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Thiel's idea is fine if you're a kid eating ramen and living with your parents, but it is completely wrong for people who already have experience, and/or have f

Thiel's idea is fine if you're a kid eating ramen and living with your parents, but it is completely wrong for people who already have experience, and/or have families to support. I actually lost an investment because the investor thought I should not pay myself at all while trying to build the business.

31reasons 12y ago
>>I actually lost an investment because the investor thought I should not pay myself at all while trying to build the business. That is absurd, they don't deserve to be investors. You receive money in exchange for equity. The money is used to run the company and build value for the investors. Providing salary to everyone who is engaged in building value must be part of the equation. Otherwise if you think about it, in extreme case you will give away your entire company to build value for investors and you will get nothing in the end.
- sparkzilla 12y ago
  Tell me about it. He actually said to me that instead of making an investment, he should own the company and would just pay me a salary to build the business. I respectfully declined.
balls187 12y ago
You're a founder, so none of this should be shocking, early stage startups are cash strapped, and cash-in-the-bank is the 2nd most valuable commodity a company has, after it's people. In fact, the #1 reasons startup's will fail, will because they run out of money. Thus, a CEO who doesn't treat their cash as the valuable resource it is, is just putting an unnecessary burden on their company. Peter Thiel isn't advocating paying yourself nothing. His point (and data[1] backs this up), that CEO's making a high salary is a pretty good indicator of Startup that will fail. If you need a high salary, then being a Founder/CEO probably isn't the right move. You're putting a burden on the company because of your life style choices. Conversely, if you don't pay yourself anything, you're going to spend too much time dealing with the pain of not making ends meet, instead spending your energy growing your company. [1] http://blog.startupcompass.co/73-percent-of-startup-founders-make-50-dollars-000-per-year-or-less http://blog.startupcompass.co/73-percent-of-startup-founders...
- Retric 12y ago
  Your making assumptions that don't hold up. If you have 1+M in the bank then paying yourself nothing is not a major issue. If your company just got 5+M in funding paying yourself 200k/year is not going to make much difference. Often paying yourself nothing makes things look better than they are which can be a bad thing. A slightly profitable 3 person company that pays it's founders nothing is not actually profitable. In the end what you make as CEO is often more important from a signaling standpoint than a survival one. Investors often have the mindset where they don't invest in companies where the CEO makes more than X or less than Y.
  - nostrademons 12y ago
    It's not the money so much as the signalling effect to potential investors. You presumably have the best knowledge about your own ability to profitably employ capital. If you take out a lot of money to pay yourself, that implies that you believe that the business's current cash is worth more to you as personal income than it is in business equity. What does that say to people who hold only equity and are supplying the cash? If I had investors and free business cash flow, I'd pay myself only enough to break-even on personal expenses. The reason is that I'd also own equity in the business, and any money invested in the business could presumably earn a bigger return than if I took that money out of the business and invested it elsewhere. If that assumption doesn't hold, I have no business being an entrepreneur, because it is more economically rational for me to take a fat-paying job at Google or in finance, and then stick my excess savings into index funds.
    - fleitz 12y ago
      Founders don't know how to employ capital profitably because for any individual startup the best course of action is to return the funds to the shareholder because it's a virtually assured failure. However, in aggregate the serious performers outweigh the losses from the 99% failure rate. So given that I am about to give 5 years of my time to something that is most likely a failure I'd like some compensation for my time, just like every VC takes 2% to flush the LPs money down the toilet, and 20% when they return.

31reasons 12y ago

>>I actually lost an investment because the investor thought I should not pay myself at all while trying to build the business. That is absurd, they don't deserve to be investors. You receive money in exchange for equity. The money is used to run the company and build value for the investors. Providing salary to everyone who is engaged in building value must be part of the equation. Otherwise if you think about it, in extreme case you will give away your entire company to build value for investors and you will get nothing in the end.

sparkzilla 12y ago
Tell me about it. He actually said to me that instead of making an investment, he should own the company and would just pay me a salary to build the business. I respectfully declined.

balls187 12y ago

You're a founder, so none of this should be shocking, early stage startups are cash strapped, and cash-in-the-bank is the 2nd most valuable commodity a company has, after it's people. In fact, the #1 reasons startup's will fail, will because they run out of money. Thus, a CEO who doesn't treat their cash as the valuable resource it is, is just putting an unnecessary burden on their company. Peter Thiel isn't advocating paying yourself nothing. His point (and data[1] backs this up), that CEO's making a high salary is a pretty good indicator of Startup that will fail. If you need a high salary, then being a Founder/CEO probably isn't the right move. You're putting a burden on the company because of your life style choices. Conversely, if you don't pay yourself anything, you're going to spend too much time dealing with the pain of not making ends meet, instead spending your energy growing your company. [1] http://blog.startupcompass.co/73-percent-of-startup-founders-make-50-dollars-000-per-year-or-less http://blog.startupcompass.co/73-percent-of-startup-founders...

Retric 12y ago
Your making assumptions that don't hold up. If you have 1+M in the bank then paying yourself nothing is not a major issue. If your company just got 5+M in funding paying yourself 200k/year is not going to make much difference. Often paying yourself nothing makes things look better than they are which can be a bad thing. A slightly profitable 3 person company that pays it's founders nothing is not actually profitable. In the end what you make as CEO is often more important from a signaling standpoint than a survival one. Investors often have the mindset where they don't invest in companies where the CEO makes more than X or less than Y.
- nostrademons 12y ago
  It's not the money so much as the signalling effect to potential investors. You presumably have the best knowledge about your own ability to profitably employ capital. If you take out a lot of money to pay yourself, that implies that you believe that the business's current cash is worth more to you as personal income than it is in business equity. What does that say to people who hold only equity and are supplying the cash? If I had investors and free business cash flow, I'd pay myself only enough to break-even on personal expenses. The reason is that I'd also own equity in the business, and any money invested in the business could presumably earn a bigger return than if I took that money out of the business and invested it elsewhere. If that assumption doesn't hold, I have no business being an entrepreneur, because it is more economically rational for me to take a fat-paying job at Google or in finance, and then stick my excess savings into index funds.
  - fleitz 12y ago
    Founders don't know how to employ capital profitably because for any individual startup the best course of action is to return the funds to the shareholder because it's a virtually assured failure. However, in aggregate the serious performers outweigh the losses from the 99% failure rate. So given that I am about to give 5 years of my time to something that is most likely a failure I'd like some compensation for my time, just like every VC takes 2% to flush the LPs money down the toilet, and 20% when they return.