The Journey

Money

echojason@gmail.com'

Jason Lemkin

After 31,600,000 views on Quora, the top #2, #4, #14, and #17 answers are all about how much money CEOs and founders make. And not just “exit” money but salary.

Salary is a means to an end for great founders, nothing more.

Money matters of course. But it’s not a good enough reason to start a start-up.

Basically every start-up fails — statistically speaking, at least. The odds are against you (although odds are just odds). You have to break the odds. You have to break the pattern. You have to go further, harder, longer, more than everyone else.

If you are doing it for the money … go work at Google or Facebook or Salesforce. Risk adjusted, it’s a better deal.

If you are doing it for the money … you’ll quit. It’s too hard after years 3, 4 and 5.

If you are doing it for the money … you’ll fail.  Because someone who wants it even more will crush you.

But

Money does matter. First, pay yourself a market salary — once the company can afford it. Once it doesn’t hurt the company.  More on that here.

And if you build something huge and important, you should make good money. Focus on that. Make your founder stock valuable.  Bend the odds to your will.

Published on March 11, 2017
  • BobWarfield

    If you’re an entrepreneur doing it for money, bootstrap. The odds are much better than for a VC startup, and you can make darned near as much except in the most extreme Unicorn cases.

    • Bootstrapping is not always an option, in fact in most cases it’s not an option. Look at the statistics, how many startups have you seen doing exceptionally well without raising funds?
      I can think of Basecamp as one example but even there Jason (fried…) took investment from Bezos at some point.
      balsamiq is another good example.
      Both of those company are making millions in net profit every year, both have relatively small headcount and both are bootstrapping. This is the exception to the rule in my opinion.

      • BobWarfield

        Maxim, it’s quite the opposite, and provably so.

        First, you can’t raise real VC unless you are a bootstrapper for the most part. The days of raising several million dollars on an idea, a slideshow, and a team are long gone, though I did it in my own career several times. They first wanted you to not raise until you’d bootstrapped a product. Then you had to have a handful of positive reference customers. Now you need a fair bit of momentum on top of that.

        Second, you don’t have to make millions in net profit every year to do extremely well as a bootstrapper. But those that do, are far more numerous than Venture startups. They just fly well below the radar until they get really big. There are not just a few of them, there are many, but you’ve never heard of them. In fact, the vast majority of successful online businesses didn’t get venture capital, they bootstrapped.

        Jason Lemkin has written about some of the most successful bootstrappers. Companies like Mailchimp, Atlassian, and yes, Basecamp. But there are many more well below the size that you’d even notice. I own one (CNCCookbook.com), and I employ a gaggle of services to make it go that are from companies like SumoMe. Yes, the Founder was involved with VC earlier in his career, but not now. Maybe he knows something? That’s just one example, but there are many more.

        The economics of VC for non-Founder individuals are particularly bad:

        https://smoothspan.wordpress.com/2016/07/09/the-economics-of-vc-startups-for-individuals/

        But even for Founders, the risk is less of getting to life-changing FU money via bootstrapping. Not only that, but it doesn’t even take that much longer. Jason Lemkin estimates that doing it with VC gets you there 4 years sooner than bootstrapping. And the Basecamp guys are right when they talk about how many excellent companies the VC’s have crashed trying to turn them into Unicorns instead of merely excellent very profitable small businesses.

        SmugMug is another favorite example of a bootstrapped business that’s been wildly successful without VC. They quit talking about their revenues a while back, but their growth curve was breathtaking. Who would’ve thought given how many VC-backed free photo sharing services there were back in the day?

        BTW, Basecamp didn’t take Bezos’ money because they needed the capital. They took it because they wanted him as an advisor. Who can blame them?

        • I agree, there are many ways to go about your business, as a founder I bootstrapped for 18 months prior to raising VC funding. I invested all my life’s savings into the startup until I ran out of money and had to raise funds. In my case, we could have continued without external funding but it meant going a lot slower than we wanted so we made a decision and executed, so far I’m happy with the outcome. I think that as long as you’re (the founding team) in control of your company raising money is ok as a means to fuel growth.

      • John Blackman

        Another approach to consider is to build a less exciting but more consistent business like real estate, consulting, or other service business to the point where it kicks off enough cash to fund your startup at a bootstrap level. It takes a little longer but can give you a lot more stamina.

  • Perhaps the solution is to do both of them but not at the same time. Go work for Google and earn well for a few years. Use your savings to tend jump into startups without worrying about money.

    I would imagine that it can be hard to go from earning six figures to earning nothing and having to adjust your lifestyle.

Share This