The cool thing about being a founder is that you get to choose what to do with the equity in your company. So if Stephanie Hurlburt wants to offer a greater share to late employees for reasons of fairness or justice then more power to her. As a side benefit she may attract more talented, loyal employees.
On the other hand there are probably more effective forms of philanthropy than giving your employees more money and equity than the market-clearing amount.
In the end I think the talk about what people "deserve" is a red herring, on both sides. The way I'd look at it is that a business creates value, spends some of it to grow and keep the wheels turning, and the rest is surplus which the owners get to keep, spend or give away as they see fit.
There are valid points here. Most people would agree reward should be commensurate with risk taken. But imagine a simple case of two contributors. Person A's contribution in absolute terms is far more significant than Person B's. But Person B's contribution as a percentage of Person B's available resources (so to speak) is much more significant than Person A's percentage of Person A's available resources. I think most people would still think that it's fair to base rewards on absolute contribution. But I think the author's point is that's not the only option available and not what she would propose. I have no issues there.
More generally, the point about startups - and the limited liability company vehicle itself - working to the advantage of those who already have resources is true, but there's more to it. Why it's true: If there were no limited liability company form and you had to contract for your liability to be limited at the amount of your investment, you would have to give up concessions to creditors. With a corporate form statutorily available, you needn't give up such concessions. Who is best positioned to take advantage of this? People who already have resources. So people who already have resources effectively receive a wealth transfer courtesy of the law. This is the equity version of the saying about debt - that interest is society's way of thanking the rich for being rich. That said, I view this is as tolerable because the system enables the least well-off to take risks they otherwise never would be able to afford. That benefits everyone, especially them. The real problem (if there is one, and in my view there definitely is, but I appreciate not everyone here agrees) is vastly unequal distribution in the first place, but I view that as a separable issue (one fwiw I would want to address by redistribution of wealth, not in how we divide up corporate equity).
These management types drive me insane. If a founder tries to talk to me about merit and risk when trying to recruit me into their bubbly hype-machine, they can be sure I won't be calling back.
I've seen plenty of startups that were going great until they crashed suddenly and catastrophically. Moreover, company founders are often quite secretive with employees when it comes to company finances - So in reality, to an employee, the company often just looks like a black box.
Employees have to take a risk not only based on the business model, but also on the integrity of the founders because of the information asymmetry.
Plus, if it doesn't work out, the founders will typically have better job prospects than the employees because they can put 'CEO' or 'CTO' on their resume.
There's 100% of a company to go around. Here are the options.
1. Founder takes 100%, no one else gets anything.
2. Everyone that joins gets an equal share, which approaches a minuscule amount as more people join.
3. Some people get more than others. Some get none.
Which of the above is the author advocating for? There's no actual follow up on what the author would do with regards to equity. She only speaks about salary.
> That means paying juniors very well, paying late stage employees well and fairly. It means treating people as humans.
I wholeheartedly agree with this statement, but it has nothing to do with the original quote the article was written about.
I think the main point trying to be conveyed is that "risk" entitles reward is false, and that others should share in the reward. I agree in part, and that's what a decent and fair salary is for. The author puts forward similar ideas about her own company.
But she's attacking a straw man. The quote specifically only discusses equity, not salary. Removing the bits about equity would lead to a better more coherent article in my opinion.
But as for the latter, why do they mention their own company in a way that implies their equity policies are more enlightened if they're not "solutionising"?
> I'll never have this equity policy at my company. I'll never tell someone that they deserve a less comfortable life because they have already have a less comfortable life.
Well... that's one way to run a startup I guess. However, the startups I've been around have actually paid pretty well.
Perhaps I'm an outlier? Perhaps I can't empathise with such a situation, because I have been fortunate enough not to be in such a situation.
I was however once offered 1% of a startup that I wrote the first lines of code for. The startup is still going - well it seems... however I am not there. I chose to leave, and we should recognise that we always have such a choice. We always have a choice to leave.
It's funny though - you never really think about how much 'you deserve', until you're offered a percentage. I have sometimes wondered whether you're better off not being offered anything - in which case, the amount you 'deserve' never comes into play.
I do however empathise with how much some people get paid (or those that don't get paid at all) - the people that are just getting by. I believe that we have pools of talent that aren't being utilised, and I do see that as a waste.
The world most definitely isn't fair, and there definitely is a very real imbalance, and unfairness in the system. If some people were just given the space to breathe, to work on their passions, I think think we as a society could actually prosper even more. Not only that, but I also believe that we as society, could help those who have little to offer to still get by - to help them off the streets, and to provide the basic necessities of life that we all should have. I'd rather not walk past a homeless person on the street, or have someone that feels the need to steal to get by, only to have us spend resources locking them up in a prison cell.
And this article seems to touch on some of this - but in different words. It has a certain feeling to it that goes beyond startups, and to the fairness of the world.
I'm starting to ramble however - perhaps I should start writing a blog of my own.
"I was however once offered 1% of a startup that I wrote the first lines of code for. The startup is still going - well it seems... however I am not there. I chose to leave, and we should recognise that we always have such a choice. We always have a choice to leave."
Well, no matter the amount of good will, there's only 100% of company to go around. Someone is going to have little or nothing, and it's clear that someone should not be VC, a founder or employee #1.
Tell that to all the people that are told they're getting 5 out of 100 shares and then are told six months later than the owners are going to create 100 new shares for some 'investor' and invest the money into the company (i.e. pocket it).
This article could hardly be more wrong or ignorant. It presents the exact opposite of what the radical majority of business founders actually face. eg:
> Any time you hear, "taking the most risk" replace it with "have the most privilege and resources." Works well.
In two decades of building Internet companies, I've taken side jobs, made endless trade-offs with regards to my life, willingly suffered immensely to pursue what I want to do with my life (no, your opinion doesn't matter on my suffering to pursue what I want and whether that's the wrong way to go about life because you say so), and I did so while having very few resources in most instances. My first efforts were usually started at a cost of a few hundred or thousands of dollars.
What it means to take the most risk: I will work as long and hard as necessary without a paycheck - if necessary - to give my business the best shot I can at succeeding. The business is mine, I do not treat it as a job (no, your opinion does not matter on that either), I started it, it belongs to me first and foremost. Employees overwhelmingly do not behave that way, they properly (emphasis) leave if you do not pay them.
Most business founders are of this mold. It's incredibly hard to get a business off the ground, it takes countless painful trade-offs to do so. It frequently requires years of time during which your paycheck can be between non-existent or being very slight. The article is either intentionally pushing propaganda, or ignorant of what most business creators go through.
That's all good and well. But there's no denying that startup founders, on average, come from families wealthier than average.
The causation is probably impossible to ever fully understand, but it appears plausible that part of the "risk-taking" involves the risks simply being smaller: maybe they simply gave you money, or you inherited it. Or they have contacts to fall back on to quickly get you a job. Or you're less likely to fail because you could afford the education that only dad's law practice can buy (in the US). Whatever it is, you're less likely to end up homeless.
Even if they were just better parents and taught you the merits risk-taking, the ultimate cause of your success is still something no person has control over – who you were born to. That's the antithesis of a meritocracy.
Having a family is a choice, and it is OK that it costs money - it is worth something to have a family.
Privilege to run a startup - that should also be a choice. Convince somebody to give you money, everybody can try that.
What if I really struggled to get off the ground, lived on minimum income for years, with the threat of divorce hanging over my head because my wife can't take the economic situation any longer. How privileged am I really?
And yet there's a big difference if your BATNA in case company no work is a mostly smooth transition into a high paying career, or life on the streets followed by a walmart greeter job, maybe.
Until I came to the US I never even realized how much you really get from even a moderately privileged upbringing. It's crazy.
Simple things like the difference between working summer jobs in high school or being sent to education camps and such.
Or getting your own car at <driving age> vs. borrowing your mum's.
Or the ability to go to college that isn't close enough to hometown so you can stay living with your parents because it's cheaper.
Or the difference in perspective between The Boss being someone you aspire to become, or someone you hate and despise because they make your life miserable.
The cultural differences are the hardest to overcome.
"This stupid meme seems to be materialising in which just cause I'm a white male that success gets thrown at me and it's all easy and nothing wAs hard and I never had to sacrifice - I'm not going to tell you how hard it really is except to say I've lost EVERYTHING multiple times including my wife/relationship and it's taken me 25 years of trying so PLEASE stop telling me how easy I have it cause I'm a white male."
It could be argued this is ^opportunity cost^.
What the article is making light of is, workers who don't to have the access to the time, resources and opportunities to build a business, yet still have to work to make ends meet. Never to get the chance(s) to start a tech-company.
I think you mean 'shed/cast light on'. The author believes that having a family to support (apparently that's a characteristic of latecomers) makes them deserving of a more equal stake. What if the founder planned on making a family thanks to his big stake?
edit: I tried being more charitable about the article - "give more than one percent to people, sure"- but most of it is still irrational.
"The author believes that having a family to support (apparently that's a characteristic of latecomers) makes them deserving of a more equal stake."
Good point. Btw I respect the OP for making these comments. They have every right and don't really need to defend them. I make comment because of the ^Ronco principle^.
"In a sufficiently connected and unpredictable
world, you can't seem good without being good." [0]
That's what I'm thinking of when I read the essay and comments here. And this. [1]
[1] "Steve didn't really care about gaining wealth. Money was really never much of a problem for him after launching Apple and receiving the initial investment from Mike Markkula. I think he just cared about making great stuff and figured the wealth would come along with that belief."
"As for Woz, he was content with his initial portion of the ~$190-million he received on Apple's IPO. He did end up giving quite a large number of his shares to other early employees of Apple, who Jobs felt weren't worthy of a share grant." ~ Paul Salzman, https://www.quora.com/Why-was-Steve-Jobs-so-much-richer-than...
>No one is entitled to a slice of a tech company just cause they couldn't start one.
What makes one "deserve" the lion's share of a tech company?
The company I work for is split between two cofounders. One came from a very privileged background. The other didn't. Guess who got more?
As far as I can see the notion that one deserves wealth because one has wealth is baked into our society and legal system. Owning a rental property means receiving a stream of income from those who do not. Owning shares means receiving a stream of income from work done by others.
Likewise, if you earn a salary you're the one paying that rent and the work you do is generating those dividends.
Likewise, being rich (and being well connected to the wealthy) when you start a company gives you the leverage to take a larger share.
If that's what you believe is deserved then fine, I guess.
I've yet to hear anybody actually state the words "being richer entitles you to a larger unearned income than those who are not" though.
people who have power and resources - and a safety net to shrug off failure - are in a better position to start companies - they aren't necessarily taking much risk - in fact, if they are sufficiently well off, there could be more risk (in terms of opportunity cost) in not starting a company.
of course, not everyone who starts a successful company is necessarily powerful or has access to more resources than others, etc.
people who have power and resources are in a better position than others to acquire more power and resources. not a hugely surprising statement, but worth pointing out, and worth pointing out that the common "we took more risk so we get more reward" could in fact sometimes be closer to "we were in a position of power so we get more reward".
I've worked blue-collar industrial jobs for $10/hour, sweating under a hardhat and breathing ash. I've cut wood for less money than that hourly, sucking diesel and two-stroke fumes, bathing in sweat in the summer and freezing in the winter. I've earned what's mine, and have no obligation to give it away, unless I choose to do so. The idea of white privilege looks like quite a joke when you grew up a poor rural white boy.
"I've worked blue-collar industrial jobs for $10/hour, sweating under a hardhat and breathing ash."
Done that, indoors sucking fumes. Finished Uni in a recession. Sucked. Did that FT till I worked in my first startup. [0]
"I've cut wood for less money than that hourly, sucking diesel and two-stroke fumes, bathing in sweat in the summer"
Done that. Worked local council Parks & Gardens taking care of 100SqrKm. It's not that cold where I come from but gets pretty hot. High 30s (C) to early 40s in summer. Did this for years workin' PT while at school, FT on holidays.
"have no obligation to give it away"
Even working in the places I have, with my startup there will be no interns (free labour), dodgy contracting (cheap OS labour), worthless stock options in lieu of pay (sweat equity), no mass firing after a hiring binge to grow the company (to appease VCs). Fair wage for fair amount of work. That's not what is being described above.
Privilege when used in this sense doesn't mean everything is great all the time, it means that in certain situations, some people have an inherent advantage because of something they had no hand in.
One such example is race, hence white privilege. There are other reasons for privilege as well.
> some people have an inherent advantage because of something they had no hand in
I would argue the term even applies to things they explicitly choose.
I'm married, and we have two children. My wife doesn't work outside the home. As a result my tolerance for risk is much lower than it would have been had I made other decisions.
That you're going to have to get a full-time job at the end from one of your contacts or investors or investors companies?
there's no "massive" risk.
Where are the stories on HN about the hordes of ex-startup founders presently homeless? Or the stories about founders who lost their homes, marriages and kids?
There aren't any. Because when it gets really bad, they can step straight into a high paying job from someone else.
We're not talking just about programmers, so yes, a fair proportion of that is privilege actually. If you've been to rich boarding school cause mummy and daddy can afford it and walk straight into another job because you speak in the right way, know the right people, that's privilege. Because you're a white, youngish male who drinks with the right meetups, speaks the right buzzwords. That's privilege.
One consistent theme in successful people is that they over-exaggerate their skill level and how much they "deserve" their success. It's a known psychological problem, and it's one we should keep in mind when discussing this.
You think that if she hadn't buggered up Theranos through poor, public, moral decisions Elizabeth Holmes would have had a hard time finding a job? Even without a degree? She'll probably still be able to get a job any way.
One consistent theme in unsuccessful people is they play down other people's achievements and write it off as privilege. It's a known psychological problem.
This article is bound to get critiqued for its morality-based reasoning. While I agree with that, it'll be hard to get anyone to agree, especially founders who by definition believe in (one definition of) meritocracy.
But there is, I believe, also a business case for it, especially if the employees' equity comes, at least partially, from the VC's share: Diverse ownership may result in better decision-making, it makes you less dependant on one or a few large stakeholders, and can make unfriendly takeovers harder. It's obviously a great motivational tool and inspires loyalty. Most startups fail, so it's not completely unlikely that you'll end up working for one of your employees' startup next year, and people tend to have good memories.
In as far as such a model could reduce income inequality across societies, you're also helping to alleviate all the problems associated with that. Inequality has been shown to correlate with crime, political instability, and a few other things that founders would try to avoid even if only interested in their own well-being. (This isn't a perfect fit for tec startups in the US where salaries are already quite high, but as mentioned in the article, there are countries where unpaid internships are a mainstay for startups).
The post she linked to as something she had written before essentially equivocates "that CEO who had several men who had raped female employees kept on staff because they were good coders" with someone that has hired people they know, have good personal relationships with and have a similar background to.
It might sound weird and foreign to these SJW types, but when you're a fresh grad or someone with a couple of years experience and you go start a startup, you're unlikely to care about your diversity quota. You hire people that you already knew. Fellow university students, people from former jobs, that sort of thing.
>Any time you hear, "taking the most risk" replace it with "have the most privilege and resources."
This is absurd and adolescent.
I know people who are extremely privileged, and don't make any sacrifices or take any risks, just so they can avoid discomfort, and I know people with very few resources, who sacrifice and suffer in order to start companies. Being an entrepreneur is a risky venture, and hard on one's health and wealth, and many lose it all in the process.
Shame on the author for making such a ridiculous blanket characterization about entrepreneurs that discounts their sacrifice, in the name of brain-dead socialist ideology.
That's an awfully emotional (dare I say, adolescent) way of saying "I disagree, here's why".
While I may not exactly agree with the author's position, I think it's fair to recognize the uncomfortable truth that in most startups, rewards for success are distributed according to a power law distribution.
Taking it a step further, I strongly suspect that it is the financial innumeracy of many engineers, designers, and other hard-working early stage employees that make the economics of many startup businesses possible.
I don't see what's emotional about it. I view the assertion that being a risk-taker in the startup world is synonymous with being privileged as absurd and adolescent. I also explained why I think the notion is offensive and worthy of being condemned.
> I think it's fair to recognize the uncomfortable truth that in most startups, rewards for success are distributed according to a power law distribution.
Can you elaborate on this a bit? I'm not sure I understand what exactly you mean by this.
"The factors that affect the supply of entrepreneurs are important but poorly understood. We study a sample of individuals who choose either to be employees or to run their own businesses. Four conclusions emerge. First, consistent with the existence of borrowing constraints on potential entrepreneurs, we find that the probability of self-employment depends markedly upon
whether the individual ever received an inheritance or gift.
Second, when directly questioned in interview surveys, potential entrepreneurs say that raising capital is their principal problem. Third, consistent with our theoretical framework's predictions, the self-employed have higher levels of job and life satisfaction than employees. Fourth, childhood personality measurements
and psychological test scores are of almost no help in predicting who runs their own business later in life. It is access to start-up capital that matters."
Further into the study:
"Attitude to risk is not the central characteristic that determines who becomes an entrepreneur"
tl;dr "adolescent" study demonstrates risk is a convenient narrative that justifies why some people can have nice things and others can't. Access to capital is what counts.
"does not automatically mean one is more privileged than those who choose to work for startups,"
It does in a way. Founders eating ramen, working long, odd hours, for an idea that may not pay off at all; Who can walk away from a startup and brush it off as experience. An employee doesn't get that opportunity. An employee also doesn't take the risk. They may never have the opportunity to take these kinds of risks.
I have no idea, but a statistical correlation does not justify the blanket characterization made by the article, where "risk-taker" is essentially held as a synonym for "privileged".
It diminishes the accomplishments of entrepreneurs, and the sacrifices they've made. If they only have large equity stakes in the companies they founded because they're "privileged" it casts them as undeserving of the wealth they acquired.
Isn't it self-evident? It harms their standing and reputation, in being cast as in possession of wealth they are not morally entitled to. It's defamation.
"Shame on the author for making such a ridiculous blanket characterization about entrepreneurs that discounts their sacrifice, in the name of brain-dead socialist ideology."
Yes I admit that part conveys emotion, but that's not the part the parent commenter was citing. I think emotion has its uses, like defending entire classes of people from being unfairly denigrated by simplistic blanket characterizations.
On the other hand there are probably more effective forms of philanthropy than giving your employees more money and equity than the market-clearing amount.
In the end I think the talk about what people "deserve" is a red herring, on both sides. The way I'd look at it is that a business creates value, spends some of it to grow and keep the wheels turning, and the rest is surplus which the owners get to keep, spend or give away as they see fit.