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Should Kids Follow in Our Founder Footsteps?
The Evolution of Entry Level Workers
Assume Everyone Will Leave in Year One
Stop Listening to Investors
Was Mortgaging My Life Worth it?
What's My Startup Worth in an Acquisition?
When Our Ambition is Our Enemy
Are Startups in a "Silent Recession"?
The 5 Types of Startup Funding
What Is Startup Funding?
Do Founders Deserve Their Profit?
Michelle Glauser on Diversity and Inclusion
The Utter STUPIDITY of "Risking it All"
Committees Are Where Progress Goes to Die
More Money (Really Means) More Problems
Why Most Founders Don't Get Rich
Investors will be Obsolete
Why is a Founder so Hard to Replace?
We Can't Grow by Saying "No"
Do People Really Want Me to Succeed?
Is the Problem the Player or the Coach?
Will Investors Bail Me Out?
The Value of Actually Getting Paid
Why do Founders Suck at Asking for Help?
Wait a Minute before Giving Away Equity
You Only Think You Work Hard
SMALL is the New Big — Embracing Efficiency in the Age of AI
The 9 Best Growth Agencies for Startups
This is BOOTSTRAPPED — 3 Strategies to Build Your Startup Without Funding
Never Share Your Net Worth
A Steady Hand in the Middle of the Storm
Risk it All vs Steady Paycheck
How About a Startup that Just Makes Money?
How to Recruit a Rockstar Advisor
Why Having Zero Experience is a Huge Asset
My Competitor Got Funded — Am I Screwed?
The Hidden Treasure of Failed Startups
If It Makes Money, It Makes Sense
Why do VCs Keep Giving Failed Founders Money?
$10K Per Month isn't Just Revenue — It's Life Support
The Ridiculous Spectrum of Investor Feedback
Startup CEOs Aren't Really CEOs
Series A, B, C, D, and E Funding: How It Works
Best Pitch Decks Ever: The Most Successful Fundraising Pitches You Need to Know
When to Raise Funds
Why Aren't Investors Responding to Me?
Should I Regret Not Raising Capital?
Unemployment Cases — Why I LOOOOOVE To Win Them So Much.
How Much to Pay Yourself
Heat-Seeking Missile: WePay’s Journey to Product-Market Fit — Interview with Rich Aberman, Co-Founder of Wepay
The R&D technique for startups: Rip off & Duplicate
Why Some Startups Win.
Chapter #1: First Steps To Validate Your Business Idea
Product Users, Not Ideas, Will Determine Your Startup’s Fate
Drop Your Free Tier
Your Advisors Are Probably Wrong
Growth Isn't Always Good
How to Shut Down Gracefully
How Does My Startup Get Acquired?
Can Entrepreneurship Be Taught?
How to Pick the Wrong Co-Founder
Staying Small While Going Big
Investors are NOT on Our Side of the Table
Who am I Really Competing Against?
Why Can't Founders Replace Themselves?
Actually, We Have Plenty of Time
Quitting vs Letting Go
How Startups Actually Get Bought
What if I'm Building the Wrong Product?
Are Founders Driven by Fear or Greed?
Why I'm Either Working or Feeling Guilty
Startup Financial Assumptions
Why Every Kid Should be a Startup Founder
We Only Have to be Right Once
If a Startup Sinks, Founders Go Down With it
Founder Success: We Need a Strict Definition of Personal Success
Is Quiet Quitting a Problem at Startup Companies?
Founder Exits are Hard Work and Good Fortune, Not "Good Luck"
Finalizing Startup Projections
All Founders are Beloved In Good Times
Our Startup Culture of Entitlement
The Bullshit Case for Raising Capital
How do We Manage Our Founder Flaws?
What If my plan for retirement is "never retire"?
Startup Failure is just One Chapter in Founder Life
6 Similarities between Startup Founders and Pro Athletes
All Founders Make Bad Decisions — and That's OK
Startup Board Negotiations: How do I tell the board I need a new deal?
Founder Sacrifice — At What Point Have I Gone Too Far?
Youth Entrepreneurship: Can Middle Schoolers be Founders?
Living the Founder Legend Isn't so Fun
Why Do VC Funded Startups Love "Fake Growth?"
How Should I Share My Wealth with Family?
How Many Deaths Can a Startup Survive?
This is Probably Your Last Success
Why Do We Still Have Full-Time Employees?
The Case Against Full Transparency
Should I Feel Guilty for Failing?
Always Take Money off the Table
Founder Impostor Syndrome Never Goes Away

How Much to Pay Yourself

Wil Schroter

How Much to Pay Yourself

How much should a startup Founder pay themselves?

Should we show our commitment and work for nothing? Or should we try to at least match how much we made at our last jobs? How do we have a salary discussion with ourselves? What about our co-founders or investors?

The problem with negotiating a startup salary, even if it's with ourselves, is that we often compare this discussion to how we've thought about salaries in the past. We use the false comparison of a traditional company salary, or we go to the other extreme and assume we have to work for nothing but high fives.

Neither is true.

Startup Founders and their teams simply need to calibrate compensation to how startups themselves grow: dynamically and based on milestones.

Startups Don't Have Linear Pay

At our last job, salaries were easy.

We negotiated a starting salary, then every year we got a raise. We could easily forecast how much we would make this year and the year after that. We had linear pay.

The reason we could have linear pay is because the company we worked for had predictable income. That's the big difference. We want a predictable salary, our company doesn't have predictable income — and probably won't anytime soon.

Therefore, we need to stop thinking about startup compensation, at least in the formative years, as a straight comparison to salaries. We need to think of a more dynamic plan that maps closer to the ebbs and flows of our startup, without putting us out of house and home in the process!

Salary-min.jpg

Don't starve yourself

There's some false nobility we've assigned to taking little to no pay in order to provide as much growth to our startup as possible.

The thinking goes that if we believe so strongly in our startup, we'll want to make sure every new dollar goes toward its success. Meanwhile, our savings are disappearing faster than half the earth’s population after Thanos snapped his fingers in Infinity War.

In my experience, this false nobility leads to one thing: personal bankruptcy.

For every great story of an entrepreneur who risked everything and created a massive company, there are countless untold stories of Founders who risked everything, lost everything, and spent the rest of their lives trying to make up for a few years of horrible decision making.

From a probability standpoint, that's the likely outcome. So as smart Founders, we have to build a system to protect ourselves.

Set a Minimum Threshold

The best way to manage compensation in the formative years is to set a minimum threshold to cover our baseline expenses.

This includes things like:

  • Rent
  • Car payment
  • Insurance
  • Phone
  • Enough food to keep us alive

This doesn't include any luxuries such as:

  • Vacations
  • Concerts
  • iPhone upgrades

Anything that we can absolutely live without, even if it feels painful, doesn't make the cut. That's our base compensation — the minimum threshold.

We absolutely have to make that money. There's no option here. There also shouldn't be any kind of guilt over covering those costs, unless the costs themselves are extraordinary, like that sweet Porsche payment! Any extraordinary outlier costs need to become a separate conversation if others are involved.

When we ask, "How much should I be paying myself at a startup?” that's one half of the answer — which we should feel 100% good about because it really cannot be disputed.

Set a Variable Threshold

Now, the part that most people overlook is that the minimum threshold is really only half of the compensation plan.

They assume, "Well, I guess that's my salary, so the compensation discussion must be over!" But as we just pointed out, a "salary" at a startup isn't really a "thing" since our company income is so wildly dynamic.

Instead, we'll want to set some revenue targets which would trigger additional compensation.

For example, we may decide that if our brand new startup generates $20,000 per month in revenue, we'll allocate $1,000 of that top line revenue toward variable compensation for the team (which may be one person!).

The ratios don't really matter, and each startup will adjust where needed, but the idea is that as the startup grows, a small percentage of the revenue is earmarked for additional team compensation to make up for the bare minimum threshold we set earlier.

I mean, we probably forgot to include "haircuts" in our original budget and now we're starting to look like an unkempt wookie!

The nice thing about variable comp is that we can issue it on good months and leave it in the kitty for bad months. What's important is that we make a deliberate claim to that income when it's available so that we know when to expect it and ideally plan around it.

Make Small Adjustments over Time

Unlike a traditional job that has annual compensation adjustments, startup comp may need to be adjusted many times throughout the first few year — and that's perfectly fine.

So long as we recognize that our comp plans will require many iterations before they ever reach a consistent threshold, we won't be forced into torturing the traditional salary model into our startup plan.

So long as we can earmark enough money to keep us fed and plan our bonus cash around times where the startup itself has moved forward, we'll enjoy properly-aligned compensation that we don't have to second guess.

And let's face it, we have plenty of other things to worry about these days!

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Michael Flynn

Solid answer to your other blog on Zero Salary. What if the company is going to be in the red for the first five years but the valuation is going to grow logarithmically well beyond the first five years and you are competing in a space that has established management salaries.

Reply2 months ago

Jerome Eberharter

Loved this... very practical and easy to share with the team. J

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