When Entrepreneurs Should Give Themselves a Raise There needs to be fluidity to compensating yourself as the business owner.
By Ryan Holmes Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
LinkedIn Influencer, Ryan Holmes, published this post originally on LinkedIn.
There's a pretty common stereotype of a tech entrepreneur these days. The idealized startup founder is young, unassuming, even a bit scruffy. More importantly, his or her success is often attributed to unwavering sacrifice, including keeping personal paychecks low and reinvesting every available penny.
Indeed, Silicon Valley investor Peter Thiel publicly spoke out on the topic a few years back, warning people that a bloated top dog salary is a serious red flag for a startup's long-term viability.
There is some truth to Thiel's stance, and I'd never condone an unjustifiably inflated CEO salary. But, when it comes to paying yourself, there also needs to be fluidity to compensation. Increasing salary in step with company growth is often sound business practice. It's a case-by-case call that depends largely on the stage of a business, its rate of growth and levels of success.
At the pre-investment stage, a founder or CEO's pay sets an important precedent for financial discipline throughout the organization. In my case—like many startup founders—I paid myself nothing in the earliest years of bootstrapping Hootsuite. Employee salaries sometimes came off my personal credit card. Any small amount of profit we made then went directly back into keeping the business afloat. This also helped instill a company-wide cash-conscious culture.
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After some scraping by, we landed our first million-dollar investment. It was an admittedly exhilarating event. At times like these, it's not uncommon for entrepreneurs to reward themselves and their teams with a bonus or salary bump to bring pay in line with industry standards. There's nothing unreasonable or reckless about this. In fact, your investors—if they're sound— should have an expectation that you'll adjust your salaries to fair market value. My post-investment pay bump certainly wasn't enough to blow on fast cars and fancy dinners, but it was enough to lift the daily stresses around money.
In the years to follow, we saw more rounds of funding, in considerably larger amounts. We again increased compensation—including my own—in proportion to market value. As my workload and role expanded, it felt reasonable to set my salary on par with those of the top-level executives we were bringing into the business.
That said, at the end of the day, an entrepreneur's responsibility is always to put the demands of the business above his or her own immediate concerns. As funding rounds went from one million to hundreds of millions, our priority remained keeping operations lean and reinvesting as much as we could. We made strategic acquisitions and key hires and invested in a new innovation branch within our own company. And we worked to keep our bootstrapping roots part of company culture. We may have moved into nicer offices, but financial responsibility and efficiency were in our DNA.
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For entrepreneurs, getting by on ramen dinners out of coffee mugs at the early stages of the business makes sense. Post investment, this kind of self-sacrifice is not always necessary and can even become self-defeating. Clear decisions and careful planning come not from depriving yourself and desperately gunning for an exit or IPO, but from working hard and enjoying the ride enough that you stay committed to the task at hand.
