#StartupEmployees #SalaryVsEquity
Join a Startup, Build a Decacorn, Make Peanuts or Millions?
I was delighted to hear from the founders of one of our founders that one senior manager on the team begged them to not pay him his bonus or salary increment - and wanted to take all of that in ESOP. Sadly this is the exception today, but it is heartwarming to hear.
Sadly as India bludgeons through the 5T and 10T barriers of GDP, I worry that the wealth creation is likely to only be experienced by the "Proprietors/Investors" rather than those who are doing the real work. And while it's easy to blame the "management" the reality is that it's the employees who have to have the guts to tradeoff ESOP for Salary.
A decade ago, jokes like "ESOPs Fables" used to abound - so it was reasonable to err on the side of caution. This year Flipkart paid out $700M to ESOP holders, and of course we've seen great outcomes in the public markets with MamaEarth, Paytm, Zomato, Nykaa. This has created several thousand Crorepatis and perhaps USD Millionnaries in a very short period of time - and the believability of ESOPs should be a lot more real.
India's Techade is still in its early days and the next decade will surely create billions or perhaps trillions of dollars in new market cap. It's true that a rising tide lifts all boats, and I do believe that disproportionately large outcomes at a company-level will happen. All employees working in these companies will take home fat salaries and perhaps a bumper payday when an IPO or liquidity event happens. However - it won't be generational changing as it could/should - unlike what Silicon Valley companies like Facebook or Google created.
I worry that in the Indian startup ecosystem, mega wealth creation will only happen among founders and investors - not employees. The single biggest reason - Employee Work Ethics & Culture!
In the past 5 years, the reason to join a startup was simple - GREAT SALARIES - and that has completely messed up the mindset of why one should join a startup in the first place. People should join startups to do really exciting work and in the low-probability of a large outcome, make it big. But it comes at the price of taking the paycuts, sacrificing salary for equity, and truly behaving like a founder/owner. This automatically came with a work culture of busting your rear end at work, sacrificing evenings & weekends, and even sleeping in the office. Going home at 4am from the office and returning at 8am is part of the excitement of working in a startup for at least 3-5 years, ideally longer.
A bit of it existed in the 2006-2012 era when I used to be a startup founder myself - and to some extent ZipDial and Ezetap did create a fair share of employee wealth, because employees believed in the founders and the opportunity and were willing to take risks to realise rewards.
Sadly I don't see much of it anymore. The mindset (world over to some extent, and in India for sure) has shifted to
- expecting the best salary possible (short-term comp)
- expecting no more than 40 hour weeks & parties that even big companies can't offer
- running at the first sign of any trouble at work rather than trying to make things work
- flitting from one job to another within 18 months - without any promotion & only showcasing good interviewing skills
- wanting to take secondaries even before the company has made any profits
Coolness today is prioritised over real work and real experience of taking on really difficult problems. As such, the vast majority have shallow experience, no expertise and are largely unemployable from the perspective of work ethic, culture and expertise.
The factory model doesn't work for startups - pointy profiles are what are needed. The PointyProfiles will be the leaders and will receive ESOPs - others will just draw salaries and hence do well but not great.
- Founders will err on the side of not giving equity to key employees
- Investors will buy vested ESOPs early and employees will make INR crores, not $ millions
- We will remain in the culture of the proprietorship vs. an employee built business - and the public markets will be happy
Make no mistake - India will grow to being a 4/7/10T economy in the next techade, a lot of wealth creation will happen - but only among founders, investors and a few senior executives - those doing the real work will not make their share, because they opted not to.
Somewhere along the way, doing real work and having the culture and work ethic for deferred gratification will surely have to come in before this can change.
It's easy to say "they didn't give a fair share of ESOP - don't blame your founders or investors, blame yourself for not making the trade-off".
If you think Founders are reluctant to give out ESOPs, think again.
Next time you talk to your founder about your salary, think about why you are joining the startup and don't be shy to give up that last 10 lakhs of cash comp for the possibility of making a crore - it's the only way one can create generational wealth as a startup employee.
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