
You are an amazing engineer, but you are a terrible fit for our startup - rburhum
http://blog.burhum.com/post/37128895836/you-are-an-amazing-engineer-but-you-are-a-terrible-fit
======
smacktoward
Maybe the problem isn't with the engineers, but with your startup.

Being compensated through equity is a gamble. Most times it doesn't pay off.
So many more startups fail than succeed that the odds are heavily stacked
against those options ever being worth anything.

Sometimes people are willing to take that gamble anyway, in spite of the
horrible odds, because _they believe in the business._ They look at the
product, the founders, and the rest of the team, and think "this is going to
be one of the ones that succeeds" -- strongly enough that they're willing to
bet their own money (in possibly lost compensation) on the outcome.

If you're showing talented people your idea, or your product, or your team --
or _yourself_ \-- and they're not coming away convinced that what you're
showing them is good enough to justify taking that risk, maybe it doesn't mean
that they're lamers who don't understand startup culture. Maybe it means they
looked at what you showed them and decided that _it wasn't a horse worth
betting on._ So they'll work for you for salary, which they can put in the
bank the moment you give it to them, but not equity.

If that happens _consistently,_ maybe it's time to step back and look more
holistically at your business. If you can't convince potential employees to
bet on you, you might have set your product up in such a way that you'll have
trouble convincing potential customers to bet on you too.

~~~
kapilkale
Side note, but there are other reasons people will take that gamble.

Sometimes, the reason employees take equity is because they think they will
have a nontrivial impact on the business and want to feel like an owner. The
actual financial consideration of the equity can be triumphed by the emotional
connection it gives them with the team and their work.

This might explain why some early employees don't even know what percent of
the company they own.

~~~
aaronbrethorst
1-2% (max!) equity in a company doesn't make me feel like an owner.
<http://news.ycombinator.com/item?id=973106>

~~~
moocow01
Exactly because you really are not.

By the time you get diluted you effectively are a stockholder with way too
much of your net worth locked into one likely extremely volatile company. If
you are lucky enough to be in a succesful startup you still have to survive
the inevitable whiplash when your liquidity frees up.

Ironically and sadly I have a couple old-timer friends who have been through
IPOs where they have lost money on the whole damn thing mostly due to taxes
and poor timing.

~~~
aaronbrethorst
Treating employee-level equity as anything other than the chance for a nice
bonus some day is a sucker's game. Especially for early employees who'll take
a significant haircut on salary for the privilege of getting "points on the
package" (to quote The Wire)

Edit: and that really sucks for your friends. I feel bad for them :(

------
tptacek
Talented engineers are well served by a rule of thumb _not_ to reach for more
equity, but rather to negotiate in terms of their actual rate. The startup
that can't reason about your comp in terms of the going rate for engineers,
that instead reflexively assumes you're wasting their time, is a startup you
want to avoid working for.

Employee private stock outcomes are generally very poor even when the startup
"succeeds". No party to the financing of a startup is served less faithfully
than the ones who contribute via deferred or diminished salaries.

That doesn't mean you can't compensate engineers by giving them "skin in the
game", but it does mean that when you write derisively about a candidate using
their going rate as a starting point, you risk communicating something very
unfavorable about your business and hiring practices.

~~~
rburhum
> Employee private stock outcomes are generally very poor even when the
> startup "succeeds". No party to the financing of a startup is served less
> faithfully than the ones who contribute via deferred or diminished salaries.

A six-figure salary is by no means "deferred". And, of course, I understand
that there is a big difference between 100K and 150K/year. The whole point of
the blog post is that if you want the 150K, then you can easily go to a Series
C funded startup and get that (alongside the lower equity offer). If you want
a higher stake, then you can go to the earlier stage startup, get your 90K and
huge chunk of equity. If the parties want to have a custom "in between", then
that is reasonable, too. Some startups can do it, others cannot depending on
cash-flow. Expecting early stage-like equity and later-stage-like salary
doesn't make sense. Not to mention the other equally important issues that we
had with the candidate.

~~~
tptacek
Your first sentence is a non sequitur. It's grammatically correct but contains
no detectable semantic meaning. Salary is deferred when it would ordinarily be
due immediately but is paid later. Formally, a deferred salary is a commitment
to pay a precise amount of money at some point in the future. Colloquially,
any promise of compensation that would ordinarily be due in the next pay
period but will instead come 1-2 years from now at "exit" is a deferred
payment.

Your reasoning about "Series C" versus "Series A" startups and salary
expectations is also suspect. We pay market salaries to a large number of very
talented, very specialized engineers and haven't raised a dollar of funding.

The problem with your reasoning is that it isn't based on the market, but
rather on some kind of status hierarchy about startups. The mistake I think
you're making is that you frame things in terms of "90k and a huge chunk of
equity", rather than "your market rate of 150k, 2/3rds in salary, 1/3rd in
equity, risk-adjusted based on expected liquidity from revenues we forecast at
N, N+1, N+k over the next k quarters, at acquisition multiple y".

If you write the blog post that way, so that you can make a case that a 150k
candidate is effectively demanding 300k, your post starts to make sense (but
it's a little boring, right?). But when you write it in terms of "Series A
employees should get 90k", you go way off the rails.

 _Later edit: you can also reason through your equity valuation with a
candidate the way 'ChuckMcM does, but it seems like to do that honestly, your
equity would need to be liquid enough that you could place another x00,000
shares; in particular, you can't just treat your last valuation as gospel;
just like your B investors can reduce your valuation, so can candidates._

~~~
droithomme
Your analyses are very good and your posts pedagogical.

I'd like to add that, just as you have the company presenting this in a
certain light, the engineer needs to look at this investment of $60,000 a year
of his personal money as cash salary to buy stock in a startup the same as a
$150,000 a year earning person would view any other $60,000 a year stock
investment in an extremely high risk unproven early startup. As a point of
comparison, we know that Y Combinator gets significant equity for one time
investments of only $10,000 in early stage startups. An investment of $60,000
a year should be valued similarly. Clearly the employee is directly
contributing more than six times as much as Y Combinator does and should
receive six times the equity for that first year.

------
georgemcbay
I've had non-founder equity in four "startup" companies including a couple of
which most people here would have heard of and some of them even had exits
that were "publicly successful", and I've never seen a dime of money beyond my
base pay.

In one case, the company simply failed to fully gain traction despite a good 6
year run, no harm no foul. In the other cases various forms of dilution and
manipulation put everyone not in the preferred stock category underwater
despite what were seen as positive exits. In the worst case I took a fairly
substantial (though temporary) tax hit due to AMT on stock that was never
worth a real penny at any time when I could legally sell it.

I'm still open to the idea of someday working for a startup at the founder
level, but I'd advise all "James"-like engineers to avoid the situation he was
trying to get hired for. Being an early stage employee but not a founder is
the worst of all worlds and basically amounts to buying a $60k ($150k - $90k
OP was looking to pay) lottery ticket, one where the rules of the lottery
might be changed in all sorts of ways after you sign on the dotted line.

~~~
danielweber
_one where the rules of the lottery might be changed in all sorts of ways
after you sign on the dotted line._

There is a pattern:

Company: We will give you 1% of the company.

Employee: Sounds good.

And the Company probably believes this in good faith, and that the employee
will not be diluted

<years later things go bad>

Company: You now have 0.01% of the company.

Employee: I had 1%.

Company: Not anymore. That wasn't any kind of promise against dilution. Check
the paperwork.

Switching from the "let's trust each other" to the "let's go by what's written
in black-and-white" is a common trope. You, as the Company, don't even need be
engaged in bad faith for it to happen. But it's often considered rude to tell
the employer "these shares are probably worthless."

 _Being an early stage employee but not a founder is the worst of all worlds_

Founders usually are completely averse to giving anyone hired after them a
better deal then they have. (I've done it as a founder, too, so I understand
those feels.) But non-founder non-investor shares are extremely vulnerable. If
you aren't prepared to fund very close to market salaries, you need to give
something spectacular.

~~~
mrkurt
Dilution in bad faith is lawsuit-worthy. Most founders these days have common
stock just like everyone else, and get diluted in the same situations.

Dilution during fundraising isn't an absolute bad thing, either. There are
shenanigans, and investors with preferred stock definitely get paid first, but
the basic theory is that 20% equity dilution comes along with an investment
that immediately makes the company 20% more valuable. It's basically a zero
sum transaction ... except for preferred shares, options pools, etc.

~~~
georgemcbay
"Most founders these days have common stock just like everyone else, and get
diluted in the same situations."

True but given the vast differences in allocations that may turn their
theoretical 100s of millions into dozens of millions while turning employee
shares from a "really, really good bonus" into "not worth the transaction
fees".

~~~
danielweber
It's also easier to defend your stuff when you are sitting in the board room.

I've seen it happen to former employees at previous companies; once I even
asked at a meeting if anything was being done about their massive dilution and
the CEO gave a prepared spiel that was pretty close to Paul Graham's piece
about how VC's like to wipe out angels:
<http://www.paulgraham.com/startupfunding.html#f9n>

------
ChuckMcM
I think I interviewed That Guy :-)

I ran the numbers for this guy, but I'll make some up here to show the process
I went through. It went like this:

Here is an offer $100K/yr 100K shares vesting over 4. Counter $150K/yr, 100K
shares. My counter $150K/yr, no equity.

This is this math, I've got a fixed amount of money in the bank, its going
toward zero. I can sell your 100,000 shares to one of our investors for
$2/share, giving the company $200,000 which I will then pay out to you $50K
per year on top of your $100,000 a year salary. You get $150K per year, the
investor gets the 100,000 shares. Or I can give the 100,000 shares to you with
a strike price of $0.25/share, vesting over 4 years. So at the end of the four
years you will have one of three outcomes.

1) $130,000 in the bank (that is $50 - 35% marginal tax rate) * four years.

2) A right to buy $xxxK of stock for $25,000.

3) A different job.

So realistically the stock needs to be worth $300K and saleable for you to
make money. ($300K - $25K exercise - approx $137.50K in taxes) So $3/share. If
I have investors willing to pay $2/share for common stock today, you (the
engineer) need to believe that in four years the common stock will become 50%
more valuable. You've got to ask yourself one question, "Do I feel lucky?"

For lots of people though its also more 'fun' to work in a startup in terms of
engaging problems to solve and level of impact on the company is involved.

~~~
chrisduesing
If you have recently sold stock at a $2 valuation, you should be very wary
about issuing options at $0.25. This will put you across the ISO/NSO line and
has tax implications for the employee.

If you haven't actually sold stock recently, you are probably better off using
ptacek's formula and computing future value rather than present value, and
avoiding pricing your stock at all.

~~~
ChuckMcM
The numbers were fictitious in order to work the example. Our CFO in
conjunction with our general counsel determines the effective valuation which
is ratified at the appropriate board meeting and becomes the official strike
price until the next valuation 'event'.

There are two numbers in play, one is the value of common stock and one is the
value of preferred stock. Preferred stock is used in conjunction with raising
capital and often has terms and covenants attached to it which make it
significantly more valuable than common stock early in the company's life
cycle where they effectively converge on the same value at the IPO (or
'liquidity event')

That said, the example is illustrative but not strictly accurate (accurate in
principle but not in execution). What _really_ happens is that you run out of
money faster with a higher salary load, and that means you may need to raise
additional funds sooner. That fund raising round would proceed like any other
round, caveat your 'target' now includes an additional $200K to cover the
salary you're paying out. Worse that stock you sell will be preferred and not
common stock, and as such might have preferences like 2x return which would
further reduce the benefit to common stock holders in the event of a sale or
merger.

Its truly a good prisoner's dilemma game setup. If all of the employees take
large common stock grants and low salaries they all benefit more on a non-IPO
type event, if a few take big salaries they can make the threshold for
everyone else benefiting higher, thus by not co-operating get a better salary
and reduce total compensation of their peers.

------
dinkumthinkum
Seems like mostly a bunch of whining about how because you are a startup it is
ridiculous to think you'd pay people decent salaries. This could have been
condensed to "I'm a startup, therefore I pay pennies on the dollar; don't
expect anything else." Full stop. ... All right, there was a tiny bit about
people should expect to work on a variety of things rather than just
Javascript or whatever, fine, but common sense to me.

~~~
rburhum
I believe there is this stigma that says "equity conversation" == "I will pay
you crap". Personally, I don't believe this to be true. If you are switching
to my startup, it is so you can be in a better situation and I have to
acknowledge that. How we pull/push the equity vs cash lever should make _both_
parties happy.

~~~
eric_bullington
I know you're taking a fair amount of criticism about this post, with some
saying that your attitude toward employee compensation reflects poorly on you
and/or you company. However, as someone who doesn't know you, I'm pretty damn
impressed with your ability to respond in a very cool, calm, and _rational_
manner to very pointed criticism. If I lived on your side of the country, I'd
certainly look into your company since that kind of attitude in a founder
tends to permeate a company. I would take (and have taken) a 20%+ pay cut to
work with calm, rational bosses and co-workers.

~~~
rburhum
And it is comments like yours that make posts like these worth it. Thank you
for the kind comment.

------
malvosenior
A top 10% engineer should expect more than $135k/year, a top 10% executive
founder should have no problem raising enough money to pay those kind of
salaries. Sounds like an average (at best) founder looking to recruit out of
his league.

~~~
tetomb
That depends on how you define "a top 10% executive founder".

------
btilly
I have a group of friends and ex-coworkers who are part of the Los Angeles
startup scene. Every so often I get to be asked to be part of startups. We've
had something like the above conversation. Floating my family situation
requires that I get more salary than they are able to afford. Their equity
offers were generous. I wished my life was different because I believed in
them and thought they had a good chance of making it. Sometimes they do.

At least 3 times now, I've passed up the opportunity to make millions. I don't
regret it - it was what I had to do. But I do sometimes wish that my life had
worked out differently.

That said, for every startup that I would personally take seriously enough to
consider the offer, there are dozens who would try to make it to me, and I
would laugh. Unless I know, and respect, the people making me the offer, I
treat equity as a fancy piece of paper that I'll ignore.

~~~
codewright
You have a social circle where founding a startup and eventually making
millions is a regular occurrence? Outside of the bay area? Can I be your
friend?

Why not skimp and save for a few years worth of survival and take a shot at
one of these companies so that you have the financial cushion to give the
college try and move on if you have to?

Edit: Guys, calm down. I was teasing him for casually claiming that he was
surrounded by inspired millionaires but had to wear the hair-shirt.

I understand the lifestyle tradeoffs different people have to make and I don't
begrudge people for prioritizing family. I don't have one, but I imagine that
if I did, I'd go the safe/secure route too.

I'm sorry I made you feel like your life choices were questioned by a stranger
on the internet.

~~~
btilly
I am replying out of order for reasons that should become obvious.

 _Why not skimp and save for a few years worth of survival and take a shot at
one of these companies so that you have the financial cushion to give the
college try and move on if you have to?_

I tell you what.

Why don't you get married. Pay for your wife's medical school. Have 2 kids.
Discover what full-time high-quality child care costs. Have your wife get
injured and have to leave residency. Have her get better, only to get in a bad
car accident. Have her recover from that, only to go into another very
intensive residency (no money, tons of time).

After a few years of being a primary breadwinner and effectively a single
parent under very stressful circumstances, I'll get someone to make a comment
like this to you in a public forum, just so you can understand what it feels
like.

Does that answer your question?

People have lives. They are not always as simple as they look like they should
be on paper. If someone indicates that their life has had complications, the
polite thing to do is to take what they chose to share at face value and move
on. There is often more to the story than you really want to know.

 _You have a social circle where founding a startup and eventually making
millions is a regular occurrence? Outside of the bay area? Can I be your
friend?_

Obviously you don't believe me.

Yes, my social circle does include the founders of companies like ZipRecruiter
and Campus Explorer. Those were founded in Santa Monica, which is indeed
outside of the Bay area.

And no, you can't be my friend. I don't like people who are acting like
assholes to me.

~~~
tptacek
I thought his question was annoying too, but I don't think he's being an
asshole; he's just being a nerd. We're all nerds sometimes.

~~~
btilly
Maybe in an hour I'll calm down and agree with you. But right now I really
wish he had the honesty to have simply called me a liar rather than trying to
paper that over with sarcasm. And there is simply no way that his "advice"
could not have been something that I didn't know.

According to his bio he's 24. There is a lot he doesn't know. Hopefully he
will be a little more careful in the future about stepping into emotional
minefields like this.

~~~
mst
You're assuming sarcasm rather than a "whoa, seriously?" response, which given
your social circle is I think fairly unusual isn't accusing you of lying so
much as asking if he read it correctly.

And he didn't -advise- you, he asked why you -didn't- do that.

Of course, assuming bad faith and then using his age as an argument as to why
your knee jerk reaction was ok apparently is also an option - but not up to
your usual standard. I think perhaps the 'emotional minefield' part is crucial
here, and next time you should step away for that hour before replying at all.

~~~
btilly
_You're assuming sarcasm rather than a "whoa, seriously?" response, which
given your social circle is I think fairly unusual isn't accusing you of lying
so much as asking if he read it correctly._

I certainly did that.

 _Of course, assuming bad faith and then using his age as an argument as to
why your knee jerk reaction was ok apparently is also an option - but not up
to your usual standard. I think perhaps the 'emotional minefield' part is
crucial here, and next time you should step away for that hour before replying
at all._

In this case stepping away for an hour would not have helped. Because with a
strong emotional frame in my head, I had no path from there to seeing any
other reaction. It was going to take someone else, in this case you, to show
me another possible way to frame it. I'll need to take time to digest that
fact before I try to figure out how to avoid responding that way in the
future.

Thank you for your helpful response. I'm sorry that I had the reaction that I
did. These things happen with humans. Some days more easily than others. Some
humans more easily than others.

PS: Ironically, knowing a few successful startup founders is one of the most
normal things about my social circle.

~~~
tptacek
Chalk it up to message boards and at least be happy he didn't suggest you sell
your kids to fund the company. :)

 _LATE EDIT WAIT WAIT I CALL THAT BUSINESS MODEL FOR YC'S13_

~~~
codewright
I'm making baby back ribs on the BBQ next weekend, so I think I'd be a
customer of this company.

I look forward to your application to YC regarding this modest proposal with
great interest.

------
untog
I don't really like the term 'hiring' when you're talking about someone that
is barely drawing a salary and is taking a large amount of equity. In that
situation, you are _partnering_ with them.

It sounds like the guy in the article just wants to make a reasonable amount
of money while hacking away at a problem. That's fine. You need to let go of
the notion that every employee you have is going to be as heavily invested in
your product as you are, because very few will be. If they are and they want
equity, awesome. If not, they could still turn in some fantastic work for you
if you're just willing to pay them a decent wage.

------
Peer
It seems like you didn't want to pay to have the best engineers or you
advertised the position in the wrong way. To be honest it feels like you
believe you are entitled to have the best while not having much to offer in
return.

~~~
rhizome
It does kind of read like the kind of company who advertises for "the best of
the best." Then again, when was the last time you saw a job req that covered
adequacy in a realistic fashion? "You should eat and breathe Big Data and
stomp the kittens of database caching in your sleep." I could go to Craigslist
(or HN YC job postings) or wherever for in-the-wild examples here, but I'm
sure we're all remembering the same things.

------
mgkimsal
The last couple "startups" I've talked to about working with have deigned to
offer "1% equity", and expected me to be happy with that, along with no money.
Or... "a good salary when the first/next round comes through".

Didn't seem to faze them that I'd be working alongside them for months with $0
pay, actually potentially working _more_ (in both cases, a 'founder' had a day
job as well).

I'm not sure if they understood why they were having trouble getting good
people to work productively with them.

~~~
rburhum
A founder with a day job + working at $0 for 1% is just dumb.

~~~
mgkimsal
_They_ weren't working for 1% - that's what I was offered. A chance to work
for $0 for an undetermined amount of time on something with no other technical
resources or colleagues, all in exchange for perhaps getting 1% of something I
have little control over.

I've said "thanks but no thanks" both times.

In one case, I mentioned that typically someone working for $0 with no end in
sight, essentially building a prototype from scratch is more considered a
founder/cofounder, and would generally be given a more equitable split. I got
told that I didn't understand, because person X had already put a lot of time
in to the project, and since I wasn't there on day 1 (when they were thinking
about it in the garage), then I wasn't cofounder material (or words to that
effect).

Odd how much the 'startup myth' prevents some people from moving forward.

~~~
rburhum
That "offer" just shows that they don't know what they are doing.

~~~
mgkimsal
Believe me, after a few meetings with people, that comes out pretty quick. The
couple times I've let it get that far, I've kicked myself for the time
wasting.

Should I have known on day 1? Possibly, and sometimes I do, but I don't want
to live my entire life distrusting 100% of what people tell me on day 1.

------
darklajid
_sigh_

The 'job security' part is the one that worries me the most in stories like
this. I'm not alone. I need to support a family. While I'd love to sink time
(and money, to a degree) in a company, the risks turn me off to even apply.

It seems that the general consensus is that you need a really good savings
account not just for starting your own business, but for joining a new startup
as well.

I _know_ that I'll find a job around here again. That's not a problem. The
time frame is. Let's assume I can (ignoring all legal issues for a second)
join a startup, remote, from this small town in Germany. Wherever they are,
they probably can cut me out quite easily (even here, if the headcount is low
enough), quickly.

The companies that I'd turn to for safety are slooooooow. So you risk being
out on the streets waiting for bigger, safer companies to return your calls
and get back to you. Which might, which WILL happen if you're a decent
programmer/engineer/whateverpatiowouldsuggestmewritinghere.

But .. in time? Fast enough to not worry about your family? I'm a chicken
here. I wouldn't bet on that.

~~~
svachalek
In Germany perhaps this strange beast called "job security" can still be found
in the wild. In the US there is no such thing outside of government work, and
at a startup the idea is laughable. "Career security" is what you want to
think about, making sure you are always up to date and desirable. And also,
building up a savings account no matter how difficult that may seem.

~~~
darklajid
That's a very interesting and good thought.

Maybe my whole point of view is skewed: I'm reasonably safe in my job even
without a savings account (got none. Is that a bad idea? Yeah, probably. But
that's a different point).

That said, Germany isn't alone in the rules I'd take as granted. What I rely
on here is just a decent time between being let go and being without salary. I
don't claim to have a lot of experience here, but I know that this exists in
various other EU countries and was told that this is common in IL as well, for
example.

If you want to fire me, you still need to pay me for a ~reasonable~ amount of
time (and I need to work, of course). I'll try to find another job during that
time.

Startups seem to have a tendency to go down in flames (what law could order a
company that has no money to pay salaries?) or are exempt of a lot of laws
that make me feel safe (as I said, here in Germany the law makes it far easier
to drop people while you're below a certain, single digit(?) head count).

I'm ignoring your 'build up savings' suggestions. It's a good one. I agree.
And if I'll ever manage to do that, I'll either keep it for my family or ..
for my own startup (if that might be realistic). It still wouldn't be a
cushion to join a startup myself. The point of the OP of this thread seemed to
be that you have to find a ratio between decent pay and nice equity. I
understand. I agree.

I just think that this totally ignores the cost of searching for another job
in this silly "I pay you X. That means that you make X * 12 / year. Let's
compare that to the shares now, with various outcomes in the list" kind of
posts.

That's ignoring a big issue for the guy signing the contract. Saying 'Yeah, if
it goes down you lost $marketValue - $startupSalary' is just .. well ..
stupid. Unless you _know_ that there's an instant job opportunity for the guy
at the end. No? Nothing nearby / close to family? Nothing that allows enough
free time or fits the _basic_ interests of the guy that was let go?

Ah well, that's what a savings account is for, right?

Disclaimer: No personal grudges here, I just don't think that these
discussions are .. sensible. In general. Most of the time these arguments are
lead from the mind of a 23 year old single with a lot of self esteem and
confidence.

I handed my membership card in, a couple of years ago. It's nice on this side
of the fence, but the perspective really changes a lot.

------
tlogan
Why are you asking engineers to be investors in your company? Don't you need
engineers to build your secret sauce and you have investors to invest?

If you need money ask VCs for money and hire the people which will make you
rich. It is really that simple. It is 10x easier to get 20K more in investment
than finding an engineer which will work for 20K less than market salary.

------
NateDad
Sorry, but the original poster made a huge mistake. The only part of his
reasoning that makes sense is the part about the guy only wanting to work on
one thing. That is definitely unacceptable, but it is unacceptable at any
programming job (except the crappiest ones).

Someone who is an expert and highly valued is exactly who you want at your
early stage startup.

It sounds like this guy actually knew what he was talking about with regards
to equity.

Equity is crap. It's a lottery ticket, like someone said. it's fun to think
about what might happen if you win, but don't bank on it.

I've been in 4 startups, two of which were bought out "successfully". My
equity payout? Zero. Sorry, your common stock is worthless while the founders'
preferred stock makes them millionaires. Luckily, I didn't lose out
financially, since I didn't take a pay cut to work at these startups.

I agree, job security is a non-issue. We're programmers, and if we're any good
at all, we're in demand.

However, no one with half a brain is going to take a 60k pay cut on $150k. Do
you think we don't have bills? Someone who has been living on $150k probably
owns a half million dollar house. Are we supposed to sell our house to work
for your startup? If I'm a founder, I might be willing to do that. Otherwise,
no.

Talk to me about the expected return on investment for this $60,000 in stock I
buy every year. Since 95% of startups fail... I better be getting enough
founder stock (yes, not common stock) that if we have a mildly successful IPO
(I'm talking like $10 a share) that I make more than 20 times my ~240k
investment.... that's over 5 million dollars - 500,000 shares of founder
stock, at least.

Let's talk reality, though. Stock is what lets you compete with Google. Google
gives you nearly infinite resources, a fantastic stamp of approval on your
resume, the chance to work with tons of really smart people, and crazy good
benefits. In order to compete with that, you need to pay equal or nearly
equal, and use the stock to make up for the stuff you can't actually afford.

This is why so many startups fail. They only hire the people dumb enough to
think equity is really worth something.

------
jconley
I've been in the same position as this James guy and as a founder doing the
hiring. No founder is going to find an over-achieving experienced engineer
that will work for pennies on the dollar, make a statistically stupid bet with
your equity, and work on something she is not ridiculously passionate about.
One, or all of those, have to be flexible if you want the top talent.

On the surface it seems financially ridiculous to have not given the tiny bit
extra James wanted. I have to assume the culture clash was the main driver. If
he were truly exceptional, he would have been potentially worth more than 10
other guys you will hire that are not negotiating with you. He would have
attracted more great talent. He would have pulled off many heroic acts. This
short sighted thinking, more than anything, is what frustrates me about the
job market.

There comes a time when you reach that point in your individual contributor
career where some lightbulb turns on and you realize how valuable you are. You
realize you don't get what you don't ask for and start negotiating. But if
you're in the job market you have to be able to back up your lofty
compensation requirements. This is obviously not a newly realized situation
and it has been discussed endlessly in the past. There's a reason great talent
in Hollywood makes 100x more than the rest of the cast and crew, and great
sales people can do the same, even though they are just employees. The top
performers are obvious. The talent in software doesn't have this luxury
without going out of the way to self promote. Unfortunately, putting enough
proof out there is only possible when you work largely on your own and promote
that fact for people to see. Otherwise there are too many varying factors and
nobody can know if you were the core reason for the project success.

So, James, go do something on your own, publicly. Make it not suck. Then watch
the above-market salary and equity offers come rolling in. Or, start your own
startup.

And for all you founders out there. Either loosen those purse strings and be
ready to terminate employees that don't work out, or work on truly interesting
problems. Otherwise you're just going to end up with a whole bunch of average
or inexperienced engineers. Not that there is anything wrong with that talent
strategy, just know that it will happen, and realize the implications of that
situation.

Who else thinks we need Software Engineering talent agencies?

------
byoung2
This throwaway line gave me a chuckle:

 _James did not ask me once about health insurance and did not really care
when I told him about the plan_

A year ago I left a cushy job as a software engineer at ClearChannel to go
work for a startup, and I didn't bat an eye when they said they didn't offer
health insurance. But my wife is a nurse at Kaiser, and we get a Cadillac plan
through them with no out of pocket cost. That gave me the flexibility to
accept the offer.

------
jakejake
We could just as easily be reading a post from "James" about how his time was
wasted by some punk who has no clue how much value he would bring to a
startup. And I would consider that equally tacky.

He asked for what he wanted - it was not in line with what you wanted to pay.
End of story. Not all job interviews end with a hire.

------
partisan
I don't think you would hire me given the amount of snark in your post and my
waning tolerance for it, but if I were to be a "good fit" for your company, I
would probably pass on the interview for fear that I might become fodder for
your next rant.

Do you suppose you could have generalized this post into a lesson with a
little bit of ranting versus a rant with a little bit of lesson?

If I were James, I would feel like crap reading this. What did that gain him
in reality and what did it gain you?

------
xradionut
I got burned out by the start up scene in the original internet boom in the
'90s. Probably lost 200K in salary due to betting on the startups, only to
have the founders make bonehead mistakes or shaft the programmers.

------
anonymouz
Be careful with point 2, "Let’s not even talk about job-security".

I know, I know, the startup ecosystem (more specifically, web startups, so I
suppose the term engineer refers to that too) are booming right now and nobody
can imagine how bad things could ever happen. Yet, often enough, bad and
unforeseen things do happen, a boom ends rapidly, lots of people are without
jobs. Don't scold the guy for wanting to know where he will be at in a couple
of years.

~~~
svachalek
It's a startup. What else do you need to know?

~~~
anonymouz
The point the author makes under that heading is: One need not worry about job
security at a specific startup, because if it goes bust one can always join
another startup.

~~~
moocow01
Except when they "all" go bust. There is only so much VC money to go around
and when that contracts open positions do too. We've been in a good period for
a while but tech is also very cyclical.

------
yesimahuman
The flipside of this is you hire inexperienced developers who take a bad deal
out of sheer inexperience. I was stupid after college and did took a terrible
salary with what I learned a few months later was a small options package. I
saw others do it too, and it just created bad energy, retention, and talent
acquisition problems.

------
droithomme
Start ups need people who know what they are doing. These people make well
above the median. Making market salary in an expensive area like the Bay Area
is not negotiable, and it's certainly not traded for equity.

The equity is what gets talent to accept the tremendous risk of leaving a
solid position with an established company, for an unstable one at a high risk
venture.

If you can't afford to pay market rate, that means you're not funded enough to
be hiring. Equity is in addition to market salary.

------
jpdoctor
> Want more equity? Take less money. ...

> Want more money? Take less equity. ...

> The Cash and Equity are actually inversely proportional to each other.

Nice rules, but be prepared: Not everyone plays by the rules, and your
competition might be among them.

(OTOH, things will get better as the shakeout occurs over the next two years.
People will go back to being happy just for being employed.)

~~~
droithomme
> People will go back to being happy just for being employed

Those who actually know how to do things never face this scenario. It's true
for the incompetent though.

In the OP's scenario, we have a real treat. He testifies that this engineer is
extremely skilled and a nice guy that is easy to get along with. The only
issue of dispute is whether he will agree to be paid vastly below his market
rate. The engineer, obviously well employed, acting rationally, is unwilling
to do so, and the incompetent start up so-called "entrepreneur" is unwilling
to pay market rate for the talent his enterprise needs more than anything else
to succeed.

I agree with you a storm is coming. In my view, it is these "entrepreneurs"
with nothing to offer who will be happy after the shakeout to be employed at
all - making $8 an hour at McDonalds, if they can even manage to hold that
down.

The exceptionally talented engineers don't ever have a problem finding
employment.

------
at-fates-hands
You would think people (even engineers) would do their homework and find out
if you want to do the "startup thing" you should go in expecting to take a pay
cut and work 50 hours out of the box.

It seems like the engineer in the article had a romantic notion about what it
would be like to work for a startup and had not done his homework.

~~~
rhizome
What is your suggested reading list for the homework you mention?

~~~
crusso
<http://news.ycombinator.com/>

~~~
rhizome
You mean the place where I am currently reading people disagreeing on the
validity of approaches like yours, that it's not necessarily to be expected?

~~~
crusso
"approaches like yours"?

~~~
rhizome
Sorry, I conflated your comment with the GP's. However, you two would appear
to be agreeing.

------
frozenport
Its your job to make him fit!

Its your job to coax the useful skills out of him. Besides doing 2x the work
of a normal employee, many people who are brilliant at computer science are
good with strategy and customers as when they are asked to write it down. This
was your loss.

~~~
nasalgoat
Getting a truly talented developer is not easy, and given their productivity,
you should offer _both_ equity and a high salary, because you will get your
money's worth from them tenfold.

You will know within 2 weeks if they are genuinely talented.

------
paulsutter
That song from Weeds is awesome, it could very well be the theme song for
entrepreneurs and other misfits.

To everyone arguing with the author: I'd say he knows best who is a fit for
his startup. You guys can run your own startup any way you like. Go for it.

