
Founders: It’s not 1990. Stop treating your employees like it is - shalinmangar
https://medium.com/@tikhon/founders-it-s-not-1990-stop-treating-your-employees-like-it-is-523f48fe90cb#.hdegartfi
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0x49
"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?

~~~
geebee
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).

~~~
0x49
"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.

