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People often forget to factor in the value of risk. The reason engineers who join startups rather than found them make a fraction of what the founders make is b

People often forget to factor in the value of risk. The reason engineers who join startups rather than found them make a fraction of what the founders make is because they didn't take on the initial risk of starting the company, which they are of course free to do anytime they like by starting their own company.

serverholic 3y ago
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lejoko 3y ago
There is usually another reason (and I share it) : they don't have enough money to start their own company without it being too big a risk. It is an order of magnitude easier to take risks when you already have enough money so that your family is not at stake...
- marknutter 3y ago
  You're only proving my point about the value of being able to take on risk.
  - lejoko 3y ago
    I don't see how. You said that engineers can take risks if they want. I say that: 1. a lot can't take any risk at all, even if they'd be willing to, since they have no money. 2. the level of the risk you take depends enormously on your initial wealth. Wealthy founders take a lot less risk than founders who invest their life savings. And when you get to the other side of the investment, when you win, the money you earn does not depend at all on the level of risk you took. But when you lose, it totally depends on it. the risk is not the same for everybody.
    - marknutter 3y ago
      What you're saying effectively boils down to "being rich is better than being poor". Risk is still risk, and it has a market value, whether or not you want to acknowledge it.
tshaddox 3y ago
Who do you think is taking on risk with downside that is remotely comparable to an individual engineer losing 2 years of salary?
- marknutter 3y ago
  If I invest my life savings into founding a startup and it fails, I lose my life savings. The engineer I hired to help build the company loses nothing.
  - lejoko 3y ago
    If I invest pocket money (the same amount as you, or even more) into founding a startup with you and it fails, I lose pocket money. The engineer we hired together to help build the company loses his job and may find himself with serious problems because of that. Risk is in the eye of the beholder...
    - marknutter 3y ago
      You as the founder also lose your job though..
lifeonlars 3y ago
I don't think you are accurately critiquing the point made above. It is right that founders have a vastly different risk/reward tradeoff to employee engineers. I don't think that is the socialist engineers' argument. Suppose there are 3 people involved in a startup: the founder, the engineer and the investor. The engineer gets $300,000 for 2 years' work. The founder gets $200,000 for 3 years' very intense work + $10 million if the startup succeeds. The investor puts in capital, does no work, and gets $40 million if the startup succeeds. It is arguable that the founder and the engineer are getting a comparable amount but with a different risk profile. The socialist argument is that the person who only provides capital is overpaid for doing that. Whether that argument has an economic justification, or just a political or moral justification, and whether you believe that argument, is another matter. But it is clear that, if the investor got less, there would be more to pay both of the people who contribute work. Perhaps a source of confusion is that successful founders often go on to become investors with the money they have collected, for example Paul Graham or Marc Andreessen. You could also argue that someone like Mark Zuckerberg, while still nominally 'working' as CEO, has gone from being a founder in Facebook the product to being an investor who provides capital for various Facebook the company projects, and that perhaps much of his wealth was accumulated in the second stage.
- marknutter 3y ago
  In the vast majority of cases, the startup will not succeed, and the investor will lose their investment, while the founder will make $100,000 less than the engineer and lose credibility as a founder in the process. The engineer loses nothing other than the potential future income they might have received if the company had succeeded, and they will likely just find another job.
  - lifeonlars 3y ago
    Obviously to the investor, only the average case over a large number of investments matters.
  - pseudalopex 3y ago
    Many founders had failed startups before. A significant loss of credibility is not the vast majority of cases in my experience. And paying themselves less than engineers is not universal either.

serverholic 3y ago

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lejoko 3y ago

There is usually another reason (and I share it) : they don't have enough money to start their own company without it being too big a risk. It is an order of magnitude easier to take risks when you already have enough money so that your family is not at stake...

marknutter 3y ago
You're only proving my point about the value of being able to take on risk.
- lejoko 3y ago
  I don't see how. You said that engineers can take risks if they want. I say that: 1. a lot can't take any risk at all, even if they'd be willing to, since they have no money. 2. the level of the risk you take depends enormously on your initial wealth. Wealthy founders take a lot less risk than founders who invest their life savings. And when you get to the other side of the investment, when you win, the money you earn does not depend at all on the level of risk you took. But when you lose, it totally depends on it. the risk is not the same for everybody.
  - marknutter 3y ago
    What you're saying effectively boils down to "being rich is better than being poor". Risk is still risk, and it has a market value, whether or not you want to acknowledge it.

tshaddox 3y ago

Who do you think is taking on risk with downside that is remotely comparable to an individual engineer losing 2 years of salary?

marknutter 3y ago
If I invest my life savings into founding a startup and it fails, I lose my life savings. The engineer I hired to help build the company loses nothing.
- lejoko 3y ago
  If I invest pocket money (the same amount as you, or even more) into founding a startup with you and it fails, I lose pocket money. The engineer we hired together to help build the company loses his job and may find himself with serious problems because of that. Risk is in the eye of the beholder...
  - marknutter 3y ago
    You as the founder also lose your job though..

lifeonlars 3y ago

I don't think you are accurately critiquing the point made above. It is right that founders have a vastly different risk/reward tradeoff to employee engineers. I don't think that is the socialist engineers' argument. Suppose there are 3 people involved in a startup: the founder, the engineer and the investor. The engineer gets $300,000 for 2 years' work. The founder gets $200,000 for 3 years' very intense work + $10 million if the startup succeeds. The investor puts in capital, does no work, and gets $40 million if the startup succeeds. It is arguable that the founder and the engineer are getting a comparable amount but with a different risk profile. The socialist argument is that the person who only provides capital is overpaid for doing that. Whether that argument has an economic justification, or just a political or moral justification, and whether you believe that argument, is another matter. But it is clear that, if the investor got less, there would be more to pay both of the people who contribute work. Perhaps a source of confusion is that successful founders often go on to become investors with the money they have collected, for example Paul Graham or Marc Andreessen. You could also argue that someone like Mark Zuckerberg, while still nominally 'working' as CEO, has gone from being a founder in Facebook the product to being an investor who provides capital for various Facebook the company projects, and that perhaps much of his wealth was accumulated in the second stage.

marknutter 3y ago
In the vast majority of cases, the startup will not succeed, and the investor will lose their investment, while the founder will make $100,000 less than the engineer and lose credibility as a founder in the process. The engineer loses nothing other than the potential future income they might have received if the company had succeeded, and they will likely just find another job.
- lifeonlars 3y ago
  Obviously to the investor, only the average case over a large number of investments matters.
- pseudalopex 3y ago
  Many founders had failed startups before. A significant loss of credibility is not the vast majority of cases in my experience. And paying themselves less than engineers is not universal either.