Ask HN: Should I switch companies?
5 comments
If the company is distributing profits rather than investing them in growth, then it is not a startup, it's a small business.
If the company is closely held, e.g. some sort of limited liability company or S-corp, then profits are often kept as small as possible unless otherwise dictated by an operating agreement among the stockholders.
For example, if revenue outpaces expenses by $120k, the stockholders can award themselves $100k in bonuses and the company's profit is $20k and you would see $2k at 10% instead of $12k [and there's nothing stopping the stockholders from awarding all $120k as bonuses in which case you would see nothing]. And that's just when they don't anticipate increased revenues. If they anticipate $120k greater revenue versus expenses next year the stockholders can give themselves $120k worth of raises.
If there's long term revenue streams, the stockholders can hire on family as consultants, enter the company into leasing agreements with companies that they own, and basically take anything that could be profit out of the company and it's all perfectly legal and common for closely held companies.
The reasons are that the tax situation of the stockholders of a closely held company is pretty much the same either way, but any assets of the company can be taken via lawsuit against it, while the personal assets of the owners are protected via limited liability.
None of this is to say that these things are necessarily running through the stockholder's minds. But not being a stockholder pretty much places any future revenue subject to the good will of the stockholders and it is not uncommon for people to make self interested choices when real money is involved.
BTW, being a minority stockholder doesn't really change much absent an operating agreement which governs the way in which profits, bonuses and salaries are determined and getting that is unlikely.
Good luck.
If the company is closely held, e.g. some sort of limited liability company or S-corp, then profits are often kept as small as possible unless otherwise dictated by an operating agreement among the stockholders.
For example, if revenue outpaces expenses by $120k, the stockholders can award themselves $100k in bonuses and the company's profit is $20k and you would see $2k at 10% instead of $12k [and there's nothing stopping the stockholders from awarding all $120k as bonuses in which case you would see nothing]. And that's just when they don't anticipate increased revenues. If they anticipate $120k greater revenue versus expenses next year the stockholders can give themselves $120k worth of raises.
If there's long term revenue streams, the stockholders can hire on family as consultants, enter the company into leasing agreements with companies that they own, and basically take anything that could be profit out of the company and it's all perfectly legal and common for closely held companies.
The reasons are that the tax situation of the stockholders of a closely held company is pretty much the same either way, but any assets of the company can be taken via lawsuit against it, while the personal assets of the owners are protected via limited liability.
None of this is to say that these things are necessarily running through the stockholder's minds. But not being a stockholder pretty much places any future revenue subject to the good will of the stockholders and it is not uncommon for people to make self interested choices when real money is involved.
BTW, being a minority stockholder doesn't really change much absent an operating agreement which governs the way in which profits, bonuses and salaries are determined and getting that is unlikely.
Good luck.
Wow. Thank you for this. This is insight that I never ever would have thought of because of my lack of dealing with this sort of situation. Obviously profit sharing and equity make a huge difference. If I stay with this startup I will absolutely make sure I get equity and rather than profit sharing.
Well, on the one hand, you are at a unique the time of your life when you can invest your time into a startup (assuming you are single, and willing to eat some ramen). On the other hand, clearly you could be doing better, and any skills/experience/salary history you acquire now will put you in a very attractive position in a few years, and really will compound for the rest of your life.
I think you need to do some soul searching, and ask what is your motivation, what is your passion? Are you in this startup because you believe in it, think it can fly, and are willing to sacrifice a lot? Or are you there because you fell into it, they gave you a job, they're good guys, etc?
Other questions to ask are:
- What's your risk tolerance?
- Do you mean to have a family some day?
- How important is money to your situation?
- What would you value more: the experience of building something yourself, or the experience of working on a team?
I think you need to do some soul searching, and ask what is your motivation, what is your passion? Are you in this startup because you believe in it, think it can fly, and are willing to sacrifice a lot? Or are you there because you fell into it, they gave you a job, they're good guys, etc?
Other questions to ask are:
- What's your risk tolerance?
- Do you mean to have a family some day?
- How important is money to your situation?
- What would you value more: the experience of building something yourself, or the experience of working on a team?
I have a family already. I am married with an 8 month old daughter and plan on having one more child. Thats what is really making me consider going with the more established company.
With that said though, I did somewhat fall into this startup, they offered my a job, it seemed promising, I do see a bright future for it and I do see it succeeding. But I'm not sure I want to wait it out and take the risk just yet.
I have lots of experience building something myself, and I do enjoy that. But thinking back to my college days I also really really enjoyed working on another team with other developers, which is something I have not done since college. Thats what was appealing to me about startups, was the environment and being surrounded by other developers. I now realize thats not the case until a startup becomes somewhat successful and has funding to make something like that happen.
With that said though, I did somewhat fall into this startup, they offered my a job, it seemed promising, I do see a bright future for it and I do see it succeeding. But I'm not sure I want to wait it out and take the risk just yet.
I have lots of experience building something myself, and I do enjoy that. But thinking back to my college days I also really really enjoyed working on another team with other developers, which is something I have not done since college. Thats what was appealing to me about startups, was the environment and being surrounded by other developers. I now realize thats not the case until a startup becomes somewhat successful and has funding to make something like that happen.
An analytical way to look at this would be to compare the "net present value" of the future earnings from the two opportunities. Given that the startup has not raised any funding or revenue yet, and I don't hear you saying anything about how exciting it is, I'd have to guess you have more upside in the training and learnings from getting proper software development mentorship.
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As far as my experience goes. I went to college at 16, landed my first job at 17, stopped college after 2 years and pursued more work. I've been working in the field since then and I am now 23. So I have roughly 7 years experience, with the majority of that work being done the last 4 years.
For the past 6 years I have developed mainly with PHP/MySQL, Javascript, and HTML/CSS. And using numerous frameworks and libraries.
Lately my stack looks something like: Laravel for my backend PHP Framework, MySQL as my Database, Angular as my frontend Framework, with bits of jQuery in there. I have been using Nginx as my server and know my way around Amazon Web Services and have everything on Amazon EC2. I've been building mobile applications with Titanium and Alloy as the MVC Framework. I am proficient with Photoshop.
Here is my predicament. A local software development company has been talking with me a bit, they know my skill level, they are looking for a full-stack developer with a skill set similar to mine that they can also train. They are small with around 10 of them, but they are well established offer a competitive salary and full benefits. After talking with the owner, he said he I am worth more than the $60k/yr I am being paid. Now with the $60k/yr I am being paid I also will be getting a percentage of the profits. Starts at 10% the first year, 15% the second, and stops at 20% the third year. But they aren't making any money yet.
My decision: to take the risk of staying with the current startup with the potential to make lots of money if its successful or pursue this other position and get paid a better salary with full benefits, a better working environment, the opportunity to work with other developers.