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I don’t think many founders will enjoy reading this. It will sound too much like a VC lecturing, but I think it’s a topic that needs to be covered. At Boost VC, we run into this too much.
At Boost VC we invest in a lot of startups and with that we get a range of personalities, and with that comes a wide range of salary management philosophies. I’m not going to say that any specific one is right, other than the one that builds a successful company.
The two major mistakes that people make sound silly, but are detrimental long term:
I made $ X at Google/ or big corporation Y, and so I’ll make 20% less here.
It’s unsustainable to live on the salary I am paying myself, I should increase it.
First, this paradox determines what mindset you have in building your startup — The most ambitious founders, I find have the mindset of “THE WORST THING THAT COULD HAPPEN IS THE END OF THE COMPANY.” It sounds extreme, but in the history of startups that mentality will give you the best cushion to allow the success of the startup.
With the first example — This is the type of founder who believes that they can take all the risk of starting a business and none of the “Lifestyle” risk. It just doesn’t work. This means that you are putting your lifestyle and comfort above the success of the company, and the universe eventually death by 1,000 cuts you.
I’m not sure if I’m allowed to say this, but one of my good friends who had founded a space startup invested everything in the startup. He had a successful exit previously, has a wife and three kids, and when my partner asked him “what happens if this fundraise doesn’t work” answered: “Well, I’d have to sell my car, and my kids would go to public school, and I’ll have to move in with my in-laws.”
This is a founder who sold a company previously for $150m, who believes in himself and what he is doing so much that he took the ultimate risk. (In case you are worried, he landed the plane)
It’s unsustainable to live on the salary I am paying myself, I should increase it.
Look, I’m all for people to pay themselves more as a company grows, but if you are arbitrarily thinking “I need more money, so I’m going to pay myself more money,” You lost because the compounding impact of that decision making will kill your business. You need a process for rewarding good work and rejecting bad work.
The best example I have of this is the founders of Robin Hood who decided not to pay themselves until they got their broker dealer license. They knew that the most important thing for their business was to be able to transact stock trades… so they made their achievement unlock their salaries.
Reward achievements, not arbitrary moments.
Founder Salaries.
“Well, I’d have to sell my car, and my kids would go to public school, and I’ll have to move in with my in-laws.”
This is also an illustration of that founder's built-in cushion: if the worst thing that could happen is that his kids would need to go to public school, there is very little existential risk. Plenty of kids go to public school and do just fine. Plenty of people end up living with their in-laws for a while. It's a world of difference to "I would be on the street", and that difference illustrates the differential in who can take risks (and a founder's salary) and who can't.
Hi Adam, I'm curious to hear, what percentage of founders do you talk to would you categorize as; 'truly scrappy, in-the-trenches, rhino-mode charge forwards until success no exceptions?'
It sounds to me, based on this article anyways, that you're talking with a lot with ivy league, blue-chip, well-to-do founders with a comfortable background and a cushiony pillow to fall on.
Here's why:
"The most ambitious founders, I find have the mindset of “THE WORST THING THAT COULD HAPPEN IS THE END OF THE COMPANY.” It sounds extreme"
That's not extreme, it's common sense. Extreme is when the worst case scenario is the founder loses their house, goes bankrupt and their family leaves them. What skin in the game does a founder have if the worst case scenario is simply the end of the company that used up other peoples capital to fund? That's like saying; "the worst thing that could happen with my job is I get fired."
In each company I've founded, my personal sacrifices have been all encompassing. In hindsight I feel that was necessary for them to succeed. That being said, going too far all-in contributed to the ones that failed too. Which leads me to the second point in your article:
"It’s unsustainable to live on the salary I am paying myself, I should increase it.
Look, I’m all for people to pay themselves more as a company grows, but if you are arbitrarily thinking “I need more money, so I’m going to pay myself more money,” You lost because the compounding impact of that decision making will kill your business"
There's good stress and there's bad stress. A long-term oriented founder choosing to dedicate their entire lives to the start up world needs to ensure some sort of minimum viable living condition threshold. I've had both a relatively successful exit and also have lost almost everything on different ventures that failed as well. With my current venture, I've been seeking to strike the balance between these extremes, paying myself through customer revenue just enough to exit the bad stress realm, but not so much as to eliminate the good stress.
Seems to be working so far based on traction, but I'm very curious to hear your thoughts and experiences on this! The learning process never ends, and your insights are golden.