Founders versus early employees

My latest post over on StartupNorth. Comments enabled at StartupNorth.

Not everyone can be a founder. We talk about the founders of startups and companies. We focus on the founders. The founders get press coverage. They get invited to speak at events. Sometimes they get rich. But for every founder, there is an early employee that takes near equal risks in joining an early-stage company.

Steve Blank divides the individuals associated with startups as:

  • Founders
  • Early Employees (Employees # 1-25)
  • Later Employees (Employees # 26-125)

The majority of his division is about the temperament of the individual as related to risk and dealing with chaos and uncertainty. Not every one can be a founder, i.e., can you imagine trying to start a company with 10,000 people? It’s just unfeasible.

“Being an early hire at a startup gives an individual the ability to make tremendous impact on an organization as it grows – and both the founders and those hires should know it.” David Beisel

We need to celebrate the employees at startups. We need to make sure that early employees are compensated, incented and rewarded for their decisions to join startups. Early employees have a huge impact on the growth and culture of a company.

How do you compensate early employees? Paul Graham provides a model for calculating value. As Naval points out that you still need to pay employees market rates, but with all employees you need to ask yourself “whether she [a new hire] is likely to increase the next round’s share price”. This should force companies to think about building value with each early hire, and not just filling a position.

Title Range (%)
CEO 5 – 10
COO 2 – 5
VP 1 – 2
Independent Board Member 1
Director 0.4 – 1.25
Lead Engineer 0.5 – 1
5+ years experience Engineer 0.33 – 0.66
Manager or Junior Engineer 0.2 – 0.33

Table 1: Options Grants in Silicon Valley for Series A from VentureHacks

The numbers from VentureHacks are guidelines. They are rough estimates.Any one have sample option grants in Canada? Are the percentages different? I would assume that they are very similar but given the lower valuations and this may change the salary/options mix.

Remember the goal is to incent early employees to have an emotional ownership of the product and company they are building. Equally said, potential employees need to understand what they are getting into. Darmesh Shah has a great list of insights for employees joining early stage companies. Early employees are critical for startups, and we need to recognize that not everyone can be a founder.

I would love to hear your thoughts on being a founder or an early employee.


Additional Resources

9 days until Founders & Funders

It’s only 9 days until Founders & Funders Toronto. The challenge is to find a group of companies, in Toronto in the software and media spaces that are high growth, and high potential to raise venture capital. We have an excellent group of attendees. Think you should be attending? Nominate your company, we’re looking to bring together the people that start high-potential-growth companies and the people that fund them.

What set’s these companies apart? Their ability to explain their business in 140 characters. Maybe. Are they connected to the power players in this industry? Calling Jevon and I power players is flattering, but untrue. The Founders & Funders event is not a training event, it is not a sales event, t is not a recruiting event. It is not for service providers looking to sell services to these ventures.

Lots of folks didn’t really understand the venture capitalist are in the business of making money and that means investing into an idea that will turn itself into a pile of money with a 5-7 year timeframe; sooner would be better.  Lots of questions about how to buy us out causes me to make the point here  I made in meetings: If you aren’t into taking an idea, giving up some equity and getting to a liquidity event, we shouldn’t be an option for your funding.” – Rick Segal

It is a networking event focused on the people that start high-potential-growth companies and those people that fund them.

VC’s and entrepreneurs need to talk early.  I made the case that the early you speak with me the better which apparently was counter to everything others are saying.

Founders & Funders is designed to provide a social forum to help the money and the talent talk. As I used to say to Sutha at Ambient Vector, “it’s not that I don’t think there will be a YouTube for mobile, just convince me why you’re going to win”. Don’t tell me that your exit strategies are one of the following:

  • IPO
  • Acquisition
  • Diversification
  • Failure (please don’t let it be failure)

Help me understand why you’d be a candidate for IPO or acquisition. Is a would be acquirer buying your team? Your technology? Your customers? What business development are you doing to get acquired? Have you talked to the M&A folks at RIM? Or Yahoo? Your job is to get people excited about your company and your product offering(s). These aren’t questions that I ask because I like to hear myself talk, I want to know that you’re building a high-potential-growth business. I want to understand your business, market, product, business model, customers, strategic relationships, competition, barriers to entry, etc.

Nominate your company to attend Founders & Funders.