The Startup Founder’s Salary Strategy: Survival, Sacrifice, and Success
Show Off | Nothing but Money | Standard | Dream | Stake | Reality
After reading and watching case studies of many entrepreneurs and founders, I learned that many founders had raised money from VCs, contributed their own money, and raised money through an ICO. In all of this, I understood one thing it is necessary for a founder to treat himself like an employee.
Today, in this article we are going to discuss whether or not you should take salary from your own business as a founder.
For many people, the word salary is a curse. The curse is that they are tied to a circle from which they cannot escape.
It isn’t seen favorably for a startup founder to take on a high salary if the business is consistently losing money. Now let’s think about this scenario from a different perspective. If a founder of a startup takes a high salary after raising funds from VCs, people would look at him as though he betrayed the investors’ trust. They will think that a founder stole the funding money given by the investors instead of using it in the business.
Show off
In today’s time, being and becoming a startup founder has become a means of showoff. Now just to brag about it and to get a founder tag or status many people are starting a company.
At present time, anybody who just started a startup continuously thinks about only one thing: money. A newly become founder will continuously think that today I founded a company; now in a few months, I will become a millionaire and will earn millions of dollars without lifting a finger. Millions of dollars will be in my bank account for me to spend every single day.
Wake up, my friends, because all of this simply looks amazing from afar, and in our imaginations; reality is very harsh and completely different.
Truth
From a distance, the startup founder appears to have a lot of money. In truth, many startup founders have high valuations for their companies but are penniless financially to support their daily lives. The financial and mental health condition of every startup founder is not as good as we see. They have to struggle everyday just to run the daily expenses of the house.
I am sure, you are also confused about How? Why? The condition of the startup becomes this bad that they have to struggle even to support their day-to-day life. This is quite interesting to know from where the problems actually start.
Nothing but Money
Do you want to start a startup now? If you said yes then what is the first thing that comes to mind? Money, money, and nothing but money. Money is required to do basically everything. Without money or funds (Investors) we couldn’t start a company. Now I hope you have got the answer to your previous question How and Why?
Simply, the problem arises when a startup founder does not have enough money or funds to operate a business. When there is no money to operate the business the production will also stop and even if you stop the production there are certain fixed expenses which incurred every month or week even if you run your business or not like salary, electricity bill, rent, etc.
Entrepreneur
Now let’s come to our main topic, due to the issue of financial shortage, the entrepreneur reduces his own expenditures and also his/her salary. When the founder invests all of his or her money in the company and it begins to become profitable or stable, he or she has two options to choose from.
- Raise Funds for Business
- Grow slowly by running a business in Bootstrap
A serious and real founder always thinks that money is very essential for my company and so it must be used properly or else my business will fail. The founder does not take his/her own salary as a result of this fear.
Market Standard
Today’s startup entrepreneurs accept funding based on the market standard. Let’s understand the market standard from an example.
Assume you are the founder of the company and the salary of a particular person in your team is $5000 per month, then you will also take $5000 per month.
Everyone’s standard of living is different. You are 30 years old and passed out from Harvard University. You are living in a luxurious house, there are 3–4 workers and a chief working in your house, branded clothes, luxurious cars, pets, other personal expenses, and many more expenses. I don’t think you will be able to manage all of these expenses with a salary of $5000.
You were earning $20000 per month in your previous job and after becoming a startup founder, only $5000 is coming in your hand. How will you survive on a salary of $5000?
It is not bad to take less salary at the beginning of the business. Taking money to run your house and meet small personal daily expenses, it is necessary to take a minimum salary, there is no problem in this.
Dreams
A dream of every founder is to make their company unicorn and after that, some will think to sell their business. Most of the founders decide to sell their business because they had already seen a dream at the moment they start a startup to enjoy their entire life by taking a lifetime retirement.
Unfortunately, not everyone’s desire comes true; only a few individuals are able to achieve their dream.
Share Value
As you all know that the actual net worth of every startup or company is determined by the value of their shares. The company’s value is $5 billion, and you own 10% of it, which implies your personal net worth is $500 million. However, because this money is not liquid, you will not be able to spend it like cash.
You’ve probably observed that the stock price of numerous startup firms has dropped by 40%-50%, and in some cases over 80%. As a result, numerous businesses have been failing.
Now you have a 10% stake in the company and after some time the company has to be closed due to any kind of problem, then the value of your 10% stake will be zero.
Imagine
You are a founder of a unicorn startup who had a 10% stake in the company. As a founder when a company was running in a loss you would not take even a minimum salary from the company. Now you are not even taking minimum wage then how will you live your daily life? What will happen to all the people who are dependent on your company and on you?
In the above condition, just imagine how worse the mental condition of the founder would be. The founder has no money, no company, no regular life, and no return for so many years of hardwork.
I am not telling that only founders face this kind of problem. Everyone person working in a profession, job, or position faces this problem but the only thing which was different for every person is the nature of the problem.
Reality
If the founder will take a less salary then no one is going to appreciate you by saying, “Great man, you are a great person, wonderful you are taking a less salary, really man you are great”. So a piece of advice if you are planning to start a company or are already a founder of a startup then always take a minimum salary and gradually increase your salary as the business becomes profitable.
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Disclaimer
I am not a Financial advisor. I am not affiliated with any of the websites or coins and also this is not financial and Investment advice. This article is meant only for educational purposes. I am just sharing my thoughts and analysis based on my many years of experience.
