Being a startup founder isn’t all ripped jeans and iced lattes (although that does make up as much of my day as possible, obvs.)—it means making sacrifices. That means earning much less, for much more work. But what is the magic number for founders in Singapore.
Bootstrapping vs. Funded Company
If you are a founder bootstrapping your business, it’s up to you. Go ahead, pay yourself loads—but there is a good chance you’ll run out of money and end up working for The Man again in two months (and didn’t we all start this crazy ride to get away from corporate slavery?) so it’s best to figure out what your reliable (or ideally recurring) monthly revenue is and then set your founder salary to ensure there is some left over for a rainy day at the end of each month.
If you’ve got investors on board, the game changes. You have to be able to justify your monthly wage to people who are going through your business plan with a fine-toothed comb and wondering when they’re going to see a return. And if they realise that 90% of the cash is going straight back into the founder’s pocket, then, well, they’re not going to be very happy. They do understand you have to live, of course, but they don’t want to be funding a luxury lifestyle!
No matter what industry you’re in or what product or service you’re unleashing upon the world, no one gives a crap that you used to earn six or seven figures. Everything you would use to calculate your salary in the normal marketplace is irrelevant when starting your own business. All that really matters is how much of a drain the founder is on the company, so it’s back to basics: what is the least you can afford to live on?
Speed of Growth
The founder’s salary sets the bar for the success of your startup. When you start making money, what are you putting it towards? If you’re putting the majority back into research and development, marketing, or revenue generation, then your business is going to do a lot better. But if a decent chunk is being spent on unnecessary salaries, how is it benefiting the business? If it is tied to performance and KPIs you can justify more, if it is a base salary, think small.
Sweat Baby, Sweat!
It’s called sweat equity for a reason! Investors want to see a founder’s blood, sweat and tears. You’re expected to work your ass off for practically nothing—that’s just the way it is. From an investor’s point of view, they might be putting in $100,000 or $1 million, and getting 5%, 10% or 20% of the company in return. This means investors have a relatively small amount of the company but have put in all the money, while the founder has majority shares but has probably put in very little cash.
You can see why they want you to sweat, right?
The Magic Number
So, if you can’t afford to work for free, here’s what I think a startup founder in Singapore should be paying themselves:
This might not seem like a lot to people who have reached the top of their careers and then decided to venture out on their own, but it is a realistic benchmark for an early stage startup. If you are paying yourself more, there are really only 2 justifications:
- You’re the only employee and are personally driving strong revenue, or even better, profit (especially if it’s billable client work where you can show a direct correlation between your time and cash in the bank)… or
- It’s a necessity. You have a baseline cost of living that is beyond your control and the business won’t survive if you continue to work for another employer (this excuse won’t work if you live in a massive house and go on holiday every month!)
Investors—do due diligence early on. The charisma and experience of the founder is important, but few startups survive paying high salaries from day 1—your big payday, and theirs, is dependent on channelling as much money as possible into growing the business.
Founders—focus on the big win. One day in the future, you will be sipping Mojitos on the beach with your millions, laughing at the suckers still toughing it out in the rat race. But if you want to get there, you have to pay for it. Yep, that means 18-hour days, fewer holidays and a smaller salary. But it will be worth it. And if you are really passionate about your idea, hopefully you won’t mind!