What to Pay a Founder? More Thoughts on a Thorny Issue

My recent LinkedIn epistle on “what should founders pay themselves” aroused a true firestorm of commentary… my second most provocative post of all time—after “why so many startups suck,” which was something of a shot heard ‘round the world. Comments were truly all over the place, and fell into a few interesting “buckets” worth sharing:

First, this caveat, which I affirm with every startup I talk to: these are one (seasoned veteran) guy’s opinions—there’s no set of facts or rules. So take them for what they’re worth and consider them in making your own rules, which—as a founder—YOU get to do. Remember that investors will also judge your startup on how you approach your team compensation, particularly for teams lacking a track record of at least some success.

Are serial founders worth more than first-timers? It’s not a distinction I actually made, since I focused on my salary (of zero) in my first startup. (Actually my salary was the same in all seven—as little as humanly possible—because I’m a firm believer in bootstrapping, which I did each time.) But I think a successful, serial founder is indeed “worth more,” and perhaps—as many suggested—even deserves a market rate salary based on a prior track record and the need to attract them to “do it again.”

What bugged me in the 100+ comments were those from first-timers who felt they commanded more than starvation wages. In my view, this is why “founders’ equity” was invented. If you’re looking for a salary, get a job. If you’re looking to build something, you should be at least as heavily invested in its future success as any of your financial investors.

Can you succeed at a startup working less than full time?

Big question among the readers, and for me (and my The Startup Owner’s Manual co-author Steve Blank), the answer is generally a resounding “NO.” Steve loves to call these people “napkin entrepreneurs,” because they spend limited amounts of time talking about and playing with an idea drafted on the proverbial cocktail napkin. That’s not a business; it’s a game.

If you’re not committing to 80-hour weeks, and making that commitment for a very long time, odds of your success are overwhelmingly low, and odds of finding investors are lower still. Quite a few folks commented on my “lucky strike” of stumbling into a $200,000 (in today’s dollars) night job at my former employer, and more than a few blasted me for taking my eye off the startup ball to do so. Well, I was the CEO, I made the rules, and I chose to work about 110-120 hours a week to capitalize on this wonderful opportunity. I quit that wonderful 200K job to launch my startup, fully intending to live on a “ramen noodles” budget until the business could afford to pay me. Apologies to those who were mad at me for getting lucky and capitalizing on the opportunity. In my case, it allowed me to accelerate my hiring investment at Bob Dorf Inc., moving it forward faster. If it works for you, do it!

What does it all really mean?

First, if you are launching your startup for the money, give up now and save yourself a lot of time and heartache. Most startups fail. Period. And many never achieve the traction that’ll pay their founder a “market rate” salary, whatever that might be. If you’re committing yourself to a startup, do it because you want to do something great… to be your own boss… to execute on your vision of something special or unique or (ideally) that can change the world. If you’re in it for the money, get a job, marry a rich person, rob a bank… don’t do a startup.

Second, being a founder is not a salary entitlement, especially for first-timers. Your “founder commitment” is sweat (and blood and tears), for which—if your startup is successful—your reward is equity that comes to you just as it comes to other startup investors who invest cash rather than perspiration. If you expect big compensation and big equity, you have very big dreams… unless your name is Steve Blank, Steve Jobs, Nolan Bushnell or Mark Zuckerberg… and your track record of generating massive returns for financial investors makes your involvement a massive value-add for your next startup.

Third, give it everything you’ve got. There’s just no other path to success. Don’t take a part-time job to fund your startup unless you have the stamina to work over 100 hours a week, allowing at least 75 or 80 for your startup.

Last and most important, do it for Love… For 99+% of the world, jobs are far more comfortable, easier to understand, and easier to do. Only the crazy, passionate maniacs do startups at all… and a small percentage of those have the drive, the tenacity, the vision and the passion to reap personal and—sometimes—financial reward.

Here’s to the next 200 comments!

 

This article first appeared on http://www.linkedin.com

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