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Are founders really 1000x more valuable than their employees?

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Re: Are founders really 1000x more valuable than their employees?

#51

Post by jshen »

timr wrote: post #44
jshen wrote: post #9

When I was a kid my mom would complain about how the world was out to get her. She didn't frame it that way, but that's essentially what she was saying. One time she was complaining about lawyers because she was charged $300/hr or something like that. I asked her, "why don't you become a lawyer?" It made sense to me as a 12 year old and still does.

I don't know your mom, and I don't know what she is or isn't capable of doing. I also don't think it's helpful to believe that the word is out to get you, regardless of personal situation. But that said, you're absolutely delusional if you think that everyone in this country who wants to become a lawyer or a doctor or a better-paid whatever is capable of doing it. There are a million different reasons why most people…

I was born to a single drug addict, into a family in which no one had finished high school, and spent part of my childhood on food stampes. I understand empathy and that I lucked out in some ways, but I had anything but disproportionate good luck. I enlisted in the army at 17 and spent a year deployed. That's how I paid for college.

"It isn't their fault, and nearly everyone I've met is doing the best they can with whatever they've got."

While I agree with your general sentiment, most people are not doing the best they can. You know what I do 3 nights a week? I have a study regimen, right now I'm working my way through a probability book. A lot of people that could be doing the same thing are playing WoW or watching Big Brother. I have a 1 year old and a 3 year old, and I still make time to study on top of my job as an engineer, which pretty much means that I don't watch t.v., play video games, etc. Most people don't make that sacrifice.

Re: Are founders really 1000x more valuable than their employees?

#52

Post by gamble »

wdewind wrote: post #40
gamble wrote: post #22

Earlier quoted context omitted.

I really question this idea that (YC-style) startup founders are taking on more risk than employees. Few founders have a significant amount of personal capital invested in the business. If the startup fails, they're not out of much more than a job. In fact, early employees are in a far more precarious situation, since they're much more likely to lose their job than the founders. And if the company does go down, the f…

We like to say there is no stigma associated with a failed startup. Quite frankly I think that's bullshit. It may not hurt your chances of getting hired again as an engineer because you will likely have great experience from it. But you will have just spent months/years promising people you were going to improve an aspect of their life (through your business solving their problems, or maybe through getting more finan…

I will buy that it can cause problems with personal relationships, though working 12-hour days as a startup employee will do that too. But the idea that failure hurts you as an entrepreneur is just factually incorrect. Unless personal incompetence was obviously the reason for failure, failed founders have a much easier time raising money and hiring for a new startup.

Re: Are founders really 1000x more valuable than their employees?

#53

Post by joe_the_user »

jasonmcalacanis wrote: post #10

This isn't about who is more valuable, this about who took the risk . Employees take little or no risk in 99% of cases. You are not taking a risk making 75% of your max pay at Google/Facebook/Zynga/Twitter by going to a startup. You are taking a 25% haircut to be part of something new/small/etc. However, starting something from scratch, incorporating and putting your reputation on the line is a major risk. If you are…

Reputation? I have no idea who founded Webvan and I don't think I'd care if I did know. In modern America, there's little if any shame attached to having your business fail - less shame, really, than being fired or simply having a low prestige job.

I agree that the difference is that the founders risk something. What they risked was just money and time. And risking time can be risking more than you'd think because there's an opportunity cost to not creating a career.

It boils down to risk-amortized market for money and time; capital and human-capital.

This is just the market. There is no fairness guarantee mechanism. If I have a billion dollars to put at a very, very slight risk, it is still worth much more than your willingness to risk your time, your "reputation", your health and your $100K.

Re: Are founders really 1000x more valuable than their employees?

#54

Post by swombat »

mechanical_fish wrote: post #46
wdewind wrote: post #40

Earlier quoted context omitted.

We like to say there is no stigma associated with a failed startup. Quite frankly I think that's bullshit. It may not hurt your chances of getting hired again as an engineer because you will likely have great experience from it. But you will have just spent months/years promising people you were going to improve an aspect of their life (through your business solving their problems, or maybe through getting more finan…

I worked for a startup that failed. My impression is that the founders were never quite the same. It can take a huge emotional toll, especially if you're in the business with your friends. Around here we take pains to emphasize the bright side of failure, but that's because nobody needs to be coached in how to mourn. Mourning comes naturally. It is carrying on in the face of negative feedback from the world that take…

I was just about to reply something along those lines.

Failing at your own startup is a bit like burying a child. You start with all these dreams of a bright future, and one day you find yourself facing the stark reality that it just didn't work out, that there's nothing you can do anymore to change that, and that basically the last X years of your life, where you sacrificed anything, were pretty much for nothing. "Well, at least I learned a lot!" is very little consolation in that context.

It's a pretty fucking tough time to go through, burying your startup. I've been there, and hell, I'll probably get there again some day, but it's not the kind of thing that you go through without after-effects.

As a startup employee, you're a bit like that neighbour who watches the previously happy couple tear each other apart and finally divorce. My, ain't it tough for them, geez, I hope it never happens to me.

As the founder, you're right in the middle, ripping your dreams to bits.

And the best part is, after all that, people still expect you to pick yourself up and do it all again!

Edit: I suppose I'm being a bit melodramatic here, as pointed out by the two responses. That said, I do think that shutting down your failed startup that you poured your dreams into is a deeply demoralising experience. Character-building stuff, I think they call it, when trying to cheer you up.

Re: Are founders really 1000x more valuable than their employees?

#55

Post by tptacek »

natch wrote: post #26
jasonmcalacanis wrote: post #10

This isn't about who is more valuable, this about who took the risk . Employees take little or no risk in 99% of cases. You are not taking a risk making 75% of your max pay at Google/Facebook/Zynga/Twitter by going to a startup. You are taking a 25% haircut to be part of something new/small/etc. However, starting something from scratch, incorporating and putting your reputation on the line is a major risk. If you are…

I call bullshit. For financial risk, this doesn't apply if the founder doesn't have much to lose, or has a stable family they can rely on, or is just starting their career, or doesn't care about money. For reputation risk, that's hardly an issue, because making mistakes in considered a legitimate (even honorable) form of learning in startup culture; it certainly does not ruin someone's reputation. The real answer is…

This is head-explodey. If the engineers don't like the deal they're getting, they can go work for other companies. If they should be getting a better deal, they will. There simply isn't a glut of dev talent right now. There is the opposite of that.

Re: Are founders really 1000x more valuable than their employees?

#56

Post by timr »

jshen wrote: post #51
timr wrote: post #44

Earlier quoted context omitted.

I don't know your mom, and I don't know what she is or isn't capable of doing. I also don't think it's helpful to believe that the word is out to get you, regardless of personal situation. But that said, you're absolutely delusional if you think that everyone in this country who wants to become a lawyer or a doctor or a better-paid whatever is capable of doing it. There are a million different reasons why most people…

I was born to a single drug addict, into a family in which no one had finished high school, and spent part of my childhood on food stampes. I understand empathy and that I lucked out in some ways, but I had anything but disproportionate good luck. I enlisted in the army at 17 and spent a year deployed. That's how I paid for college. "It isn't their fault, and nearly everyone I've met is doing the best they can with w…

"I was born to a single drug addict and into a family in which no one had finished high school. I understand empathy and that I lucked out in some ways, but I had anything but disproportionate good luck. I enlisted in the army at 17 and spent a year deployed. That's how I paid for college."

Fair enough. I'm not trying to take away from your accomplishments. But remember that there are kids born to single, drug-addicted parents all over the world. Most won't be able to overcome their situation, and it's hardly their fault.

"A lot of people that could be doing the same thing are playing WoW or watching Big Brother. I have a 1 year old and a 3 year old, and I still make time to study on top of my job as an engineer, which pretty much means that I don't watch t.v., play video games, etc. Most people don't make that sacrifice."

I don't think it's fair to make that kind of generalization. There are always people who squander their opportunity, but that's not a reason to slight the rest. Whatever you're doing tonight, there are hundreds of thousands of other people doing the same thing. Not all of them will be as successful as you will be, and some others will be more successful than you. How will you feel when you meet the more successful person, and she tells you that you didn't work hard enough?

Re: Are founders really 1000x more valuable than their employees?

#57

Post by georgieporgie »

njharman wrote: post #6

no, but the founders founded something. The emploees just got a job. btw A job that didnt exist before the founders did their thing.

> The emploees just got a job.

Which is generally funded by VC money. In the formula of money -> jobs -> more money, the founder doesn't necessarily play such a meaningful role. If he hadn't taken VC money to create the company that contains the jobs, someone else would have.

Re: Are founders really 1000x more valuable than their employees?

#58

Post by georgieporgie »

cellis wrote: post #41
swombat wrote: post #35

Earlier quoted context omitted.

Many founders invest their savings into the business at inception. They certainly invest a massive cut in salary (usually all the way down to $0). The opportunity cost for founders is much more than a "25% haircut". Imho, for most, the financial risk and opportunity cost is why they deserve those shares, if you're going to do calculations. But, even more fundamentally, the founders deserve the shares because if they…

HN is seriously degraded if this is being downvoted. If this doesn't ring true, then you haven't been a startup founder.

But HN is so VC-obsessed, it seems like independent, $0-income startups are the edge cases here.

Re: Are founders really 1000x more valuable than their employees?

#59

Post by tptacek »

swombat wrote: post #54
mechanical_fish wrote: post #46

Earlier quoted context omitted.

I worked for a startup that failed. My impression is that the founders were never quite the same. It can take a huge emotional toll, especially if you're in the business with your friends. Around here we take pains to emphasize the bright side of failure, but that's because nobody needs to be coached in how to mourn. Mourning comes naturally. It is carrying on in the face of negative feedback from the world that take…

I was just about to reply something along those lines. Failing at your own startup is a bit like burying a child. You start with all these dreams of a bright future, and one day you find yourself facing the stark reality that it just didn't work out, that there's nothing you can do anymore to change that, and that basically the last X years of your life, where you sacrificed anything, were pretty much for nothing. "W…

Guys, I helped blow up a startup in '01 that I started in early '99. At our peak we had over 50 people. I'm also a father of two, and I absolutely assure you that startup detonation is going to be nothing whatsoever like "burying a child". The notion that company failures are "mourned" by founders is what prompts head-explodey threads about what "fair" is for founder equity comp.

The reality is a lot simpler. The market simply values a lot of stuff that geeks don't pay attention to, including:

* The initiative to start a company and deal with all the personal, financial, and (importantly) logistical drama that comes with doing that.

* The various forms of capital (financial, relationship, intellectual) founders bring to the critical first 12 months of the company.

* The ability to recruit people into an unproven company.

* The risk --- particularly, the opportunity cost --- of burning 2-4 years of career path on a startup (being the CEO of a failed startup is not a resume bonus for a subsequent engineering role).

* The increased degree of difficulty of --- and, thus, to the market, the smaller pool of people available to perform --- operating a company in its unproven riskiest first 12+N months.

Geeks also apparently don't see the value the market places on the flexibility required to find the best equity comp package. Being "worth 5%" (kind of a nonsense concept, but roll with it) doesn't mean you can get it at any particular company; it just means there's a class of company wherein you might find that role.

Re: Are founders really 1000x more valuable than their employees?

#60

Post by rexf »

gamble wrote: post #22
jasonmcalacanis wrote: post #10

This isn't about who is more valuable, this about who took the risk . Employees take little or no risk in 99% of cases. You are not taking a risk making 75% of your max pay at Google/Facebook/Zynga/Twitter by going to a startup. You are taking a 25% haircut to be part of something new/small/etc. However, starting something from scratch, incorporating and putting your reputation on the line is a major risk. If you are…

I really question this idea that (YC-style) startup founders are taking on more risk than employees. Few founders have a significant amount of personal capital invested in the business. If the startup fails, they're not out of much more than a job. In fact, early employees are in a far more precarious situation, since they're much more likely to lose their job than the founders. And if the company does go down, the f…

Too much fear of failure is also unhealthy. See this TC piece (http://techcrunch.com/2010/10/17/japan-to-fix-your-economy-h...) about Japan:

> But most Japanese don’t want to take the risk of starting a business. Indeed, the social stigma and financial repercussion of failure are so great that the founders of failed businesses become social outcasts; no one will work with them again or fund them; and all too often they end up committing suicide.

While I wouldn't make the case that a serial failed entrepreneur is a good thing, I would make the case that practice makes perfect. A person who fails at startup #1 would ideally learn from their mistakes for startup #2.

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