October 15, 2015
Seed financing rounds for startups are larger than ever these days, and their size often leads founders to consider larger-than-ever startup salaries to go with them. If you raise one million dollars on an idea with a couple of other teammates, you can probably make a logical looking point as to why you should make $70,000-$100,000 a year (i.e., your market value). After all, you’re about to devote the entirety of your being to taking that cash and turning it into something special — a high-growth software business.
But you shouldn’t take even close to the market value of your salary, no matter the size of the seed round. You shouldn’t even raise funding with the goal of paying yourself. Here’s why.
First off, you’re working at a startup; if you’re looking for market value right out of the gate, you are in the wrong place.
Secondly, and more importantly, when you’re part of a startup, business productivity is the goal of everything you do. It is not the thing being achieved day in and day out, as it is in established businesses.
At the seed stage, business productivity is the nut that everyone is devoting their constant time and attention to cracking. The early-stage startup is merely at the point where it’s sucking up resources in the hopes of a future spitting out more than than what it started with. The expectation here is that the resources that were sucked up grew in the belly before their eventual purge. Put another way: you burn, burn, burn through cash in hopes of creating something that produces much more cash down the line. If you pay yourself at market value, your startup could be at risk of burning through all of its cash and ultimately failing.
In the pre-productivity stage, where every startup begins, there’s no reason you should be paid what a post-productivity company would pay you. My advice is to take what you should be making and cut it in half. Until you find a way to put a dollar in the machine and watch more than a dollar come out, then you should continue to stay there because you haven’t earned the alternative.
This article was originally published on The Huffington Post.
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