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This sounds correct in theory but in practice nothing you mentioned actually matters. I'll explain why. If you hire 1 in 15 employees for significantly more sa

This sounds correct in theory but in practice nothing you mentioned actually matters. I'll explain why. If you hire 1 in 15 employees for significantly more salary than the other 14, it makes almost no difference for budgeting, forecasting, burn rate, etc. If every employee costs you $250k/yr, and you have 15 employees and no other costs, your burn rate is $3.75MM/yr. If you have $25MM in the bank, you have 6.66 years of runway. If you pay a single employee $50k/yr more, then that's 6.57 years of runway. If you pay them twice as much ($500k) that's 6.25 years. The larger the company, the easier this becomes as so few people actually negotiate higher salaries, or are important enough to warrant dramatically larger salaries, that it becomes a rounding error. Model, projections, salary bands -- and of course rules -- were all made to be broken.

tomnipotent 5y ago
> but in practice nothing you mentioned actually matters I've run P&L (and hiring) for a long time, so far from just theory. It absolutely makes a huge difference. Salary is easily the largest expense for a vast majority of businesses, and especially for fast growing start-ups it can quickly get out of hand. If a company lives long enough, it will eventually have a lay-off or some sort staff reduction event like post-acquisition bleeding. It's a right of passage. > If you pay a single employee $50k/yr more Except it's not just one employee, especially in the growth stage. You end up with a situation where you have 10-15 new open hires, and over the course of a few months you fill them and several of them end up going over budget, because the needs of hiring outweigh financial sense in the thick of getting things done. Each decision was made individually and in the throes of running a company, so what seemed fine as 1-off decisions quickly aggregate into a problem. So then you do your next budget review and compare to plan, and you're suddenly 15% above plan. You were supposed to add $1M in payroll to SG&A, but the latest sheets show it at $1.25M. Keep in mind you're a start-up, so revenues are not stable and if you're Series C may be operating under the assumption that no new cash is ever going to come in. > then that's 6.57 years of runway No start-up is operating with 6 years of cash to burn, and certainly no early-stage companies where investors are putting pressure on you to spend to grow. Nice thought, though. > the larger the company, the easier this becomes as so few people actually negotiate higher salaries Larger companies have more flexibility, but even more strict budgeting. The flexibility is because of the float on min/max of salary bands, which when combined gives HR a lot of room to customize packages. But overall, most companies still tightly manage payroll and headcount expenses because it can literally break the bank.
- xyzzy_plugh 5y ago
  > No start-up is operating with 6 years of cash to burn, and certainly no early-stage companies where investors are putting pressure on you to spend to grow. Nice thought, though. Sure, many aren't, but when VCs are throwing dozens of millions of dollars at you and your only operating expense is employees, it's not hard to have a 5-15 year runway where the only bottleneck in growth is hiring. I know three Series A corps with a 10+ year runway that have shown up on HN, and they all pay comically well for startups. The CEOs I know and respect cut cheques for whatever they need to get the job done.
  - tomnipotent 5y ago
    > I know three Series A corps with a 10+ year runway Outliers, by definition, are generally not a good example of a population. Investors are not interested in you sitting on their money, and they will push you to spend faster. There are always outliers, but the average/median time between fundraising rounds for most start-ups is 18-20 months with average/median Series A raise of $10M/$20M. > for whatever they need to get the job done. Spending money is a gamble, you have no idea if what you're spending it on is going to work. Most start-ups - and businesses in general - fail. Even the ones where the CEO spent the money to get the job done. And if somehow a founding team has managed to turn a Series A into 10+ years of runway, it's either because burn was low or they found a profitable business model and stopped being a start-up. My gut tells me most fall into the later category.

tomnipotent 5y ago

> but in practice nothing you mentioned actually matters I've run P&L (and hiring) for a long time, so far from just theory. It absolutely makes a huge difference. Salary is easily the largest expense for a vast majority of businesses, and especially for fast growing start-ups it can quickly get out of hand. If a company lives long enough, it will eventually have a lay-off or some sort staff reduction event like post-acquisition bleeding. It's a right of passage. > If you pay a single employee $50k/yr more Except it's not just one employee, especially in the growth stage. You end up with a situation where you have 10-15 new open hires, and over the course of a few months you fill them and several of them end up going over budget, because the needs of hiring outweigh financial sense in the thick of getting things done. Each decision was made individually and in the throes of running a company, so what seemed fine as 1-off decisions quickly aggregate into a problem. So then you do your next budget review and compare to plan, and you're suddenly 15% above plan. You were supposed to add $1M in payroll to SG&A, but the latest sheets show it at $1.25M. Keep in mind you're a start-up, so revenues are not stable and if you're Series C may be operating under the assumption that no new cash is ever going to come in. > then that's 6.57 years of runway No start-up is operating with 6 years of cash to burn, and certainly no early-stage companies where investors are putting pressure on you to spend to grow. Nice thought, though. > the larger the company, the easier this becomes as so few people actually negotiate higher salaries Larger companies have more flexibility, but even more strict budgeting. The flexibility is because of the float on min/max of salary bands, which when combined gives HR a lot of room to customize packages. But overall, most companies still tightly manage payroll and headcount expenses because it can literally break the bank.

xyzzy_plugh 5y ago
> No start-up is operating with 6 years of cash to burn, and certainly no early-stage companies where investors are putting pressure on you to spend to grow. Nice thought, though. Sure, many aren't, but when VCs are throwing dozens of millions of dollars at you and your only operating expense is employees, it's not hard to have a 5-15 year runway where the only bottleneck in growth is hiring. I know three Series A corps with a 10+ year runway that have shown up on HN, and they all pay comically well for startups. The CEOs I know and respect cut cheques for whatever they need to get the job done.
- tomnipotent 5y ago
  > I know three Series A corps with a 10+ year runway Outliers, by definition, are generally not a good example of a population. Investors are not interested in you sitting on their money, and they will push you to spend faster. There are always outliers, but the average/median time between fundraising rounds for most start-ups is 18-20 months with average/median Series A raise of $10M/$20M. > for whatever they need to get the job done. Spending money is a gamble, you have no idea if what you're spending it on is going to work. Most start-ups - and businesses in general - fail. Even the ones where the CEO spent the money to get the job done. And if somehow a founding team has managed to turn a Series A into 10+ years of runway, it's either because burn was low or they found a profitable business model and stopped being a start-up. My gut tells me most fall into the later category.