Novartec

You pay peanuts and you get monkeys working for you! Harsh on monkeys maybe, but a business adage that many subscribe to. So why would that be any different for a startup?

In a world where precious few make any real money, isn’t it even more important that your investment has the best people working on it?

I know every penny is a prisoner and all that; and I’m not saying give these guys six-figures and a car from the get-go. But if your hot hires are sweating spinal fluid and still worrying about buying lunch; it opens up your business to a whole host of issues that you could probably do without.

In my experience, not paying market rate doesn’t develop drive (or highlight a lack of it) all it does is limit who you can employ in the first place! And while that may help cash flow in the short term, it can create lots of false economies that can destroy your business just as quickly.

For instance, it nearly always leads to decision-making that is based on (or creating the illusion of) getting to a situation where everyone can get paid properly. Which, in a business whose most likely short-term outcomes is a series of pivots, has to be the wrong set of behaviours.

Good people will come and work for you if they believe in your vision. But good people usually also know their value. They might price their services according to what you can afford initially and justify it as an investment in the future. But the bigger the gap between their market value and take home pay, the more difficult it becomes to sustain over the longer-term. Particularly, when the project hits some bumps – and every startup hits some bumps!

There’s only so long that you can offset an appropriate salary with the promise of equity. Shares don’t pay the bills or fly your partner to the Maldives in the summer. That might sound a tad churlish, but in a lot of instances, your startup dream is being sustained by the friends and family of your employees and that can’t last forever.

Don’t discount the sense of resentment either that will begin to percolate when hot hires are missing their daughter’s hockey game for the umpteenth time, but can’t fend off an un-responsive bank manager.

So, build in the need to pay market rate into your business case and to create the right conditions from the outset. You don’t need pensions and perks, you just need an amount of cash that is going to enable you to retain good people and empower them to make the right decisions for your business. This will focus you too, and force you to treat your new company like a proper business from the beginning.

Startups are complicated. You’re trying to sell something that nobody has bought before. Figuring that out is always fraught with difficulties and invariably takes a lot longer than you think. You need good people and a lot of lateral thought to do that. Paying people significantly less than market rate and trying to sustain that on a long-term vision that you’ve yet to properly validate might make sense to you, but sooner or later, it won’t make much sense to anybody else.