3 Steps to Effectively Negotiating Your Salary With a Startup
Negotiating with a startup can be tricky. For one thing, you may be dealing with a founder whose approach to things may be more about his own emotions than business. For another, the offer may contain equity or options that can be hard to understand and value. So, you can’t approach the discussion as you would if the company was more established. You’ll need financial smarts and a solid grounding in your own needs, emotional as well as professional.
Analyze and Compare
First, don’t negotiate on the fly. When you receive an offer, express interest and enthusiasm, then ask for some time to review the salary, employment agreements, stock options and vesting schedules. Numerous studies show that effective negotiators spend 90 percent of their time preparing and only 10 percent negotiating. So do your homework.
To assess the financial risks and rewards under a variety of circumstances, run several “what if” scenarios. Get a realistic picture of what you’ll earn by calculating the best case, worst case and most likely payouts. Be sure to evaluate the competiveness of your deal by comparing your total compensation to that of tech professionals in similar ventures.
Don’t hesitate to seek advice from a lawyer or accountant, since they may suggest ways to mitigate risk or increase your return on equity. For instance, perhaps a venture-backed company would agree to accelerate your unvested stock options following an acquisition. Or, the founders may be willing to substitute a few shares of restricted stock for stock options. These are the kinds of ideas someone with startup expertise can help you uncover.
Set Your Goals
Once you’ve analyzed the package, it’s time to set your goals. Don’t negotiate every single component and perk—that could lead the company to questioning your commitment. Instead, focus on a few critical items, such as increasing cash and reducing equity.
Make sure your requests are reasonable. For instance, if you want a $10,000 increase in salary, start the negotiation by asking for $12,000 or $15,000, not $35,000. Cash is scarce at startups and the founders may be paying some salary expenses out of their own pockets. If you’re too outlandish, a leader with skin in the game may shut down the meeting or tell you to take it or leave it.
As with any negotiation, determine your goals, fallback positions and walk-away points before the session begins. Also, consider the startup’s objectives and the negotiator’s personality. A successful negotiation occurs when both parties’ needs are met. Put yourself in their shoes, tailor your approach by anticipating their reactions and remember to highlight the mutual benefits of meeting your requirements.
Build Your Strategy and Execute
Most startups are built on their founders’ dreams and pocket books. And most founders expect a singular level of devotion from their employees.
When it’s time to talk money, make clear that you’re a disciple who’s ready to jump on board as long as you can work out a mutually beneficial deal. Swearing your allegiance up front positions you as an insider and puts you and the founder on the same page.
Smaller companies tend to wing it when it comes to compensation, so support your position with facts. The founder may have no idea what competitors are offering or whether the company’s offer is fair. By sharing your research, you’ll help them see where your request fits into the competitive landscape.
Plus, an information exchange exposes the other person’s motives and keeps the discussion alive. For instance, being transparent about your methodology for valuing stock options may spark an open discussion, enlightenment and compromise. To figure out where the founder’s coming from, ask what they think the shares will be worth in two or three years. Securing more options might be easy once you agree on a realistic way to value the shares and what you should earn for helping the company go public.
Of course, you should be ready to offer tradeoffs or alternatives during the negotiation. Never bring up a problem unless you have a solution. Reiterate your desire to join the team and support the cause to break a stalemate. Remember, passion counts at startups—a lot.
Finally, get everything in writing. More than 50 percent of founders are replaced as CEO by the time a startup raises its third round of financing. If the founder leaves, any handshake agreement between you will cease to exist. Protect yourself by getting a detailed compensation agreement that covers scenarios from IPO to bankruptcy, and everything else in between.
- The ABCs of Stock Options at Early Stage Companies
- How Stock Options Work in VC-Backed Firms
- When’s the Right Time to Join a Startup?