Joining a pre-funding start-up is a huge decision which takes dedication, passion for and expertise in the company's focus. It's a lot closer to starting a company yourself than working for Google. Salary is not the deciding factor, engineers considering such a decision are very specific in what they're looking for. From the company's point of view, first non-founding engineer is an employee that can make or break a company and set the engineering culture. It's a mistake to take someone who's only there because he had nowhere else to go: the sort of people you want for that position are confident that they could get hired elsewhere, even in a recession.
On the other hand, funded early-on start-ups (i.e., post series A, but pre-revenue/follow-on funding) can afford to pay market salaries, unless they're hiring "warm bodies" which is again a mistake. The big way to save is by hiring less engineers, not by paying engineers less. The way to make do with less engineers is to go for quality instead of quantity: you're always going to be paying top dollar for top talent.
The big way to save is by hiring less business people. I've come to the realization that in today's startup climate, developers often add more value than business people, because a skilled developer, if interested and motivated, is able to eventually pick up the business side of things pretty well.
I'm finding this a wonderful economic climate for a single technical founder to bootstrap a startup (or two technical cofounders).
Business people are valuable if they're well-connected and have strong reputations (and if they'll employ these resources in the interests of the founders; sometimes VC bring-ons with this profile can be formidable enemies). It's not just the experience that's necessary, but also the gravitas that comes with a strong track record. 28-year-old MBAs without connections and whose work experience is limited to management consulting or I-banking are generally not desirable for a startup; they literally have nothing to offer.
For certain types of products, you don't need any business connections. A well-rounded technical founder working on a product on the side has practically no costs. With enough market savvy and a good business model, this developer can grow the product into a profitable business without taking on outside investment. If later on there is a need for outside investment, my guess is that the profitability of the business works more in the founder's favor than the connections of a business cofounder. Besides, if the technical founder wants connections, he/she can get them. It's not that hard to network.
Anecdote: I'm a software developer writing trading systems at the moment at a large bank, and I've known three people at my workplace who have interviewed at NYC area startups in the past year or two. All of them received offers from at least one of the startups they interviewed with, but only one of them took it, and this was during the period of the recession when morale at the bank was at its lowest.
I think there's probably going to be some squeeze on startups, but the people willing to work for a startup are a subset of all developers out there, so the effect won't be as dramatic as this article seems to be implying. There are plenty of developers, who probably would do great at a startup, simply won't take the risk.
Hasn't there been a lot of discussion about how people in this culture aren't likely to go for the startup culture? I can't assess it since I know nothing of the former, but the case for this sounded at least plausible to me.
ADDED: And then there's the risk of staying where you are. Some people will realize that their job security isn't great to begin with, which changes the risk side of calculations for those not paralyzed by the situation.
There are some of us out there that are actively looking for start-ups to jump to, I think a lot of top caliber guys look for start-ups to get involved with. But I have to agree the market is pretty hot right now, which is a good thing.
There are a large number of people that would dive head-first into a startup if it sparked their interest. I know I've been itching to join another one, so I've been bootstrapping a couple of ideas at once, seeing which one ends up getting better initial feedback (I've even scrapped one because after an elevator pitch I had a potential user go "So it's like X but better?" and I had the realization of "oh man this idea really does suck"). I've tossed a resume here and there, too, for interesting startups hiring the first couple of folks.
I thought this was conventional wisdom. Just a couple of months ago, we all kept hearing stories about how a recession/depression was great for finding cheap workers for a startup.
At least in New York, it's not panning out that way, unfortunately. This economy has been bad for startups-- maybe not as awful as for everyone else, but still undesirable.
The dramatically increased difficulty of getting money (clients or investors) is much greater than the discount (maybe 15 or 20%) at which you can now hire talented people. Also, real estate (which is disastrously expensive in New York) hasn't fallen fast enough, which is unfortunate but expected (real estate takes a long time to fall, even when money runs dry).
In general, awful times lead to conglomeration, not liberation and small-scale organic growth. People who have stable jobs are clinging to them, and those who don't have them are willing to take big-company jobs at a discount, but there isn't a huge rush of interest in pre-money startups. Many of the original European nobles (although, in practice, it was often possible to buy a title after the Renaissance) are the descendants of those who could offer protection (in exchange for slave labor) after the Fall of the Roman Empire.
Hmmm, many of the arguments for NYC not having a good culture for startups would seem to be even stronger in this sort of period ... but would that be true for other areas, especially ones with a good track record (well, Silicon Valley and Boston)?
Your point about awful times is well taken, but I don't think we're there yet, and it's not clear to me we'll get there anytime soon. E.g. Japan's two Lost Decades aren't necessarily quite "awful times".
E.g. before we get to the Fall of the Roman Empire, where from what I'd read serfdom started for the reason you describe as a means to escape the exactions of the falling Western Empire (e.g. impossible taxation, a law that required people to follow the career of their father (to prevent escaping the former), etc.), we could look at the Great Depression, where at the time the USDA estimated 1/4 of the US was malnourished, which was confirmed by WWII conscription.
Consider the rash of multiple liquidation preferences we've seen over the past 2 years. Are VCs hurting more now than in 2007? Not especially, since the money they're investing has been pledged years ago, mostly before the liquidity crisis. They're offering these awful terms because a lot of people are unemployed and desperate to get a paying job of any kind, so they have leverage. When the alternative to starting up is a $100k/year Google job, the "involuntary entrepreneurs" will vanish and terms like multiple liquidation preference and participating preferred will go back into the tarpit where they belong.
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[ 3.5 ms ] story [ 36.4 ms ] threadJoining a pre-funding start-up is a huge decision which takes dedication, passion for and expertise in the company's focus. It's a lot closer to starting a company yourself than working for Google. Salary is not the deciding factor, engineers considering such a decision are very specific in what they're looking for. From the company's point of view, first non-founding engineer is an employee that can make or break a company and set the engineering culture. It's a mistake to take someone who's only there because he had nowhere else to go: the sort of people you want for that position are confident that they could get hired elsewhere, even in a recession.
On the other hand, funded early-on start-ups (i.e., post series A, but pre-revenue/follow-on funding) can afford to pay market salaries, unless they're hiring "warm bodies" which is again a mistake. The big way to save is by hiring less engineers, not by paying engineers less. The way to make do with less engineers is to go for quality instead of quantity: you're always going to be paying top dollar for top talent.
The big way to save is by hiring less business people. I've come to the realization that in today's startup climate, developers often add more value than business people, because a skilled developer, if interested and motivated, is able to eventually pick up the business side of things pretty well.
I'm finding this a wonderful economic climate for a single technical founder to bootstrap a startup (or two technical cofounders).
I think there's probably going to be some squeeze on startups, but the people willing to work for a startup are a subset of all developers out there, so the effect won't be as dramatic as this article seems to be implying. There are plenty of developers, who probably would do great at a startup, simply won't take the risk.
ADDED: And then there's the risk of staying where you are. Some people will realize that their job security isn't great to begin with, which changes the risk side of calculations for those not paralyzed by the situation.
The dramatically increased difficulty of getting money (clients or investors) is much greater than the discount (maybe 15 or 20%) at which you can now hire talented people. Also, real estate (which is disastrously expensive in New York) hasn't fallen fast enough, which is unfortunate but expected (real estate takes a long time to fall, even when money runs dry).
In general, awful times lead to conglomeration, not liberation and small-scale organic growth. People who have stable jobs are clinging to them, and those who don't have them are willing to take big-company jobs at a discount, but there isn't a huge rush of interest in pre-money startups. Many of the original European nobles (although, in practice, it was often possible to buy a title after the Renaissance) are the descendants of those who could offer protection (in exchange for slave labor) after the Fall of the Roman Empire.
Your point about awful times is well taken, but I don't think we're there yet, and it's not clear to me we'll get there anytime soon. E.g. Japan's two Lost Decades aren't necessarily quite "awful times".
E.g. before we get to the Fall of the Roman Empire, where from what I'd read serfdom started for the reason you describe as a means to escape the exactions of the falling Western Empire (e.g. impossible taxation, a law that required people to follow the career of their father (to prevent escaping the former), etc.), we could look at the Great Depression, where at the time the USDA estimated 1/4 of the US was malnourished, which was confirmed by WWII conscription.
We'll see.
Consider the rash of multiple liquidation preferences we've seen over the past 2 years. Are VCs hurting more now than in 2007? Not especially, since the money they're investing has been pledged years ago, mostly before the liquidity crisis. They're offering these awful terms because a lot of people are unemployed and desperate to get a paying job of any kind, so they have leverage. When the alternative to starting up is a $100k/year Google job, the "involuntary entrepreneurs" will vanish and terms like multiple liquidation preference and participating preferred will go back into the tarpit where they belong.