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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

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.
    - nostrademons 12y ago
      Think of how terrible that sounds from an investor's perspective. "I don't know how to employ capital profitably because my best course of action is to return my funds to you because my startup is a virtually assured failure." Would you invest in a startup that just told you that? If you're going to bother founding a startup, you should have some reason to believe that you are in the 1% that is going to be a success. You might be wrong in that belief, and that's why startup success continues to be fairly rare, but if you don't even have a reason to believe that much you might as well pack up the startup, get a good-paying job, and invest the money you earn.
      - fleitz 12y ago
        Being honest and forthright goes a lot further than you think. Startups have risk, outline the risk, and ask for what you want. You don't need the thousands of investors who want you to work for free, you need one who believes in the business enough to think the CEO is worth being paid. If the CEO isn't worth being paid the startup isn't worth investing in.
      - npizzolato 12y ago
        You can believe you have a chance to be in the 1% of success stories while being pragmatic about the fact that you're likely not going to be.
  - Retric 12y ago
    The point is there are no simple hard and fast rules. If you made 500k last year and do a start-up that only pays you 200k your taking a bigger pay cut than a 20 something that's paying themselves nothing. Some people have alimony payments that hit 100k. Don't forget it's not just the clueless, neurosurgeons and CEO's also do start-ups.
- balls187 12y ago
  I reread what I wrote, and I don't see where I advocated paying yourself nothing. If you have $5+m in the bank, you're probably post-A, which means you have the funding to pay the founding team salaries, perhaps below market. If you have 5m in the bank and you're paying yourself 200k a year, I sincerely question the logic of the board, and the CEO. That extra $80-100k can go to hire another person. What is going to benefit the company more?
  - Retric 12y ago
    Paying 1 new person 100k costs more than paying 1 person 100k extra.
    - balls187 12y ago
      2 really productive people are more productive than 1 really productive person. What is your point?
      - Retric 12y ago
        100K generally pays for about 5 months of a highly talented programmers salary+ overhead. It may depending on funding levels extend a startups runway by less than 1 week. Compare successful Authors and find making 200k/year is far from the top. Why? Because sometimes highly productive people doing the same task are less than 10% as efficient as others. Dentists, Athletes, Programmers, Lawyers, Sales People, Architect, and most other complex jobs have a huge range of talent once you cross highly productive. EX: JK Rowling made well over 50 million per year working on HP. 1% of that is 500k which is still extremely high for an author.
        balls187 12y ago
        What does an author have to do with a CEO of a startup? 5+ months of highly talented programmer is SIGNIFICANTLY more valuable than anything the CEO can do with the extra $100k in their pocket.
  - vidarh 12y ago
balls187 12y ago
Curious why the downvotes for my argument: Pay yourself what you need, but don't go overboard.

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.
  - nostrademons 12y ago
    Think of how terrible that sounds from an investor's perspective. "I don't know how to employ capital profitably because my best course of action is to return my funds to you because my startup is a virtually assured failure." Would you invest in a startup that just told you that? If you're going to bother founding a startup, you should have some reason to believe that you are in the 1% that is going to be a success. You might be wrong in that belief, and that's why startup success continues to be fairly rare, but if you don't even have a reason to believe that much you might as well pack up the startup, get a good-paying job, and invest the money you earn.
    - fleitz 12y ago
      Being honest and forthright goes a lot further than you think. Startups have risk, outline the risk, and ask for what you want. You don't need the thousands of investors who want you to work for free, you need one who believes in the business enough to think the CEO is worth being paid. If the CEO isn't worth being paid the startup isn't worth investing in.
    - npizzolato 12y ago
      You can believe you have a chance to be in the 1% of success stories while being pragmatic about the fact that you're likely not going to be.
- Retric 12y ago
  The point is there are no simple hard and fast rules. If you made 500k last year and do a start-up that only pays you 200k your taking a bigger pay cut than a 20 something that's paying themselves nothing. Some people have alimony payments that hit 100k. Don't forget it's not just the clueless, neurosurgeons and CEO's also do start-ups.
balls187 12y ago
I reread what I wrote, and I don't see where I advocated paying yourself nothing. If you have $5+m in the bank, you're probably post-A, which means you have the funding to pay the founding team salaries, perhaps below market. If you have 5m in the bank and you're paying yourself 200k a year, I sincerely question the logic of the board, and the CEO. That extra $80-100k can go to hire another person. What is going to benefit the company more?
- Retric 12y ago
  Paying 1 new person 100k costs more than paying 1 person 100k extra.
  - balls187 12y ago
    2 really productive people are more productive than 1 really productive person. What is your point?
    - Retric 12y ago
      100K generally pays for about 5 months of a highly talented programmers salary+ overhead. It may depending on funding levels extend a startups runway by less than 1 week. Compare successful Authors and find making 200k/year is far from the top. Why? Because sometimes highly productive people doing the same task are less than 10% as efficient as others. Dentists, Athletes, Programmers, Lawyers, Sales People, Architect, and most other complex jobs have a huge range of talent once you cross highly productive. EX: JK Rowling made well over 50 million per year working on HP. 1% of that is 500k which is still extremely high for an author.
      - balls187 12y ago
        What does an author have to do with a CEO of a startup? 5+ months of highly talented programmer is SIGNIFICANTLY more valuable than anything the CEO can do with the extra $100k in their pocket.
- vidarh 12y ago

balls187 12y ago

Curious why the downvotes for my argument: Pay yourself what you need, but don't go overboard.