Thread: Startup

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    Startup
    My friend and I have been discussing starting a software company. There are two of us who are programmers and one who wants to be the "people person" - contacting the customer, selling the product, etc.

    My question has to do with salary. Honestly, I believe that the two of us are going to be doing 90% of the work, but the company was the third guy's idea.

    What percentage of the income should we request? We are all friends, so I don't want to get into a dispute over money, but I would like to go in with some sort of idea on what would be normal division of income.

    Thanks


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    Re: Startup
    At the beginning of the life of the company, there are very few guidelines about division of profit, salaries, etc. It's more art than science. It's really good that you're having a discussion earlier rather than later.

    If two of you are doing most of the work, you should probably be compensated on an ongoing basis accordingly. To be fair, if the idea for the business rests mainly with one individual, then he or she should get an equity stake in the enterprise that reflects that. You should all have some type of equity in the start-up, unless someone is fronting all the money and intellectual capital.


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    What do you consider most of the work? You guys might be doing the software part of it, but without advertising and customers what good is the software? You need to consider how hard he works too! If he is always doing things to advertise your business and dealing with the customer he is really working just as hard as you... just with a different job. It's weird how things work, because a pharmacists gets paid way more then a pharmacy tech, but the pharmacy tech is the one who fills the prescriptions.. the pharmacists just look at it and make sure it's right. So who does "more" work here? I think if you are all partners (something you also should talk about) you need to figure out what percentage of the business you each own. If it's equal then don't you deserve to split the profits equally?


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    I think that in the beginning everyone is going to be doing a lot of work. I don't think that anyone is going to be doing more than another. The person who's working with people is probably going to spend a lot of time working on advertising to bring business in. This is something that you definitely need so you don't want to short shaft them if they are doing this, especially if they're doing a good job.


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    One thing you can do is get some work by paying out stipends. This ensures that you are getting people who understand you are starting up and still believe in your vision. Depending on the task of course. But there are plenty of people out there willing to do content writing or social management for a small stipend (e.g. college students etc). When it comes to specialty work (programming etc), you will of course need to pay a bit more. But I wouldn't think about throwing around big salaries until you are sure you have the business equity or loans completely in place.


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    It's kind of hard and at the same time a good thing to work with friends. I guess if you all could agree on who gets to do the work a lot or if all of you will do equal work, then it's best to have your salary divided equally. That's the only way to deal with it as I could see it.


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    There is something that you need to understand in business. Salary is not just about paying someone of so that they don't bug you about the work done, it's investing in your employees. If everyone has a key role to play, they should receive income that fits their roles. Dividing the profits into percentages should start when the company has like ten employees that can be classified as admin or general staff. The person who thought of the idea, if he/she still has some role to play, then that's still part of the admin and you should actually give that person the title of founder. There might still be some great ideas in that wonderful head so make sure not to discourage your companies growth this early. Being greedy is good, but you should all be greedy together. If all the admin's work that way, eventually you will be dividing a percentage of $one million instead of $ten thousand.


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    Starting a start up is hard. Making money with it is even more hard. I would advise to wait until you make some profit to determine how much you are going to pay each one. By then you'll have an idea about how much everyone has to work. But don't underestimate the marketing and selling your products to people. It might seem easier then writing code but your buddy could as well pack up his idea and hire 2 programmers.


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    First of all I think you all should speak with a lawyer and put it all in writing. It doesn't matter who came up with the idea first. I think that if the company belongs to all three of you, then all three of you should be paid the same in terms of all profits made on the business. Now as far as being paid employees, you should be paid a salary according to the expertise. If this person would be handling contacting customers etc... then what does that type of a person usually get paid per hour. If there are programmers involved, then how much do programmers usually get paid? These things must be researched. You should have meetings and get all of this on paper so that you can come to agreements. Even the research done on salaries. A business plan will be helpful!


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    First does everyone have the financial ability to hold their breath long enough to get the business on it's feet?

    Most startups fail because of a lack of working capital, or lack of capital reinvested (greed). A lot of emotional maturity is also required. You could end up making enemies of all your friends.

    Don't try to reinvent the wheel, look at other similar businesses and see how they modeled the compensation and what value is placed on the different job roles you will be needing in your venture.

    Read the other advice in this thread again, there's some good tips here.


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