> Nobody is stopping engineers from saying "I'm going to contribute $1.5m to your bottom line this next year, I want you to pay me $1.4m", but they'll be shown the door because there's a guy that's willing to contribute the same $1.5m in exchange for $100k in compensation.
Which is why you should be an owner/competitor versus an employee if you know the business well enough.
Assuming that you can tolerate the commensurate risk, absolutely. Many people forget that the rank-and-file employee isn't exposed to the financial and legal risk that their employers were/are.
In case of financial trouble (very common at startups), who gets to be laid off first, the CEO or the developer?
Also, rank-and-file employees are typically scape-goated in legal proceedings, example: finance people going to jail for rogue/insider trading, even though upper management at least encouraged such behavior.
who gets to be laid off first, the CEO or the developer?
Wrong comparison. The CEO and developer are both employees. I've outlasted laid-off CEOs at several places of employment.
The comparison is between an employee and an owner. (Of course an owner may ALSO be an employee, maybe even CEO, and an employee may also be an owner, but comparison should consider these roles separately.)
The employee is risking having his assets stop growing temporarily as he is forced to go find another source of income. The owner might have no income from the business for a long time even if it is succeeding (or ever if it fails) and has to hand over already-earned assets to the business in hopes of getting it back plus more, but if things go south, he might not get anything back and may even be forced to hand over additional assets to cover damages. The employee's risk is temporarily not gaining assets, while the owner's risk is potentially losing his.
Reality is a little murkier than this separation, because an employee might lose assets moving to a new city only to get laid off. In a certain sense, an employee is the "owner" of a small service business providing services to a customer (his employer) and owners can trade off equity for risk by bringing in partners, but the big picture is still that people who decide on ownership vs. employment are choosing between two very different risk/reward profiles.
Every employment position comes with some degree of risk exposure. But, the risk of "I might lose my job" is quite a lot less scary than "I might lose all my invested capital and/or be stuck with crippling debts after the company crumbles". Early-stage startup employees are given greater compensation packages than later-stage employees specifically because of the greater risk of going to work for an early-stage startup.
This isn't a very difficult thought exercise - if you believe the risk profile is greater for employees than CEOs, then why not quit your job and become a CEO of your own company?
Part of the disagreement that seems to be emerging is that not all management positions are the same. Being a CEO of a large company per se doesn't carry the same risk as starting your own business.
A CEO or manager at many large corporations often has very little risk relative to the employees, and their contributions are often small relative to that of the employees, and in the least often not greater than the employees. I'm not saying there aren't good managers, or that they do nothing, but management has become too top heavy in the US as a whole, and the salaries of management pathologically disproportionate to their relative contributions.
You don't have to look very far to find examples of CEOs driving businesses into the ground and then leaving with severance packages that dwarf average employees' salaries, sometimes even average employee lifetime salaries, or of CEOs sheltered from financial or legal consequences by corporate personhood. There's also plenty of CEOs who take over businesses that are already turning around from a downside, after reforms that were put in place, and then are credited with causing the improvements, even though they did nothing.
Starting a company is different from managing or acting as an executive of an existing one, and my guess is that this is what people are reacting to. Even founders are sheltered to some extent when you consider venture capital and the protections of incorporation relative to, say, acting as an independent contractor.
I am of the mindset that risk profile is entirely a subjective concept when it comes to what actual living people do in the real world. What a person knows about their situation or for that matter, someone else's, is the only real factor in how they perceive their risk and their ability to confront said risk. This is to say, there is no real variation between the risk an employee takes and the risk his/her employer takes.
In cases where employee ends up dependent on their employer, knowledge and experience of their job market would have prevented them from falling into this "trap", and also help them to escape it.
Likewise, employers (the shrewd ones at least, which our contemporary world tends to worship for good or bad) often don't actually take on real risk. We have witnessed many cases where companies have capitalized on profits, but chosen to socialize losses, bankruptcy or even worse, internal misconduct. This is in addition to the veil which usually shelters real corporate decision makers from risk.
This is not to say that risk analysis does not matter, but to emphasize its inherent subjectivity, and that the perception of risk can be varied through greater knowledge of one's situation.
"Every employment position comes with some degree of risk exposure. But, the risk of "I might lose my job" is quite a lot less scary than "I might lose all my invested capital and/or be stuck with crippling debts after the company crumbles". "
That doesn't happen. The company has those debts. Not the individual.
"Early-stage startup employees are given greater compensation packages than later-stage employees specifically because of the greater risk of going to work for an early-stage startup."
Usually not, actually. We've seen plenty of stories about early stage employees being underpaid compared to what the new guys get, and their stock compensation gets dilluted to all hell.
"This isn't a very difficult thought exercise - if you believe the risk profile is greater for employees than CEOs, then why not quit your job and become a CEO of your own company?"
Because I like engineering, and becoming CEO is the fastest way I know of to stop doing engineering.
That doesn't happen. The company has those debts. Not the individual.
In certain industries, in certain places, this is possible. For tech businesses in the US, it might even be the norm. But it is far from universal. My food business failed 3 years ago, and despite being an LLC, I'm still personally liable for brick and mortar leases, business loans, credit card debt, unpaid taxes, and outstanding invoices from suppliers. On good days I think I might get past this and be a member of society again, but this seems far from certain. You are welcome to argue that with better risk management this would not be the case, but your blanket statement "That doesn't happen" is false and offensive.
Financially they don't generally risk anything. Yes, your compensation could end at any time due to termination of your employment, but the risk of not getting paid at some point in the future is unavoidable regardless of whether or not you're an employee. The major difference is that as an employee you're very unlikely to have to put any of your own capital at risk.
I hate to say this, but if you think getting laid off is a huge financial risk then you probably have not done much business. There are exceptions of course, but most founders I know carry huge financial risks (like years and years of salary on the down side, and tens of times that on the upside...).
If you haven't tried you probably can't imagine how stressful it can be at times...
Most founders (at least in the software area) provide a lot of sweat equity, but almost never any cash.
Also, early startup employees are persuaded to accept below-market salaries and work a lot of overtime, exactly like the founders, without the upside ( rarely more than 1% of the company).
The downside was a lower pay now and substantially larger risk of losing my job compared to other places. And developer work here isn't exactly hard to find.
The potential upside was... maybe two years down the line they'd start paying me what other people were willing to pay me now. The guy I negotiated with even tried to make it sound like we were all there on the same terms cos our monthly pay was the same, leaving out that I'd be the only without a share, the other four sharing the company equally... have to say I walked away from that one.
I know a lot of founders who've put in significant cash in their businesses. And besides, sweat equity is also, well, equity.
I'm not saying there aren't early employees that deserve better deals, I'm quite sure there are. But a lot of the perception of unfairness I think stems from a lack of understanding of the differences between being a founder and being an early employee. They are just very different bargains, each with their ups and downs.
For example, let's say three founders own 20% each and there's an external investor that owns 20% and a 20% options pool. The founders payed for their shares with a year's sweat equity. The first employee gets 1% from the options pool. From then on everybody makes the same, and works just as hard. Is that unfair?
I'd say it depends, and the math is not entirely straightforward... Stuff you would have to take into account (and which I rarely see mentioned when people talk about this) include the probability of the company failing before raising money / hiring the first employee, each person's alternative costs and the company's expected future value when the first employee was hired. There are also more subtle issues, like the employee having every right and incentive to leave the minute the company starts going downhill, whereas the founders... Well, it's just very different.
Come to think of it, I've been playing a bit with Bayesian probabilistic programming with PyMC lately, and it might be pretty interesting to put together a model for this. I think it could give a pretty interesting picture of how expected future outcomes vary for the different people, depending on the different parameters. Anybody want to join in the fun? :)
Does the CEO pay? The founders don't get to pay the compamy, they usually don't invest cash (in angel/VC-funded startups). With some luck/skill the company gets sold/aqui-hired and the investors can get their money back. Not always, but quite often.
Or you can just get your non-competes redlined. I did it at literally every job I worked at after my first out of college (and that non-compete was "travel companies", BFD).
There are literally thousands of reasons to live anywhere, and it turns out that Massachusetts measures real well on a lot of them. If you base your living decisions on "there might in the nebulous future be an onerous non-compete I can't get an employer, who is trying to be appealing to me and in an industry as stupid-hot as tech is almost never the only game in town, to redline", I envy your few and trivial problems in life.
Hell, I've treated it as a filter in the past: the mindset that leads a company to be unyielding on noncompetes is a signal not to work for them in the first place. That a noncompete is unenforceable in some jurisdictions functionally only means, for the overwhelming majority of tech employees, you aren't finding out how much they think of you before you sign on the dotted line and quit your other job.
Having thought about this a bit, I actually come to the opposite conclusion.
I think a lot of companies who might have previously hired devs would be better off trying not to anymore, with what devs cost today. This is going to mean all sorts of things, including more off-the-shelf stuff vs. home-rolled for companies, smaller software companies that don't get started because people would rather take the BigCo job that pays $200k base plus stock, etc.
Pretty much any business is about taking stuff and making something out of it that can be sold for more than its inputs. With dev salaries being what they are, a lot of opportunities get ruled out quickly because they just aren't big enough.
Sure. And this seems an OK thing. Many tiny companies hire a programmer to write them excel macros. If they can be replaced by some SAAS app, then do so.
No reason for 100s of companies to write the same app.
I wish I could, but I don't have the cash. Maybe I can save some, by working a few years as an aforementioned employee monkey, but I'll be 30+ by then.
The reason is simple but absolutely wasn't that: they both subsidized their customers' rides to the tune of a billion dollars in a bid to undercut one another.
As it turns out taxi riders care a lot more about price than they do about the company's cultural sensitivities.
This isn't unusual in the transportation sector. In the 80s UK bus companies would undercut each other in a bid to achieve a monopoly. Some even offered completely free buses in a bid to drive their competitors out of business.
Which is why you should be an owner/competitor versus an employee if you know the business well enough.