Comment by novok
6 years ago
The reason why is the math changed. The gap between startup and tech giant is much larger now than it was in 2010. Also, unless you have insider access and join a very risky angel stage company, the likelihood of getting a good package that makes sense is low, very low. Also public companies have shown to get +3x gains, which can make the math even worse.
Example from personal experience that is very lucky in startup land:
I'm an unwise jr, who gets a 25k (with 25k stock units) purchase price stock plan for a series A company valued @ 5m. 4 years later that same company has 200x in valuation to $1b and I get 5k more stock units as refereshers over 4 years 'since the value of the company has gone up so much'. The value of my stock is not 6 million, but 600k because of dilution. So even with this very positive case situation, I broke even +/- 100k or 200k compared to big tech co with promotions, but whats worse, I can't sell my stock. The company later dies and all of that stock is only sold for about $40k total in secondaries that happened before the last $1b valuation round.
Considering that is the good case, why would I work as an early employee at a startup? With capital being so abundant and being employee #1-5 at an angel startup, I might as well become a founder and start my own at that point, or join the obvious next big tech co, which was facebook back then.
We also only have so many years to go on startup expeditions, maybe 5 total before we are 50, or more if we are able to fail fast.
>The reason why is the math changed.
Very true. Making it even more unbalanced is that a startup exit may not be profitable to non-founders. I spent the first 17 years of my career at 3 different startups. Two were acquired and one is still chugging as a lifestyle business for the founder. The net value of my options (> 1% even after dilution in two of them) amounted to a $2000 capital loss due to there being no money left over after debt and liquidation preferences. I did get $350k payout for one of them since I was an executive.
I recently started at a FANG, where the new grads make cash and stock comparable with my startup exec compensation and it won't take long for them to eclipse it. I'll be making multiples of my previous compensation.
That said, I wouldn't change my path one bit. I learned so much in those startups that I wouldn't have learned anywhere else. I had a level of scope and responsibility that apply to nearly any tech job. It also lets me appreciate the benefits and stability of a large company. When I joined those companies, I was also not even thinking about making bank on an exit. I just wanted to work with nice people and build cool stuff.
I think this is a really good argument as why graduated corporate taxes really need to be increased in the US. I'd be curious how productive you felt at each position and if you think the FAANG job is more difficult and stressful.
I'd like to think that no matter which of these paths we chose - the more stressful and risky life or the more secure and corporate FAANG one - we'd all have a chance to live a decent life. I really enjoy working at a small company and we make a notable impact on society, but the money will never approach FAANG levels.
I really think the issue is that many startups don't offer alternative compensation and don't play to their strengths. You can be compensated in other ways, but often I've found much of the work at startups can be no more interesting than their Big N counterparts. Your career growth might also be similar. In theory, for startups, you sacrifice pay for other facets. The reality is quite different.
The work might be similar but you're paid 50-75% of your peers. That was my experience in startup land, at least. Few good challenges or career growth and half of what I felt like I was worth.
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> I'd be curious how productive you felt at each position
I definitely felt "more productive" at startups since my work felt like it had a bigger impact to the company.
> and if you think the FAANG job is more difficult and stressful.
So far, it feels no more difficult and is stressful in a different way. With a startup, there's the stress of worrying about the company going under. At the FAANG, there's the stress of performing at a high enough level to justify the compensation.
I think you need to reform employee stock options - in the UK there are far less possibilities to screw employees over stock options.
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No it’s a good argument for eliminating corporate tax- no matter what the level it hits entrepreneurs the hardest.
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I'm interested in your transition, how did you go about the move from Startup Exec to working in a FANG?
The startup I was an exec at was acquired by a large (>$100B market cap) company. Going through that process and adjusting to life as a much smaller cog in a much bigger wheel was definitely educational. I was no longer "the boss" and had to work very closely with people that I had no authority over, possibly had different goals than me, and who were thousands of miles away. The startup skills of being lean, problem solving, leading people, etc. still applied, but building the skills to work in a bigger company environment was very important. Going through that experience definitely helps with my life here at a FAANG.
> The reason why is the math changed. The gap between startup and tech giant is much larger now than it was in 2010.
This is true but also kind of depressing. With the means of software production cheaply available to everybody is that stable job at a tech giant really the pinnacle of the software engineering career? I understand that everybody's got the bills to pay, kids to raise etc. and maybe I'm a bit naive but it just feels... wrong. And yes, working at BigCo can provide some interesting technical challenges, opportunities to impact millions of users and shield you from unpleasant interactions with the outside world. But it still feels like you are being paid premium to sit on the sidelines.
I find a lot of joy in smaller, industry niche companies. Like 1-20 employees small. Not VC funded startups, but long running companies with proven value in an industry outside of the startup bubble.
There is a lot of them, and they can be very rewarding to work at. While they'll have less compensation, it's in real money and they're often located in smaller cities with lower cost of living. You get to work directly with clients/customers to provide value to them with your skillset. The pace is steady, and what you work on can have a lot of longevity which is nice. Software can feel somewhat ephemeral at times, written one month, thrown away the next. Working on a long term project means it feels worthwhile to go the extra mile.
Just curious can you give examples of this?
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> This is true but also kind of depressing. With the means of software production cheaply available to everybody is that stable job at a tech giant really the pinnacle of the software engineering career?
Yes, because economies of scale greatly benefit big companies.
Just because software is free to scale, in the sense that a cp command doesn't cost you anything, doesn't mean that making money from software is free to scale.
> Yes, because economies of scale greatly benefit big companies.
I don't think software engineering in itself benefits greatly from the economies of scale. Yes, tech giants have developed some nice internal tooling, but the cost of implementing a feature for a google engineer is probably in the same ballpark as for a startup engineer. User acquisition OTOH seems substantially cheaper for the big companies. So, economies of scale in marketing and distribution?
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I don’t disagree with the spirit of your post. Large tech companies are paying ridiculous salaries and generally speaking we’re in a period of early-stage capital glut.
The point you’ve made — that it makes more sense to just start a company — is directionally correct, but for the most part is a logical fallacy. I hear this from competent, capable people all the time, “I might as well just start my own company rather than work at a startup as an employee.”
The reality is that 0 to 1 is an extremely, extremely difficult hump to overcome and most people intuitively know this. Which is why anybody who says, “I’m better off starting my own company than working at a startup,” especially without startup experience, is likely to never actually do that thing. I’ve never actually seen it, though I’ve seen a number of people go from working at to founding startups.
The real insight here is that it is actually more valuable to found — or be a really early employee at — a successful startup. And so the question becomes: how do you put yourself on track to get a $72k check from Peter Thiel at 23? Take risks, prove your competence and grow your network. That means work at startups.
Sure. I’m (currently) a lucky recipient of survivorship bias. There’s a long way to go and my current state is incomparable to most of the people we look up to and respect as a community. But the key word there is, “survivor.” If you look at the start of my startup career — middling ad tech company in Toronto, eng. lead at a failed Series A SF startup, short stint at a biotech company, turned down by BigCos — none of it looks like it could possibly have been leading anywhere. I just used those opportunities to meet really talented folks who believed in me and, one by one, would end up supporting me down the line. I’m lucky and very grateful for that. Some of the aspects of my journey to date are non-repeatable, and I’ll always give thanks for those moments — but a lot of the lessons I’ve learned can apply to any ambitious young technologist.
Keep at it. If startups aren’t for you, fine, but, again — survivorship bias requires you to survive in the face of insurmountable odds. And it does happen. Startups teach you how to survive. It’s OLN on steroids for careers.
TBH the best way to get a full spectrum startup experience is to go start a startup, like many other things in life.
Working at a startup, other than maybe a 1-2 year maximum stint to get a taste, isn't really useful because a lot is hidden from you even when you start the angel stage. And if you wanted to do the stint, I would probably do it as 1 year of PMing and 1 year of engineering max. If you really wanted the full spectrum experience just incase, then another year at a pre-ipo growth company, another year at a big tech co and another year at a VC to understand the full spectrum life cycle for 5 years.
As a founder, the demands of doing a startup induces you to learn a lot. It forces you to do that networking and making friends part and you will eventually get a mentor network via all your investment activities that will probably be way better than observing from a distance as an IC. Other founder friends you make and friends made at a co-working space doing similar things would give you a lot better experience and a better network.
I joined a smallish startup that grew big, as evidenced above. I mostly just churned on pushing out a lot of code and that's about it. I was part of helping create that 0 to 1 and all it gave me is a bit better work ethic since so much was hidden from me as a jr. The friend I made there that joined really early didn't gain much more insight than me and now works at big tech with me. I learned a bunch just through observation, but I think a founder mentor network would of taught me stuff a lot sooner, and a lot better.
Yes — some execution is hidden, for sure. I, personally, try to be ultra transparent with the team: here’s our bank account, here are deals in-flight, here are the VCs and founders we’re talking to.
The value I aim to provide anybody that works with us is all the things I felt I was missing when I was a startup employee. I wanted to understand how deals happen, what personalities are like, how things work. As we grow I can’t share entirely as much — a piece of minor bad news can hit me pretty hard emotionally and it’s not fair to subject the team to me being upset or a hothead over something that will blow over — but I do try to encourage folks to learn as much as they can.
Even if somebody were to be entirely disinterested in founder-level execution, early employees have a super easy, instant warm introduction to any investor on that company’s cap table downstream. You might not be using that aspect of your startup career yet, but it certainly can help you if you wanted to use it.
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> The real insight here is that it is actually more valuable to found — or be a really early employee at — a successful startup.
Sure, and it's more valuable to be holding a winning lottery jackpot ticket than a year's worth of paychecks.
Problem is, most startups aren't successful, and you have to take the risk into account.
>Large tech companies are paying ridiculous salaries and generally speaking we’re in a period of early-stage capital glut.
The salaries are not ridiculous at all. It's the rate the market has decided those workers are worth. If a start up wants to compete they have to change something big because as it currently is I don't see it as rational at all. All the benefits you mention only happen if it works out for you. For nearly all people who try, it's not going to.
Most of the time, startup founders will have been successful elsewhere, or else they’d not have the ability to risk enough to do a startup. That’s why one avoids startups run by executives kids who are “creating” a track record.
> The reason why is the math changed. The gap between startup and tech giant is much larger now than it was in 2010. Also, unless you have insider access and join a very risky angel stage company, the likelihood of getting a good package that makes sense is low, very low. Also public companies have shown to get +3x gains, which can make the math even worse.
Unfortunately, nowadays, the only job titles at a startup that offer greater expected value than working at a tech giant are "Founder" and "Co-founder". The fraction-of-a-single-digit-percentage equity packages out there for Employee #1 adjusted for the risk of failure and the risk of getting diluted are often a very low number. And if you're Employee #10? Forget about it! I'd love take another crack at a startup but it only would possibly make risk-adjusted financial sense if I'm the founder.
I agree with all of the points raised, and share the same experiences. But this one:
> I might as well become a founder and start my own at that point
Great! So, how would you recruit your first 10 employees?
That is a big reason why I don't start my own company, because I couldn't really live with doing that.
My current armchair strategies:
* Compete in a way that big tech are not willing to do, which means distributed remote companies. A lot of people don't want to live in $3.5k/month rent SF or other tech centers for various reasons.
* What a lot of startups do, but RDF (reality distortion field) over with 'we only hire the best'. Don't hire the best. Either because they couldn't hack the big tech co interview, have visa issues, are very jr or have personality problems that make them unhirable in big tech cos.
* Go bootstrap, so no VC style business timelines.
* Give offers that basically make them pseudo-founders and match the expected value of bigco with the risk premium of startups. A hard pill to swallow when investors give a lot of money offer similar or smaller dilution terms effectively.
I've never gone out to get investment, so I don't know how much of the above is also blocked by investors in general.
Also crypto style 'startups' (ICO or just a completely new coin) have shown to deliver compared to normal SV startups, but most crypto companies do not deliver actual lasting value and are more pure speculation plays. A big crucial difference is they give crypto coins instead of stock, and those coins are liquid immediately. They are also not restricted to start in the USA.
Founders should be willing to give a lot more equity to the first employees. I don’t get the logic of not doing this. You want your engineers to feel as if they have ownership in the equity that you’re building. It’s such an easy way to keep engineers engaged and productive that it baffles my mind that it’s not done more widely.
I hate working for BigTech. Startups expect too much and compensate very little. The sweet spot for me has been medium sized public companies that offer great compensation but need solid engineering to grow their market share.
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> Go bootstrap, so no VC style business timelines.
This is easier to do when you have some money on hand. Which is why working at a well-compensated job if you are not from a wealthy background is quite important in your early career. Also its not that bad a strategy. I mean Qualtrics pulled it off quite well.
We'll be taking some of this approach at our new co, bootstrapped, with very generous share grants for the first employees. We're doing partially remote, but I think full remote might make it too hard to get the core team as tight knit as it needs to be. I don't think it's a good substitute for a few people sitting in a room yet, but I could certainly be wrong about that.
One of the things that keeps me away from startups is how disadvantaged employee equity is. Options become golden handcuffs when they have to be exercised to leave. Execs and investors are not in the same boat as employees due to preferred shares, liquidation preference, and other terms. None of these are disclosed to employees.
I've heard too many stories of start ups being sold where the founders cashed a big check and the employees didn't get anything.
To be clear, I'm not an expert in this, but the startup ecosystem needs to regain trust if it wants to hire more competitively.
I don’t understand... why is the goal to convince a bunch of naive youngsters to work for you at 1/10 their value? You shouldn’t exist unless you can pay competitively for the same people, end of story. Until then, don’t hire
The fact is that there are a bunch of younger programmers willing to work for a startup regardless of the comp. Founders naturally try to exploit this.
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Hope that they are not as interested in financial optimization as you? Or just take people who can’t get into top paying bigcos? Or be a good salesman? Same as everybody else who is recruiting for startups these days
Handpick them out of your network and give them not just equity but real control as well. That for the first 5 or so. The others should come from your network and be handpicked by your handpicked first 5 employees. And equity, but obviously less than the first 5.
In my case my first employee, as soon as enough comes in to pay someone, is already recruited. Equity will be around 20%, with another 25 or so for the next couple of employees. That's without outside funding, doesn't seem to be necessary so. If it will be necessary that obviously changes.
Why do you think you need employees?
Yes, I am a little longer on the tooth than some others, but I would love for developers today to dictate the path..
Instead of having this idea: 'We want to work for the next big thing' - Which can be super attactive.
- Instead say: Hey, Im a developer, so I like this product, can I stand behind it.. Can I stand behind my work in it.
Even if you need a job badly, and you're taken on as a developer or someone contributing, I still believe, you should always be able to stand behind your work. Even if the product is shit.
So If you want to work for a startup, you need to really know the company, product and for sure the direction, not all of them are looking for a payout. Some of them are genuinely enjoying changing and hacking things up. - Embrace these - eve if they're not startups!
The best companies I've worked for where well established, but gave the freedom to innovate, play around, make mistakes, and build.
New startups for me always seem to just throw money expecting something good.. I've come to the idea that its 'Startup business ideas people'. and not "Developer playground that turned into a startup"
This assumes all entrepreneurs would want to work for or even be hired by a tech giant.