Founders: It’s not 1990. Stop treating your employees like it is
medium.com"Founders can start a company for $7 on Digital Ocean with almost no risk. Founders complain constantly they can’t hire engineers."
I disagree with this and the point of the article that it's not very risky to start a company these days. Out of all the people creating startups, very few get investors. Especially early on when the company has no customers.
It's also not easy to hire anyone..let alone an engineer. It's so easy to fake experience with a fake resume, fake startup experience, and a few Github projects.
..and saying that you can start a company with only $7 and a digital ocean account shows me that the author doesn't really know that much about what it takes to start a company. Even if one person does all the work, it still takes money to start a company. Much more than $7 and many startup owners are using credit cards or savings.
"Employees take the most risk today. Not the investors or the founders — it’s the employees. Yet they’re still compensated like it’s 1990"
I finally see why the author doesn't know anything about running a startup: they are an employee. Yes, an Employee does take some risk with a startup.
However:
-Employees can quit at any time
-Employees, while working at a company, are paid hourly or salary, regardless of the profits of the company. I own a company now and my pay is directly effected by the amount of money the company is making (this isn't the case for my employees).
-9 times out of 10, Owners invested their own money in the company. If the company goes bust, the employee is inconvenienced, might even be able to go on unemployment, and can just get another job. Owners now have credit card debt/other debt that they need to pay off.
-Owners and investors risk reputation as well as money. If the company is unsuccessful, it does not matter to a future employer (for an employee). It definitely does for an owner and investor.
-If an owner takes on VC, they almost always end up in the same position as an employee. Aside from a few anomalies, most founders that graduate from YC and take VC end up getting pushed out of positions of power and having their shares heavily diluted. I think it has to do with the fact that many founders don't have the experience to run a company with hundreds or thousands of employees and the investors aren't willing to risk their money to find out. This is a huge risk.
"There’s a strong slant toward the status quo, and most still try to force this outdated 90’s math on today’s startups and employees"
It's not 'outdated math'. An employees doesn't risk money or reputation and can leave at any time with little consequences. This is reflective of the potential shares they get of the company above and beyond their paycheck.
Why should someone get more shares of the company without taking on more risk?
From my point of view, that was the impression I got, and I agree with you, though we can see that this is not the case.
"Tikhon Founder of Parse.com and Scribd.com. Investor."
That being said, I think where you are and who you are will give you a very, very different perspective. Reading something like this seems almost like gibberish to someone on the periphery (OK outside) of startup world.
It seems to me, though, that early in a startup process, if they aren't funded, they are taking on huge risk, and for employees to expect exceptional pay is asking for very much, considering the company hasn't proven it's revenue model yet.
I think you may be underestimating the amount of risk an engineer takes on by working at a particular startup.
For instance, consider your statement here:
"Employees… are paid hourly or salary, regardless of the profits of the company"
I can assure you that this isn't necessarily true. I've seen startups go kaput and fail to make payroll. Employees may not always be aware of the risks, but they are exposed to them.
However, even that doesn't really capture the risk an employee takes on, if you look at missed opportunities as a risk. It varies, of course, as some startups pay better than others, and not all employees have the same ability to easily find jobs. But consider someone who has the ability to get hired as a senior SE at a place like google or netflix, who instead works at a startup for, say, $150k a year. That's still probably close to $75K in lost income a year, and I really do think I'm keeping these numbers conservative. You go for four years, and not including interest on investments (there are enough factors, taxes, and so forth, that I'll hand waive here)... and that's $300k in lost salary. Keep in mind, it could be considerably more! Alternatively, working for one startup means not working for another, so a relatively unknown founder may need to compensate for the lower probability that you will succeed with higher equity levels than someone with a more celebrated track record would need to offer.
Lastly, you are underestimating the value of stable employment. It's as hard to understand now as it was in 2000, but I saw plenty of good programmers go without work for quite a while. Some were left in pretty dire financial situations. Some people, on H1Bs, left stable jobs that would have led permanent residency in a few more years, for startups that folded, in an environment where getting new sponsorship was difficult - in short, had they stayed with the stable employer, they would have gotten residency. Now, they had to start all over! We're in a boom right now, but the environment in a serious recession has very severe consequences for people who haven't found a place to weather the storm.
Also there may simply be an imbalance here. I know it's hard to accept, but it may actually be harder to become an exceptional engineer than a startup founder. A nontechnical founder may be taking on more risk simply because there aren't as many other options. Again, it all depends on the founder, and the engineer - some founders have exceptional options and amazing track records and tech skills to boot, others are vastly overestimating the value they bring to the table.
In short, to answer your last question of "why should someone should get more shares of the company without taking on more risk?" My answer is twofold. 1) they may be taking on vastly more risk than you have estimated through lost opportunities/salary/lack of job stability, 2) they may be entitled to more shares even at lower risk levels because their skills are very valuable (truth is, they may be more valuable than the founder in some cases).
"Employees may not always be aware of the risks, but they are exposed to them."
Everyone is exposed to risks. Jobs are never a sure thing in the first place and being a first employee or an employee at a newly funded startup is always going to have some risk. If you aren't willing to take on the risk that comes along with the job, you can work for a non-startup. Plenty of people do this.
"But consider someone who has the ability to get hired as a senior SE at a place like google or netflix, who instead works at a startup for, say, $150k a year. That's still probably close to $75K in lost income a year, and I really do think I'm keeping these numbers conservative."
An opportunity risk, maybe. However, if the person loses their job..they don't really lose that money. It's pretty unfair to put that responsibility on the employer and impossible to prove one way or the other (How are you going to prove an opportunity that will or will not happen??)
You could also make that same argument for any company (not just a startup). If I work at a place making $75K, I could be potentially leaving money on the table because another unknown company might want to hire me for $100K.
"1) they may be taking on vastly more risk than you have estimated through lost opportunities/salary/lack of job stability,"
Which really isn't taking on more risk in regards to the company, which is my point. We are all taking on risk with almost every decision we make. Nothing is a sure thing.
"they may be entitled to more shares even at lower risk levels because their skills are very valuable (truth is, they may be more valuable than the founder in some cases)."
They aren't entitled to anything and nearly all employees are expendable. How do I know? I was the valuable employee in many companies before I started my own. I, and everyone I ever worked with, could be replaced. Was it easy? Of course not. But the work in most companies isn't rocket science...and when it is, the company compensates the employee accordingly and tries to keep them there at all costs.
Once again, shares in the company is directly proportional to risk. If as an employee, you are willing to take a paycheck directly related to the success of the company and, or take on debt when the everything crashes, they you have the leverage to get a higher percentage of the profits.
The way I see it, you want a higher percentage of the profits for no more increase in risk, which doesn't really make sense.