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We're Shutting Down and I'm Scared

startupsanonymous.com

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Re: We're Shutting Down and I'm Scared

#151

Post by patio11 »

a8da6b0c91d wrote: post #136
patio11 wrote: post #131

Earlier quoted context omitted.

You're not making the same investment at the outset: you're doubling down after the business has already demonstrated "I'm failing quickly, unlike the median funded startup, which is failing marginally less quickly." [+] In return for assuming that extra risk, you get no marginal gain in equity. If you absolutely must shoot your own foot, clean the wound after doing so, because gangrene sucks even more than gunshots…

I still don't get why it's a bad idea to forgo salary in a venture where you retain majority ownership. It sure seems like there are loads and loads of people who spun up successful businesses on sweat equity. Way more than have ever taken funding. If it's not a capital intensive business and your cost of living is low, why on earth wouldn't you minimize investors to the extent possible? If you've got $300k in saving…

We're talking past each other, I think. I don't have any problem with bootstrapping (as my biography probably makes pretty clear) and understand that, under many business models, bootstrappers will go cash-flow negative early on. Not a problem.

At a funded startup, though, you've already committed to "We either grow big or fail ingloriously." If your personal paycheck is the difference between solvency and insolvency, you've already failed ingloriously. That's fine and expected, but don't put your family's financial situation at further risk by deferring the paycheck for the final few months.

Re: We're Shutting Down and I'm Scared

#152

Post by MichaelGG »

omegote wrote: post #91

> I can’t imagine working for somebody else. I wish my wife understood that. Seriously?

Seriously. I'm 32, and never had a "boss" per-se. I've had consulting clients, and I've been at a company before, but always on my own terms.

I recently started work with a part-time client in a more traditional arrangement and it's quite...trying. I had thought it'd be the opposite: someone else is running things, you just show up and get things done. If they make poor decisions, whatever, it's their money and time. In practise, I'm finding it extremely difficult to deal with. I'll stick it out because I said I would but it is not as pleasant as I had thought.

It's not a good thing, and I wish as a teen I had been subjected to higher work discipline. Yes, I know, I'm whining about first-world problems (while living in a third-world country).

Re: We're Shutting Down and I'm Scared

#153

Post by NhanH »

nostrademons wrote: post #150
001sky wrote: post #148

Earlier quoted context omitted.

The idea that you should preserve investor's cash is a good notion, but not at the cost of forgoing fair compensation to yourself and the early founding team. In the long run, everyone is better off from this approach. (1) Good investors run (on average) profitable portfolios, and they are not going to be made or broken by pennies on the dollar from the disposition of the firm's assets in a bakruptcy. (2) Good founde…

I can easily see paying yourself living expenses, once you've taken investment (or have paying customers), as a good thing. That's basically "ramen profitability", and getting to there as fast as possible is important. I'm wondering about the part before taking investment - when you don't have any money coming in, are still building out a product (or even a prototype), and have cash in your personal bank but none in…

I'm sorry I might have misunderstood you. But if you have money in your personal bank and none in the corporate bank, why would you pay yourself (and be taxed on it) rather than just use the money (your money) to cover the living expenses?

Re: We're Shutting Down and I'm Scared

#154

Post by stevenwei »

tunesmith wrote: post #65
poulsbohemian wrote: post #46

Earlier quoted context omitted.

See your accountant for advice on this point. Disclaimer: I am not an accountant, nor is my business set up as an S corp. The way it works is this: you form an S corp, and as the owner you pay yourself dividends rather than straight income. That way you aren't taxed at normal income tax rates but instead at the capital gains rate. At the same time, because you are now an employee of the S corp you personally only pay…

I think this is incorrect in two ways - you do still have to pay yourself salary, and dividends are taxed at normal income rates (due to pass-through) rather than capital gains rates. It's unfortunate that they are called dividends, because stock dividends are taxed at capital gains rates.

They are technically called distributions, not dividends, for the reasons you mentioned.

Re: We're Shutting Down and I'm Scared

#155

Post by nostrademons »

NhanH wrote: post #153
nostrademons wrote: post #150

Earlier quoted context omitted.

I can easily see paying yourself living expenses, once you've taken investment (or have paying customers), as a good thing. That's basically "ramen profitability", and getting to there as fast as possible is important. I'm wondering about the part before taking investment - when you don't have any money coming in, are still building out a product (or even a prototype), and have cash in your personal bank but none in…

I'm sorry I might have misunderstood you. But if you have money in your personal bank and none in the corporate bank, why would you pay yourself (and be taxed on it) rather than just use the money (your money) to cover the living expenses?

That's what I'm trying to understand from tptacek's post. Some hypotheses that come to mind:

1.) Putting money into the corporate bank and then taking it out as a nominal salary keeps you really honest with yourself. You can't say "There's money in my bank account, there's not much need for urgency", instead you see the corporate bank account dribbling dry just as if it were someone else you were paying.

2.) It reduces personal risk in case the startup goes bankrupt.

3.) It makes accounting & record-keeping easier for when the startup actually does start making money, since you already have systems setup.

4.) Minimum wage laws require it. I talked to a (Massachusetts-based) lawyer once that suggested this may be an issue. But then, if it is, how does that square with all the tech company CEOs that take $1 salaries?

5.) It lets you take advantage of certain personal financial products that are only available if you have earned income in a year, eg. Roth IRAs.

Re: We're Shutting Down and I'm Scared

#156

Post by batiudrami »

kordless wrote: post #128
peterjancelis wrote: post #126

Earlier quoted context omitted.

Sure but they earned that right.

They earned that right, in part, by imagining they couldn't work for someone else either.

I would bet my arse that if Bill Gates woke up tomorrow in a world where he had no money and no options, he would go about getting a job wherever he could until he could get back to doing what he wanted to be doing.

Re: We're Shutting Down and I'm Scared

#157

Post by MortenK »

patio11 wrote: post #34
tptacek wrote: post #18

Been there. * If your payables and debts are all in the company's name, nobody is coming for your house. The likelihood that your business was going to die before you could pay all your debts was priced into your contracts. If you have employees, pay them and get them off your books first; employee wages are, depending on the state you're in, the one likely exception to that rule. * If they were in your name, well, t…

In addition to Thomas being right about employee wages being able to "pierce the veil" in many states, they're the people most at risk in this situation, so you owe it to them to make sure they're taken care of. It's the one circumstance where I would backstop a company problem with personal funds. (If your company was also behind on e.g. rent or hosting, on the other hand, that risk was priced into contractual terms…

I'm surprised that both you and tptacek seem to think it's much less of a deal to pay back vendors. Say the vendor is a startup or otherwise small company who's survival is hinged on getting paid what you owe. It's okay to stiff them, because we can get away with it legally?

I think it's downright dishonorable to leave vendors hanging like that.

Terminate your venture in time, before you can't afford to pay what you owe. There shouldn't be any difference whether it's an employee or a vendor.

Re: We're Shutting Down and I'm Scared

#158

Post by tod222 »

laureny wrote: post #52

> But, I can’t imagine working for somebody else. I wish my wife understood that. She's understood it long enough to let you pursue the dream of your life at great costs for her, maybe now it's time for you to do some sacrifice for her and go work for someone? You're not the first one to have to do that and, you know, survive. Seriously.

I caught this too.

So did one of the commenters: [1]

Sorry it didn’t work out.

“I can’t go much longer without a paycheck. But, I can’t imagine working for somebody else. I wish my wife understood that.”

Change your perspective on this.

I’m a co-founder of a successful and growing business. I’ve got around $2M liquid and who knows what on paper. I’m decently rich headed for pretty damn rich. In the last week, I’ve changed light bulbs, picked up bugs with my hands (no tissue close, wanted to get it and call the bug guy before people saw it), swept the floors, took box trash out to the dumpster, cleaned some toilet stuff (will leave it there) and just generally served people on my team in any way I could. I find ways to do it because they are talented, could work anywhere and choose to work here. So I serve them. Also, I have deep relationships with them and I love them. I want to win with them.

From your words, I worry that you don’t understand the point of the game you are playing. If you want to run any successful team be it a business, a non-profit, a 5th grade little league ball club – you are servant in chief. Others exist in the world. You aren’t really ever by yourself or for yourself. Work on being and building a team. Make meaning and tie it to production. Start by being the best teammate you can be. Being an employee in an intense and well managed company is a good place to learn this skill.

To me the key point was this:

If you want to run any successful team…you are servant in chief.

Most managers completely miss the "servant in chief" bit.

[1] http://startupsanonymous.com/story/were-shutting-down-and-im...

Re: We're Shutting Down and I'm Scared

#160

Post by beachstartup »

nostrademons wrote: post #150
001sky wrote: post #148

Earlier quoted context omitted.

The idea that you should preserve investor's cash is a good notion, but not at the cost of forgoing fair compensation to yourself and the early founding team. In the long run, everyone is better off from this approach. (1) Good investors run (on average) profitable portfolios, and they are not going to be made or broken by pennies on the dollar from the disposition of the firm's assets in a bakruptcy. (2) Good founde…

I can easily see paying yourself living expenses, once you've taken investment (or have paying customers), as a good thing. That's basically "ramen profitability", and getting to there as fast as possible is important. I'm wondering about the part before taking investment - when you don't have any money coming in, are still building out a product (or even a prototype), and have cash in your personal bank but none in…

if you take someone else's money, you work for them. and if you work for free, you're a fucking fool.
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