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 the creator you carry the lifetime risk/reward of your startup.
The founder(s) of Friendster, PointCast and Webvan will always be remembered a certain way. As will the founders of Twitter, Groupon, Yahoo and Google.
The employees that come after them do not carry this personal risk/reward issue. They can always say "I joined Freindster and it was a great learning experience."
The founder of Friendster will have to explain for all time why they were first and failed so horribly. How they missed the opportunity to be MySpace, LinkedIn or Facebook.
That's the real difference in my mind: personal reputation risk.
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 founders have a much better entry on their resume than someone who took a job at a small company that no one has ever heard of.
At least in America, there is so little stigma associated with a failed startup that I don't see the reputation aspect of your argument. Short of flat-out malfeasance, a failed entrepreneur is far more fundable than someone who has never started a company.
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 didn't start the business the business wouldn't exist. Without the founders, the discussion is moot.
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 no good reason, founders aren't actually worth much more than the employees, it's just the way capitalism works. To the victor goes the spoils. Hence the occasional Marx being thrown into the mix to try and keep the worst excesses in check (overall I think capitalism's been a greater good for humanity). I think we're due a Marx soon if the earnings divide keeps growing as it is.
Don't try and rationalize it, it's just natural greed. But it has benefits too, all those jobs that wouldn't have existed.
I argue that those first employees are taking more risk. If the company runs into trouble in 3-6 months time, it's going to be the employees who get turfed, not the founders.
And I'm sure the founder of Friendster has no trouble finding a job. Starting a company and failing has enourmous cachet in the States. And Friendster did quite well, relatively speaking, compared to most failed startups.
This article is very timely. I've been employee #1 at a small company for about ten months, and I'm not only making just 50-60% of my pay potential, the recently proposed employee options plan grants me just 0.8% vesting over the next four years.
"This isn't about who is more valuable, this about who took the risk."
Risk? I joined less than a year after incorporation. I feel like I'm shouldering substantial risk by taking 50% of my overall compensation as options in a venture which I have no direct control over—I'm not on the board, I'm not a director. The options are worthless until 4-5 years down the road, and even then, I have no control or say into when we sell, to whom, and for how much.
Myself and the other employee are probably going to leave, because we feel that more like 2-3% minimum is appropriate for our position, and we doubt that the founders will see it that way.
I call bullshit. For financial risk, this doesn't apply if the founder doesn't have much to lose, or has a stable family they can rely on, or is just starting their career, or doesn't care about money. For reputation risk, that's hardly an issue, because making mistakes in considered a legitimate (even honorable) form of learning in startup culture; it certainly does not ruin someone's reputation.
The real answer is way more simple: the founders hold most of the cards, and the engineers don't.
Edit: and if the engineers don't like this, they are free to try to start their own startups.
That reflects on their future prospects of being a startup founder, though. I think the founder of a company like Friendster could still get a job working at Twitter or Zynga or whatever as an engineer, and the notoriety in their past would actually be a benefit.
Reputation? I have no idea who founded Webvan and I don't think I'd care if I did know. In modern America, there's little if any shame attached to having your business fail - less shame, really, than being fired or simply having a low prestige job.
I agree that the difference is that the founders risk something. What they risked was just money and time. And risking time can be risking more than you'd think because there's an opportunity cost to not creating a career.
It boils down to risk-amortized market for money and time; capital and human-capital.
This is just the market. There is no fairness guarantee mechanism. If I have a billion dollars to put at a very, very slight risk, it is still worth much more than your willingness to risk your time, your "reputation", your health and your $100K.
Seriously though, I agree that founders are taking the risk, but actually I think that is irrelevant as well.
The bottom line is that the founder started the damn company; the company would not exist without the founder. If you go and negotiate a contract with a company, you get what's in the contract. In a profitable business we can argue all day about who's creating the value, but it's subjective and irrelevant; the only thing that matters is that the founder went and started a company and offered you a job and you took it. If you weren't able to negotiate a deal for what you're "worth" then man up and start your own damn company, otherwise you're just whining.
The founder of Friendster is very likely to be capable of being hired for a job, so the risk he took to his reputation was the risk of lower probability of becoming something other than an employee. Therefore, in comparison to an employee, the founder of Friendster remains on equivalent ground. He lost little if anything compared to an employee (a group of which he now belongs), so the risk was little and of low value in regards to personal reputation.
In regards to money, that depends on the process. Did the startup function using the founders cash for a period of time that required a significant financial investment? If so, then there's significant risk on the part of the founder. If the startup functioned for a limited period of time on the founder's cash before receiving an investment that paid the founder as well as employees, then clearly there is little risk. Granted, the former scenario is the more likely.
And to make it more concrete: those who take the risk are rewarded because investors need people who take risks, otherwise they'd have nothing to invest in.
People are over-moralizing this. Why do CEOs get paid so much? Why are salesmen often better paid than engineers? Does a ditch-digger deserve less money than a lawyer? The market is basically amoral. People get what they can get, not what they 'deserve'. Founders get more money because they have ownership, and in a capitalistic system profits accrue to capital. There's no point in constructing an elaborate moral architecture to justify how a social structure developed to maximize financial gain also somehow optimizes for socially-desirable outcomes.
Yet people support it and sleep at night. The world is not fair, people are unfair, and it's a damn good cause to try to make it fairer.
Sure I expect there's a serious correlation between putting effort in, but a huge part of how valuable your efforts are to your life is decided by where you were born, who your family are, who fucks you over and how you are parented.
I'm sure there are Muslim women in Saudi, or prostitutes in Liberia, or Chinese farm workers who'd (aside from cultural bias) work twice as hard and have just as many good ideas as Mark Zuckerberg or Bill Gates given the education and upbringing they have, but they simply don't have the opportunity.
Many socialists I talk to have it wrong in that they don't recognise that yes, effort is a factor in your life's success, but many of the capitalists I talk to fail to acknowledge that effort is simply one of many factors that influence it.
I agree you get what you can get based on the market and it has nothing to do with anything else. It doesn't matter how "smart" you are, or how "hard" you work, that really doesn't correlate directly with what you get paid.
But I think your second point (Founder get more money because they have more ownership) is tautological. The article is really asking, should the founders get such a great proportion of ownership?
I think that equity % is just like normal income. You get what the market will let you get.
Founders get a lot because the right combination of qualities, risk taking, and luck are rare. Being an employee of any kind makes you more common than a founder, and thus the market will always pay less.
Word, it's all about bringing in the money. If you can convince people to give you more money, you get that money, and if you can't, you don't. Sales guys are well-respected in most corporate hierarchies because the sales guys are the people going out there and actually getting customers that bring in cash. It doesn't matter if you write the most beautiful program ever, the reality is there has to be a way to monetize that program if you want to run a business off of it (and obviously, your employer does). If an engineer can't do it and a sales guy can, the sales guy deserves a bigger cut of the pie.
You can see great examples of this by looking at basically any celebrity. Do Oprah and Brad Pitt really deserve billions of dollars for their contributions? Most people would say that morally their contribution to society is minor (or even negative), but the market doesn't seem to agree, and they are rewarded with money far exceeding the income of many business leaders. They get this money because they chose to do something people are willing to spend money on.
Why do thugs that play football, whose moral contributions are, again, minor or often negative, make millions of dollars each year? Because millions of average people pay $30/wk to watch them run into each other, $100/yr in team merchandise, etc. If you don't like that, convince people to stop spending money on football.
"I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all."
There's no problem moralising it while keeping in mind that the current system indeed is amoral. I think the point is whether it should be.
Personally, I'm of the opinion that no job worth doing is worth less than any other job, but I recognise there's “some” ways to go before that thought becomes in any way mainstream again…
Couldn't agree more. If you think you're getting a crap deal as an employee, quit and start your own company. If you can't find 340 bucks (incorporation fees) to drastically change the rewards of your contributions then I don't have any problem with that person making 1/1000th of the returns.
I totally agree that people are paid what they can get. The problem is, a lot of the people who justify their enormous salaries by saying that the market is amoral then try to argue that they 'deserve' every last penny they made come tax time.
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.
It's nice to have a simplistic 12 year old's attitude in thinking you can just do stuff if you want, but life is full of so many factors. Right wingers especially seem to have this child-like mindset.
It reminds me of a story my dad told me. His secretary complained to him that "garbagemen make more than me." He suggested that she quit and get a job hauling garbage. Her answer? "No way, that's a dirty, disgusting job."
I'm not a "founder" in the startup sense, but I did start my own indie development and consulting shop, and I think the startup founders can relate to my experience. For example, 16, 18, even 20 hour days are common. Keeping the business going becomes the major focus in your life. You think about it all day and dream about it if you manage to get some sleep at night. You hope and you dream and scratch and claw and fight and work your butt off every single day with no end in sight. It's your idea, your vision, your baby.
For an employee, it's a job. They do the work, they get paid. They may care, and they may care a lot, but they'll never have the kind of commitment you have as a founder. Someone recently asked me if when I hire my first employee, if I'll be able to double my productivity. I wish it were true, but I would never ask an employee to work the kind of hours I do.
So are founders always worth 1000x more than the employees? Maybe not always, but I can sure see the argument being made.
I was employee #1 at a company. I once clocked 210 hours in a 2 week period, and become super emotionally invested in the company. I spent time on the assembly line when we had orders that needed to go out. If it's just a job for your first employees, you hired the wrong employees.
Because it's super hard not to become that involved -- you're working so closely with the founders who are that involved. It's pretty hard to 9-5 it when nobody else is.
You're a founder in the startup sense - just because you started a service business doesn't make it any less of a business. You have customers, employees, revenues, profits, losses, capital equipment purchases, travel expenses, etc. You probably make more money than most 'product' startups.
IBM, KPMG, PwC, etc. are all service businesses that are massive and successful. There's a thousand other firms with middling market caps you've never heard of that also make billions.
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.
This is the key. For founders who are not intrinsically fundable, an incredible amount of risk is removed between the time of initial founding and when a third-party assigns a value to the company. 1000x seems reasonable.
Which is generally funded by VC money. In the formula of money -> jobs -> more money, the founder doesn't necessarily play such a meaningful role. If he hadn't taken VC money to create the company that contains the jobs, someone else would have.
I think the real issue isn't whether or not founders are "worth" 10x or 100x or 1000x the 10th employee (arguable, no real answer) but whether the extreme variance that exists in early startup employee equity is fair.
I once surveyed several friends who joined tech startups (at similar funding rounds, # of employees) out of school as very similar software engineers. They received between 0.05% and 0.3% of those startups. That's a 6x range.
That certainly wasn't a result of a transparent and perfectly fair market; equity compensation numbers are opaque to many startup employees, plus the comparative data just isn't widely available. (Ackwire is the best I've seen, and it's new and rudimentary.)
And it's not really in the startup's interest to make them more aware-- who wants their employees to have the thought "my boss will make 100x more than me when we exit" in their head? (Not everyone is as hyperrational or founder-aspirational as the HN crowd...)
For me it has been - who picks up the hat when something painful needs to get done? (getting tax info together, sales cold calling, doing a complex data migration, etc.) It is usually the founder, in order to shield employees from potentially morale destroying work. For this (and other reasons mentioned here) their value is more then that of their employees..
Obviously this is not the case all the time.. just my experience...
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).
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?"
The reason founders get more is because they are less willing to accept a bad deal, and more able to turn a bad deal into a good one. An employee who brings strategic assets to a company will make a lot of money, neither Eric Schmidt or Tim Cook are founders of their respective companies but they do VERY well for themselves.
The best explanation is found on Ribbon Farm in The Gervais Principle.
And yes, Founders are 1000x more valuable to the market than their employees. They may not be more valuable according to any other logic but the market is the person who cuts the cheques.
Stop seeing compensation as a judgement of value and instead see it as a measure of scarcity. Most people prefer to be employees rather than founders, compensation reflects this.
I see the 1000x as a reflection of the risk they undertake.
Employees, for 100% probability of receiving a specific amount of money exchange their time and effort while founders for a 10% probability of receiving a unspecified amount of money exchange their time and effort.
Essentially, for a lower chance of success they make it possible to receive unlimited rewards or go broke(losing years of work and to be despised by all and suitably fit for ridicule and to be made into a parable.).
Life is indeed fair, hence you can't have your cake and eat it. You can't have security and unbounded success, something has to give.
"Valuable" isn't the right word - because the article is being used for current compensation and equity comparisons but the justification is past events. In the present, it is quite possible that a founder could be detrimental to a company (negative value) while an employee could be nearly irreplaceable (I've even read rumors of such situations here on HN).
The question is one of compensation - which is a fool's game, e.g. are founders really 2000x more valuable than 3rd grade teachers?
A founder is just twice as valuable than a employee, and this just at the beginning. If you measure value by the actual profit a founder or an employee generates at a project, enterprise or whatever, you'll surely find that in long term is the employee that generates most of your earnings. That's a plain truth, if you have employees is because your business is growing and you can't deal with it just by yourself, so you need someone to work by your side at this point. Every earning from then now should be almost equally split on you and your employees. And I say almost, because your employees do owe you something, a place to work with less risk.
And that last part is the why I think a founder is 2x more valuable than employees. I love to see enterprises where they left a percentage of their actions to split that amount of earnings over their employees.
[+] [-] jasonmcalacanis|15 years ago|reply
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 the creator you carry the lifetime risk/reward of your startup.
The founder(s) of Friendster, PointCast and Webvan will always be remembered a certain way. As will the founders of Twitter, Groupon, Yahoo and Google.
The employees that come after them do not carry this personal risk/reward issue. They can always say "I joined Freindster and it was a great learning experience."
The founder of Friendster will have to explain for all time why they were first and failed so horribly. How they missed the opportunity to be MySpace, LinkedIn or Facebook.
That's the real difference in my mind: personal reputation risk.
[+] [-] gamble|15 years ago|reply
At least in America, there is so little stigma associated with a failed startup that I don't see the reputation aspect of your argument. Short of flat-out malfeasance, a failed entrepreneur is far more fundable than someone who has never started a company.
[+] [-] swombat|15 years ago|reply
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 didn't start the business the business wouldn't exist. Without the founders, the discussion is moot.
[+] [-] mattmanser|15 years ago|reply
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 no good reason, founders aren't actually worth much more than the employees, it's just the way capitalism works. To the victor goes the spoils. Hence the occasional Marx being thrown into the mix to try and keep the worst excesses in check (overall I think capitalism's been a greater good for humanity). I think we're due a Marx soon if the earnings divide keeps growing as it is.
Don't try and rationalize it, it's just natural greed. But it has benefits too, all those jobs that wouldn't have existed.
[+] [-] bryanlarsen|15 years ago|reply
And I'm sure the founder of Friendster has no trouble finding a job. Starting a company and failing has enourmous cachet in the States. And Friendster did quite well, relatively speaking, compared to most failed startups.
[+] [-] anon330|15 years ago|reply
"This isn't about who is more valuable, this about who took the risk."
Risk? I joined less than a year after incorporation. I feel like I'm shouldering substantial risk by taking 50% of my overall compensation as options in a venture which I have no direct control over—I'm not on the board, I'm not a director. The options are worthless until 4-5 years down the road, and even then, I have no control or say into when we sell, to whom, and for how much.
Myself and the other employee are probably going to leave, because we feel that more like 2-3% minimum is appropriate for our position, and we doubt that the founders will see it that way.
[+] [-] natch|15 years ago|reply
The real answer is way more simple: the founders hold most of the cards, and the engineers don't.
Edit: and if the engineers don't like this, they are free to try to start their own startups.
[+] [-] code_duck|15 years ago|reply
[+] [-] joe_the_user|15 years ago|reply
I agree that the difference is that the founders risk something. What they risked was just money and time. And risking time can be risking more than you'd think because there's an opportunity cost to not creating a career.
It boils down to risk-amortized market for money and time; capital and human-capital.
This is just the market. There is no fairness guarantee mechanism. If I have a billion dollars to put at a very, very slight risk, it is still worth much more than your willingness to risk your time, your "reputation", your health and your $100K.
[+] [-] dasil003|15 years ago|reply
Seriously though, I agree that founders are taking the risk, but actually I think that is irrelevant as well.
The bottom line is that the founder started the damn company; the company would not exist without the founder. If you go and negotiate a contract with a company, you get what's in the contract. In a profitable business we can argue all day about who's creating the value, but it's subjective and irrelevant; the only thing that matters is that the founder went and started a company and offered you a job and you took it. If you weren't able to negotiate a deal for what you're "worth" then man up and start your own damn company, otherwise you're just whining.
[+] [-] OpieCunningham|15 years ago|reply
In regards to money, that depends on the process. Did the startup function using the founders cash for a period of time that required a significant financial investment? If so, then there's significant risk on the part of the founder. If the startup functioned for a limited period of time on the founder's cash before receiving an investment that paid the founder as well as employees, then clearly there is little risk. Granted, the former scenario is the more likely.
[+] [-] noahlt|15 years ago|reply
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] gamble|15 years ago|reply
[+] [-] antihero|15 years ago|reply
Yet people support it and sleep at night. The world is not fair, people are unfair, and it's a damn good cause to try to make it fairer.
Sure I expect there's a serious correlation between putting effort in, but a huge part of how valuable your efforts are to your life is decided by where you were born, who your family are, who fucks you over and how you are parented.
I'm sure there are Muslim women in Saudi, or prostitutes in Liberia, or Chinese farm workers who'd (aside from cultural bias) work twice as hard and have just as many good ideas as Mark Zuckerberg or Bill Gates given the education and upbringing they have, but they simply don't have the opportunity.
Many socialists I talk to have it wrong in that they don't recognise that yes, effort is a factor in your life's success, but many of the capitalists I talk to fail to acknowledge that effort is simply one of many factors that influence it.
[+] [-] krschultz|15 years ago|reply
But I think your second point (Founder get more money because they have more ownership) is tautological. The article is really asking, should the founders get such a great proportion of ownership?
I think that equity % is just like normal income. You get what the market will let you get.
Founders get a lot because the right combination of qualities, risk taking, and luck are rare. Being an employee of any kind makes you more common than a founder, and thus the market will always pay less.
[+] [-] cookiecaper|15 years ago|reply
You can see great examples of this by looking at basically any celebrity. Do Oprah and Brad Pitt really deserve billions of dollars for their contributions? Most people would say that morally their contribution to society is minor (or even negative), but the market doesn't seem to agree, and they are rewarded with money far exceeding the income of many business leaders. They get this money because they chose to do something people are willing to spend money on.
Why do thugs that play football, whose moral contributions are, again, minor or often negative, make millions of dollars each year? Because millions of average people pay $30/wk to watch them run into each other, $100/yr in team merchandise, etc. If you don't like that, convince people to stop spending money on football.
"I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all."
[+] [-] rue|15 years ago|reply
Personally, I'm of the opinion that no job worth doing is worth less than any other job, but I recognise there's “some” ways to go before that thought becomes in any way mainstream again…
[+] [-] fleitz|15 years ago|reply
[+] [-] natnat|15 years ago|reply
[+] [-] jshen|15 years ago|reply
It made sense to me as a 12 year old and still does.
[+] [-] timr|15 years ago|reply
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.
[+] [-] antihero|15 years ago|reply
It's nice to have a simplistic 12 year old's attitude in thinking you can just do stuff if you want, but life is full of so many factors. Right wingers especially seem to have this child-like mindset.
[+] [-] WalterBright|15 years ago|reply
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] Skroob|15 years ago|reply
For an employee, it's a job. They do the work, they get paid. They may care, and they may care a lot, but they'll never have the kind of commitment you have as a founder. Someone recently asked me if when I hire my first employee, if I'll be able to double my productivity. I wish it were true, but I would never ask an employee to work the kind of hours I do.
So are founders always worth 1000x more than the employees? Maybe not always, but I can sure see the argument being made.
[+] [-] bryanlarsen|15 years ago|reply
Because it's super hard not to become that involved -- you're working so closely with the founders who are that involved. It's pretty hard to 9-5 it when nobody else is.
[+] [-] tastybites|15 years ago|reply
IBM, KPMG, PwC, etc. are all service businesses that are massive and successful. There's a thousand other firms with middling market caps you've never heard of that also make billions.
[+] [-] charlesju|15 years ago|reply
If employees were unwilling to work for anything less than 10% of the company than employees would have more stock.
If founders were able to get away with keeping 100% of the company, then they deserve to have it.
There is no fairness here. It's just the free market. If employees want founder economics, then start a company. It's that simple. Welcome to America.
[+] [-] DevX101|15 years ago|reply
I think this is a greater factor in the relatively high compensation than "value added" or "risk taken".
[+] [-] tptacek|15 years ago|reply
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.
[+] [-] njharman|15 years ago|reply
[+] [-] frederickcook|15 years ago|reply
[+] [-] georgieporgie|15 years ago|reply
Which is generally funded by VC money. In the formula of money -> jobs -> more money, the founder doesn't necessarily play such a meaningful role. If he hadn't taken VC money to create the company that contains the jobs, someone else would have.
[+] [-] kalvin|15 years ago|reply
I once surveyed several friends who joined tech startups (at similar funding rounds, # of employees) out of school as very similar software engineers. They received between 0.05% and 0.3% of those startups. That's a 6x range.
That certainly wasn't a result of a transparent and perfectly fair market; equity compensation numbers are opaque to many startup employees, plus the comparative data just isn't widely available. (Ackwire is the best I've seen, and it's new and rudimentary.)
And it's not really in the startup's interest to make them more aware-- who wants their employees to have the thought "my boss will make 100x more than me when we exit" in their head? (Not everyone is as hyperrational or founder-aspirational as the HN crowd...)
[+] [-] mdink|15 years ago|reply
Obviously this is not the case all the time.. just my experience...
[+] [-] vannevar|15 years ago|reply
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).
[+] [-] protomyth|15 years ago|reply
[+] [-] dadkins|15 years ago|reply
[+] [-] fleitz|15 years ago|reply
The best explanation is found on Ribbon Farm in The Gervais Principle.
http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-o...
And yes, Founders are 1000x more valuable to the market than their employees. They may not be more valuable according to any other logic but the market is the person who cuts the cheques.
[+] [-] johngalt|15 years ago|reply
Stop seeing compensation as a judgement of value and instead see it as a measure of scarcity. Most people prefer to be employees rather than founders, compensation reflects this.
[+] [-] chegra|15 years ago|reply
Employees, for 100% probability of receiving a specific amount of money exchange their time and effort while founders for a 10% probability of receiving a unspecified amount of money exchange their time and effort.
Essentially, for a lower chance of success they make it possible to receive unlimited rewards or go broke(losing years of work and to be despised by all and suitably fit for ridicule and to be made into a parable.).
Life is indeed fair, hence you can't have your cake and eat it. You can't have security and unbounded success, something has to give.
Fortune favors the bold - Virgil
[+] [-] sreitshamer|15 years ago|reply
If you go create something (a business) from nothing, it's yours. If you agree to do work for a business in return for cash, that's your decision.
[+] [-] brudgers|15 years ago|reply
The question is one of compensation - which is a fool's game, e.g. are founders really 2000x more valuable than 3rd grade teachers?
[+] [-] sahillavingia|15 years ago|reply
[+] [-] ecaradec|15 years ago|reply
[+] [-] petervandijck|15 years ago|reply
[+] [-] FernandoEscher|15 years ago|reply
And that last part is the why I think a founder is 2x more valuable than employees. I love to see enterprises where they left a percentage of their actions to split that amount of earnings over their employees.
[+] [-] icandoitbetter|15 years ago|reply