Editor’s note: Veteran entrepreneur and blogger Joe Procopio, who also is an executive at Durham-based Automated Insights, explores what he calls a tough question: How much should employees be paid at startups?
How Much Should I Get Paid to Work At a Startup?

DURHAM, N.C. – One of the toughest questions I get about startup happens to also be one that I get the most often.

“How much of a pay cut should I expect to go to work for a startup?”

I got that very question again last week, from someone I had just met. I could tell within a few minutes of meeting her that she was sharp. She had the talent, she had the drive, and she had enough sense to be asking the right questions.

It wasn’t her fault that this particular question has no right answer. She just didn’t know that there was no right answer. A lot of people don’t know that there is no right answer. 

So of course I’m going to answer it. I wouldn’t be me if I didn’t try.

Note that this answer also works for: How Much Should I Pay People to Come Work At My Startup?

In one sense, startups are just like any other company out there. They pay what they can for the talent they need. But in most cases, startups don’t have the means to be able to offer a cash package that’s going to be competitive with established companies. So they offset this gap with equity.

There is no standard calculation for how this plays out, but there are a few rules of thumb.

Salary: The earlier the company is in its lifecycle, the less likely it is that they’ll be able to pay a competitive salary. Established previously successful founders are going to have an easier time with this, because they’re going to have better connections to investors, or already have customers and revenue in the pipeline, or are possibly seeding the company themselves.

Just remember, the money to pay your salary has to come from somewhere. The only math the founders are doing here is how long they can keep a runway open while bringing on as much help as possible in order to get to cash flow break even.

Trust me, they are not looking at the industry leader in said industry they’re trying to disrupt and thinking, “Well, we can get away with paying 60% because we’re a startup and we’re cool.”

In the debate of money vs. cool, I will take money 10 times out of 10.

If you’re being sold cool and it isn’t a cofounder discussion, walk away.

Want more? Read the full post at joeprocopio.com: