4 ms·

Under this "canonical" answer, ONE of those layers owns as much as the rest of the company combined. By some curious phenomenon, this outsized layer belongs to

by kzhahou 11y ago

Under this "canonical" answer, ONE of those layers owns as much as the rest of the company combined. By some curious phenomenon, this outsized layer belongs to... the person who invented the scheme. What a twist! Founders should own as much as every single other contributor and investor, combined?? They should keep several orders of magnitude more than all the other professionals that give years of their life, and make important decisions and breakthroughs? Only greed and self-importance justifies this outlook. The company's first non-founder employee takes a HUGE risk. He joins when no one else has taken that leap of faith. He joins maybe a few weeks after the founders started up. He takes a huge financial hit, foregoing that fat salary and bonus of the established company. And without those first employees, there will not be enough product or progress to show, to recruit the next batch. Derek Sivers explains this best in his First Follower talk [0]. That employee's reward? A percent (if he's a good negotiator). Compared to the founders' 50%. How equitable! [0] https://sivers.org/ff https://sivers.org/ff

kanwisher 11y ago
Agreed, I don't know why anyone would come in as employee number 1 at a startup. You take a large portion of the risk with almost no upside. At least if your engineer number 20 your getting full salary and benefits and you have no delusions about your stock option value. I think Joel's post is not correct. Most people have to just discount all options to zero value
- sbov 11y ago
  Before coming to this site I never realized how shafted employee number 1 gets at most startups. I've worked with the same CTO as employee #1 at various startups for the last ~10 years. I generally get around 5%. The idea that people would take 1% or less sounds crazy to me. It's just not worth the hours and stress it involves that early on. In return I earn about 33-50% less salary than what I probably could elsewhere. So far it's paid off for me. But if I got less than 1% instead I would be worse off for it.
- mbesto 11y ago
  Simple. Look at early Google and PayPal employees (Marissa Mayer, Dave McClure, Keith Rabois, Reid Hoffman, etc). They are kings in the valley right now. It's an irrational aspiration, but if you happen to lock in early at "the next big thing", the opportunity doors swing wide open.
  - kzhahou 11y ago
    Sergey and Larry had 30 BILLION dollars in stock on the day of IPO. Google made a lot of multi-millionaires, but the wild discrepancy between founder and non-founder equity was present there as well.
wdewind 11y ago
Yes but that doesn't take into account that startups are far more likely to hire someone in a growth/reach position. Yes the employee takes a risk, but in many cases the company is taking a risk hiring them as well. Joining a startup early isn't the best choice for everyone, but for someone looking for a new role, or significant responsibility growth, it can be a great opportunity to prove yourself that you otherwise wouldn't be offered at a bigger company. Examples of this can range from someone coming out of a bootcamp into their first engineering position, or a senior engineer from a bigger company joining as CTO of a startup.
- kzhahou 11y ago
  The company takes a risk on the employee. The employee takes a risk on the company. When the company IS finally successful, it's due to EVERYONE's work. Not in equal amounts, certainly, but not at a ratio of 50-5000x from founders to every other individual.
  - wdewind 11y ago
    > Not in equal amounts, certainly, but not at a ratio of 50-5000x from founders to every other individual. I'm not sure I can agree with that statement. All I can say is that if you think you have a deal that isn't fair to you you should leave. But I can certainly imagine scenarios in which a founder contributes 50x more value than an early stage employee.
- angersock 11y ago
  company is taking a risk hiring them as well This is a nice way of saying the company can't/won't pay for some "ideal" candidate. or significant responsibility growth This is a nice way of saying "will be taken advantage of". ~ The issue I have taken with your stance is that it seems to presuppose some business that is automatically a big hit were it not for a potentially terrible hire, instead of a business that won't go anywhere without good execution by a team. It's a subtle but important difference, and not recognizing that difference leads to treatment of employees as tools instead of (effectively) later-stage cofounders.
ryandrake 11y ago
I'd argue that in many cases, employee #1 takes a much, much greater risk than the founders. Now, before someone "disproves" my point by showing a counter-example, I'll admit this doesn't apply to all founders in all companies, but founders tend to have plenty of money to fall back on. That cushion is what allows them to be founders. If the business fails, well, kinda sucks for them--they potentially lost a chunk of it, but they're not homeless. They'll dream up the next idea and go at it again. Because they can afford to. Employee #1 on the other hand, is working for a living. They're likely dependent on their employer. They're foregoing a more lucrative salary somewhere else, not to mention savings, 401k's, health insurance. They need to make rent next month. If the business fails, they're scrambling to find another job ASAP. Sure, in terms of "raw number of dollars", they're not risking as much as the founders, but in terms of financial security/stability, future earnings, and career growth, they're taking a huge risk. Shouldn't their reward be commensurate with this risk?
- fleitz 11y ago
  It should be, which is why they should quit and become founders, which is why everyone is a founder these days rather than employee #1
  - kzhahou 11y ago
    The old Factory Owner's Defense.
    - fleitz 11y ago
      Well, then start a business and give all your equity away, it worked for Bobs Red Mill. It's like people who complain about how much garbage men/some other shitty job make but then don't become garbage men.
- lectrick 11y ago
  I was Employee #1 at thredup.com, which just raised $81 million at a $500 million valuation. I'm no longer with them (parted amicably), but I still have a bunch of stock there. At the time, I had it reviewed by a lawyer, but as a tech guy, I probably didn't get a great deal. The CEO and CTO have not responded to any inquiries by me yet on what the current valuation of whatever I still own might be. I'm sure they're too busy growing the company :P

by kzhahou 11y ago

kanwisher 11y ago

Agreed, I don't know why anyone would come in as employee number 1 at a startup. You take a large portion of the risk with almost no upside. At least if your engineer number 20 your getting full salary and benefits and you have no delusions about your stock option value. I think Joel's post is not correct. Most people have to just discount all options to zero value

sbov 11y ago
Before coming to this site I never realized how shafted employee number 1 gets at most startups. I've worked with the same CTO as employee #1 at various startups for the last ~10 years. I generally get around 5%. The idea that people would take 1% or less sounds crazy to me. It's just not worth the hours and stress it involves that early on. In return I earn about 33-50% less salary than what I probably could elsewhere. So far it's paid off for me. But if I got less than 1% instead I would be worse off for it.
mbesto 11y ago
Simple. Look at early Google and PayPal employees (Marissa Mayer, Dave McClure, Keith Rabois, Reid Hoffman, etc). They are kings in the valley right now. It's an irrational aspiration, but if you happen to lock in early at "the next big thing", the opportunity doors swing wide open.
- kzhahou 11y ago
  Sergey and Larry had 30 BILLION dollars in stock on the day of IPO. Google made a lot of multi-millionaires, but the wild discrepancy between founder and non-founder equity was present there as well.

wdewind 11y ago

Yes but that doesn't take into account that startups are far more likely to hire someone in a growth/reach position. Yes the employee takes a risk, but in many cases the company is taking a risk hiring them as well. Joining a startup early isn't the best choice for everyone, but for someone looking for a new role, or significant responsibility growth, it can be a great opportunity to prove yourself that you otherwise wouldn't be offered at a bigger company. Examples of this can range from someone coming out of a bootcamp into their first engineering position, or a senior engineer from a bigger company joining as CTO of a startup.

kzhahou 11y ago
The company takes a risk on the employee. The employee takes a risk on the company. When the company IS finally successful, it's due to EVERYONE's work. Not in equal amounts, certainly, but not at a ratio of 50-5000x from founders to every other individual.
- wdewind 11y ago
  > Not in equal amounts, certainly, but not at a ratio of 50-5000x from founders to every other individual. I'm not sure I can agree with that statement. All I can say is that if you think you have a deal that isn't fair to you you should leave. But I can certainly imagine scenarios in which a founder contributes 50x more value than an early stage employee.
angersock 11y ago
company is taking a risk hiring them as well This is a nice way of saying the company can't/won't pay for some "ideal" candidate. or significant responsibility growth This is a nice way of saying "will be taken advantage of". ~ The issue I have taken with your stance is that it seems to presuppose some business that is automatically a big hit were it not for a potentially terrible hire, instead of a business that won't go anywhere without good execution by a team. It's a subtle but important difference, and not recognizing that difference leads to treatment of employees as tools instead of (effectively) later-stage cofounders.

ryandrake 11y ago

I'd argue that in many cases, employee #1 takes a much, much greater risk than the founders. Now, before someone "disproves" my point by showing a counter-example, I'll admit this doesn't apply to all founders in all companies, but founders tend to have plenty of money to fall back on. That cushion is what allows them to be founders. If the business fails, well, kinda sucks for them--they potentially lost a chunk of it, but they're not homeless. They'll dream up the next idea and go at it again. Because they can afford to. Employee #1 on the other hand, is working for a living. They're likely dependent on their employer. They're foregoing a more lucrative salary somewhere else, not to mention savings, 401k's, health insurance. They need to make rent next month. If the business fails, they're scrambling to find another job ASAP. Sure, in terms of "raw number of dollars", they're not risking as much as the founders, but in terms of financial security/stability, future earnings, and career growth, they're taking a huge risk. Shouldn't their reward be commensurate with this risk?

fleitz 11y ago
It should be, which is why they should quit and become founders, which is why everyone is a founder these days rather than employee #1
- kzhahou 11y ago
  The old Factory Owner's Defense.
  - fleitz 11y ago
    Well, then start a business and give all your equity away, it worked for Bobs Red Mill. It's like people who complain about how much garbage men/some other shitty job make but then don't become garbage men.
lectrick 11y ago
I was Employee #1 at thredup.com, which just raised $81 million at a $500 million valuation. I'm no longer with them (parted amicably), but I still have a bunch of stock there. At the time, I had it reviewed by a lawyer, but as a tech guy, I probably didn't get a great deal. The CEO and CTO have not responded to any inquiries by me yet on what the current valuation of whatever I still own might be. I'm sure they're too busy growing the company :P