
How YC Companies Found Employee #1 - ivankirigin
http://blog.yesgraph.com/yc-employee-number-one/
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Jemaclus
One thing to be careful of when hiring is treating equity as a replacement for
salary. I've had a few offers in the last year where they offered me X amount
of money and Y amount of equity, and then got pissed off when I turned down
the salary. One guy even told me I was an idiot for disregarding equity. But
the truth of the matter is that, like this article says, you could fire me in
a month, and in the mean time, I've taken a significant pay cut in favor of
equity that will never pay out.

And even if I do wind up working for you for a year, your equity is worth $0
(regardless of your company's valuation) until you get acquired or otherwise
exit. You can sit there and tell me your company is worth $1B, but your equity
is worth $0 until you can actually pay out on the stock.

I understand that founders have to work under the assumption that equity is
money, but your salaried employees do not.

Anyway, just wanted to mention that. Like codex said, you have to find someone
good but also naive -- good enough to do a good job, but naive enough to
accept that low salary in favor of equity and the risk that goes with that.

For a very experienced senior developer, that's generally not going to be
enough, unless they're founder-level or really, really, really, really,
really, really believe in the company. Or if they hate their current job
enough.

~~~
the_watcher
Have any founders tried recruiting with an equity + salary offer where for the
first year, the equity offer is translated into salary? Not like Buffer's
offer of equity instead of salary, but as something like "we acknowledge you
could be working hard for something that never vests. Your fair value is X.
We've offered you .5X + equity. For the first year, we are willing to offer
you .8X, which then drops to .5X." Any raises could be translated into a
percentage raise, or could just be added to the changing basis.

It's a weird idea to have your salary drop after a year, but it might be an
interesting avenue to pursue.

However, successful startups usually don't have the salary issues outside of
the beginning, so it may not work just because of that. I'm just really
interested in trying to perfectly align incentives, and the founder vs. first
employee one is the toughest nut to crack for me.

~~~
chrisabrams
I know of some companies that do this. The drop isn't quite as large as you
describe, but it's the same idea.

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codex
Hiring #1 is tricky: you need to find someone good, but also naive. In this
era of the ray startup, it makes little sense for a great engineer to work for
someone else: the first employees work almost as hard as the founders, but
receive 1/50 the ownership of the company. In the age of the acqhire founders'
risk is very small.

~~~
tptacek
It depends.

Practically by definition, employee #1 is shouldering less opportunity cost
than the founding team. The founding team was able to start a company and
raise money sufficient to pay the employee. The employee is accepting full-
time employment. Why would they do that unless they didn't believe they could
be successful (whatever that might mean) starting something themselves?

I think there's a whole lot of taking-advantage happening in startup hiring,
but there's also an industrywide lack of understanding of how risk and basic
economics work, too. Equity isn't a merit badge.

~~~
jt2190

      > I think there's a whole lot of taking-advantage happening 
      > in startup hiring...
    

One warning sign of this is when the salary is below market rates. Founding
members take low salaries and lots of preferred equity (and lots of risk),
while employees take a market salary and a few incentive stock options.

~~~
mchusma
One quick correction is that founders typically have common stock, not
preferred.

~~~
nerfhammer
They get common stock but without a cliff or vesting period

~~~
tptacek
No, founders vest. For the love of all that is holy, don't join a founding
team with no vesting. Funding or no funding, vesting is non-optional. Get
vesting worked out from the jump.

------
Aloha
"It’s when we hired full time employees immediately without that trial period
where I’ve really regretted things. You go through so much extra work to
figure out insurance and stock plans, only to want to fire the person in a
couple months."

It's very very hard to get people to move from one contract to another without
some sort of permanence, I'm a contractor now, why would I change to another
contract even for slightly more pay? I'm content here, more or less, offer me
a fulltime job, sure, I'd move - but not for another contract.

~~~
tptacek
I agree strongly. Contract-to-perm hiring seems like a great way to filter out
the best candidates, who will tend to have better options.

~~~
ivankirigin
It's a pretty big issue because you don't really know what working with them
will be like. Weebly does a trial week, which is a good balance of time and
commitment. [http://www.sequoiacap.com/grove/posts/akzj/trial-week-our-
hi...](http://www.sequoiacap.com/grove/posts/akzj/trial-week-our-hiring-
secret)

~~~
tptacek
Aside: let's be careful not to pretend that temp-to-perm hiring is any kind of
norm. The overwhelming majority of hires are hired conventionally, after an
interview, with an immediate full-time offer. That includes "employee #1"
hires.

~~~
ivankirigin
You're right

~~~
tptacek
I'm also a crusader on this issue, as you know, so don't let me steamroll the
thread.

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jason_wang
I used to have the "trial period" mentality even though I didn't have an
answer for the "that's starting out on the wrong foot" skepticism.

But recently, a smarter-than-me CEO shared his hiring practice and he has won
me over. He proposes: hire the candidate as a full-time employee and offer the
candidate the salary/equity package as if the candidate has achieved his full
potential. Then, if the candidate works out as expected, then everything is
well. But on the other hand, if the new hire turns out to be sub-par, it would
be a lot easier for you to let him or her go. Because it'll simply be too
expansive to keep a sub-par employee around at the compensation package you
offered.

I think this is a great implementation of the hire fast and fire fast
philosophy.

------
isadeal
What if a good potential #1 asking for founder position?

~~~
balls187
You have to ask yourself:

1\. Are you a single founder, would a 2nd founder help? 2\. Do you already
have a 2nd founder who is technical/business? 3\. How far along are you? 4\.
How much salary are they willing to give up? 5\. Are you a first-time founder?

I was brought on as a co-founder, even though the business had a few months
head start. However I was the only dev, I was going to make the same
"salary"\--20k/yr, and that the company didn't really have much more than a
simple proof of concept.

Employees should expect a "reasonable" percentage of market salary. Founder's
should not.

