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How Much Should Start-Ups Pay in Salaries?

Not long ago a potential member of a high-tech start up team asked me how much money will they make and what will be my position in the new company. My reply serves as an interesting case study, here it is:

Well, it is so interesting that you ask about “how much” you will make, as I have not even considered making a salary. I believe as Warren Buffet on performance, and if I ran a company that was losing money, I would think my salary ought to be “Zero” because that is all I would be worth. Indeed, I would think that a nominal small amount would be sufficient for the top employees; $2500.00 per month with bonuses for performance based on a fair scale. For instance, if we are funded, then each participant would be reimbursed for their time in preparation prior to that. If we need to design a customer “Partnership” package for an industry that ought to have a bonus and who ever makes the deal ought to be paid too on a bonus, plus expenses or travel or whatever it took to make it happen.

You see, controlling burn rate is very important, using up money unnecessarily is not good business. You would not believe what I have done with a mere $100,000 of marketing effort in an industry, I believe in smart marketing, total domination and brilliance combined is worthy of bonuses, we play to win and do not let of the gas until the race is over and rest for the next race.

The young man interested in the job, understood these words of wisdom and agreed to assist in the pre-planning of the business. And thus I said:

Since you are writing down ideas for the business plan, what do you think is fair? Send some thoughts on this compensation thing. We must be realistic, and stick to the plan. This is not some way to rip off investors, because we need them for the next new thing” and winning is what they like. Losers suck. Remember this is a start-up, that means hard work, long hours and do or die. Failure is not an option; it would be unacceptable. We pick targets and achieve or exceed them, the customers and partners must love us and the competition will want to kill us, but we carry the bigger stick.

Indeed, when setting up a start-up it means sacrifice, eating top ramen, unless you have other money. It means doing whatever it takes, for however long it takes and all-nighters when necessary. No excuses, no wimps, no games, no vacation (unless working with the team and scouting new business and that means work). Everyone has to pull their weight, we work as a team, every one is compensated fairly and for their time. What say you? This has been another entrepreneurial case study with Lance Winslow.