How Can I Creatively Pay My First Employees?

"I'm a cash-poor startup Founder looking to bring on my first employees. I can't afford full salaries, so what creative options can I use to get the help I need?"

January 8th, 2020   |    By: Wil Schroter

Somehow the startup world has convinced people to work for "free" on a regular basis, with the theoretical benefit of some big payout on equity later.

The truth is, those bets rarely work and once the pixie dust of the new startup wears off, what's left is a bunch of frustrated employees who can't pay their bills.

Although we have little to no money to pay today, we should always try to incorporate some level of cash compensation, even if it's incredibly small, to help offset the cost of life that our team is going to inevitably face.

When our team is more focused on going broke than contributing, we're not really doing anyone a favor!

Use a Compensation "Ramp Up"

Compensation doesn't have to be "all or nothing."

Just because someone makes $60,000 per year doesn't mean we have to be able to pay that all right now. Instead, we can use a "ramp up" that scales over the next year.

Someone that needs $5K per month may be able to start at $2K per month this quarter, $3K per month next quarter, and so on as our commitment scales with the business.

We can make up for the delta with equity grants or a higher base salary at the end of the ramp-up period.

Convert Equity to Cash Later

Similar to deferred cash compensation, we can also provide the option of offering equity now, with the option to convert some of that equity to cash in the not-too-distant future.

That could be as simple as saying "This project is worth $10K, so we'll pay you $20K in equity. At a later date, we can have the option to convert that back to cash at $12K (to cover some additional risk)."

This allows people to take our equity as a bit of security against a future cash payment which could convert within a year versus waiting 7+ years for an exit event.

It's Not "If" We Pay, It's "How" We Pay

It's very rare that a startup can pay a full salary like a regular company, so what we as Founders need to think about is finding ways that scale pay with our own growth expectations.

Not everyone will be interested in that program, and that's fine. But generally what we'll find is that there are many different ways to recruit the talent we need if we're willing to be flexible with how we get there.

In Case You Missed It

How Much to Pay Yourself. As a Founder, how do you determine how much to pay yourself? How much is too much or too little? We’re breaking down the long-debated issue of Founder compensation to help you find the right balance.

Why Should I Avoid Paying People With Equity? Paying people with equity is synonymous with startups. But the problem is that equity isn't like cash — it's far more valuable, yet we tend to spend it like it's free.

Why Good Employees Leave High-Paying Jobs. When the average salary for a Google software engineer is $111,149, you can’t really argue that the tech giants underpay their employees. So why do good employees leave high-paying jobs so quickly, and what can companies do to combat it?

About the Author

Wil Schroter

Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes BizplanClarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.

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