Founder of startup wants HUGE salary from the beginning

[Perry Rico]

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...

My two cents:
1. Most self made entrepreneur didn't made a break even until the secondyear. That guy now with the idea is saying he will start earning before his investor / shareholder will ever start earning money. Funny!!! The reason he is looking money is that either he don't have the guts to fund it by him self and passing all the risk to you, or all he got is an idea and thought itt million. I'd rather hire an idea factory employee than invest on someone's idea that wanted salary immediately.

2. If i were in the situation, I will pass / let go on to it. If he really wanted a salary... and if he really got a good plan, i can settle that his salary be in the form of stock at the same value that is receivable on the end of the year to whatever the valuation of the company.

 

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[OVOvince]

Alright guys I'm not gonna lie, I can't sleep again. I passed out at 11 and woke up an hour ago and all I can think of is this.

I'm going to talk to him rather than run or try to fire him (somehow) because

1) he's not a bad guy, he's still learning. If I can show him that this is something he needs to reconsider, then he will adjust.

2) I'm still in the beginning stages, and we didn't even have a huge discussion on this. This is just something he mentioned on the phone to me, and the context tells me that even he doesn't know anything for sure yet. He said he heard the cut off rate was that much so he "thinks he will take that much". It's not like he's demanding about it, I'm sure once he finds out how this is a big issue, he will change his mind.

I'll reply to the other responses after I try to get some more sleep. Thanks everyone

 

[OVOvince]

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.

the thing is im not exactly being completely transparent with you guys on my situation for some good reasons. i can see how it seems like what you mentioned, but its not exactly like that. im just going to have to ask everyone to trust me when i say this, but the title position part is not an issue in this, and it was a mutual agreement.

he actually is the opposite of the guy who doesnt trust college dropouts, hence how i even got this opportunity, but i once again, i can see how you think that, because i am not completely transparent here.

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

your assumptions are correct and i like your advice here. in fact, im going to mention this to him pretty soon.

our exit strategy is for the long run, at least mine is, and he said so as well. but im going to sit down with him and discuss all this in detail. thanks a lot

 

[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.

 

[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]

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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[OVOvince]

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.

actually, we have literally done every bit of that and more. that's exactly why i am so reluctant of letting go of this fukin opportunity even with this CEO that has almost no clue sometimes. this startup idea has so many industry higher ups interested, and we have a couple that are on board as advisers, both with startup experience, and yes they were successful. we are going to test the MVP by following "running lean"

ive read lean startup, ive watched every how to start a startup video, taken notes on video and the readings on it.

so id say i have somewhat of a clue on what the process is going to include. thats why im just mentioning this salary issue in this thread, and not other testing method issues, because there are none as of now

its funny how you were so quick to cussing me out on an older thread in regards to me ranting on about my CEO, and now in here you have suddenly flipped your attitude to my CEO.

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.

appreciate this part. thanks

 

[OVOvince]

Alright guys, im going to have a talk with him this evening, so stay tuned tonight for the next episode.

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

LMFAO man this is going to follow me around here now huh

 

[ZCP]

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

This is all just Ferrari color until then.

 

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[Digamma]

actually, we have literally done every bit of that and more. that's exactly why i am so reluctant of letting go of this fukin opportunity even with this CEO that has almost no clue sometimes. this startup idea has so many industry higher ups interested, and we have a couple that are on board as advisers, both with startup experience, and yes they were successful.

That's good - you understand, I can only judge from what I read.
You know, you could just encourage him to talk to them about this. "Hey man, I see you're anguishing on this, why don't you just ask X what he thinks?". This way, he handles it with people who actually know the facts and figures (as opposed, you know, to us on a forum).

its funny how you were so quick to cussing me out on an older thread in regards to me ranting on about my CEO, and now in here you have suddenly flipped your attitude to my CEO.

Your attitude feels much different in this thread, and you have a legitimate issue at hand. Besides, I cussed on you because you were badmouthing your CEO on a public forum, and that can backfire. Now in this thread you have almost a protective attitude towards him. That's growth, I guess. That's cool.

 

[OVOvince]

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

This is all just Ferrari color until then.

yeah im gonna tell him we should wait for some traction before we go for funding

 

[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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[jon.a]

If this were me, it would be important enough to open an INSIDERS account and tell the whole story in there.

 

[Bouncing Soul]

Whether you realize it consciously or not (you are sleepless for a reason), you are in the middle of a total shit-show. But that doesn't mean it's time to punt, IMO.

It sounds like you guys are building this software with absolutely no business foundation. In VC speak, you guys desperately need some "adult supervision". If you don't fix this, it's not long and you guys will all hate each other.

I think this is a pretty good read for you- http://www.amazon.com/Art-Start-2-0-Time-Tested-Battle-Hardened/dp/1591847842/ref=sr_1_1?ie=UTF8&qid=1443450324&sr=8-1&keywords=guy kawasaki art of the start 2.0

In there he says CEOs are worth something like $125k, your guy isn't. At least, not as CEO.

 

[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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[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"

 

[OVOvince]

Okay, actually, I am scrambling right now to find someone to talk, either in person right here in town, or someone from here as Jon. A said to join INSIDERS and to put the info out there to talk about.

the problem is, i really really dont feel comfortable putting the info up like that to a lot of people, no offense to you guys, but as you can somewhat tell, i am dealing with some delicate information that is involved in this matter, which is why i may seem secretive regarding certain things mentioned in this thread.

is that secret information significant in my role and my equity, and in how i will structure my argument to the CEO? yes.

but now here's the big part, whoever i do talk to, i NEED confidentiality on the levels of patient-doctor relationships are... no judgements, no trust breaking, just plain ol problem solving.

any thoughts on where to find someone like this?

shit man, im sort of clueless right now

 

[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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[Get Right]

shit man, im sort of clueless right now

this makes sense because there is no business...

 

[OVOvince]

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

im not denying it.

 

[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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[RHL]

Meanwhile, back with 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.

 

[OVOvince]

So I tried to find someone to talk to with full disclosure on my situation today, and couldn't. So now I'm just going to lay it on the founder tomorrow.

I'm gonna present my argument and proposal in a more effective way but essentially I'm going to ask him to 1) reduce his salary to the bare minimum and 2) hire a Ceo to lead the company, one with startup experience and success and 3) come up with a corporate structure ASAP, at least a draft or something by the end of the week.

I will ask him to talk to the advisors about this as well

And I'm going to tell him to talk to the advisors about this.

All 3 conditions must be satisfied or else I'm out.

I'm also going to talk about the funding strategies over with him, before or after traction etc.

 

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[biophase]

So I tried to find someone to talk to with full disclosure on my situation today, and couldn't. So now I'm just going to lay it on the founder tomorrow.

I'm gonna present my argument and proposal in a more effective way but essentially I'm going to ask him to 1) reduce his salary to the bare minimum and 2) hire a Ceo to lead the company, one with startup experience and success and 3) come up with a corporate structure ASAP, at least a draft or something by the end of the week.

I will ask him to talk to the advisors about this as well

And I'm going to tell him to talk to the advisors about this.

All 3 conditions must be satisfied or else I'm out.

I'm also going to talk about the funding strategies over with him, before or after traction etc.

Can you get your initial investment back if you leave?

 

[theag]

2) hire a Ceo to lead the company, one with startup experience and success

Wat.

How much revenue did you have again? I forgot.

 

[tafy]

Why hasn't he talked to the ceo yet, I've seen atleast 6 posts saying he will do so but he still hasn't done it?

 

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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?