Somehow the startup world has convinced people to work for “free” on a regular basis, with the theoretical benefit of some big payout on equity later.
The truth is, those bets rarely work and once the pixie dust of the new startup wears off, what’s left is a bunch of frustrated employees who can’t pay their bills.
Although we have little to no money to pay today, we should always try to incorporate some level of cash compensation, even if it’s incredibly small, to help offset the cost of life that our team is going to inevitably face.
When our team is more focused on going broke than contributing, we’re not really doing anyone a favor!
Use a Compensation “Ramp Up”
Compensation doesn’t have to be “all or nothing.”
Just because someone makes $60,000 per year doesn’t mean we have to be able to pay that all right now. Instead, we can use a “ramp up” that scales over the next year.
Someone that needs $5K per month may be able to start at $2K per month this quarter, $3K per month next quarter, and so on as our commitment scales with the business.
We can make up for the delta with equity grants or a higher base salary at the end of the ramp-up period.
Convert Equity to Cash Later
Similar to deferred cash compensation, we can also provide the option of offering equity now, with the option to convert some of that equity to cash in the not-too-distant future.
That could be as simple as saying “This project is worth $10K, so we’ll pay you $20K in equity. At a later date, we can have the option to convert that back to cash at $12K (to cover some additional risk).”
This allows people to take our equity as a bit of security against a future cash payment which could convert within a year versus waiting 7+ years for an exit event.
It’s Not “If” We Pay, It’s “How” We Pay
It’s very rare that a startup can pay a full salary like a regular company, so what we as Founders need to think about is finding ways that scale pay with our own growth expectations.
Not everyone will be interested in that program, and that’s fine. But generally what we’ll find is that there are many different ways to recruit the talent we need if we’re willing to be flexible with how we get there.