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Has anyone stopped to think what a massive failing of the startup part of the industry this is? Practically everything I read online indicates that if you consi

by marvin 13y ago

Has anyone stopped to think what a massive failing of the startup part of the industry this is? Practically everything I read online indicates that if you consider your stock options to have any value at all even in a moderately successful company, you are a major sucker and about to get exploited. Surely this must reduce the quality of the talent pool available to new startups, as the experienced developers conclude that other options are a better use of their time.

wwweston 13y ago
Clearly Sam Altman and a few other people in thread have stopped to think about this. :) Part of what he's telling people here is "look, your competition for the engineers who can help you deliver includes Google and Facebook, your expected value has to be comparable to what they can offer." Of course, that's still talking about equity, which gets back to the fact that it really is best to treat your equity as little better than a lottery ticket -- something with the possibility of turning into a modest bonus and the remote chance of making you wealthy. > experienced developers conclude that other options are a better use of their time. Which I suppose is part of the reason the startup labor pool skews young. Occasionally, though, experienced developers get bored and need new opportunities too.
- humanrebar 13y ago
  The labor pool skews young in SV and NYC, possibly because the only way to keep the cost of living down is to have multiple roommates, which does not work for someone with a family. In more suburban places, the age distribution seems in line with an industry that is as new as software is.
hga 13y ago
It's also a failure of the country's political and economic system, at least if you believe that a series of actions and laws culminating in Sar-Box ended the IPO exit shortly after the turn of the century. Other exits tend to be lots harder (my father had a specialty arranging them, and, hmmm, in the '60s also arranged an IPO...) and tend to leave much less money on the table.
tptacek 13y ago
First of all, if you go looking for market inefficiencies in tech hiring (across the board, not just at startups), you will find lots of them. Software development hiring is folkloric; traditions handed down from Sr. Mgr Software Developer to Associate Developer tracing back to the beginning of time (1982 or so). Second, regarding the talent pool available to employers, two factors confound the analysis: the first and by far the strongest is stated preference vs. revealed preference --- to wit, good developers will make large concessions on comp in exchange for working at companies that seem more fun; the second is that software developers are as a demographic cohort terrible at negotiating.
- username223 13y ago
  > software developers are as a demographic cohort terrible at negotiating. Yep. It's no real surprise that coders are mostly men with poor social skills, while HR is mostly women with good ones, most of whom those men find attractive. Classic Valley symbiosis.
  - 1stop 13y ago
    I think that is just poor stereotyping. Most of the software developers I've worked with in my career have had very good social skills, those that didn't, were poor developers as well... So are they bad negotiators because of they lack negotiating ability, or actual ability? Is there data on the social skills of IT, HR, Gender breakdown etc... Perhaps what you are refering to is a U.S (?) phenomenon?
    - kamaal 13y ago
      >> those that didn't, were poor developers as well... The fact that people with good social skills convinced you that they were good developers proves the comment made by the parent poster.
      - 1stop 13y ago
        I didn't say that, at all. I suggest you re-read. To clarify for those that are a bit slow(er): Their development skills convinced me they were good developers, their social skills just correlated.
7Figures2Commas 13y ago
> Has anyone stopped to think what a massive failing of the startup part of the industry this is? The failing is not that the employee equity math rarely works out, it's that the "industry" is so focused on equity. It often falls short as a recruiting tool (a significant number of prospective employees are clued in to the fact that it's likely to be worthless) and it's usually a poor retention tool as well (just look at startup turnover and the number of employees who don't stay with one company long enough to fully vest). The startup value proposition today is actually quite compelling in some cases. Employees, many of them young and without significant real-world experience, can earn six-figure salaries working at companies that, without outside investment, could not sustain themselves. Too much capital chasing too few opportunities has given many startup founders the ability to raise capital on terms that are insane. I mean, you have entrepreneurs raising million-plus convertible note seed rounds with caps that make absolutely no sense. Where does all that cheap money go? For many if not most startups, one word: salaries. If you're being paid $120,000/year plus benefits to work on a CRUD Rails app at a startup that probably won't be around in five years, you should forget about equity. You have already won the lottery.
- pyrrhotech 13y ago
  How is $120k/year to live in a top 5 most expensive city in the world to work harder than 95% of the people on the planet on a boring CRUD app winning the lottery in any stretch of the imagination? That sounds terrible.
  - hga 13y ago
    "Employees, many of them young and without significant real-world experience...." Getting that first job on your resume can be quite a trick. Just before he emphasizes, with italics, that this is only "compelling in some cases". Because of the circumstances in which I got dumped into the job market, I started out with a sysadmin job with some programming, which I turned into more programming, but it was not a great start, and it was only through unique coincidence (about the only person in the community with serious Lisp Machine and UNIX(TM) experience) and connections that I got my first really good job.
apinstein 13y ago
We came to this conclusion as well; we decided to do bonuses based on Y/Y revenue growth rather than equity. The bonuses are not capped. This allows us to: 1) Justly reward our employees to the upside (with cash, delivered semi-anually) if things go according to plan 2) Automatically controls costs if we don't perform as a team 3) Achieve upside fairness across early vs late employees since we can adjust the bonus % as we hire each new person 4) Eliminates oddities due to variations in company valuations where swaths of employees end up underwater due to bad luck of timing Downsides: 1) the tax treatment of bonuses as income rather than capital gains is nominally worse; but given the complications with options, it probably works out better for all but HUGE equity gains 2) this plan might not work well for a company that will be pre-revenue for many years, but that should be a pretty far outlier case. All-in-all this allows us to offer the opportunity for employees to earn above-market comp without having hope they get lucky with company growth, market timing, and their timing of joining the company. It's been 3 years now and so far, so good!
- lukego 13y ago
  Cool :-). I worked at a very successful company that used a similar model: flat 50% of profits paid to employees as bonus. This worked fantastically well in the short term. Now, 10 years later, the company is still very successful but the upside has all shifted to the owners due to departures, renegotiations, and new hires not getting the same terms. So at 3 years it looked very pro-employee but at 10 years it looks very pro-owner. Would have been really "interesting" if there had been a liquidity event...
  - apinstein 13y ago
    I do agree it can be hard to make it fair once a company is big enough or growth slows dramatically, but that's a problem to deal with 3-5 years from now :)
  - trevelyan 13y ago
    The owners stuck around. Why didn't the employees? Serious question... were people fired for having too remunerative packages? Or did people just move on mostly?

by marvin 13y ago

wwweston 13y ago

Clearly Sam Altman and a few other people in thread have stopped to think about this. :) Part of what he's telling people here is "look, your competition for the engineers who can help you deliver includes Google and Facebook, your expected value has to be comparable to what they can offer." Of course, that's still talking about equity, which gets back to the fact that it really is best to treat your equity as little better than a lottery ticket -- something with the possibility of turning into a modest bonus and the remote chance of making you wealthy. > experienced developers conclude that other options are a better use of their time. Which I suppose is part of the reason the startup labor pool skews young. Occasionally, though, experienced developers get bored and need new opportunities too.

humanrebar 13y ago
The labor pool skews young in SV and NYC, possibly because the only way to keep the cost of living down is to have multiple roommates, which does not work for someone with a family. In more suburban places, the age distribution seems in line with an industry that is as new as software is.

hga 13y ago

It's also a failure of the country's political and economic system, at least if you believe that a series of actions and laws culminating in Sar-Box ended the IPO exit shortly after the turn of the century. Other exits tend to be lots harder (my father had a specialty arranging them, and, hmmm, in the '60s also arranged an IPO...) and tend to leave much less money on the table.

tptacek 13y ago

First of all, if you go looking for market inefficiencies in tech hiring (across the board, not just at startups), you will find lots of them. Software development hiring is folkloric; traditions handed down from Sr. Mgr Software Developer to Associate Developer tracing back to the beginning of time (1982 or so). Second, regarding the talent pool available to employers, two factors confound the analysis: the first and by far the strongest is stated preference vs. revealed preference --- to wit, good developers will make large concessions on comp in exchange for working at companies that seem more fun; the second is that software developers are as a demographic cohort terrible at negotiating.

username223 13y ago
> software developers are as a demographic cohort terrible at negotiating. Yep. It's no real surprise that coders are mostly men with poor social skills, while HR is mostly women with good ones, most of whom those men find attractive. Classic Valley symbiosis.
- 1stop 13y ago
  I think that is just poor stereotyping. Most of the software developers I've worked with in my career have had very good social skills, those that didn't, were poor developers as well... So are they bad negotiators because of they lack negotiating ability, or actual ability? Is there data on the social skills of IT, HR, Gender breakdown etc... Perhaps what you are refering to is a U.S (?) phenomenon?
  - kamaal 13y ago
    >> those that didn't, were poor developers as well... The fact that people with good social skills convinced you that they were good developers proves the comment made by the parent poster.
    - 1stop 13y ago
      I didn't say that, at all. I suggest you re-read. To clarify for those that are a bit slow(er): Their development skills convinced me they were good developers, their social skills just correlated.

7Figures2Commas 13y ago

> Has anyone stopped to think what a massive failing of the startup part of the industry this is? The failing is not that the employee equity math rarely works out, it's that the "industry" is so focused on equity. It often falls short as a recruiting tool (a significant number of prospective employees are clued in to the fact that it's likely to be worthless) and it's usually a poor retention tool as well (just look at startup turnover and the number of employees who don't stay with one company long enough to fully vest). The startup value proposition today is actually quite compelling in some cases. Employees, many of them young and without significant real-world experience, can earn six-figure salaries working at companies that, without outside investment, could not sustain themselves. Too much capital chasing too few opportunities has given many startup founders the ability to raise capital on terms that are insane. I mean, you have entrepreneurs raising million-plus convertible note seed rounds with caps that make absolutely no sense. Where does all that cheap money go? For many if not most startups, one word: salaries. If you're being paid $120,000/year plus benefits to work on a CRUD Rails app at a startup that probably won't be around in five years, you should forget about equity. You have already won the lottery.

pyrrhotech 13y ago
How is $120k/year to live in a top 5 most expensive city in the world to work harder than 95% of the people on the planet on a boring CRUD app winning the lottery in any stretch of the imagination? That sounds terrible.
- hga 13y ago
  "Employees, many of them young and without significant real-world experience...." Getting that first job on your resume can be quite a trick. Just before he emphasizes, with italics, that this is only "compelling in some cases". Because of the circumstances in which I got dumped into the job market, I started out with a sysadmin job with some programming, which I turned into more programming, but it was not a great start, and it was only through unique coincidence (about the only person in the community with serious Lisp Machine and UNIX(TM) experience) and connections that I got my first really good job.

apinstein 13y ago

We came to this conclusion as well; we decided to do bonuses based on Y/Y revenue growth rather than equity. The bonuses are not capped. This allows us to: 1) Justly reward our employees to the upside (with cash, delivered semi-anually) if things go according to plan 2) Automatically controls costs if we don't perform as a team 3) Achieve upside fairness across early vs late employees since we can adjust the bonus % as we hire each new person 4) Eliminates oddities due to variations in company valuations where swaths of employees end up underwater due to bad luck of timing Downsides: 1) the tax treatment of bonuses as income rather than capital gains is nominally worse; but given the complications with options, it probably works out better for all but HUGE equity gains 2) this plan might not work well for a company that will be pre-revenue for many years, but that should be a pretty far outlier case. All-in-all this allows us to offer the opportunity for employees to earn above-market comp without having hope they get lucky with company growth, market timing, and their timing of joining the company. It's been 3 years now and so far, so good!

lukego 13y ago
Cool :-). I worked at a very successful company that used a similar model: flat 50% of profits paid to employees as bonus. This worked fantastically well in the short term. Now, 10 years later, the company is still very successful but the upside has all shifted to the owners due to departures, renegotiations, and new hires not getting the same terms. So at 3 years it looked very pro-employee but at 10 years it looks very pro-owner. Would have been really "interesting" if there had been a liquidity event...
- apinstein 13y ago
  I do agree it can be hard to make it fair once a company is big enough or growth slows dramatically, but that's a problem to deal with 3-5 years from now :)
- trevelyan 13y ago
  The owners stuck around. Why didn't the employees? Serious question... were people fired for having too remunerative packages? Or did people just move on mostly?