Many people in tech roles dream of landing a spot with a fast-moving start-up. The mythology (and current salary information) around the early employees at companies like Google, Facebook, LinkedIn, or Microsoft is enough to make even the most risk-averse tech employee consider leaving their comfy corporate gig and rolling the dice on an exciting, new potential unicorn.
Of course, for every amazing story you hear of a multi-millionaire angel investor who started out as a young software engineer working out of a garage, there are countless others of people falling flat on their faces. People who risked it all, and unfortunately, didn’t come out on top.
Luckily, we’ve come a long way since the days of Microsoft’s first employees working from a garage in Albuquerque. With approximately 80 new companies launching every hour, the tech world offers plenty of insight on how to negotiate a job offer at a start-up so that you can minimize risk and maximize the potential value of the opportunity.
So, that’s what the Paysa team is sharing with you here today. To kick things off, let’s take a quick look at the salary information and other key points of an offer you might receive from an early stage start-up:
Components of a Start-up Job Offer
#1. Base Salary
Here’s a simple truth for you that can help you evaluate whether working for a start-up is right for you:
The base salary should be the least important aspect of a job offer from a start-up.
Simply put, if you want a big base salary (and have the talent to demand it), you’re better off working for a big tech company that can afford to pay you what you deserve up front. Start-ups rarely can compete with the base you’ll receive from a company like Twitter or Apple.
Most have limited funds that they can commit to the upfront costs of a significant base salary. That doesn’t mean you don’t deserve adequate compensation; it just means that if you’re thinking of joining a start-up, be prepared to bet on the long game through more incentive-based compensation, such as:
#2. Bonus and Commissions
Performance pay incentives like bonuses and commissions help start-ups cover the gap between their job offer and what you likely deserve to earn based on your salary and experience. Generally speaking, bonus plans at start-ups will be significantly more lucrative than what you can expect to see from one of the tech giants.
But, of course, you need to perform well to ever see that money. Some of your ability to perform hinges on the start-up itself. Slow decision making, ill-advised product roadmaps, and inadequate sales or marketing could significantly hinder your ability to hit your bonus—even when you’re doing your part perfectly. That’s why it’s so important to research and understand your start-up long before negotiating a job offer. You need to know:
- How the company is set up
- What their product roadmap looks like for the future
- How they stand apart from the competition
- What the current team looks like
- How decisions get made within the company
Asking questions about these key areas during the interview process will save you some headaches during the offer negotiation stage. But, no matter what, make sure you have a clear scope on each of these areas before accepting anything.
Your base and bonus can be a great way to pay the bills, but those start-up millionaires didn’t get their money from bonuses—it comes from equity:
There are plenty of great reasons to consider joining a start-up. More autonomy, better career growth potential, and a bigger influence over product direction are just a few of them.
Equity is what makes the risk of joining a start-up worth it. The potential for a big payday down the road when the company goes public or gets acquired is enough to make some of the top talent in tech jump ship from huge companies to small start-ups.
The Problem with Negotiating Start-up Job Offers
You’d go to Paysa.com, run a salary search for the company and job title, and immediately see this:
It provides a simple, accurate breakdown of exactly how much you can expect in base salary, bonus, and equity. You could then use that information to negotiate aspects of your compensation appropriately. The problem is, salary information like this doesn’t exist for companies with ten employees. So the question comes up:
How do you know the baseline salary information to measure your offer against, how do you negotiate a job offer from a start-up?
Here are a few basic rules to live by when it comes to start-up salary negotiation:
#1. Never Accept the First Offer
A company with tight funds that needs to justify every single dollar spent to investors will naturally (and understandably) try to get the best possible deal for talent. It’s hard to fault them for it, but that doesn’t mean you need to accept it. Push back on your initial offer to see where the company has flexibility. If they come back and offer a bit more equity but the same base, then use equity negotiation as the hinge to accept an offer. Check out this post from the Paysa blog to see what you can negotiate when a higher salary isn’t an option.
#2. Negotiate Your Bonus to be Based on Your Performance (not Company Performance)
The more you can shape a bonus plan around criteria you control, the more likely you’ll be to actually earn that bonus at the end of the year. That’s why negotiating not only the dollar amount of your bonus but also the stipulations for how you earn it can be a great way to get the most from your start-up job offer.
#3. Follow Paul Graham’s Formula for Calculating Equity
Paul Graham wrote a simple formula for calculating equity on his personal blog over ten years ago, and it still holds true today:
n = (i – 1)/i
Here’s Paul describing how it works:
“For example, suppose you’re just two founders and you want to hire an additional hacker who’s so good you feel he’ll increase the average outcome of the whole company by 20%. n = (1.2 – 1)/1.2 = .167. So you’ll break even if you trade 16.7% of the company for him.”
#4. Use Paysa to Gather Relevant Cost-of-Living and Salary Data
While you may not be able to get the salary information for small start-ups from Paysa, there’s still a ton of valuable data at your disposal that can help with negotiations. If you’ve been offered a job as a UX designer in New York City, for example, you could look up the average salary information for that role in that market:
And, you could look at the cost-of-living data for New York, too:
We’re here to provide valuable advice and help you understand your market value. If you’re thinking about applying for a job at a tech start-up, check out Paysa.com today to begin exploring salary and cost of living data.