Equity vs Income
Recently a variety of companies that I am invested in have been interviewing some really amazing people who are currently working in companies where they make a solid salary. They have responsibility, they are leaders in the company but they do not have equity so they are just hired help.
Making that entrepreneurial leap is a tough one but if you are an entrepreneur with a burning passion to start something it isn’t as scary as it sounds because you just have to do it. If you are making that leap into a start-up making less than what you are currently making with equity making up for some of your income plus some well that is more difficult.
I left Macy’s when it went from a public trading company to a privately held company because I got zero equity. I would have happily taken equity in the company that I grew in the garment center but it wasn’t the norm so instead of got a lot of cash. It worked for me because it paid for our life but if I had been given equity I would have probably made a lot more and I would have had a different feeling of ownership.
There is a clear difference between people who are willing to take that leap of faith that they are part of something that is going to grow into something big. They have to be willing to take that leap that they might make less cash but the equity will more than make up for that. If the company succeeds it would have been the right call. If the company fails then perhaps it was the wrong call but putting that kind of experience under your hat can never be taken away. That is why the people who work up in the start-up world all have a little bit of that risk taking gene in their DNA.
I have been disappointed with people we thought were going to take a job in a company that I am invested in and then at the last minute turned it down for a counter-offer from their current companies but in the end I do believe that things happen for a reason. Those people were missing the understanding of being an owner in something vs just an employee.
Personally I’d try to take more equity any day.
Yup–I’m with you on this.Becomes a bit more complex hiring sales people where success is a measurement of revenue.
There is nothing more frustrating than doing your job as if you owned the company when you actually do not own a single piece of it. One of the most important pieces of the interview process for startups is to test if the potential employee can think like an owner.
just gotta close your eyes and jump i guess
you got it.
You got it right with the “risk taker gene.” Some people just don’t have it.
I like what you wrote. It’s a modern version of Plato’s allegory of the cave.
This is a really nuanced topic – there is an entire spectrum of risk vs. reward calculus that doesn’t and shouldn’t always persuade people to join a startup, even those with the “risk taker gene.” There is a ton of data that suggests that stock options in startups follow a power law, just like VC investments & returns. In other words, stock options pan out really well for a very small minority, and probably don’t pan out at all for a very large majority.And I personally think that this (my) generation of builders, makers, workers, etc. is being sold and sold and sold on joining startups to the point where its now becoming overrated as a career option in many cases. The biggest benefit to joining a startup is the accelerated learning – I have experienced this first hand and its real. A year in a startup might be worth 3 or 5 in a slower paced environment.But I don’t necessarily agree with the idea that everybody needs to be joining a startup or else they are just hired help. That is overly dismissive IMHO.My calculus is – go where you are challenged, go where you can learn the most, go where you can work for and with the best people. Every stop on the path should open more doors, and make you feel like you are in over your head. That’s how you level up as a person and a professional. Startup vs. Established and Salary vs. Equity aren’t the defining factors to me.
*My calculus is – go where you are challenged, go where you can learn the most, go where you can work for and with the best people. Every stop on the path should open more doors, and make you feel like you are in over your head. That’s how you level up as a person and a professional. Startup vs. Established and Salary vs. Equity aren’t the defining factors to me.*This makes total sense to me. When you are younger taking that leap of faith and risk is easier. Once you have a mortgage, a family and life gets in the way it becomes harder. Being able to push yourself professionally is the key here. There is no doubt that moving into a start-up can be a huge risk but it can also be a big win.
I do take some exception to the value judgement in your statement, “just an employee.” What you are describing is how someone is compensated. It is not inherently better to own vs. work for another person.People invest their time with the hope of getting a return on this investment through a salary, an exit, or knowledge. As you know much better than I, it’s hard to get financially wealthy without ownership. But you can hone a craft, even become great, while working for someone else. And for some, that may be enough, because the risks, required skills and learning curve are much different for owners than for employees.