For entrepreneurs, making difficult decisions is almost second nature. From figuring out how to raise precious capital to cutting ties with bad employees or poor clients, preserving the security and longevity of their emerging companies is top-of-mind. Yet arguably the most important challenge that startup founders must overcome involves employee compensation and equity distribution.
In the startup’s early stages, poorly allocating shares of the company can lead to disaster down the road. While focusing on the careful construction of an initial team of employees is crucial in establishing a solid organizational framework, determining an appropriate equity structure for the startup’s first workers can establish the right culture for employee retention and pay major dividends in the future.
Here are some tips for formulating a compensation strategy that can effectively support your startup:
Avoid rewarding unproven employees
While a candidate may have experienced success at larger outside organizations, the individual may struggle to adapt to the fast-paced nature of a startup company. Rather than rewarding employees for what they’ve done in the past, compensate them according to the difference they can make in the present and future. The creation of a lucrative bonus structure, including an incentive-based pay system, is a great way to reward employee performance without having to sacrifice precious equity.
Be disciplined with your employee pool
Inconsistencies in your startup compensation system can spell disaster for your organization. Choosing a fair and disciplined approach with your employee pool throughout the company will affirm your commitment to all workers, no matter their position or level of power. Create a formulaic equity structure that is reasonable based on an employee’s prior experience and period in which he/she joined the company.
Take a conservative approach
It’s nearly impossible to predict an employee’s future performance or envision the long-term state of the startup. Arranging structured compensation reviews can prove to be a great way to evaluate compensation packages for employees. This analysis helps startup leaders to reflect on their employees’ contributions to the company while offering feedback that can improve future performance. A tip for all startup founders: don’t fall into the trap of thinking that compensation is the only version of employee retention – it’s not!
Remember: timing trumps seniority and experience
In most circumstances, the timing of an employee’s decision to join a startup has a disproportionate impact on how much equity is offered. It makes sense: the earlier someone commits to a startup, the more risk the hire is taking on. It’s almost like exponential decay. As the first additions eat up more of the equity pie, the remaining shares decrease over time. That’s why your first hires can prove to be the most essential pieces of the puzzle. If you choose wisely in the beginning, your startup could be well on its way to success.
Keep your eye out for the unicorn employee
It’s important to keep all of these rules in mind during the early talent acquisition stages of a startup’s life cycle. However, exceptions begin to be made for unicorn employees – those with superstar talent and high-growth potential. Rules “go out the window” for these hires, as startups will attempt to entice these employees with a blend of salary and equity to recruit and retain their unique skillset. During periods of economic uncertainty, as businesses are forced to make tough decisions by letting go of quality workers, these unicorn employees may hit the open market. Startups need to remain fluid enough to hire these workers as they become available.
By Pete Petrella, Managing Director
Looking for a job with a startup? Check out our Viaduct job board for available employment opportunities.
Don’t have a million-dollar idea to launch your own startup, but still interested in working for one? The innovative and dynamic startup realm has exploded over the past decade with an abundance of unicorns and IPO-success stories. Emerging companies have gained increased notoriety and public attention, fostering a deeper inkling of curiosity among prospective employees.
Yet with so much excitement surrounding the startup world, working for an emerging company may not be for everyone. How do you know that you’re cut out to work in a startup environment versus a corporate one? Here are some tips to help determine the type of organization that’s best suited for you.
Advantages of working for a startup:
Flexibility
In order to succeed at any emerging company, you’ll need to be extremely flexible. Workers must possess wide-ranging skills and be prepared to wear several different hats on any given day. From creative work to communications assignments, you’ll have the opportunity to pitch in and contribute to a variety of projects. What’s more, with an abundance of new and innovative technologies at your disposal, you’ll be able to expand your technical knowledge in learning sophisticated pieces of software and platforms.
Fast-Paced
One of the most well-known trademarks of startup organizations is its fast-paced environment. If you enjoy high-pressure situations and the ability to frequently overcome adversity, getting involved in an emerging company seems like a no-brainer. While your work may prove to be difficult and demanding at times, there is no workplace experience more rewarding than nurturing the growth of a startup. Building an organization from the ground-up and cultivating its success can be a professional milestone like no other.
Big Fish, Small Pond
Due to initial budgetary constraints, young startups almost always feature a pool of employees that is smaller in size. As such, your work will be more visible to company leaders, allowing you the chance to make a long-lasting impact right out of the gate. Employees at startup organizations will often climb the corporate ladder and advance quicker than those at larger-scale companies. If you’re seeking a workplace culture that allows for upward mobility, a startup could be a perfect fit for you.
Stock/Equity Options
Early salary offers from emerging companies may struggle to compete with those from large corporations. However, startups can entice potential employees with stock and equity options to incentivize the long-term success of the organization. Whether an employee holds a small percentage of the company or is given the opportunity to purchase shares of the company at a lower price upon going public, these financial opportunities can inspire a hardworking, relentless workplace culture in startups.
Here are some benefits to working for a large company:
Established Name
Working for a reputable employer brand has its perks. Some workers may place great emphasis on the name of their company and whether it is recognizable or not. In many early startup organizations, brands may struggle to catch on with their intended target audience. If you’d rather work for a company with immediate name recognition, you may be best suited to work for a larger company.
Day-To-Day Balance
In working for a larger organization, your day-to-day activities may be more defined with less variation when compared to a startup. With more employees on hand, workloads can be evenly distributed, leading to a greater work-life balance for all. In addition, an authoritative, hierarchical workplace structure may already be established, one that features a rigid chain of command. If you’re an employee who would prefer a steadier and more typical eight-hour workday, the corporate world may be best suited for you.
Job Stability
Let’s face it – the failure rate of a startup is much higher than that of larger corporations. While emerging companies can offer enticing compensation packages with stock options and exciting on-the-job responsibilities, you may be partial to a position with a bigger organization that promises job security. Depending on the stage of life you find yourself in, weigh your options and ponder whether a higher-risk, higher-reward move is appropriate for you.
Summary
Ultimately, your “startup vs. corporate” decision comes down to personal preference. If you’re an employee who seeks day-to-day stability, organizational hierarchy, and employer brand recognition in your professional life, then joining a corporate environment may be the way to go. But if you’re someone who enjoys greater workplace flexibility, mobility, and responsibility in your role, getting involved in a startup may be best for you.
Looking for a new opportunity with a startup organization? Viaduct can help! Check out our job board to view our latest job postings with emerging companies.
1. Overcommunicate.
During times of unexpected crisis and other business surprises such as COVID-19, you must communicate as often as possible with your investors, customers, and employees.
By now, you’ve already explained how committed you are to maintaining safe, healthy, and responsible business procedures. Now it’s time to let them know that “you’ve got this.” Explain how you and your teams are planning to move forward with your business.
Create or support a collaborative remote work environment for your people. Maintain regularly scheduled meetings via video conferencing, and create opportunities for each other to check in frequently. If you’re not already using Microsoft Teams, Slack, or some other instant messaging service, start exploring your options.
When communicating, address specific individuals on your teams and customers. This will re-establish your confidence in and among the folks in your network. Putting a name or face to a project will also make it easier for people to know who to reach out to and when.
Finally, be proactive in seeking out conversations to help ease any insecurities and make a positive influence on your network. In other words, don’t wait for people to come to you with questions. Instead, think of as many potential questions people will have right away, and then issue those answers in a statement before they are asked.
2. Share Your Expertise.
You’re the leader and authority at your business. People in and out of your network will be turning to you and your company for expert-level takes on your business and industry. After all, you’ve built your organization to solve a problem—how can you help others solve theirs?
Establish yourself as an industry leader online. As a trusted resource, you should be sharing posts on LinkedIn and publishing blogs on your corporate website.
If people can count on you now, they’ll remember you after things settle down. Conversely, your silence or absence will also be remembered. Keep your engagement going in thoughtful and appropriate ways.
3. Explore New Pool of Talent.
Sadly, many people are now facing uncertain employment situations. This is a great time for you to focus on creating new opportunities for job seekers in your community. If you’ve still got room for growth at your business, post openings online and stay active on job boards.
As large companies continue to make cuts, be strategic in your response. Try and find some people who are in a position to move your company forward, especially those who may be interested in transitioning to a smaller company like yours—one that is better positioned to create unique and valuable relationships with employees.
4. Maintain Control of Your Expenses.
During this time, you could be facing unpredictable revenues, especially in a B2B environment. It’s also going to be difficult to bring in new clients, and you might experience a freeze on your general expenditures.
To keep your business going while staying sensitive to the COVID-19 situation, be careful about what products and services you’re promoting. Think twice about your sales messaging. While you definitely want to keep an eye out for new business development opportunities, you want to do so tastefully. Determine which of your offerings will help people most during this time.
Internally, work with your team to create multiple business scenarios: best-case, average-case, and worst-case—and then be prepared to operate in any of those capacities.
5. Don’t Forget About Funding.
Venture capital funding could dry up fast, so don’t rely on it too much. Instead, try to get a clear picture of where you are with current or potential fundraising.
Ask yourself critical capital questions: Are there other ways for you to pull in cash? What are your budgets for external suppliers? What is your headcount? Salaries? Expenses?
Finally, don’t forget check out government aid programs in your area.
6. Stay Nimble.
Big companies have a lot of layers to go through when reorganizing and understanding market conditions. But as an emerging business, you can leverage your size to move quickly. Determine the best path forward and act on it!
By Pete Petrella, Managing Director