How much should an entrepreneur expect to earn in the first five years of the company?

This is a really great question. How much money does a founder really make in the early days?

There are no set answers as it all depends on what the company is about, how well it is doing and whether it managed to secure funding early on (and continue to secure funding over time). 

Generally, the founder probably should not expect to make any money at all during the first year or two (except for subsistence salary where necessary - and that is only if the founders secured angel funding or when they get to the point where they are ramen profitable).  Many founders bootstrap their first year or two out of their own savings and/or invest their own money as an angel investor in their own venture, and take no salary.  When money is short, generally founders pay their staff first and themselves last. I have known founders and CEOs go on 50% pay or, more radically, go on leave altogether to help tide the company over a tough patch.  To these founders and CEOs, the company comes before their compensation.

There is an old post from Inc. in 2014 that explains first, how much founders make (i.e. a small fraction of what they would make if they worked for another tech company), and second, why that is the wrong metric. Founders need to stop thinking like employees and start thinking like owners. Here is another article from WeWork in 2016 that shares more founder salaries according to the level of funding. Here is a third article from Crunchbase that lists the actual salaries of startup CEOs when their companies went public (together with a really good discussion on where the real compensation lies for startup executives: Stock options).

Once the company makes it past the angel and seed funding stages and is venture backed with a Series A round, then the founders will begin to be able to draw a reasonable salary. 

What's a reasonable salary?  Again, the answers vary, but BufferApp has a transparency dashboard sharing the salary and equity for the entire company - as well as a lot of other sensitive data like revenue. BufferApp began development in 2010 and in 2013, we noted that the founder's salary was probably about 70% what a top level developer would make back then. In 2020, the company is established and salary ranges are much closer to market levels. Extrapolating back to 2010, it is reasonable to assume the founder made a nominal salary (if at all) in the first 1-2 years. So: It took 9 years for the founder of a successful software company to get to market level for his salary.

The general common wisdom is that founders don't go into starting a company for the paycheck.  They go in for the passion and the promise of making something new from scratch and having impact.  Their upside comes from building successful ventures.  When the venture succeeds, value is created, and that's when the founders get rewarded. 

 

Was this article helpful?
0 out of 0 found this helpful



This website and all posts and content are intended for educational purposes only and for no other purposes including without limitation commercial purposes. Any other use must give proper attribution to the Martin Trust Center and is subject to certain legal rights contained in our license and terms of use. See full legal disclaimer HERE.

The content in this knowledgebase is subject to a non-exclusive license with share-alike restrictions and the terms of use of this site – which is available for your review HERE.
Have more questions? Submit a request

Comments