
Are founders really 1000x more valuable than their employees? - abreckle
http://venturehacks.com/articles/employees-founders
======
jasonmcalacanis
This isn't about who is more valuable, this about who took the _risk_.

Employees take little or no risk in 99% of cases. You are not taking a risk
making 75% of your max pay at Google/Facebook/Zynga/Twitter by going to a
startup. You are taking a 25% haircut to be part of something new/small/etc.

However, starting something from scratch, incorporating and putting your
reputation on the line is a major risk. If you are the creator you carry the
lifetime risk/reward of your startup.

The founder(s) of Friendster, PointCast and Webvan will always be remembered a
certain way. As will the founders of Twitter, Groupon, Yahoo and Google.

The employees that come after them do not carry this personal risk/reward
issue. They can always say "I joined Freindster and it was a great learning
experience."

The founder of Friendster will have to explain for all time why they were
first and failed so horribly. How they missed the opportunity to be MySpace,
LinkedIn or Facebook.

That's the real difference in my mind: personal reputation risk.

~~~
gamble
I really question this idea that (YC-style) startup founders are taking on
more risk than employees. Few founders have a significant amount of personal
capital invested in the business. If the startup fails, they're not out of
much more than a job. In fact, early employees are in a far more precarious
situation, since they're much more likely to lose their job than the founders.
And if the company does go down, the founders have a much better entry on
their resume than someone who took a job at a small company that no one has
ever heard of.

At least in America, there is so little stigma associated with a failed
startup that I don't see the reputation aspect of your argument. Short of
flat-out malfeasance, a failed entrepreneur is far _more_ fundable than
someone who has never started a company.

~~~
wdewind
We like to say there is no stigma associated with a failed startup. Quite
frankly I think that's bullshit. It may not hurt your chances of getting hired
again as an engineer because you will likely have great experience from it.

But you will have just spent months/years promising people you were going to
improve an aspect of their life (through your business solving their problems,
or maybe through getting more financial independence for your family etc.),
and you were unable to do so. In many cases you've been trusted with extremely
important things. You will have been trusted with a leadership role (in
society, not just a company), and you will have failed, regardless of the
value of the experience. Startups don't really get traction (outside of
social) without serious contributions: being involved in solving hair on fire
problems.

So, let's say you're starting a banking/commerce related startup like PayPal,
and some fraud happens on your network which ultimately leads to it failing to
gain trust (though it is relatively secure) and thus failing to gain traction
and failing. Sure, you may handle the breach well, and go on to have a high
paying job as a security analyst or something based on your specific
experience.

But good luck trying to raise capital again. Good luck getting your friends
and family to support you and take you seriously when you're going down your
second "I'm quitting my job to give everything I have to a startup." Good luck
recruiting engineers who know you as the ex-CEO of failed startup XYZ, etc.

~~~
mechanical_fish
I worked for a startup that failed. My impression is that the founders were
never quite the same. It can take a huge emotional toll, especially if you're
in the business with your friends.

Around here we take pains to emphasize the bright side of failure, but that's
because nobody needs to be coached in how to mourn. Mourning comes naturally.
It is carrying on in the face of negative feedback from the world that takes
practice and coaching and teamwork.

~~~
swombat
I was just about to reply something along those lines.

Failing at your own startup is a bit like burying a child. You start with all
these dreams of a bright future, and one day you find yourself facing the
stark reality that it just didn't work out, that there's nothing you can do
anymore to change that, and that basically the last X years of your life,
where you sacrificed anything, were pretty much for nothing. "Well, at least I
learned a lot!" is very little consolation in that context.

It's a pretty fucking tough time to go through, burying your startup. I've
been there, and hell, I'll probably get there again some day, but it's not the
kind of thing that you go through without after-effects.

As a startup employee, you're a bit like that neighbour who watches the
previously happy couple tear each other apart and finally divorce. My, ain't
it tough for them, geez, I hope it never happens to me.

As the founder, you're right in the middle, ripping your dreams to bits.

And the best part is, after all that, people still expect you to pick yourself
up and do it all again!

Edit: I suppose I'm being a bit melodramatic here, as pointed out by the two
responses. That said, I do think that shutting down your failed startup that
you poured your dreams into is a deeply demoralising experience. Character-
building stuff, I think they call it, when trying to cheer you up.

~~~
tptacek
Guys, I helped blow up a startup in '01 that I started in early '99. At our
peak we had over 50 people. I'm also a father of two, and I absolutely assure
you that startup detonation is going to be nothing whatsoever like "burying a
child". The notion that company failures are "mourned" by founders is what
prompts head-explodey threads about what "fair" is for founder equity comp.

The reality is a lot simpler. The market simply values a lot of stuff that
geeks don't pay attention to, including:

* The initiative to start a company and deal with all the personal, financial, and (importantly) logistical drama that comes with doing that.

* The various forms of capital (financial, relationship, intellectual) founders bring to the critical first 12 months of the company.

* The ability to recruit people into an unproven company.

* The risk --- particularly, the opportunity cost --- of burning 2-4 years of career path on a startup (being the CEO of a failed startup is _not_ a resume bonus for a subsequent engineering role).

* The increased degree of difficulty of --- and, thus, to the market, the smaller pool of people available to perform --- operating a company in its unproven riskiest first 12+N months.

Geeks also apparently don't see the value the market places on the flexibility
required to find the best equity comp package. Being "worth 5%" (kind of a
nonsense concept, but roll with it) doesn't mean you can get it at any
particular company; it just means there's a class of company wherein you might
find that role.

~~~
mechanical_fish
_The notion that company failures are "mourned" by founders is what prompts
head-explodey threads about what "fair" is for founder equity comp._

Interesting. I believe I have observed this _very_ correlation.

(And, considering that I went away for a few hours and returned to find this
thread haunted by the ghosts of _metaphorical dead children_ , perhaps I
should not have used the word "mourning". Obviously the overtones are too
grim. Perhaps "brooding"?)

I agree that such brooding is not rational, and that it is not a good idea;
perhaps I could even be persuaded that it's pathological. I'm not yet quite
convinced that it's fictional, though. Maybe it really is. I've never been a
founder myself, nor especially close friends with one, and all you can really
know of other people is what you see from the outside.

------
gamble
People are over-moralizing this. Why do CEOs get paid so much? Why are
salesmen often better paid than engineers? Does a ditch-digger deserve less
money than a lawyer? The market is basically amoral. People get what they can
get, not what they 'deserve'. Founders get more money because they have
ownership, and in a capitalistic system profits accrue to capital. There's no
point in constructing an elaborate moral architecture to justify how a social
structure developed to maximize financial gain also somehow optimizes for
socially-desirable outcomes.

~~~
antihero
> The market is basically amoral.

Yet people support it and sleep at night. The world is not fair, people are
unfair, and it's a damn good cause to try to make it fairer.

Sure I expect there's a serious correlation between putting effort in, but a
huge part of how valuable your efforts are to your life is decided by where
you were born, who your family are, who fucks you over and how you are
parented.

I'm sure there are Muslim women in Saudi, or prostitutes in Liberia, or
Chinese farm workers who'd (aside from cultural bias) work twice as hard and
have just as many good ideas as Mark Zuckerberg or Bill Gates given the
education and upbringing they have, but they simply don't have the
opportunity.

Many socialists I talk to have it wrong in that they don't recognise that yes,
effort is a factor in your life's success, but many of the capitalists I talk
to fail to acknowledge that effort is simply one of many factors that
influence it.

~~~
derefr
If you could choose your DNA, your parents, your upbringing, your interests,
and your talents, the market would be the perfect arbiter. The problem is that
people, for social signalling reasons, cannot internalize that they are not in
control of these things, or that they matter. Thus, through the lens of our
cognitive biases (hiding all these influencing factors from us), capitalism
_looks_ like the best system we've tried so far, and all the other systems
don't "feel" right (because, for example, they force those of low social
status to acknowledge that fact.)

------
jshen
When I was a kid my mom would complain about how the world was out to get her.
She didn't frame it that way, but that's essentially what she was saying. One
time she was complaining about lawyers because she was charged $300/hr or
something like that. I asked her, "why don't you become a lawyer?"

It made sense to me as a 12 year old and still does.

~~~
timr
I don't know your mom, and I don't know what she is or isn't capable of doing.
I also don't think it's helpful to believe that the word is out to get you,
regardless of personal situation.

But that said, you're absolutely _delusional_ if you think that everyone in
this country who wants to become a lawyer or a doctor or a better-paid
whatever is capable of doing it. There are a million different reasons why
most people will never become lawyers or doctors...or computer programmers.
The reasons are all quite real, even if you've never had the misfortune of
experiencing them: some people are born into grinding poverty. Others are
never educated while young. Many people just aren't intellectually gifted. It
isn't their fault, and nearly everyone I've met is doing the best they can
with whatever they've got.

Right now, there are thousands of people accumulating debt in third-tier law
schools trying to do what you suggested to your mother -- but most will never
get anywhere, no matter how hard they work. There are culinary schools full of
aspiring chefs, vocational schools full of people trying to learn their way
into a trade, and literally _millions_ of other people who have been told that
their lost factory job can be replaced with something better, if only they
spend enough time in community college.

Just because _you_ had the disproportionate good luck to be born into a
situation where you can become whatever you desire, does not mean that
everyone else in our society has been granted equivalent opportunity by the
big genetic lottery.

Said another way: empathy is a useful skill, but you don't have much of it
when you're 12.

~~~
jshen
I was born to a single drug addict, into a family in which no one had finished
high school, and spent part of my childhood on food stampes. I understand
empathy and that I lucked out in some ways, but I had anything but
disproportionate good luck. I enlisted in the army at 17 and spent a year
deployed. That's how I paid for college.

"It isn't their fault, and nearly everyone I've met is doing the best they can
with whatever they've got."

While I agree with your general sentiment, most people are not doing the best
they can. You know what I do 3 nights a week? I have a study regimen, right
now I'm working my way through a probability book. A lot of people that could
be doing the same thing are playing WoW or watching Big Brother. I have a 1
year old and a 3 year old, and I still make time to study on top of my job as
an engineer, which pretty much means that I don't watch t.v., play video
games, etc. Most people don't make that sacrifice.

~~~
timr
_"I was born to a single drug addict and into a family in which no one had
finished high school. I understand empathy and that I lucked out in some ways,
but I had anything but disproportionate good luck. I enlisted in the army at
17 and spent a year deployed. That's how I paid for college."_

Fair enough. I'm not trying to take away from your accomplishments. But
remember that there are kids born to single, drug-addicted parents all over
the world. Most won't be able to overcome their situation, and it's hardly
their fault.

 _"A lot of people that could be doing the same thing are playing WoW or
watching Big Brother. I have a 1 year old and a 3 year old, and I still make
time to study on top of my job as an engineer, which pretty much means that I
don't watch t.v., play video games, etc. Most people don't make that
sacrifice."_

I don't think it's fair to make that kind of generalization. There are always
people who squander their opportunity, but that's not a reason to slight the
rest. Whatever you're doing tonight, there are hundreds of thousands of other
people doing the same thing. Not all of them will be as successful as you will
be, and some others will be more successful than you. How will you feel when
you meet the more successful person, and she tells you that you didn't work
hard enough?

~~~
jshen
Why would I care, I'm happy with my life. Anyone that learns to program a
computer and is decent at it can get a good job if they live in america
barring a few extreme examples.

~~~
jessedhillon
I don't understand how someone who has overcome so much -- and knows how hard
it was to do that -- can be so glib and flippant when talking about other
people who have failed to rise above the same circumstances. You obviously
care, since you're going out of your way to post comments dismissing those
people.

~~~
jshen
The only thing hard about it was changing my mind set. This is a really hard
thing because you don't get it until you've crossed over to the other side.
There was one point in time when I was working full time and going to school
at night that I almost quit. This was when there was a lot of talk about most
programming jobs going to india and when I was really unsure if I was good
enough to get a job when I finished. All these people on the Internet seemed
so much smarter than me, etc. I doubted and almost quit, but I didn't.

Now that I've been hiring programmers for years I understand that most
programmers are not that good and the smart people on the internet are
probably the top 5%. growing up I didn't know someone that was successful that
could tell me these things from experience.

So the two biggest challenges in my eyes are the mindset of the
underprivileged, and I have no idea how to fix that. And, most people simply
don't put in the effort and make the sacrifice. They'd rather play video
games.

So I believe the two biggest

------
Skroob
I'm not a "founder" in the startup sense, but I did start my own indie
development and consulting shop, and I think the startup founders can relate
to my experience. For example, 16, 18, even 20 hour days are common. Keeping
the business going becomes the major focus in your life. You think about it
all day and dream about it if you manage to get some sleep at night. You hope
and you dream and scratch and claw and fight and work your butt off every
single day with no end in sight. It's your idea, your vision, your baby.

For an employee, it's a job. They do the work, they get paid. They may care,
and they may care a lot, but they'll never have the kind of commitment you
have as a founder. Someone recently asked me if when I hire my first employee,
if I'll be able to double my productivity. I wish it were true, but I would
never ask an employee to work the kind of hours I do.

So are founders always worth 1000x more than the employees? Maybe not always,
but I can sure see the argument being made.

~~~
bryanlarsen
I was employee #1 at a company. I once clocked 210 hours in a 2 week period,
and become super emotionally invested in the company. I spent time on the
assembly line when we had orders that needed to go out. If it's just a job for
your first employees, you hired the wrong employees.

Because it's super hard not to become that involved -- you're working so
closely with the founders who are that involved. It's pretty hard to 9-5 it
when nobody else is.

------
charlesju
I think this is just a free market equilibrium.

If employees were unwilling to work for anything less than 10% of the company
than employees would have more stock.

If founders were able to get away with keeping 100% of the company, then they
deserve to have it.

There is no fairness here. It's just the free market. If employees want
founder economics, then start a company. It's that simple. Welcome to America.

------
DevX101
Value that can be extracted will be. As a founder, you have a large, if not
the final say on compensation. Founders therefore pay themselves as much as
they can while keeping the business healthy.

I think this is a greater factor in the relatively high compensation than
"value added" or "risk taken".

~~~
tptacek
Founders _don't_ have the final say on compensation! The market does! If you
think you're worth 5% of a company you're applying for, demand it. If you're
worth it, you will get 5% --- maybe not from any specific company, but from
some comparable company.

If you think you're worth 10-20% of a company, stop applying for jobs and go
start your company.

It is absolutely a seller's market for talent right now. If you aren't getting
what you think you're worth, you have nobody to blame but yourself. Your
current company may not give it to you --- for the role you fill, they may
believe you're replaceable for less cost --- but that doesn't mean you can't
get it on the market somewhere. But _you have to make the effort_. People
absolutely cannot in the real world whine that things "aren't fair" and expect
improvement.

------
njharman
no, but the founders founded something. The emploees just got a job. btw A job
that didnt exist before the founders did their thing.

~~~
frederickcook
This is the key. For founders who are not intrinsically fundable, an
incredible amount of risk is removed between the time of initial founding and
when a third-party assigns a value to the company. 1000x seems reasonable.

------
kalvin
I think the real issue isn't whether or not founders are "worth" 10x or 100x
or 1000x the 10th employee (arguable, no real answer) but whether the extreme
variance that exists in early startup employee equity is fair.

I once surveyed several friends who joined tech startups (at similar funding
rounds, # of employees) out of school as very similar software engineers. They
received between 0.05% and 0.3% of those startups. That's a 6x range.

That certainly wasn't a result of a transparent and perfectly fair market;
equity compensation numbers are opaque to many startup employees, plus the
comparative data just isn't widely available. (Ackwire is the best I've seen,
and it's new and rudimentary.)

And it's not really in the startup's interest to make them more aware-- who
wants their employees to have the thought "my boss will make 100x more than me
when we exit" in their head? (Not everyone is as hyperrational or founder-
aspirational as the HN crowd...)

------
mdink
For me it has been - who picks up the hat when something painful needs to get
done? (getting tax info together, sales cold calling, doing a complex data
migration, etc.) It is usually the founder, in order to shield employees from
potentially morale destroying work. For this (and other reasons mentioned
here) their value is more then that of their employees..

Obviously this is not the case all the time.. just my experience...

------
vannevar
A better question might be, is a startup founder who achieves a lucrative exit
1000x more valuable than a founder who fails? Because the reality is that most
founders don't get 1000x the compensation of their employees; in fact, such
cases are exceedingly rare.

There is a lot of risk in starting a company if you're not independently
wealthy. But I would question whether a 1000x payoff that is as rare as a
lottery win is a more effective incentive than say a 10x payoff that happens
more often. Maybe it would be healthier to invest smaller amounts in more
companies, rather than investing enormous amounts in just a few as part of
what Mark Cuban correctly identifies as a glorified Ponzi scheme
(<http://news.ycombinator.com/item?id=2231082>).

------
protomyth
Well, if the choice is nothing versus something, then there is a lot of value
in the person who took nothing and turned it into something. Employees
wouldn't have made anything from the venture without the founders.

~~~
dadkins
The question isn't, "are founders more valuable than employees?". As you've
pointed out, that's trivially true. The question is -- as it is with
beachfront property -- " _how_ much more valuable are they?"

------
fleitz
The reason founders get more is because they are less willing to accept a bad
deal, and more able to turn a bad deal into a good one. An employee who brings
strategic assets to a company will make a lot of money, neither Eric Schmidt
or Tim Cook are founders of their respective companies but they do VERY well
for themselves.

The best explanation is found on Ribbon Farm in The Gervais Principle.

[http://www.ribbonfarm.com/2009/10/07/the-gervais-
principle-o...](http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-or-
the-office-according-to-the-office/)

And yes, Founders are 1000x more valuable to the market than their employees.
They may not be more valuable according to any other logic but the market is
the person who cuts the cheques.

------
johngalt
"Deserve has got nothing to do with it"

Stop seeing compensation as a judgement of value and instead see it as a
measure of scarcity. Most people prefer to be employees rather than founders,
compensation reflects this.

------
chegra
I see the 1000x as a reflection of the risk they undertake.

Employees, for 100% probability of receiving a specific amount of money
exchange their time and effort while founders for a 10% probability of
receiving a unspecified amount of money exchange their time and effort.

Essentially, for a lower chance of success they make it possible to receive
unlimited rewards or go broke(losing years of work and to be despised by all
and suitably fit for ridicule and to be made into a parable.).

Life is indeed fair, hence you can't have your cake and eat it. You can't have
security and unbounded success, something has to give.

Fortune favors the bold - Virgil

------
sreitshamer
What does ownership have to do with relative value of people?

If you go create something (a business) from nothing, it's yours. If you agree
to do work for a business in return for cash, that's your decision.

------
brudgers
"Valuable" isn't the right word - because the article is being used for
current compensation and equity comparisons but the justification is past
events. In the present, it is quite possible that a founder could be
detrimental to a company (negative value) while an employee could be nearly
irreplaceable (I've even read rumors of such situations here on HN).

The question is one of compensation - which is a fool's game, e.g. are
founders really 2000x more valuable than 3rd grade teachers?

------
sahillavingia
Of course it's fair: it was determined by the market, no?

~~~
ecaradec
If you implicitly consider the market to be fair, yes. It's a kind of fair
though...

------
petervandijck
The real reason is simple: employees are (by definition) replacable, when they
get hired, founders (by definition) not, when they found the company.

------
FernandoEscher
A founder is just twice as valuable than a employee, and this just at the
beginning. If you measure value by the actual profit a founder or an employee
generates at a project, enterprise or whatever, you'll surely find that in
long term is the employee that generates most of your earnings. That's a plain
truth, if you have employees is because your business is growing and you can't
deal with it just by yourself, so you need someone to work by your side at
this point. Every earning from then now should be almost equally split on you
and your employees. And I say almost, because your employees do owe you
something, a place to work with less risk.

And that last part is the why I think a founder is 2x more valuable than
employees. I love to see enterprises where they left a percentage of their
actions to split that amount of earnings over their employees.

------
icandoitbetter
Does anyone else find the assumption that wage is somehow linearly
proportional to 'value' completely ridiculous?

------
itsnotvalid
Because they get to keep that money and the 0.001 less people are also okay
with the agreement.

Life isn't fair.

------
hyko
The article only deals with equity, which isn't the only way to compensate
people. In equity terms, the founders are worth whatever they choose because
they created the company: 100% of the equity is theirs to give away on the
terms they decide.

------
bradgessler
This article completely glosses over the class of bootstrapped startups where
the founders leave their day jobs, invests their time and money in the
startup, and then start hiring people.

That's a lot of risk, so yes, for that class of startups founders should have
higher ownership in the company and thus are worth more if the company is
worth something.

On top of that, these boot strapped startups often pay their employees more
than themselves, so on the income front, employees are worth more.

This article really underscores the weirdness of incentives that can crop up
at venture backed companies. It almost makes no sense.

------
luca-giovanni
When you build a skyscraper, tell me what is the most important floor? The
foundations. The founder is the foundation of the company. Above this
foundation is often build billions of dollars of value.

------
laf2019
I think it is true in certain cases. A successful founder has that 100%
commitment to the idea / company. He or she will do anything it takes for it
to succeed and will hustle it until it does. Sure, employees can write the
code that makes the company run but they don't have that extra drive to have
made it a success on their own. On the flip side, some founders are just
super-well connected people that just get oodles of money and hire a team to
make their idea come to life and have no real ability beyond that.

------
rwaliany
There is a huge risk in opportunity cost to join a startup.

Some founders such as serial entrepreneurs who have proven their value, I
could see 100-1000x. However, first-time and inexperienced founders should not
get more than 10x their employees given that they providing a lower
expectation.

Also priced into it should be the difficulty for you to do it yourself. If the
company truly does amplify your value by 1000x, then by all means it is a
fantastic deal.

------
hammock
Seems like the premise of this argument is busted. How much stock you own is
not the measure of how valuable you are to the company. That's ridiculous. Is
Micky Arison, owner of the Heat, more valuable to the team than Lebron James
or Dwayne Wade or Chris Bosh? How does this kind of garbage logic make it to
the front page of Hacker News?

------
tzm
This question is more about positioning, less about risk per se. Founders are
usually in a position of strength to negotiate higher valuations than
subsequent employees. Likewise, future needs (funding rounds, key hires, etc)
may also devalue their position of strength. Although unlikely, it is possible
that founders have little risk.

------
palewery
You don't know the value of employee X until after he has agreed to
compensation and joined the company. If he joins and never completes a single
task he is assigned, then yes the founders were 1000x more valuable. If he
joints and is able to find 10x more customers than you had before than no he
is not 1000x less valuable.

------
stretchwithme
In a way, their employees have already decided the matter. They looked at the
founder risk/effort/reward and decided being an employee is a better deal.

Of course, founders also looked at it and decided being a founder is a better
deal.

So, everybody's happy and all's right with the world.

------
joe_the_user
_Why employees are priceless_ \- that's why we can't pay them very much.
Founder are less important, so figure we can compensate with money.

Groucho: _If I paid you wages, you'd be wage-slave, you wouldn't want to be a
wage-slave, would you?_

Bellhop: _I quit_

------
stretchwithme
In business, as in biology, those who discover and exploit niches get the
rewards.

------
tsotha
>Are founders really 1000x more valuable than their employees?

Yes. There's a big gap between working somewhere with the option to bail
whenever you want and having your own financial resources at risk.

------
sbov
It may not be normal, but the startup I was involved in never had to raise
money. Were we all founders? Is anyone they continue to hire a founder?

~~~
staunch
At some point your startup put a fair market value on its stock. That means
equity for new hires had a dollar value when they joined.

~~~
trobertson
> At some point your startup put a fair market value on its stock.

Assuming that his company went public, or took outside money. If it is, and
will remain, a private company (with no outside investors), why worry about
stock at all? Stock is unnecessary overhead, perceived value is unnecessary
overhead.

------
known
Economic mobility != Social mobility <http://goo.gl/K8Pg>

------
rokhayakebe
Yes.

