Founder of startup wants HUGE salary from the beginning

[biophase]

i think everyone needs to calm down. let me talk to the guy, its not like he has bad intentions. he is just ignorant about the entrepreneurial ways.

People are on your a$$ because this is f*cked up. Ok, we don't know how much money you've put in, or how much equity you have. How many people are in this company now, and how many have equity? Are you getting a salary now?

Look at it this way. Let's say I have an idea. I start a company and anoint myself CEO. I call you up and ask if you want in? "Hey man, I'll let you buy in for $10k for 25%". You give me $10k and I'm like "Thanks man, you are now Director of Engineering. I wish I could make you CTO but you don't have a degree. And I am basing this decision on the fact that I have a degree and only people with degrees can be officers. Oh and BTW, when we go for funding I want $150k because I'm a CEO and you get $50k because you are a Director and not a CTO."

Doesn't any of this sound like he's just making up bullshit to marginalize you? You may say that he is a great guy, but these actions by him are showing US that he does not think that highly of you. There is no respect there, even if he has good intentions. He is also very title driven and sounds like he wants to tell everyone he's CEO.

He sounds like a person who would hire the developer with the college degree vs. the high school dropout that is coding genius. In his mind that high school dropout would never move up in his company.

The only way that I can see how this would be ok is... if you were working as an employee for this company. One day you asked him if you can buy in and he says yes. Then you are an employee with equity. Just because you buy in doesn't change your title as an employee.

But... if you were doing something else and he asks you to start a company with him, and you put up money from the start, that's a different story.[/QUOTE]

 

[theag]

Sounds like a shitshow. Run.

 

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[RHL]

Meanwhile, back with the CEO:

 

[Digamma]

Laugh him out of the room.

 

[Digamma]

Damn, you people have no F*cking idea what you're doing.

After reading, I'm virtually sure you have not done any idea testing, have no prospect list or pre-sales,have no idea how to monetize, and are building an MVP completely blind. And I'm assuming you are looking to be revenue-generating, because if it's one of those "let's get users and get acquired" startups and you have no exit strategy, well, damn^2.

Your CEO has no F*cking clue what he's doing, and somehow thinks he's entitled to being CEO because he had the idea, and who gives a shit if he's incompetent. For F*ck's sake, he is deciding his salary based "on what he read", instead of looking at what his business can support. CEO is not an honorific title. The CEO is a manager. He can't manage his own salary expectations.

Sure, it is entirely possible that in the current climate someone will actually decide to invest money on this, but damn, it's amateur hour.


Let me explain to you in two words how you decide how much money to take if you have equity.

Take how much the business needs to stay open on a monthly basis (infrastructure, salaries, and a good percentage of safety net for emergencies). Add to that the amount you want to reinvest in the business each month, and do not be conservative. Let's call this monthly.
Then take how much money you have in the bank and take out at least Monthly*12.

Your salary has to get out of that number. That's the money that can leave the business. You are pre-revenue and underfunded? Tough shit. Sleep in the office. If you can afford an office.

Take out more, and you'll have less than 12 months of operations in the bank. You will crash and burn if anything goes wrong.

 

[RHL]

we are going to test the MVP by following "running lean"

Not with salaries, you're not. The guy on the other team who is coming to eat your lunch is remortgaging his house and dipping into his 403B to put more money into the business, because he knows once he wipes you out and corners the market that every dollar he put in will be worth 75 later.

 

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[Vigilante]

Sometimes, things go wrong from the beginning. Sometimes, a good idea isn't enough.

 

[ZCP]

No sales. Fix that before wasting time on anything else.

This is all just Ferrari color until then.

 

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[MJ DeMarco]

Your CEO sounds more of an employee then an entrepreneur. I think a while ago @MJ DeMarco made a video about this on how he almost invested in a start-up & right off the bat the CEO wanted 100k a year. I'm sure he will have an interesting opinion on this.

Yup, and that company did not survive. Hung around for a year or two and then folded. Saved myself at least 6 figures.

1) is this a potential problem?

Its a sign of unrealistic, "me first" expectations. I'd be only interested in entrepreneurs who clearly have skin in the game, and are 100% all in. $100K is quite the return from the point of view of a "worse case scenario".

 

[LynnD5000]

it wasn't even my idea. i landed this job and opportunity in the most unimaginable way possible that i dont feel comfortable typing out here. how the hell can i fire the CEO when its not even my idea? we haven't even gotten 1 sale or 1 investment yet, we are in the beginning stages right now. the programmers we hired are making the software.

i think everyone needs to calm down. let me talk to the guy, its not like he has bad intentions. he is just ignorant about the entrepreneurial ways.

NONE at all yet. i don't see how you think i'm getting taken advantage of, but i'm curious. please explain

I find this a very intriguing thread - especially since I am writing a book and training course that addresses these issues directly.

In reading your thread I am making a few assumptions here -

You said your CEO was an engineer -

1st - depending on his level and expertise - that 150K is probably his normal salary or close to it - asking for that much while unrealistic for a startup is probably something he never considered because that is what he normally makes...

2nd - if you have already hired software programmers - it's likely a fair amount of their pay is coming from his pocket and some from yours. And I would also venture to guess that for at least the time being you don't really need investors. If he has been an engineer for very long he may have fairly deep pockets to begin with. I have never met an engineer who doesn't do long term planning - it is the nature of their job skills....

3rd - I would also caution you that until you have a product and some sales DON'T seek investors yet. If you have no product or track record you will likely burn bridges long before you were really ready to approach them in the 1st place.

4th - What is your exit strategy - An investor's mentality is not the same as your's or your CEO - they are not interested in bartering time as an asset - If time could get your where you want to be you wouldn't need them - also there is a possibility that if the investor has a few million to put up he/she may make more a day than you do in a year - it only takes 84K a month to make a million a year. I think MJ referenced in his book that at one point he made 10K a day...If your product is good enough to interest the big guns - they are not interested in what it can make a year - they are interested in how much it can make them in 5 years doing an IPO - and approach like that may be the way to get there attention - if the product is good enough to go public in 5 years - and you approach them with that - it is obvious to them you are interested in making it worth their time and money to invest in you - I wish to emphasize the YOU - products come and go but if you can make them money - I haven't met anyone with money yet that doesn't have a pet project or two......

5th - If you do go after funding DON'T ask for it all at once - Treat your product like you were working for 3M - champion it - set up a series of checkpoints - and have the investors fund them 1 checkpoint at a time at a pre-agreed funding amount - this does 2 very important things for you - 1) It minimizes their risk and 2) it gives you time to develop a relationship of trust and communication - and when the final payday arrives they won't forget who got it there....

Just something to think about...

L

 

[jon.a]

i also mentioned a couple times that i need to talk to someone who won't disclose information before i talk to the CEO but okay just ignore that if you want



anyways, here's a short and sweet update:

Everything is taken care of. I had a huge meeting with the CEO and other people involved. We went over all the problems I discussed, and even more problems I wasn't unaware of came about, but all were addressed appropriately. As I suspected, the CEO just didn't have a clue, it's not like he was trying to be greedy with money. It's unfortunate how everyone makes the worst assumptions even when I clearly stated that he's a nice guy, but even then, thanks for the discussion.

One thing Mrs jon and I encounter on a regular basis is that the anticipation of a conflict is normally much worse than the actual conflict.

 

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[Sehcill]

we havent even gotten 1 sale or 1 investment yet

That's one of the biggest problems with the 150k.

 

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[RHL]

Employees want to get compensated through a negotiated paycheck. They want to know their regular pay up front. No surprises and no risks.

Founders get their cut through skimming the cream off an ever-growing enterprise. They can get mega wealthy or become flat-busted, and a lot really depends on how hard they push.


Only one of these is fit to be a founder.

 

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[eliquid]

I just read the whole thread and I have changed my stance.

OP, im sorry.. but this shit is doomed unless you remove the "CEO"

 

[Andy Black]

This- "if i had a degree and 1-2 year job experience id basically have a co-founder title"

If you're putting time and money in to this thing, you guys need an agreement for what sort of shares you get for it. You'll certainly need a corporate structure so people can give you money. You guys need a decent lawyer, or law firm, that is familiar with beginner founders and angel level deals.

If you're wondering why the concern, a recent thread gives hints...This was a partnership that sounds like it was started properly- https://www.thefastlaneforum.com/co...-but-am-happier-and-stronger-than-ever.62925/

Some of us have been around the block a few times. You start to get a ear for things that sound wrong.

^^^ Have you read the thread linked to in this comment?

In a later post I ask the OP what his checks might be into going into partnership.

I hadn't even considered the first point in his reply, and I think it really is a big one.

As @MustImprove says:

If you haven’t “made it” yet, I suggest you stay behind the wheel and lock the doors.

Don't take on any hitch-hikers, and certainly don't let someone take the wheel unless you're 100% sure it's better than you learning to drive.

 

[Jon L]

Thanks for the input everyone. So a reoccuring theme with me and the founder has been communication issues.

In order to get my point across... it would really help if i had some numbers with me... is there a case study or something available in regards to this scenario of startup founder initial salary vs success??? LMFAO oh man im reaching here aint i

but yeah, i need to figure out how to transition him from an employee to an entrepreneur very quickly, or at least make him more open minded. a lot of his plans contradict a lot of expert people's advices and he can be resistant to accept them sometimes because of doubt. what im saying is that he is not as teachable as someone like me.

though its not always bad, he has so far mostly taken all the good advice, but the change comes with a lot of resistance.



im in operations, not an officer, but manager level due to my inexperience in the working world.

we are trying to get venture funded because of contacts available from VC firms

The key thing you said here was "I need to figure out how to transition him from an employee to an entrepreneur very quickly.'
This is a bit like finding a girl that you'd like to marry, marrying her, and then saying 'I want kids. She doesn't. I'm going to have to find a way to change her mind.'

looking back on my career, I've wasted way too much time on bosses like this. If you're the CEO of a company, you need to already have most of your ducks in a row. Some stupidity is ok, a lot is not. This guy is too far towards the 'not enough ducks in a row' end of the spectrum. Its not going to end well. I'd go find another opportunity.

 

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[Bouncing Soul]

yeah i put money down and have a significant portion of equity not to mention a lot of other sacrifices i made and am currently making

if i had a degree and 1-2 year job experience id basically have a co-founder title

So...Zuckerberg shouldn't have gotten founder credit for FB because he dropped out and never had a job before? This is a whole lot of bullshit that you just wrote. I'm not sure why you think this, but if it's because of this "CEO", fire him.

 

[theag]

i am not completely transparent here

So why the F*ck are we even wasting our time with you?

Like I said. Shitshow. Including you.

 

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[Gsuz]

i landed this job and opportunity in the most unimaginable way possible that i dont feel comfortable typing out here.

This thread is sponsored by Cougarlife.com - The #1 venture capital site in the world.

 

[MJ DeMarco]

No customers, no revenue, no clients, no data, no product-- just a big circle-jerk picking out titles and Ferrari colors.

The CEO is a manager. He can't manage his own salary expectations.

Money statement right there.

Shit-show indeed... perhaps this THREAD, Part 2 in the making... wonder who's playing what role.

 

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[Ubermensch]

Alright, so we are getting ready to go for funding, and the founder wants a HUGE salary --150k. from the get go.

long story short, he doesnt know much about startups, he just has a great idea.

he says that he heard that a cutoff on salary for a startup founder should be no more than 150k so he will just go from there.

i feel like thats a problem. from my research, i saw that a startup founder should first start with 50k.

i have equity in this as well.

1) is this a potential problem?
2) if yes, how should i go about this situation in terms of approaching him and having a conversation about it? he listens to opinions and advice...but i dont think he understands them well...

Your founder wants 150k a year? For what.

If he's not a businessman, if he's not a salesman for the company (which the CEO should be) driving revenue, then what good can he do for the company (beyond what he's already done)?

Potential problem? Yes. You don't need a dummy who doesn't understand numbers, and the subtle nuances that drive those numbers, capriciously demanding a ridiculous salary.

Some founders get a huge salary, yes. How much cash you have in the bank to be paying salaries?

So do hedge fund managers. Some make $100M+ a year. Some make much less. Depends on the situation.

How much revenue do you guys have coming in? How much cash flow? What are your margins?

You're going to pay 12K+ a month to a founder? Damn. You guys must be making like at least twice that already... right?

Talk to your founder. Talk to him about you company's current income and (realistic) projected income. Does that income support his salary demands?

A true believer in your collective cause will sacrifice short-term income for long-term success. The "founding," the birthing of the company, happened in the past. If you want it to mature, your founder must care more about rewards for future work than rewards for past work.

 

[Bouncing Soul]

Do you guys have any experience in start ups? Any angel money? You say you want venture money for contacts, does that mean the business already has the cash flow to pay him that salary?

As mentioned it will raise red flags immediately if you manage to get an audience with a VC. A rockstar guy might be able to talk around the salary, but it is almost surely a deal killer.

Warren Buffett only makes $100k in salary, ask your "CEO" why he's worth more.

 

[Michael W.]

Damn. Own a significant portion, put up money and can't even get a decent title because no degree no experience? Who put those limiting factors in place? You or them?

 

[tafy]

Time to claim that co-founder title!

 

[eliquid]

but yeah, i need to figure out how to transition him from an employee to an entrepreneur very quickly

Forget about this nonsense.

You're either an entrepreneur or you're not. Leopards don't change spots.

 

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[The-J]

guys, i get it, im in a shit storm right now

im not denying it.

Run and don't look back. You have no business partnering up with a guy like that. Tell him that it's his project and he can do whatever he wants as long as it's not involving you.

You're in a prime position to save your a$$ from a lot of future torment and stress. A year from now, you'll be thanking the forum for seeing the red flags that you ignored just because you wanted to keep on driving.

 

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[ZCP]

When will the 1st sale occur?

Could you imagine the A-list of potential CEO's clamoring to lead this company?

 

[Ninjakid]

1) reduce his salary to the bare minimum

What does this guy even do? Since when do people get salaries for having ideas?

 

[LateStarter]

My CEO salary guidelines:

• $50k or 2x lowest salary in the company.
• Must have 6 months CEO salary in the bank on top of 6 months burn before you get paid.
• Hold down your day job as long as possible. That should be funding you, not the startup.
• CEO is the LAST guy to get paid.

 

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[Ninjakid]

Alright, so we are getting ready to go for funding, and the founder wants a HUGE salary --150k. from the get go.

long story short, he doesnt know much about startups, he just has a great idea.

he says that he heard that a cutoff on salary for a startup founder should be no more than 150k so he will just go from there.

i feel like thats a problem. from my research, i saw that a startup founder should first start with 50k.

i have equity in this as well.

1) is this a potential problem?
2) if yes, how should i go about this situation in terms of approaching him and having a conversation about it? he listens to opinions and advice...but i dont think he understands them well...

It ultimately depends on how much funding is available. For startups with several million in funding, it's not unheard of for the founders to take hundreds of thousands off the table. The way you can justify this is because if the founder is working his a$$ off to get a company with millions of funding off the ground, he needs at least something to live on. But this is the case of companies mountains of cash at their disposal.

But in this case, it sounds like the founder is more interested in his salary than owning valuable stock from a revenue generating company. Someone should probably school him.