Editor’s Note: Each week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at firstname.lastname@example.org.
Q. A consultant I hired as an independent contractor wants to join my team as the COO. This would be a huge win for the company, but the candidate is looking for a 6-figure salary (straight cash, not combined with equity). We don’t have that kind of money so I would be fundraising with the intention of allocating that capital towards the COO salary. What are your thoughts ?
-Founder of an East Coast startup
It is awesome that this candidate wants to join your team.
The salary requirement is not crazy. Leaders at startups get paid that all the time. That said, in a world of constrained cash, a six-figure salary in cash is a lot of money. It would feel better to me if the candidate was pushing for more equity and less cash at this stage because that is more mindful of a startup’s needs. I’d much rather see you operate in a leaner fashion at least until you have traction and you can make up for a lower salary with a higher percentage of stock ownership. That’s giving the candidate greater potential upside—a real opportunity to make more money. And if they agree, it’s a vote of confidence for you and your business. I’m always looking for people to come with me on the journey and be invested alongside me.
However, people have salary requirements because of financial obligations and commitments, and those need to be met or this job won’t work. Just remember that salary is an expense you don’t get back and it only goes up. As I’ve mentioned before, I am a bigger fan of having a higher risk/reward structure.
With the all-cash offer, you will have to be assured that you will get an enormous return—one that is more valuable than other ways you could direct that money such as advancing marketing, building customer traction, or developing product features. The good news is that you’ve worked with this candidate as a consultant and you knew their capabilities. Make sure you have a clear articulation of what they would bring as a new full-time executive. What is the approach they will take? The planned results? Get a clear picture on what success looks like. Now do the calculus on a cost benefit analysis to determine whether you will get the return you need.