Dear SaaStr: Is It Really Fair CEOs Make So, So Much More Than Everyone Else in an IPO or Acquisition?
Honestly, I struggled with this for a while myself the first few acquisitions I witnessed from the sidelines.
- Why do founders (sometimes) own so much?
- Why does an Outside CEO get 6 or 7% or more, just for showing up to work, once the company has already established itself? Is this right? Fair?
But the answer is two-fold:
Founders get a disproportionate amount of money because they created the company, not just the idea — and they bring it to life. The singer-songwriter, the writer-director, the creative and practical geniuses that give birth to something new and successful from nothing — always get a lion’s share. Execution is hard work and challenging. But true creativity, literally willing a successful company into existence from absolutely nothing — that is a rare and unique skill set.
CEOs, even if non-founders, get a disproportionate amount of money because they are responsible for all of it. Someone has to be. Someone has to hire all the executives. Own the number. Be 100% in charge. Be fired when it fails. Be responsible to Wall Street. Make it happen. Make sure everything happens. All of it.
If you’ve never really owned it all, you may not understand. I didn’t.
Also, and unfortunately in some ways, it turns out especially in start-ups, a great CEO is just so much more important to outcomes that any other employee. Great CEOs attract amazing teams. Almost always. You can almost take it as a given. Great teams with poor CEOs fail. Or sell for a 1/10th of what great teams with great CEOs do. Great CEOs drag start-ups from near-death to epic success. VPs play critical roles. ICs do too. But they don’t do this.
Is the delta fair, or appropriate? I don’t know.
But the general disproportionateness is, at least if you measure it against outcomes. About M&A, about IPO, about revenues. Very few can create an Uber, a Salesforce, a Google from nothing. Many more can guide it to further success once established. And far more can own just a piece, just a product line, just a handful of (admittedly very important) deliverables.