Are founders really 1000x more valuable than their employees? • Hacker News Board

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

#41

Post by cellis » Sat, Feb 19, 2011, 7:43 PM UTC

swombat wrote: post #35

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…

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.

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

#42

Post by dadkins » Sat, Feb 19, 2011, 7:44 PM UTC

protomyth wrote: post #7

Well, if the choice is nothing versus something, then there is a lot of value in the person who took nothing and turned it into something. Employees wouldn't have made anything from the venture without the founders.

The question isn't, "are founders more valuable than employees?". As you've pointed out, that's trivially true. The question is -- as it is with beachfront property -- "how much more valuable are they?"

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

#43

Post by ecaradec » Sat, Feb 19, 2011, 7:45 PM UTC

sahillavingia wrote: post #13

Of course it's fair: it was determined by the market, no?

If you implicitly consider the market to be fair, yes. It's a kind of fair though...

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

#44

Post by timr » Sat, Feb 19, 2011, 7:49 PM UTC

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 will never become lawyers or doctors...or computer programmers. The reasons are all quite real, even if you've never had the misfortune of experiencing them: some people are born into grinding poverty. Others are never educated while young. Many people just aren't intellectually gifted. It isn't their fault, and nearly everyone I've met is doing the best they can with whatever they've got.

Right now, there are thousands of people accumulating debt in third-tier law schools trying to do what you suggested to your mother -- but most will never get anywhere, no matter how hard they work. There are culinary schools full of aspiring chefs, vocational schools full of people trying to learn their way into a trade, and literally millions of other people who have been told that their lost factory job can be replaced with something better, if only they spend enough time in community college.

Just because you had the disproportionate good luck to be born into a situation where you can become whatever you desire, does not mean that everyone else in our society has been granted equivalent opportunity by the big genetic lottery.

Said another way: empathy is a useful skill, but you don't have much of it when you're 12.

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

#45

Post by tptacek » Sat, Feb 19, 2011, 7:55 PM UTC

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…

Really? Then go start a company. I'm completely serious.

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

#46

Post by mechanical_fish » Sat, Feb 19, 2011, 7:59 PM UTC

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 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 takes practice and coaching and teamwork.

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

#47

Post by vannevar » Sat, Feb 19, 2011, 7:59 PM UTC

A better question might be, is a startup founder who achieves a lucrative exit 1000x more valuable than a founder who fails? Because the reality is that most founders don't get 1000x the compensation of their employees; in fact, such cases are exceedingly rare.

There is a lot of risk in starting a company if you're not independently wealthy. But I would question whether a 1000x payoff that is as rare as a lottery win is a more effective incentive than say a 10x payoff that happens more often. Maybe it would be healthier to invest smaller amounts in more companies, rather than investing enormous amounts in just a few as part of what Mark Cuban correctly identifies as a glorified Ponzi scheme (http://news.ycombinator.com/item?id=2231082).

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

#48

Post by luca-giovanni » Sat, Feb 19, 2011, 7:59 PM UTC

When you build a skyscraper, tell me what is the most important floor? The foundations. The founder is the foundation of the company. Above this foundation is often build billions of dollars of value.

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

#49

Post by tptacek » Sat, Feb 19, 2011, 8:01 PM UTC

mattmanser wrote: post #20

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…

This seems a weak argument, it's only applicable once you've actually got a reputation to protect. The vast majority of founders aren't celebrities. Given that many entrepreneurs just keep failing and then trying again and again and again it doesn't make much sense to me at all. There is no risk. Maybe it will be embarrassing if Malhalo fails, but I'm sure that won't stop you trying again. Personally I think there's…

It's a weird little backwater we're in if the only perceived risk in starting a company is reputational. Most companies fail. The risk is financial. The people you see founding companies "again and again and again" generally fall into two categories:

(1) people who have never founded anything successful and have nothing obvious to lose, and

(2) people who have already succeeded (like Calacanis) for whom the risk is any the myriad of other things they could have been doing to make money during that time period.

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

#50

Post by tptacek » Sat, Feb 19, 2011, 8:02 PM UTC

DevX101 wrote: post #25

Value that can be extracted will be. As a founder, you have a large, if not the final say on compensation. Founders therefore pay themselves as much as they can while keeping the business healthy. I think this is a greater factor in the relatively high compensation than "value added" or "risk taken".

Founders don't have the final say on compensation! The market does! If you think you're worth 5% of a company you're applying for, demand it. If you're worth it, you will get 5% --- maybe not from any specific company, but from some comparable company.

If you think you're worth 10-20% of a company, stop applying for jobs and go start your company.

It is absolutely a seller's market for talent right now. If you aren't getting what you think you're worth, you have nobody to blame but yourself. Your current company may not give it to you --- for the role you fill, they may believe you're replaceable for less cost --- but that doesn't mean you can't get it on the market somewhere. But you have to make the effort. People absolutely cannot in the real world whine that things "aren't fair" and expect improvement.