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A good senior engineer these days costs somewhere around $200k/year (if not more) in a major US tech hub, factoring in overhead costs of salary and benefits. Th

A good senior engineer these days costs somewhere around $200k/year (if not more) in a major US tech hub, factoring in overhead costs of salary and benefits. This is something that most seed or series A companies can't really afford. So my question is, as salaries rise, how will this affect the startup industry? Where $1 million could buy you 8 people for a year before, now it can only buy you 6. This seems to make bootstrapping much more difficult. It also seems like this may end up causing certain startups to be impossible, since they require much more money than they would have normally. Anyway, thoughts?

jasonlknm 13y ago
In general, it's working out for now ... for now ... because the best start-ups are scaling faster than ever. As long as start-ups scale faster, they still get incredible leverage even as fully-burdened costs grow. In SaaS, the best start-ups are getting from $2m to $10m ARR in 1 year now. That was pretty close to impossible 5 years back. The markets are larger. With more customers, you get more revenue. And you can pay more. For now.
pekk 13y ago
If only there were people who had free access to the labor of a sufficiently capable engineer. Then these people could do things like starting companies or working at an early stage in exchange for major equity, until the business had enough to pay for more people like them. I know it's a radical idea, since these people wouldn't be "ideas guys". Oh well, no such people seem to exist, too bad for the clearly moribund startup industry.
- mindvirus 13y ago
  That's not what I'm saying. If the cost of labor is increasing, the amount that funding gets you decreases, as I assume that most of what funding is used for is paying salaries. Equity is also a cost. If before you gave early hires 1% equity, now you have to give them 1.5% equity to make up the same dollar amount - so if you're using equity to offset lack of cash, you end up having to give up more equity. 5 years ago, $500K maybe was enough to launch a serious version 1.0 of a product. Now you might need $800k or $1MM. So what do you do? You either have to give away more equity in early rounds, or in lieu of salaries. If your company is worth $5MM, before where you were giving away 10%, now you're giving away 20%. Anyway, I'm not saying it's a bad thing - I'm a programmer, I've more than reaped the benefit of this - just that it's worth thinking about.
  - dTal 13y ago
    >5 years ago, $500K maybe was enough to launch a serious version 1.0 of a product. Now you might need $800k or $1MM. I'm struggling to make sense of this. By "a product", do you mean a piece of software sold for its own sake (as opposed to some other type of product that merely requires that someone in the company write software)? Either way, has the barrier to entry really increased so much in so little time? Why?
pjungwir 13y ago
This is an interesting thought, but tool improvements are also making programmers more productive. I've seen massive changes from, say, 1994 to 2004 and again from 2004 to 2014. In fact I'd say that programmers have only captured a tiny portion of that productivity increase.
lmm 13y ago
I think it's simple supply and demand. There's been an explosion in the number of tech startups in recent years; now the market is starting to adjust to that, and new norms are forming. On the margin, some startups will become impossible, sure - but they'll be the low end of the market, the kind that no-one would have even considered trying ten years ago.

jasonlknm 13y ago

In general, it's working out for now ... for now ... because the best start-ups are scaling faster than ever. As long as start-ups scale faster, they still get incredible leverage even as fully-burdened costs grow. In SaaS, the best start-ups are getting from $2m to $10m ARR in 1 year now. That was pretty close to impossible 5 years back. The markets are larger. With more customers, you get more revenue. And you can pay more. For now.

pekk 13y ago

If only there were people who had free access to the labor of a sufficiently capable engineer. Then these people could do things like starting companies or working at an early stage in exchange for major equity, until the business had enough to pay for more people like them. I know it's a radical idea, since these people wouldn't be "ideas guys". Oh well, no such people seem to exist, too bad for the clearly moribund startup industry.

mindvirus 13y ago
That's not what I'm saying. If the cost of labor is increasing, the amount that funding gets you decreases, as I assume that most of what funding is used for is paying salaries. Equity is also a cost. If before you gave early hires 1% equity, now you have to give them 1.5% equity to make up the same dollar amount - so if you're using equity to offset lack of cash, you end up having to give up more equity. 5 years ago, $500K maybe was enough to launch a serious version 1.0 of a product. Now you might need $800k or $1MM. So what do you do? You either have to give away more equity in early rounds, or in lieu of salaries. If your company is worth $5MM, before where you were giving away 10%, now you're giving away 20%. Anyway, I'm not saying it's a bad thing - I'm a programmer, I've more than reaped the benefit of this - just that it's worth thinking about.
- dTal 13y ago
  >5 years ago, $500K maybe was enough to launch a serious version 1.0 of a product. Now you might need $800k or $1MM. I'm struggling to make sense of this. By "a product", do you mean a piece of software sold for its own sake (as opposed to some other type of product that merely requires that someone in the company write software)? Either way, has the barrier to entry really increased so much in so little time? Why?

pjungwir 13y ago

This is an interesting thought, but tool improvements are also making programmers more productive. I've seen massive changes from, say, 1994 to 2004 and again from 2004 to 2014. In fact I'd say that programmers have only captured a tiny portion of that productivity increase.

lmm 13y ago

I think it's simple supply and demand. There's been an explosion in the number of tech startups in recent years; now the market is starting to adjust to that, and new norms are forming. On the margin, some startups will become impossible, sure - but they'll be the low end of the market, the kind that no-one would have even considered trying ten years ago.