Are founders really 1000x more valuable than their employees?

This isn't about who is more valuable, this about who took the <i>risk</i>.<p>Employees take little or no risk in 99% of cases. You are not taking a risk making 75% of your max pay at Google/Facebook/Zynga/Twitter by going to a startup. You are taking a 25% haircut to be part of something new/small/etc.<p>However, starting something from scratch, incorporating and putting your reputation on the line is a major risk. If you are the creator you carry the lifetime risk/reward of your startup.<p>The founder(s) of Friendster, PointCast and Webvan will always be remembered a certain way. As will the founders of Twitter, Groupon, Yahoo and Google.<p>The employees that come after them do not carry this personal risk/reward issue. They can always say "I joined Freindster and it was a great learning experience."<p>The founder of Friendster will have to explain for all time why they were first and failed so horribly. How they missed the opportunity to be MySpace, LinkedIn or Facebook.<p>That's the real difference in my mind: personal reputation risk.

People are over-moralizing this. Why do CEOs get paid so much? Why are salesmen often better paid than engineers? Does a ditch-digger deserve less money than a lawyer? The market is basically amoral. People get what they can get, not what they 'deserve'. Founders get more money because they have ownership, and in a capitalistic system profits accrue to capital. There's no point in constructing an elaborate moral architecture to justify how a social structure developed to maximize financial gain also somehow optimizes for socially-desirable outcomes.

When I was a kid my mom would complain about how the world was out to get her. She didn't frame it that way, but that's essentially what she was saying. One time she was complaining about lawyers because she was charged $300/hr or something like that. I asked her, "why don't you become a lawyer?"<p>It made sense to me as a 12 year old and still does.

I'm not a "founder" in the startup sense, but I did start my own indie development and consulting shop, and I think the startup founders can relate to my experience. For example, 16, 18, even 20 hour days are common. Keeping the business going becomes the major focus in your life. You think about it all day and dream about it if you manage to get some sleep at night. You hope and you dream and scratch and claw and fight and work your butt off every single day with no end in sight. It's your idea, your vision, your baby.<p>For an employee, it's a job. They do the work, they get paid. They may care, and they may care a lot, but they'll never have the kind of commitment you have as a founder. Someone recently asked me if when I hire my first employee, if I'll be able to double my productivity. I wish it were true, but I would never ask an employee to work the kind of hours I do.<p>So are founders always worth 1000x more than the employees? Maybe not always, but I can sure see the argument being made.

I think this is just a free market equilibrium.<p>If employees were unwilling to work for anything less than 10% of the company than employees would have more stock.<p>If founders were able to get away with keeping 100% of the company, then they deserve to have it.<p>There is no fairness here. It's just the free market. If employees want founder economics, then start a company. It's that simple. Welcome to America.

Value that can be extracted will be. As a founder, you have a large, if not the final say on compensation. Founders therefore pay themselves as much as they can while keeping the business healthy.<p>I think this is a greater factor in the relatively high compensation than "value added" or "risk taken".

no, but the founders founded something. The emploees just got a job. btw A job that didnt exist before the founders did their thing.

I think the real issue isn't whether or not founders are "worth" 10x or 100x or 1000x the 10th employee (arguable, no real answer) but whether the extreme variance that exists in early startup employee equity is fair.<p>I once surveyed several friends who joined tech startups (at similar funding rounds, # of employees) out of school as very similar software engineers. They received between 0.05% and 0.3% of those startups. That's a 6x range.<p>That certainly wasn't a result of a transparent and perfectly fair market; equity compensation numbers are opaque to many startup employees, plus the comparative data just isn't widely available. (Ackwire is the best I've seen, and it's new and rudimentary.)<p>And it's not really in the startup's interest to make them more aware-- who wants their employees to have the thought "my boss will make 100x more than me when we exit" in their head? (Not everyone is as hyperrational or founder-aspirational as the HN crowd...)

For me it has been - who picks up the hat when something painful needs to get done? (getting tax info together, sales cold calling, doing a complex data migration, etc.) It is usually the founder, in order to shield employees from potentially morale destroying work. For this (and other reasons mentioned here) their value is more then that of their employees..<p>Obviously this is not the case all the time.. just my experience...

A better question might be, is a startup founder who achieves a lucrative exit 1000x more valuable than a founder who fails? Because the reality is that most founders don't get 1000x the compensation of their employees; in fact, such cases are exceedingly rare.<p>There is a lot of risk in starting a company if you're not independently wealthy. But I would question whether a 1000x payoff that is as rare as a lottery win is a more effective incentive than say a 10x payoff that happens more often. Maybe it would be healthier to invest smaller amounts in more companies, rather than investing enormous amounts in just a few as part of what Mark Cuban correctly identifies as a glorified Ponzi scheme (<a href="http://news.ycombinator.com/item?id=2231082" rel="nofollow">http://news.ycombinator.com/item?id=2231082</a>).

Well, if the choice is nothing versus something, then there is a lot of value in the person who took nothing and turned it into something. Employees wouldn't have made anything from the venture without the founders.

The reason founders get more is because they are less willing to accept a bad deal, and more able to turn a bad deal into a good one. An employee who brings strategic assets to a company will make a lot of money, neither Eric Schmidt or Tim Cook are founders of their respective companies but they do VERY well for themselves.<p>The best explanation is found on Ribbon Farm in The Gervais Principle.<p><a href="http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-or-the-office-according-to-the-office/" rel="nofollow">http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-o...</a><p>And yes, Founders are 1000x more valuable to the market than their employees. They may not be more valuable according to any other logic but the market is the person who cuts the cheques.

"Deserve has got nothing to do with it"<p>Stop seeing compensation as a judgement of value and instead see it as a measure of scarcity. Most people prefer to be employees rather than founders, compensation reflects this.

I see the 1000x as a reflection of the risk they undertake.<p>Employees, for 100% probability of receiving a specific amount of money exchange their time and effort while founders for a 10% probability of receiving a unspecified amount of money exchange their time and effort.<p>Essentially, for a lower chance of success they make it possible to receive unlimited rewards or go broke(losing years of work and to be despised by all and suitably fit for ridicule and to be made into a parable.).<p>Life is indeed fair, hence you can't have your cake and eat it. You can't have security and unbounded success, something has to give.<p>Fortune favors the bold - Virgil

What does ownership have to do with relative value of people?<p>If you go create something (a business) from nothing, it's yours. If you agree to do work for a business in return for cash, that's your decision.

"Valuable" isn't the right word - because the article is being used for current compensation and equity comparisons but the justification is past events. In the present, it is quite possible that a founder could be detrimental to a company (negative value) while an employee could be nearly irreplaceable (I've even read rumors of such situations here on HN).<p>The question is one of compensation - which is a fool's game, e.g. are founders really 2000x more valuable than 3rd grade teachers?

Of course it's fair: it was determined by the market, no?

The real reason is simple: employees are (by definition) replacable, when they get hired, founders (by definition) not, when they found the company.

A founder is just twice as valuable than a employee, and this just at the beginning. If you measure value by the actual profit a founder or an employee generates at a project, enterprise or whatever, you'll surely find that in long term is the employee that generates most of your earnings. That's a plain truth, if you have employees is because your business is growing and you can't deal with it just by yourself, so you need someone to work by your side at this point. Every earning from then now should be almost equally split on you and your employees. And I say almost, because your employees do owe you something, a place to work with less risk.<p>And that last part is the why I think a founder is 2x more valuable than employees. I love to see enterprises where they left a percentage of their actions to split that amount of earnings over their employees.

Does anyone else find the assumption that wage is somehow linearly proportional to 'value' completely ridiculous?

Because they get to keep that money and the 0.001 less people are also okay with the agreement.<p>Life isn't fair.

The article only deals with equity, which isn't the only way to compensate people. In equity terms, the founders are worth whatever they choose because they created the company: 100% of the equity is theirs to give away on the terms they decide.

This article completely glosses over the class of bootstrapped startups where the founders leave their day jobs, invests their time and money in the startup, and then start hiring people.<p>That's a lot of risk, so yes, for that class of startups founders should have higher ownership in the company and thus are worth more if the company is worth something.<p>On top of that, these boot strapped startups often pay their employees more than themselves, so on the income front, employees are worth more.<p>This article really underscores the weirdness of incentives that can crop up at venture backed companies. It almost makes no sense.

When you build a skyscraper, tell me what is the most important floor? The foundations. The founder is the foundation of the company. Above this foundation is often build billions of dollars of value.

I think it is true in certain cases. A successful founder has that 100% commitment to the idea / company. He or she will do anything it takes for it to succeed and will hustle it until it does. Sure, employees can write the code that makes the company run but they don't have that extra drive to have made it a success on their own. On the flip side, some founders are just super-well connected people that just get oodles of money and hire a team to make their idea come to life and have no real ability beyond that.

There is a huge risk in opportunity cost to join a startup.<p>Some founders such as serial entrepreneurs who have proven their value, I could see 100-1000x. However, first-time and inexperienced founders should not get more than 10x their employees given that they providing a lower expectation.<p>Also priced into it should be the difficulty for you to do it yourself. If the company truly does amplify your value by 1000x, then by all means it is a fantastic deal.

Seems like the premise of this argument is busted. How much stock you own is not the measure of how valuable you are to the company. That's ridiculous. Is Micky Arison, owner of the Heat, more valuable to the team than Lebron James or Dwayne Wade or Chris Bosh? How does this kind of garbage logic make it to the front page of Hacker News?

This question is more about positioning, less about risk per se. Founders are usually in a position of strength to negotiate higher valuations than subsequent employees. Likewise, future needs (funding rounds, key hires, etc) may also devalue their position of strength. Although unlikely, it is possible that founders have little risk.

You don't know the value of employee X until after he has agreed to compensation and joined the company. If he joins and never completes a single task he is assigned, then yes the founders were 1000x more valuable. If he joints and is able to find 10x more customers than you had before than no he is not 1000x less valuable.

In a way, their employees have already decided the matter. They looked at the founder risk/effort/reward and decided being an employee is a better deal.<p>Of course, founders also looked at it and decided being a founder is a better deal.<p>So, everybody's happy and all's right with the world.

<i>Why employees are priceless</i> - that's why we can't pay them very much. Founder are less important, so figure we can compensate with money.<p>Groucho: <i>If I paid you wages, you'd be wage-slave, you wouldn't want to be a wage-slave, would you?</i><p>Bellhop: <i>I quit</i>

In business, as in biology, those who discover and exploit niches get the rewards.

&#62;Are founders really 1000x more valuable than their employees?<p>Yes. There's a big gap between working somewhere with the option to bail whenever you want and having your own financial resources at risk.

It may not be normal, but the startup I was involved in never had to raise money. Were we all founders? Is anyone they continue to hire a founder?

Economic mobility != Social mobility <a href="http://goo.gl/K8Pg" rel="nofollow">http://goo.gl/K8Pg</a>

Yes.