I've always heard that a founder's salary should be the amount that allows the founder to focus on the business. The concept of a super low salary seems to be focused on the 20 something single crowd. I have a family to support, so I can't take a super small salary and eat Top Ramen. This may be a subtle way that older founders are discriminated against. The story I've heard from founders who have families is that they have a savings from a previous business that they are tapping into to make up the difference, or their spouse is carrying the majority of the family burden. Neither of these situations are mine and I'm sure I'm not the only one.
Isn't that how all businesses work these days, anyway? You can't start a business and expect to be able to support yourself until your business starts making money. This is only feasible if you are able to get into huge amounts of debt or if you already have plenty of resources (i.e, rich).
I have a wife and two kids (both under 5) and a big mortgage. I pay myself barely enough for us to get by (the lowest salary that I've ever earned). The difference is made up in savings and my wife's occasional consulting work. I'm the lowest paid in the company.
The cost of failure is so much higher, which simply means you're far more driven to succeed.
I'd argue that this can actually be a huge liability. Sometimes (a lot of the time, a majority of the time?) a ship's just gonna sink, and being overinvested in its not sinking can obscure the escape route, so to speak. Hard to imagine a scenario in which being able to shift gears/directions on 'go' isn't preferable to needing a specific thing to work out.
The question is whether the ceteris really is paribus. Lower burn is definitely helpful, but lower experience, fewer connections, lower maturity, and higher controlability are less so.
That said, older founders are also more likely to have access to capital, so of the kinds of discrimination I worry about in Silicon Valley, age discrimination is lower down on my list despite my salt-and-pepper beard.
Are you sure? There's probably a strong correlation between age and financial obligations and there's probably also a strong correlation between age and maturity/experience. Unless the pool size is very large, you are severely limiting the candidates by selecting for two mutually excluding parameters.
Calling it discrimination is a bit odd though - It smacks of entitlement. But investors might want to consider these factors.
Older founders have had more time to prove themselves and should in theory have a nest egg large enough to take a sabbatical to start a business.
For example, when I decided I wanted to start a business, I talked with my significant other about it at length. When we bought a house, we bought a duplex where the other half pays the entire mortgage.
Now, I'm actually able to focus on my business (or projects, or whatever really) better than most 20-somethings could because I have a supportive spouse with an income, previous income-generating projects under my belt, a nest egg and no rent to speak of.
So, while low (or no) salaries may have an anti-age effect, I'd suggest it's not by design and more relative to what people have previously accomplished and what their priorities have been.
No it isn't. <s> Of course it is easy to find a spouse that supports you, buy a house you can rent easily (wonder what will happen when the tenant leaves), have a nest egg ready so you can afford to not have a living salary. </s>
Most people, even in their 20's can't really easily afford to not have a salary unless they have the support of someone else (parents, spouse, family, etc). Making it seem like it is easy is what people are complaining about.
What is "age," practically, other than the accretion of responsibilities?
I don't think any of the people who worry about being impacted by ageism are speaking about age per se. They're more concerned with... let's call it "overtime-ism": a strong bias in favor of people who will be willing to work overtime. The video-game industry, Japanese megacorporation culture, and a large segment of silicon valley are all afflicted with overtime-ists, which seems to have a good overlap with where allegations of "ageism" are aimed.
When you're 22 and single, you've never had money of your own so you don't know how much to ask for or how to keep what you have.
When you're 34 and married, you can't just piss your wealth or career away because some frat boy with connections or a checkbook says that working with him will have you set for life inside of 2 years.
> I've always heard that a founder's salary should be the amount that allows the founder to focus on the business
From whose perspective? For you as a founder, certainly that makes sense (how else would you do it?), but requiring a higher salary is definitely a real disadvantage and your investors and cofounders are right to see it that way. It should surprise you not at all that having a high cost base limits your options and decreases your chances of success. For certain neutral-connotation definitions of "discrimination", that's a fine way to describe it, but it's hard to see why an investor would change their views there.
You can certainly argue that the extra experience you have from previous work makes up for that relative to a replacement candidate who can work for a ramen salary. I'm not completely convinced that's true in the general case; like you said, there are people your age (and presumably experience level) with war chests or breadwinning spouses. But it might be fine for you: "I'd like to make this deal worse for you (and, EV-wise, me) because I need to extract cash from the company, but I still think it's a good deal for you." There's nothing wrong with that, but be aware that's the argument you're making.
You can certainly argue that the extra experience you have from previous work makes up for that relative to a replacement candidate who can work for a ramen salary. I'm not completely convinced that's true in the general case
That's really the question. Is experience in industry worth anything in the case of a startup founder? You're saying you don't think so which obviously means it's a "worse" deal for investors.
An engineer with experience can earn a lot more annually in industry, so if they are given equal salary at a startup to somebody with no experience, what's happening is that they are being required to take on even more opportunity cost.
I think the bottom line is that a 20 something with a small pool of experience fits a very cookie cutter scenario that makes it an easy risk calculation for the investor. To say a deal is "better" or "worse" compared to an experienced founder who requires a larger salary is really impossible to calculate.
> You're saying you don't think so which obviously means it's a "worse" deal for investors.
I did not say that. Experience is worth a lot, I suspect . What I said was that needing a higher salary makes it a worse deal than not needing it. I think that was pretty clear. In fact, the next set of words after that snippet you quoted was:
> ; like you said, there are people your age (and presumably experience level) with war chests or breadwinning spouses
I was submitting that the choice between a 20-something with low salary requirements and an experienced hand with high salary requirements is a false one; i.e. the replacement ramen candidate may have equal experience. Lots of people are older and don't need salaries, and that's who you're competing with for limited investor resources. I know plenty of those people; it sounds like you do too. There's no law that says older people have to make more money.
And there's a very good reason why an experienced entrepreneur who can afford it should take less salary; their company is more likely to succeed because those leftover resources can be applied to the company. It even shows up in the data! So that certainly explains a bias against salary needs.
> what's happening is that they are being required to take on even more opportunity cost.
A separate point, but no investor cares how much opportunity cost you're taking on because it doesn't make the deal any better. There's no fairness rule at play here. Having a higher salary at your current job may improve your bargaining position  for a deal the investor already wants to pursue, but a) giving yourself a better bargaining position does mean the deal is worse for the investor, and b) it sounds like you're complaining that it doesn't improve your bargaining position, which sounds...good for the investor, no?
Best to stop think of your salary needs as some justified thing that flows naturally from your position of experience and should be somehow baked into the entrepreneurship process as a given, and start thinking of it as a exogenous negative you have to overcome with that experience and wisdom, not mention skill and hard work. Otherwise you end mispositioning your arguments like that.
 But don't know. I will say it's not some crazily hard calculation; for example, the analysis that came up with "The lower the CEO salary, the more likely it is to succeed." could simply adjust for prior experience (i.e Is this negative correlation because of stupidly overpaid 23-year-olds or are people being paid according to their demands and that isn't working out? Or maybe experience doesn't matter at all?). Then we'd know. So in a sense I agree that's an important question for investors to figure out ("How do I weigh the negatives of salary versus the positives of experience?"), just not the one I was addressing.
you aren't being discriminated against, you are presented with a disadvantage. There is a huge difference. Also, no one wants to eat a lot of ramen and pay themselves nothing. You value providing for yourself and your family higher than your company, which is the right answer, be lucky you have your family and respect the sacrifices of others.. please
I've found what you're saying to be true. having a minimum amount that doesn't leave one thinking about money in one's life is important.
The thing is, we change (for the better) as a person in our 20s.
I've worked and paid myself nothing, a little, more than needed, and now am settling decent amount that can service everything in my life beyond just breaking even.
I plan on being an entrepreneur for the rest of my life. I plan on working hard all the time, things are boring when I'm not. Still, I don't want anyone else other than my paying customers to tell me to go home if they don't like what I offer.. especially when software will be in high demand around the world for the rest of my life.
The bottom line is cashflow is king, in our personal, professional and business. The more this neglected as each day passes, the harder things get to getting to a point of no return where one starts permanently giving up other areas of life and experiences at the cost of entrepreneurship. Cashflow decides when and if we go home or give up or have to move on.
The longer one can set oneself up to survive in the business game (savings, low burn rate, being able to generate a few income streams reasonably passively) all teach entreprenurship from a sustainability perspective in addition to the "go hard or go home" mantra, because the majority inevitably go home, when they could have stuck around a few more years learning how to keep moving.
Since everyone who has tried to correct your comment on discrimination has been downvoted, I will try to explain it is as neutral a way as possible:
If, for any reason, a person requires a higher salary, and if investors prefer people who can accept a lower salary (and this preference is a fundamental preference, not an attempt to rule out founders because of other characteristics), this is not discrimination.
To say otherwise, would be to say that the only way to avoid discrimination is to actively pay people who "need" the money more. Is that really what people believe is fair, or good business? Do I deserve less pay for the same work because I don't have a family?
* Both of us founders are each @ $80k and have been the same with the exception of a couple of months at minimum wage.
The goal with these salaries, was to be able to not think about money while working on the company. It kind of worked. 80k in NYC doesn't get you very far unless you're making huge lifestyle changes and not eating out with friends, or traveling for fun etc... I moved out of Manhattan to Brooklyn to save a bit on rent.
I'm planning to raise our salaries later in 2014 (don't tell John, it'll be a surprise).
For other examples, check out what Joel @ Buffer has shared about their salaries:
Especially when you consider that after taxes, retirement savings, etc, you're likely to take home less than 50% of gross. If you're single you can still have fun on 80k, but it's peanuts if you want to have a family and/or travel.
“In practice we have found that if you only ask one question, ask that.”
As most CEO salaries are low, the answer has very little information value. Adding numbers from that chart, ~8k / 11k founders surveyed were making do with less than 50k/yr.
Looking for the top 10% of businesses by asking a question that only discriminates against the bottom ~30% is better than nothing. Assuming this gave no false negatives, it would increase the investor's hit rate by ~43%.
Any lower than 50k and a founder is either independently wealthy, living a pauper lifestyle (and being stressed out instead of concentrating on their startup), or using an expense account. So the positives don't all mean the same thing. If you're independently wealthy because of a previous success, your odds are already much higher. A person stressed out about money however is likely to make really poor decisions.
This correlation is lost on me. Founders are entitled to make a living wage. In NYC being paid less than $50k would mean a few things: !) You have to live in squalor. 2) You have money from somewhere else to support the rest of your needs. 3) You use the business to pay for your expenses
I would like to see the size of the business as it relates to compensation. A single founder with no employees and no office space can make $50k/yr salary and live comfortably if their rent and expenses are on the business. Otherwise I am dumbfounded by how this works...
It's not that tough in NYC if you go with lots of roommates, or are willing to take the bus from cheap NJ living each morning. Even after I stopped taking so much equity instead of cash and moved into the city proper, I still managed a basement apartment in Chelsea for only $1,500/month. Something like Washington heights at the top of the island would probably be half that.
The lower the CEO salary, the more likely it is to succeed.
Sure, but this an obvious "correlation is not causation" situation and the reason for this is unpleasant.
If you're from a middle-class background, you have to take full salary because that's the only money you have to live on. If you're from an upper-class background, taking full salary hurts your relationship with investors, and will possibly hurt your bargaining position in future negotiations.
People from middle-class backgrounds cannot afford to pay themselves under $50,000 per year in San Francisco. As for the upper class, if they have trust funds, they can and probably will accept low salaries, just as there are publishing interns all over New York, making what would be poverty wages, and who live on their trust funds.
People from upper-class backgrounds are more likely to have the connections that will make their startups succeed.
That is the reason for the correlation. It's just another incidence of (unintended?) VC classism.
This post will be downvoted to hell, but I have been wanting to say this for a while and can't find a way to contact you. (My email is my HN handle at gmail)
You may or may not be right about this or the rest of VC-istan. But I LOVE the fervor and color of your posts. I love hearing a contrarian view. And I would love to buy you a cup of coffee or beer to say thanks for making my time of HN so much more interesting.
Edit: Thanks for the reply, and I'm relieved to hear others share my sentiment. I have seen you refer to rankban elsewhere, but this was the first time I understood what you meant.
Also, yesterday I published research about Everpix shutting down and I got two groups of feedback:
1) From startup founders generally positive comments or clarifying questions. All were constructive conversations.
2) From VC-connected people generally defensive FUD and ad hominems.
It was very interesting to watch, and you are certainly not alone.
I'm one of those who commented on your post yesterday, and I'm sure you placed me on the second bucket. I'm in no way connected to VCs. However, my post was overly snarky, so I'll take this opportunity to elaborate.
I thought your post had interesting content and a thorough analysis. But the tone of your post was off-putting. You had a condescending tone and spoke in absolutes: "Everpix should have shut its doors immediately as it never could be a viable business". Particularly when taken in the context of swisspol's reply it's obvious that your commentary missed the mark.
The comparison to your own photo startup felt like an unnecessary addition. The constant assurances that you had done the right thing in aborting your launch felt like self-justification rather than something that was added for the reader's benefit.
I actually was just counting the 38 emails I got. I didn't feel like I could tell one way or another from HN comments or twitter, and I appreciated your thoughts. The snark was earned! (And I upvoted you)
About the tone -- I think you're right to criticize it. I liken the situation to competing against a sports player who uses steroids when you do not. The other player gets the press, the accolades, and the reputation even though he cheats. So when the player gets caught with a failed drug test and suspended from the sport, of course it feels great to be vindicated.
The Everpix team was dumping its product on the market and either lying or ignorant about it. They and the others left my team with the very hard decision to abandon our own sweat and blood for no fault of our own. We loved our product and wanted to be able to compete, but we saw we would not get a seat in this game of musical chairs. We resented the other competitors and their high capitalization, and we prefer to limit VC pitch tours. Failing to include that bias would have been dishonest, and the resulting tone was cathartic. I have no apology for it.
Swisspol's reply reinforced to me that the team was unaware of their underlying failed business model -- nothing in my analysis assumed constant costs or even distributions as suggested -- and selling a product for less than variable costs throughout 2013 was major business sin. It's forgivable for the first months or so, but the fact it persisted until the day they closed the doors is very telling. And yes, they should have closed their doors "immediately" when it was obvious from very early in the data they could not get positive margins, just as we did. Remember, this was a paid product and not an Instagram clone. My analysis was not hindsight, it was confirmation of hard work I did in April 2013. The VC-related emails had a similar tone attacking the analysis as "unfair" or "inappropriate" for a web-based startup.
Everpix should be a cautionary tale for other startups to make sure their gross margins are positive! My other research has a much more neutral tone, but in this case photos are very emotional.
Agreed. I've gained a lot from his comments even if I don't always agree with them. I think at the very least many of his observations are incredibly astute and intellectually interesting, even if some may turn out to be ultimately wrong. That's just my opinion, and maybe I just enjoy the fervent contrarian narrative amidst the hoohah of HN, but I think his karma suggests that many others enjoy it and derive some meaningful insight from it as well.
This post will be downvoted to hell, but I have been wanting to say this for a while and can't find a way to contact you.
Actually, it's at +9 [ETA: changed during writing of reply] right now. [+12 as of 11.56 PST]
The reason my posts tend to end up at the bottom is not (in general) downvoting or low karma scores. Of course, I've had some posts get downvoted, and a smaller number that deserved it. (Who hasn't?)
The ranking system was revamped around summer 2013 to include personal penalties that seem to have hit a large number of the top-100 posters (including respected ones, and less controversial ones than me). It's called "rankban". I also experience "slowban", which is 20x worse latency when logged in than in incognito mode.
Rankban is supposed to make us go away, I presume, but it actually had the opposite effect on me. I post more on HN post-rankban. It suggests that my anti-VCistan writing is in danger (as perceived by PG) of actually being effective. I'd probably be restricting myself to technical articles only (I don't care that much about VCs) were it not for rankban.
Is this really supposed to be a punishment or just to mitigate that "famous" posters may more often get voted up on name alone, where an equivalent comment from a less well known person wouldn't receive as much attention?
I suspect many founders of profitable non VC funded startups have small salaries and instead "pay" themselves through dividends as it can have tax advantages which might color the value of such graphs. That said, I believe such companies aren't always considered "startups" around these parts for some reason but that can be hazy when it comes to other people's surveys.
Yes this article is somewhat misleading in my opinion. I would imagine that a lot of CEOs only pay themselves a fraction of their income through typical payroll. Steve Jobs famously paid himself $1 salary. Although in his case he apparently didn't take other forms of compensation since apparently he didn't need the income. But many other CEOs are known to take low salaries and then get millions in bonuses or stocks.
Although in his case he apparently didn't take other forms of compensation since apparently he didn't need the income.
He received millions in stock options (e.g., a December 2001 grant of 7.5 million options to Jobs that subsequently ended in a backdating scandal) and an Apple-sponsored private plane beyond his salary.
This was the very first thing I thought of. In order to take advantage of forms of income with a lower tax rate (eg dividends) you must also pay yourself a "reasonable wage" subject to regular income taxes. However, the tax code largely disincentives taking any additional compensation above that "reasonable wage" as vanilla income when you have other methods of receiving the money at lower tax rates.
Right. Keyword here being 'salary'. Most business owners pay themselves only enough of a reasonable salary to keep from getting audited and compensate themselves through other, technically non-salary, means, for tax purposes.
Before you jump to conclusions from this graph  about India, keep in mind that for most families, making $50k a year is a glory. You can live luxuriously, drive "high-end" car(s), but a moderately-large house in a couple years etc. You get the idea. I always hate it when they compare economies in $ for everyone.
I don't think living in India makes consumer electronics, cars, worldwide travel, world class education, clean neighborhoods, reliable electricity, good plumbing, or anything like that cheaper. I've moved between developed and developing countries, and I have found that first world goods and services are more expensive in developing countries, the only thing that is cheaper is labour. In other words if you want people to cook and clean for you, serve you food, mend your clothes and fix your car, it will be cheaper. The cost of living only feels cheaper in developing countries if you consider the population of that country to be your peers and you generally do the same things for food, entertainment and running a household as them.
Yes, it seems rather disingenuous to lump different countries (or even states/cities within the US) into one ladder. 50K in San Francisco is a lot less than 50K in .. well, pretty much everywhere else.
Somewhere along the line, this concept of a founder/CEO taking a tiny salary got worked into the way start-ups work. Should a founder be paying themselves a huge salary and living it up based on that? No. Should they be able to pay themselves a livable wage that doesn't mean they are spending their nest egg or making drastic cuts in how they live? Yes.
This article is lacking in one key area, which makes the argument valid or not. How much money these startups are making. With out that data, this is just another self fulfilling prophecy that the VCs and their followers can point to and say, see?
I'd be lumped into the older founder class and having a family to support I could not take a giant pay cut if I started a business. I save and manage my money carefully but I would pay myself the same salary I make now so that I could at least have the same level of money comfort I have now. Doing anything differently is simply stupid and a VC that is angry about it isn't someone you should do business with. It's a way they keep their power when at the end of the day the people with the idea that makes all the money should have the power. You want 10 or 20% of my company? Great, I'm going to pay myself what I'm worth. The minute people stop letting themselves be bullied by VCs is exactly when this kind of stupidity stops happening.
I would just like to mention that salaries are not very comparable across countries or even cities. The cost of living in silicon valley (San Francisco area) is twice as much as living in Chicago and several orders of magnitude greater than living in India.
Salary should be low enough for the founder to feel like he needs to hustle, but not so low that he is desperate. His mental energy should be focussed on the business, not on whether he will have enough money to pay rent and eat this week.
This talk of "salary" is misleading. Everyone must know by now that the smartest guys in the room get compensated by other means, if only because if you say the "s" word, the IRS hears it.
If your founder is only making $75k as salary in Silicon Valley, and he looks like he still eats and showers regularly, he's getting compensated in some other way as well. Who knows where it is coming from, but you're definitely not eligible for it as a mere salaried worker bee.
> In Silicon Valley, 75% of founders pay themselves less than $75,000 per year and 66% pay themselves less than $50,000 per year, according to the data.
These numbers are lower than what I would consider reasonable for a founder . You certainly can live in the Bay Area on these salaries, but it means spending more time thinking about how and where, possibly having a longer commute, and possibly dealing with poor roommates. All which waste time, time which would be better spent on the start-up.
 For an SF-based single founder, I'd consider $80k reasonable. Higher if (s)he has college debt to pay off.
That's a good point. If you pay yourself below the poverty line, you can get food and housing subsidies while you defer your compensation and accrue unrealized interest and gain unadjusted-basis capital and pump your defined contribution retirement plan and permanent life insurance up to mind-bogglingly high levels.
w00t! Who knew it was so easy to be amazingly successful!?!! Yeehaaawww!! I'd just like to thank all the people who helped me make it to this momentous occasion - my mom, my dad, my 3rd grade science teacher, ...