A Startup Employee's Checklist for Tough Times(dancallahan.info)
dancallahan.info
A Startup Employee's Checklist for Tough Times
http://dancallahan.info/journal/startup-employee-sanity-check/
10 comments
Definitely. Working without pay is for founders, not employees.
Also worth pointing out that in the vast majority of the cases, no matter how much stuff the founders can produce out of the sunshine pump, if the startup runs out of money, it's dead and won't come back. Running out of money is a symptom of something critical going wrong, and that critical something means that no amount of shares is worth anything since the business is doomed.
Also worth pointing out that in the vast majority of the cases, no matter how much stuff the founders can produce out of the sunshine pump, if the startup runs out of money, it's dead and won't come back. Running out of money is a symptom of something critical going wrong, and that critical something means that no amount of shares is worth anything since the business is doomed.
Aaron is correct.
NB: In the US, federal minimum wage standards apply to any employee with less than 20% equity stake.
NB: In the US, federal minimum wage standards apply to any employee with less than 20% equity stake.
I would add from experience
Start looking for another Job NOW!
Check how you stand with Social Security contributions (National Insurance in the UK) is your employer behind on these.
Check that all your pension contributions are up to date I worked for a company where they had not been passing on the pension contributions and even worse had not been passing on my additional contributions.
Make sure to take your laptop home with you so if the company goes tits up you have that.
Start looking for another Job NOW!
Check how you stand with Social Security contributions (National Insurance in the UK) is your employer behind on these.
Check that all your pension contributions are up to date I worked for a company where they had not been passing on the pension contributions and even worse had not been passing on my additional contributions.
Make sure to take your laptop home with you so if the company goes tits up you have that.
#3 was intended to read as "what concessions do I need [from the employer] to make working without pay feasible?"
I wasn't that much of a tool. :)
I wasn't that much of a tool. :)
All of these are quite reasonable for founders, but not really for employees.
I'd consider more-equity, reduced-pay in a startup which was bridging between rounds of financing as an employee, but only if I had a large personal buffer and had high confidence in the value of the company. At that point, you're essentially an investor. Most people who work for startups, particularly as non-founders, don't have enough net worth that startup equity should be a large percentage of their net worth, particularly purchased equity in a single company who is also their employer and who is having financial difficulties (which is why they're asking you for concessions...)
Now, something like "we need to raise more money, so we'd like you to work part-time for the next few months at a reduced wage" is totally reasonable, if you can swing it -- either do highly paid contracting, or look for a new job, or take a vacation.
Working 20h/wk for 50% pay seems like something a lot of people would like for 3 months, honestly.
I'd consider more-equity, reduced-pay in a startup which was bridging between rounds of financing as an employee, but only if I had a large personal buffer and had high confidence in the value of the company. At that point, you're essentially an investor. Most people who work for startups, particularly as non-founders, don't have enough net worth that startup equity should be a large percentage of their net worth, particularly purchased equity in a single company who is also their employer and who is having financial difficulties (which is why they're asking you for concessions...)
Now, something like "we need to raise more money, so we'd like you to work part-time for the next few months at a reduced wage" is totally reasonable, if you can swing it -- either do highly paid contracting, or look for a new job, or take a vacation.
Working 20h/wk for 50% pay seems like something a lot of people would like for 3 months, honestly.
For more context, writing this list was a necessary step in assessing my situation, accepting reality, and moving on. It wasn't as simple as "no pay, no work." It should've been, but it's hard when you enjoy the job, love the team, and desperately want the venture to succeed.
It's harder still when you see potential investors and clients actively meeting with the founder right up until the end of the runway. It's easy to delude yourself into thinking that one signature will bring everything back to normal.
In the end, we all missed two paychecks and, when it was clear that things weren't coming back soon, everyone dropped down to a 10% retainer (in IOUs) while simultaneously being encouraged to find freelance or full time work. I took that opportunity to learn letterpress printmaking and travel a bit while getting my professional life back in order. Not a bad deal.
But I'll never do that again.
(FWIW, the startup in question did, eventually, repay its debts)
It's harder still when you see potential investors and clients actively meeting with the founder right up until the end of the runway. It's easy to delude yourself into thinking that one signature will bring everything back to normal.
In the end, we all missed two paychecks and, when it was clear that things weren't coming back soon, everyone dropped down to a 10% retainer (in IOUs) while simultaneously being encouraged to find freelance or full time work. I took that opportunity to learn letterpress printmaking and travel a bit while getting my professional life back in order. Not a bad deal.
But I'll never do that again.
(FWIW, the startup in question did, eventually, repay its debts)
I have experienced a payroll miss (that turned out to be a mustake at the payroll company). I was not thinking about work that day, I was thinking about and applying for other jobs. I don't work for free and the minute I stop getting paid I don't work for you.
As someone who's started and run a few companies, I am not someone who's going to ask anyone else to work without getting paid. Paying someone in equity is legitimate, but it has to be wholly agreed to beforehand. Sure, there may be exceptions, but I would like to be as proper as possible with everything that I do.
If you're going to accept an IOU I guess thats something else entirely, but as most taxpayers in California know, you can't deposit an IOU in the bank.
If you're going to accept an IOU I guess thats something else entirely, but as most taxpayers in California know, you can't deposit an IOU in the bank.
Accepting an IOU as a startup employee is about the dumbest thing anyone could possibly do. You're effectively placing a bet that you'll simply get compensation owed on a company who obviously has money problems.
Given the extreme failure rate of startups, the same could easily be argued for going to work for a startup to begin with. Everybody should clearly work for Microsoft instead.
It's not about the dumbest thing anyone could possibly do. It's a calculated bet. Every person on earth makes them every single day. Your life choices are not theirs, so what.
Millions still smoke cigarettes in the US (destroying their lungs), and drink alcohol (destroying their livers), are you going to lecture them about that being the dumbest thing they can possibly do, or do you accept that as a life choice with risks? How about risky sexual behavior? How about driving a car? Living in Chicago? Eating hamburgers? Drinking soda? It's no different in principle, they're all calculated risks, and everybody wants different things for different reasons.
Personally I wouldn't default to assuming someone is doing something dumb. Seems drastically arrogant to do so without knowing their/the context.
It's not about the dumbest thing anyone could possibly do. It's a calculated bet. Every person on earth makes them every single day. Your life choices are not theirs, so what.
Millions still smoke cigarettes in the US (destroying their lungs), and drink alcohol (destroying their livers), are you going to lecture them about that being the dumbest thing they can possibly do, or do you accept that as a life choice with risks? How about risky sexual behavior? How about driving a car? Living in Chicago? Eating hamburgers? Drinking soda? It's no different in principle, they're all calculated risks, and everybody wants different things for different reasons.
Personally I wouldn't default to assuming someone is doing something dumb. Seems drastically arrogant to do so without knowing their/the context.
> the same could easily be argued for going to work for a startup to begin with.
Only if you're working at below market rate for dog shit equity (i.e. stocks that will be diluted into nothing).
> It's a calculated bet.
In the same way that buying lottery tickets or shoving more coins into a one-armed bandit is a "calculated bet". The calculation has already been done and the house always wins.
Again, we're talking about a company that is mismanaged to the point of not making payroll. This is where you're placing your "calculated bet". And what happens if you "win"? Oh, you get the money that you had already earned in any case. This is lose-"break even" scenario. Even novice gamblers should know better to throw resources after bets like that.
>Millions still smoke cigarettes <snip>
So you make a big long list consisting partially with stupid choices people make out of peer pressure or down right stupidity, and partially out of things people do because they get a reward and there is a low risk of downside. How do you imagine that compares?
Driving a car increases my quality of life in many ways. Even though driving is one of the more risky things you can do it's still a very small risk that anything will happen to me. And by engaging in this risk I can improve my standard of living dramatically. Taking a job from people who've proven they can't make payroll with the hope that they might pay me what I'm owed is not a similar thing.
>Personally I wouldn't default to assuming someone is doing something dumb.
If someone is doing something dumb (like buying a lottery ticket) then that person is doing something dumb. It's pretty straightforward. That doesn't mean that person is dumb, we all do dumb things from time to time. Maybe even on a regular basis. But we should at least stick to doing dumb things that have a low risk of a major downside.
Only if you're working at below market rate for dog shit equity (i.e. stocks that will be diluted into nothing).
> It's a calculated bet.
In the same way that buying lottery tickets or shoving more coins into a one-armed bandit is a "calculated bet". The calculation has already been done and the house always wins.
Again, we're talking about a company that is mismanaged to the point of not making payroll. This is where you're placing your "calculated bet". And what happens if you "win"? Oh, you get the money that you had already earned in any case. This is lose-"break even" scenario. Even novice gamblers should know better to throw resources after bets like that.
>Millions still smoke cigarettes <snip>
So you make a big long list consisting partially with stupid choices people make out of peer pressure or down right stupidity, and partially out of things people do because they get a reward and there is a low risk of downside. How do you imagine that compares?
Driving a car increases my quality of life in many ways. Even though driving is one of the more risky things you can do it's still a very small risk that anything will happen to me. And by engaging in this risk I can improve my standard of living dramatically. Taking a job from people who've proven they can't make payroll with the hope that they might pay me what I'm owed is not a similar thing.
>Personally I wouldn't default to assuming someone is doing something dumb.
If someone is doing something dumb (like buying a lottery ticket) then that person is doing something dumb. It's pretty straightforward. That doesn't mean that person is dumb, we all do dumb things from time to time. Maybe even on a regular basis. But we should at least stick to doing dumb things that have a low risk of a major downside.
> It's a calculated bet.
Certainly, and all founders take this bet when starting a company. But any reasonable bet has a potential for upside, not just making your money back.
Working for deferred salary is truly a dumb decision, because even in the very best case you get paid as much as at a comparable position elsewhere. IOU's make sense only when they are many times over market rate to adjust for the risk, or if you get equity and become a founder.
Certainly, and all founders take this bet when starting a company. But any reasonable bet has a potential for upside, not just making your money back.
Working for deferred salary is truly a dumb decision, because even in the very best case you get paid as much as at a comparable position elsewhere. IOU's make sense only when they are many times over market rate to adjust for the risk, or if you get equity and become a founder.
In the current economy there is very little risk for a startup employee - if the company flounders you will land on your feet.
In a poorer economy you will see people fleeing startups and going towards big companies like Microsoft precisely because the risk profile has changed.
In a poorer economy you will see people fleeing startups and going towards big companies like Microsoft precisely because the risk profile has changed.
If you are paid at market or above though you aren't taking a outsized risk.
Anyone got even one example of a startup "coming back" from the "I can't pay my employees" hole ?
Intuit.
" By 1985 the company was struggling to stay afloat. Three employees left when Cook and Proulx became unable to pay salaries. The other four, still believing in their product, kept working for six months without any pay." http://www.fundinguniverse.com/company-histories/intuit-inc-...
" By 1985 the company was struggling to stay afloat. Three employees left when Cook and Proulx became unable to pay salaries. The other four, still believing in their product, kept working for six months without any pay." http://www.fundinguniverse.com/company-histories/intuit-inc-...
Here are two instances I recently came across:
1. Pandora - http://it-jobs.fins.com/Articles/SB129683674636383261/Pandor...
2. ThatGameCompany (Journey) - http://www.destructoid.com/journey-took-thatgamecompany-into...
1. Pandora - http://it-jobs.fins.com/Articles/SB129683674636383261/Pandor...
2. ThatGameCompany (Journey) - http://www.destructoid.com/journey-took-thatgamecompany-into...
Blogger. IIRC from Founders at Work[1] book the company was on its last legs and everyone, even a co-founder, left. The only person left was Ev Williams and eventually figured out how to grow and make some rev. and ultimately sell to Google.
[1] http://www.amazon.com/gp/product/B001C30BH6/ref=oh_d__o04_de...
[1] http://www.amazon.com/gp/product/B001C30BH6/ref=oh_d__o04_de...
Wikipedia[1] says I remembered correctly.
[1] https://en.wikipedia.org/wiki/Pyra_Labs
[1] https://en.wikipedia.org/wiki/Pyra_Labs
Lisp Machines Inc. (LMI) in 1982 as I recall.
While negotiating with TI for an investment, for 2 months we were told our monthly paychecks had been cut but were stored in the safe; working was of course optional.
For whatever reasons (I could afford it and Lisp was (and still is) something of a crusade for me), we continued working and got those paychecks when TI made their investment. (They were sufficiently serious they also bought Western Digital's workstation unit; LMI's processor was a 4 card system that plugged into its NuBus and used the rest of the system's infrastructure.)
Can't source it, but as I recall Nolan Bushnell said you aren't a real entrepreneur until you've made a payroll out of your credit cards....
While negotiating with TI for an investment, for 2 months we were told our monthly paychecks had been cut but were stored in the safe; working was of course optional.
For whatever reasons (I could afford it and Lisp was (and still is) something of a crusade for me), we continued working and got those paychecks when TI made their investment. (They were sufficiently serious they also bought Western Digital's workstation unit; LMI's processor was a 4 card system that plugged into its NuBus and used the rest of the system's infrastructure.)
Can't source it, but as I recall Nolan Bushnell said you aren't a real entrepreneur until you've made a payroll out of your credit cards....
There is no coming back your employees will leave promptly.
While I agree that this is a very individual choice (at least one other has referred to it as a calculated bet), it's a bit appalling to generalize this and codify it into a checklist. The situations where you should go down this line of reasoning are very, very rare. This is not general purpose advice.
General purpose advice: Learn to recognize a [sunk cost][1].
If you decide to be an early employee of a startup (especially one which is not yet profitable) build the expectation that there will be an uncertain future. Tell yourself that you're going to work fiercely hard, and be fiercely loyal as long as your employer can support you. Tell yourself that the experience gained will be worth the long hours and uncertain future. But please, please, don't tell yourself "I'll probably have to work without pay." Don't tell yourself in advance that you'll ride it out for the equity, or because it's just so interesting, or because these founders are geniuses/nice/cool/whatever. If they can't pay you, it's not time double down on what you're paying them; it's time to move on.
[1]: http://en.wikipedia.org/wiki/Sunk_costs
General purpose advice: Learn to recognize a [sunk cost][1].
If you decide to be an early employee of a startup (especially one which is not yet profitable) build the expectation that there will be an uncertain future. Tell yourself that you're going to work fiercely hard, and be fiercely loyal as long as your employer can support you. Tell yourself that the experience gained will be worth the long hours and uncertain future. But please, please, don't tell yourself "I'll probably have to work without pay." Don't tell yourself in advance that you'll ride it out for the equity, or because it's just so interesting, or because these founders are geniuses/nice/cool/whatever. If they can't pay you, it's not time double down on what you're paying them; it's time to move on.
[1]: http://en.wikipedia.org/wiki/Sunk_costs
QUIT. I am going to join the chorus of people telling you as much. Get the fuck out now. Get. The. Fuck. Out. Staying on board after a payroll miss as an employee is a terrible fucking idea. If you stick with the effort after a pay miss or even a cut, you are an equal with the founders and you are invited to all the investor meetings (whether you want to go is up to you). No fucking exceptions ever. People will take advantage of you, not respect you for being "a nice guy", if you work for them on bad terms.
I made this fucker of a mistake. It was 2008, after the economy imploded. Unrelatedly, I have PTSD which had started throwing panic attacks at me and, for a period of about 3 months, I was unemployable (or thought I was) until I figured out how to manage the attacks. (Now they are no big deal. Very fucking annoying, but I know what they are and can resolve them in 5-20 minutes at worst.) So I was damaged, but I have this extreme work ethic which leads to a false sense of desperation that impels me sometimes to take horrible jobs just to "be employed", and this was one case of that. I had savings, but I needed to feel like I was doing something. So I joined a startup on "deferred cash" which is essentially a zero-interest loan to your employer. Don't ever fucking do that. Oh, and my salary (what I would have been paid once we got funding, which by the way never fucking happened) was still a 40% drop from what I had earned at the hedge-fund job before that. Talk about a loser fucking move. If you undersell yourself (false desperation) people will pick you the fuck off.
Then I went to Google. I had burned lots of savings and, after egregious drama and a huge financial loss, I was a fucking headcase and I made the mistake of disclosing my problem and I had a sadistic pigfucker of a boss who gaslighted me to see what would happen, and ultimately had a two-day-long hypergraphic episode on a 10k mailing list. I found out later that he had a history of using false performance problems to get people to disclose medical problems and then fucking with people who were sick because he enjoyed watching them break down. I found at least three cases, some paid substantial severances. HR knew about the problem but did nothing because the manager had a reputation for "delivering". If I hadn't been coming off a horrible startup, I wouldn't have been nearly as vulnerable and he wouldn't have been able to break me (I'm a normal person with an abnormal past, and 95+ percent of the time I can keep it in the fucking past) and that pigfucker bully would have attacked someone else.
Bad startups will ruin your fucking life. No exaggeration. I have a pre-existing aggravator but normal people melt down just as hard. In fact, I think it's worse for them because they're not used to insanity and don't recognize it as such when it hits them, so they actually buy into the insane thoughts they start having when the world goes to hell on them (I don't; I'm a veteran of that shit). You will lose lots of money and credibility. Your career will end up in the toilet. Sometimes people will maliciously damage your reputation and you'll seriously consider hiring a hit man, but you can't because you have no fucking money.
Payroll miss == Get the fuck out. Now. No exceptions. Do NOT fuck up your life for these people. They aren't worth it.
I made this fucker of a mistake. It was 2008, after the economy imploded. Unrelatedly, I have PTSD which had started throwing panic attacks at me and, for a period of about 3 months, I was unemployable (or thought I was) until I figured out how to manage the attacks. (Now they are no big deal. Very fucking annoying, but I know what they are and can resolve them in 5-20 minutes at worst.) So I was damaged, but I have this extreme work ethic which leads to a false sense of desperation that impels me sometimes to take horrible jobs just to "be employed", and this was one case of that. I had savings, but I needed to feel like I was doing something. So I joined a startup on "deferred cash" which is essentially a zero-interest loan to your employer. Don't ever fucking do that. Oh, and my salary (what I would have been paid once we got funding, which by the way never fucking happened) was still a 40% drop from what I had earned at the hedge-fund job before that. Talk about a loser fucking move. If you undersell yourself (false desperation) people will pick you the fuck off.
Then I went to Google. I had burned lots of savings and, after egregious drama and a huge financial loss, I was a fucking headcase and I made the mistake of disclosing my problem and I had a sadistic pigfucker of a boss who gaslighted me to see what would happen, and ultimately had a two-day-long hypergraphic episode on a 10k mailing list. I found out later that he had a history of using false performance problems to get people to disclose medical problems and then fucking with people who were sick because he enjoyed watching them break down. I found at least three cases, some paid substantial severances. HR knew about the problem but did nothing because the manager had a reputation for "delivering". If I hadn't been coming off a horrible startup, I wouldn't have been nearly as vulnerable and he wouldn't have been able to break me (I'm a normal person with an abnormal past, and 95+ percent of the time I can keep it in the fucking past) and that pigfucker bully would have attacked someone else.
Bad startups will ruin your fucking life. No exaggeration. I have a pre-existing aggravator but normal people melt down just as hard. In fact, I think it's worse for them because they're not used to insanity and don't recognize it as such when it hits them, so they actually buy into the insane thoughts they start having when the world goes to hell on them (I don't; I'm a veteran of that shit). You will lose lots of money and credibility. Your career will end up in the toilet. Sometimes people will maliciously damage your reputation and you'll seriously consider hiring a hit man, but you can't because you have no fucking money.
Payroll miss == Get the fuck out. Now. No exceptions. Do NOT fuck up your life for these people. They aren't worth it.
Obviously there are other scenarios. I worked at a company in 1998 who missed payroll for 2 (I think) periods in a row. They then pulled out of it, had a strong IPO, endured the crash, and then got bought for a billion dollars a decade later. Those who stuck it out through the dry period, who believed in the company and it's potential, were rewarded in many ways.
I just won't work for free. That's also why I shun overtime.
How would you handle "reduced pay" for founders with different % ownership during a dry spell?
zero days.
doesn't matter. see answer to #1.
You shouldn't be making any concessions. Assuming you're merely an employee, the founder or cofounders should be talking about increasing your stake in the company by at least an order of magnitude.
See answer to 3.
edit: thanks to greenyoda and wtn for shedding some more light on the legal aspects of this. I hadn't even considered them.