Her personal story aside, which I can imagine must feel a bit bitter, I am of the opinion that equity should only ever be given to employees who have a crucial and direct impact on the success of a business. If I join as a COO into an early startup then I take risks, play a crucial role in it's evolution and therefore deserve some equity to incentivise the best performance I can do. However, if I'm an account, even if I'm employee no 2 I would never expect equity. Doing accounts is not crucial and has nothing to do with the actual startup itself. If they pay a normal salary for an accountant then any accountant could just take that job and replace me. Why should the business owners who must have taken huge risks themselves ever give a piece of their hard earned cake to an accountant? Doesn't make sense, they get a fair salary for their work and that is all they deserve.
So there's always two sides to everything. Not everyone always deserves what others have. That's a common misconception today where everyone looks for reasons to claim how they've been treated unfairly.
EDIT:
Before more people jump at my throat, I want to clarify that I am not talking about not compensating employees well because of a stupid reason like they can get replaced or something. That's not at all what I'm saying and I thought that was pretty clear. EVERYONE should get a great salary and great work/life perks, BUT when it comes specifically to giving away OWNERSHIP of one's business, then IMHO just being a great employee is not reason enough. I just don't think that everyone should own some % of a company just for rocking up every day and being nice to their colleagues. That's all.. if you disagree with that, then fair enough, but then say that, and don't try to teach me that people should get compensated well, because I never said otherwise.
This comment is so horribly wrong that it's hard to know where to start.
1. "Doing accounts is not crucial". Um, yes it is. Doing accounts is very, very important. They are a way of understanding the truth of your business, keeping your cash under control, satisfying legal obligations.
2. "If they pay a normal salary for an accountant then any accountant could just take that job and replace me". People are not interchangeable. A good accountant (one who is competent at their job) is your table stakes, after that you have to consider how well that person works with others and how they contribute to the culture of the company. A start up is not about the visionaries or engineers it's about an entire team that makes a company grow and work well together. Viewing an accountant is not contributing to the company culture is not just plain dumb.
3. Also, accounting is way more than just filling in a spreadsheet. When you look at the effect of AR and AP on the business you quickly realize that this stuff matters.
4. Everyone in a startup could go somewhere else. And everyone is taking some level of risk (e.g. they could have gone to a more stable company that provided better long term job prospects). Everyone deserves to participate in the risk/reward.
So, reward people that you want to stick around at the company. Give everyone some equity, given everyone some upside. A business owner who sees someone like an accountant as a drone doing a job for pay is missing out on the larger picture of building a healthy company for the staff and getting the best from that person.
Having reliable employees is golden, I doubt anyone argues with that.
The argument goes is that an average office hand, a janitor, a driver (or an accounts receivable clerk for that matter) will not be a critical loss for the company regardless of how good they are at their job. Hence no inherent need to try and retain them as hard as those in executive and technical positions.
You can certainly sprinkle some options on them to try and make them feel good, but you should really consider how receiving 0.005% of a company would really feel for them.
People are not interchangable, but their skills very much are. Accountants are not being treated as drones. Whether you think their importance is extremely crucial in an early startup or less crucial it doesn't matter, because all of that is taken into account when paying them a fair wage. That is de facto the definition of fair. So nobody needs to feel offended. You deliver a great job and we pay you a great salary according to market rates and your experience. This is how the world works.
If a coffee fetcher or accountant would come to a startup owner and say I want a piece of your company for making you coffee or filing your tax returns then they better back up why the business owner will not just ask someone else to do it at this point. It's not that they don't value their contribution, but it's just not a reason to give away a piece of your ownership of your own company where you've put blood and sweat into it.
However, if a subject matter expert comes to me with the same request, and the market is such that there's already very little people of that qualification available anyway, and their contributions are seen as make or break the company, then the conversatoin will certainly be very different.
This is just the free market, no matter how you feel about this, it won't change. There's obviously the argument that the free market doesn't serve us well, but that's a different conversation and out of this context here.
I think you miss my point that the accountant is part of your team. They are doing more than just the job of accounting and help build the company culture. The culture, teamwork etc. are intangibles that will make a big long term difference.
You are certainly within your rights to decide to keep all the equity to a small number of people but you'll be building a very different company than one I would want to work for.
For example, I am very happy that my Executive Assistant has options in my company. She's an integral part of my success and doing my job every day. There were lots of candidates for her job but we chose her. And I'll be ecstatic if one day she sees upside from having taken the job working for me.
> She's an integral part of my success and doing my job every day. There were lots of candidates for her job but we chose her. And I'll be ecstatic if one day she sees upside from having taken the job working for me.
So why don't you give her that upside? As a business owner you can pay her whatever you would like her to see earn one day. Just do it, there's no inherent reason why equity has to be given away. Of course if you prefer to pay her a promise of maybe one day cashing out, but equally not cashing out at all, then I wonder if you really value her contributions today as much as you make it sound here. Honestly, people can run amazing companies and treat their employees really really well from day one, not one day when they win the lottery.
A startup is a huge risk regardless, so if I take a job at at a startup I want to be compensated for the risk. Even if I’m cleaning it fetching coffee. That doesn’t have to be equity but pay needs to be better than if I took the same job at the megacorp across the street, because the risk of suddenly being without a job when the company goes bankrupt is much smaller.
I would gladly accept lower pay at a startup than working at a megacorp.
In my view, the fact the megacorps offer better job security and still have to pay a premium for employees, just show that the jobs aren't that attractive/enjoyable etc.
If you are paid market rates, your career perspectives in the line of business you are in are typically not stellar and your career prospects improve by working in that company no matter how it does you are not taking a risk.
Work of almost all employees is “crucial” and “has to do with the actual startup itself” at an early stage. My experience with companies that don’t realise this is that they rapidly deteriorate because of a poor perception of value within the business.
Setting that aside, all employees at a startup take additional risk. Startup work is frequently harder, more complex, more time- and life- consuming than BigCo work, and runs a higher risk of suddenly coming to a stop when funding runs out.
If I am going to come and work for your startup, I will need one of a couple of things:
- The same pay and conditions I will get at a more established employer, including the expectation of value added, or
- A higher salary to compensate for the additional work and risk of a startup, or
- Equity to compensate for your inability to pay a higher salary, or
- In a very rare case, the fact that you are working in a particular field, area, or cause, for which I’m willing to accept lower rewards in order to participate.
Employment should as much as possible be a transactional process. Offer money in exchange for work and risk; if you can’t offer money, offer something else to compensate. Equity is a reasonable tool for cash-strapped startups.
Please remember, I am not saying people should not be seen as important or valuable, or not get compensated fairly. I am very much advocating ALL of that. But, when it comes specifically about giving away ownership of one's business, then I think there must be a good reason to do just that, because just being a great employee and doing a good job is IMHO not a reason to give away ownership. That's two different things. Please I am all up for everyone getting paid great salaies, getting amazing perks and what not, but ownership of the business should not be easily given away like that.
Ownership of the business is just a token of value that you control. If you can compensate everyone with adequate salaries—that means, higher than the equivalent at more stable companies—then that is totally fine. If not, then exchanging some of your control instead is a totally valid thing to do, and weird preconceptions about “your own blood and sweat” are just silly things to care about.
Frankly higher salaries are my preferred option and one I would always push for, for both myself and others, if possible - equity is essentially valueless at an early stage anyway.
Your arguments may be appealing, but looking back at your startups - did the receptionist, tech support or janitor receive options? Were they even employees?
Interesting view. Would you see engineers similar to accountants? Aren't they just as replaceable, not providing much value besides implementing ideas and specifications? Its just the founder that matters if I understood your comment correctly.
I think a startup is so much more then you are trying to make it to be.
So there's always two sides to everything. Not everyone always deserves what others have. That's a common misconception today where everyone looks for reasons to claim how they've been treated unfairly.
EDIT:
Before more people jump at my throat, I want to clarify that I am not talking about not compensating employees well because of a stupid reason like they can get replaced or something. That's not at all what I'm saying and I thought that was pretty clear. EVERYONE should get a great salary and great work/life perks, BUT when it comes specifically to giving away OWNERSHIP of one's business, then IMHO just being a great employee is not reason enough. I just don't think that everyone should own some % of a company just for rocking up every day and being nice to their colleagues. That's all.. if you disagree with that, then fair enough, but then say that, and don't try to teach me that people should get compensated well, because I never said otherwise.