

Risks, Rewards, Stress: Early Employees & Founders - eladgil
http://blog.eladgil.com/2012/03/early-employees-versus-founders-risks.html

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autarch
I agree that founders take on much more risk and stress than the early
employees. I think the source of the discontent that some early employees
(like me) express is that the rewards for a founder are worth it, while the
rewards for an early employee generally aren't.

I wrote about this in more detail in a comment a few months back -
<http://news.ycombinator.com/item?id=3490364>

(Some day, I will write a blog post that goes into more detail. Really. I
swear. I'm totally on it. Any day now.)

~~~
michaelochurch
I agree with you. For two other categories of employment, the risks, rewards,
and promises are clearly laid out.

Founders: take on risk (no salary pre-seed, zero job security) but get a
massive payout if it works.

Big-company employees: no risk, high job security, guaranteed payout.

For startup employees, the bargain is murky and implicit. These employees take
some risk and stress (not as much as founders, but probably 30-40% as much) in
exchange not for a huge payout, but for the promise of a leadership position
when the company gets big. _That_ 's the (implicit) contract. It's not, "Get
$100 million when this thing exits" but "Get a VP-level position, that might
help you along to something else, when we hit 500 people".

The implicit nature of that bargain makes it problematic. A founder with 5% in
equity is always going to have those shares of stock. (His percentage can be
diluted, but he has legal recourse if it's done improperly.) Even if he's
fired, he has whatever equity he has vested. The early employee (whose equity
amount is small) who worked his ass off to get a leadership position in the
company as it grew can be denied that opportunity at any time for any reason.

There isn't an easy solution, because some early employees don't deserve the
leadership positions they want, but they usually aren't bad enough to be fired
either. My solution would be to give them very small-scale leadership, or even
autonomous contributor status (they can work on whatever they want, but can
only pull other people to their projects if someone else thinks it's a good
idea) as a token of appreciation. Perhaps that's because I think there are few
truly incompetent people; some just don;'t grow as fast, for whatever reason.

There's another dynamic that hits this whole thing in the side: as startups
grow, they start wanting "The Best" hires, which often means that they have to
hire people into positions of some status. But if your older employees feel
promised leadership positions, and those opportunities are bargained away to
new employees in order to make the best hires, you can end up with a conflict.

~~~
autarch
Also don't forget employees of small, profitable companies.

I work for a small, profitable company right now. It's great. The pay is good,
it's low stress, and I have a lot of control over the direction of the product
and the work I do. There's no expectation of crazy hours, and we have time to
do things well.

Yeah, I won't make a bazillion dollars, but I've already worked at two
startups, and clearly I'm not a bazillionaire.

~~~
michaelochurch
What's the company? That sounds like a great arrangement.

I find that both startups and big companies usually fail (not maliciously, but
just due to failures of introspection) to deliver on their non-monetary
promises.

Startups: people associate startups with interesting, creative work
reflexively. Not so, or not always. First, 80% of startups aren't doing very
interesting things (social semantic coupon aggregators? That's the business
plan analogue of OOP's VisitorFactoryObserverFactory pattern!) Even in those
other 20%, there's a lot of uninteresting stuff that has to be done in order
to meet the rapid client-acquisition or growth targets.

Related to this, every startup has deadlines, and that can be managed so it
doesn't become a problem, but too-often startups develop Deadline Culture and
accumulate technical debt at a rapid pace. (It doesn't take long.) One of
those unpublished startup negativities is how quickly and how often this
happens. It's not published because, by the time Deadline Culture is having
serious negative impacts (in code quality, organizational structure, morale
and blame-shifting when things break) the people being affected have double-
and triple-digit employee numbers (i.e. they're nobodies).

With big companies, the promise is that you can have a career within the
company that transcends "jobs". That is, if one job doesn't work out, you can
move to another one and still have a 12-year career (possibly moving into
another role entirely) with the company. In theory.

What happens in practice in BigCos is that manager-as-SPOF is still the law of
the land. Large-corporate middle managers often have zero interest in extra-
hierarchical collaboration, some actively want to isolate their reports, and
are just as liable to take employee's extracurricular interests (or outright
desire for transition) personally as startup founders. The problem with the
middle managers' emotional outbursts related to people wanting to "leave them"
is that they have a lot more power (within their organizations) than "jilted"
founders.

What I find darkly ironic is how many rapid-growth startups-- mostly managers,
engineers aren't this way-- want to become huge corporations (and naively
think they won't lose their character in the process). I find that
hypocritical. "We're agile and awesome because we're a small startup. We also
want to become bigger than Google." What people can't say (because it's
impolite) is that they _won't care_ that the thing became a BigCo because
they'll be very rich by then-- or at least, rich enough to easily move on.
It's a less brazen variant of "build to flip".

People tend to fetishize 200%/year growth curves and billion-dollar exits,
while ignoring the fact that anything growing that fast is going to get
destroyed in the process. Fuck 200%. If my income grows at a "piddling"
10%/year for the next 40, that will give me more money than I could ever need
at any stage of life (and more than I could ever deserve toward the end). So
I'd rather focus on building real skills and learning how to actually reliably
deliver value to the world than chasing some huge acquisition.

Out of curiosity, what technologies do you use at your company? I've become a
major fan of Scala of late, but I'm also impressed by Clojure and Ocaml.

------
klochner
Little bit of a strawman argument here regarding early employees taking on
equivalent risk - I don't know anyone who believes that, other than the
situation where early employees are unpaid and the 'product' is just a slide
deck.

As for how hard people work, I would expect people to work in proportion to
their expected payout. Founders have the biggest upside, so naturally they
work much harder. An early employee paid with salary and little equity doesn't
have the same incentives to be working 20 hours/day.

~~~
eladgil
Hmm, I am not sure I agree with the second part of your statement for a few
reasons. E.g.

1\. Relative utility of the upside. It is not the absolute value of the
outcome that matters per person, but rather the relative value.
<http://en.wikipedia.org/wiki/Utility>

2\. Other incentives (fun, interesting work, wanting the "startup experience"
etc.). These dont always exist, but often they do and people value them.

3\. Passion for making an impact. Some products are really exciting to work
on. Not everyone is in it just for the money.

I think in general my personal bias would not be to hire people who think
purely in economic terms about e.g. their work ethic. Obviously, you want all
the people who take the risk to work with you at a startup to do extremely
well, but you don't want people whose primary thought is "well, if I make 2X
more I will work 2X harder" as there are lots of ups and downs at a startup,
and sometimes it is unclear what the outcome will be.

~~~
sid6376
I am interested in knowing what do you mean when you say you do not agree with
the second part of the statement. Do you mean, just because I want some of the
things that you listed above, say the startup experience, does that mean I
should be working as hard as the founders?

~~~
eladgil
I mean: When I was working at other people's startups, I never thought "boy,
the founders have way more equity then me, I should slack off or not work as
hard because of that".

I always tried to do my best at whatever job I had, and would want to hire
people with the same attitude.

~~~
klochner
Yes, you want people who are passionate and want to work hard, but there are
sacrifices made to work 18 hour days, and people are much more likely to make
those sacrifices when their upside is in the millions rather than the
thousands.

The difference between a 60 hour week and an 80 hour week is pretty
significant in terms of personal sacrifice.

No one says "I'm going to slack off", it's just that the founders are
inherently (financially) more motivated.

If the money _isn't_ a motivation, then the founders should have no problem
giving out most of their own equity.

