At the TechCrunch 50 conference Peter Thiel, Silicon Valley uber investor was quoted as saying that there is a ceiling in terms of CEO salary for a startup, beyond which you begin to “have issues”. For a more general take on CEO salaries (not tech specific) check out this article.
After spending a few days with a bunch of boot-strapped start-ups at the Office 2.0 conference I have to agree to a certain extent with his thoughts although I’d extend them further to include spending generally – not just C level remuneration.
But first a disclaimer – I’m not suggesting that startups should scrimp and save every penny – it costs money to build a brand and sometimes there are things you just have to do (spending up to go to tech conferences for example) – but startups that let go of the reins – paying themselves high salaries and hosting lots of launch parties – run the risk of burning through their cash before they have a product.
The fact is that a startup should act like a startup – leave the top shelf partying to those who’re actually making the revenue.
My role model for sensible expenditure is a SaaS business that I’ve been following for awhile – rather than being located in high rent silicon valley, they’re domiciled in a much more affordable location. Rather than big ticket offices with plush sofa and carpets, they’re working out of a converted garage. They’re also scaling pretty fast, making good revenue and deriving profits from their endeavours – while their startup brethren are out partying on their investors dollars.
I wonder who will still be around in a few years time?
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Very good post, good advice. We’ve been shopping our boot-strapped startup (financial web apps) around to angels and they all say the same thing: keep bootstrapping! I can see how it’s better to stay lean and keep a higher % in the long run. We’re frugal in real life, so it’s not too hard.
In the old days people opted to hire hungry East Germans to work on their projects because motivation is often very closely mirrored by need and that is a stronger driver for projects.
At the risk of drawing the bow too wide you might enjoy a post by Mark Cuban saying that part of the issue for todays’s uber business is that CEO’s get paid in lottery tickets with no personal accountability – at the risk of misquoting him – see link below.
http://blogmaverick.com/2008/09/15/stock-market-meltdowns-why-they-will-happen-again-and-again-and-again/
Call me old fashioned, but I was bought up to understand that if you “Haven’t got it – then don’t spend it”
The problem is with people who “have got it” and do spend it, but it’s actually someone else’s money.
Nice post – the limit of $150 k USD is a good one. Basically you start getting people at this point who are in it to maintain a current lifestyle than strive to achieve a better one through building a business.