averse, so they want to see a bit more traction before giving us the big checks. We would like to raise a larger round by the end of the year, and we will do so from a position of strength.
2. Why can’t you use investor money to pay me closer to what I’m worth?
We could do that, but we don’t want to. Say it with me again: Our model creates alignment.
Furthermore, building a massive warchest gives us optionality, and the ability to spend on marketing and other experiments.
Once we are truly profitable, and team member pay is comfortable for all members, then we will have all but removed the possibility of defeat.
OK, but you mentioned equity? Bonuses? Dividends?
This article is a deep dive into team member pay, but yes, we have additional compensation structures in place. See this post for more details.
Conclusion
Companies are alignment machines, and people respond to incentives.
It was natural for us to create this model for our company to align incentives.
We will win because of our selfish motivations, not in spite of them.
