In today’s day and age, there are new lean startups popping up daily. In the technology sphere, this phenomenon leads to major competition in two main areas: finding funding and hiring developers. More often than not, founders are tasked with hiring technical talent before securing funding, which can be challenging for obvious reasons. So what’s a business owner to do? Delaying hiring will inevitably delay a launch, but hiring developers with little to no funding can be incredibly difficult. This is where hiring with an equity-heavy compensation plan comes into play.
Unfortunately, luring technical talent with equity is no walk in the park, either. Any seasoned developer has probably witnessed failed startups, maybe even their own. While your candidates may be skeptical about considering a job with an equity-heavy compensation plan, here are a few easy simple steps to make the conversation and process a bit easier on both parties:
Your plan to hire someone based largely on equity should not be kept a secret. If you wait until the salary discussion stage of the interview process and find out they have no interest in working with an equity compensation plan, then you’ve likely wasted both your time and theirs. By addressing your position in the phone screen or first interview stage, the candidate knows what they’re walking into right off the bat. If they’re still interested in continuing the interview process, be sure to discuss how their compensation could or would evolve as the company grows. This will not only communicate potential for their role in the company, but will also display your startup has a runway for growth and a deeply researched business model for success.
By substantial, I mean more than the standard one to two percent given to many early stage employees (regardless of department in the company). This idea becomes especially important when hiring a lead developer. Not only can offering one or two percent turn them away, but also has the potential to offend them. If you’re looking for your first technical hire, they’ll likely be building out your tech stack from the ground up. By increasing the equity percentage to your first developer employee(s), you show the candidate the importance of their role to the technical foundation of the company.
Building off the last point, you want to communicate the importance of the technical side of your business, and how this candidate will be included in the creation of the tech stack. If you’re hiring a technical co-founder, CTO, lead developer, or other early-stage technical employee, you likely want them to play a large role in the shaping of your company and technical foundation. Let them know they will be free to work as they like and be sought out to contribute to major decisions.
If you have a solid business plan and rough calendar of when you want certain projects completed, this can be a great option for easing the equity conversation while also incentivizing the developer. Need a website and a mobile app? Maybe you can give an extra percent of equity for the completion of each (on top of what has already been offered upfront). The same idea can be used for increasing salary: You could start an employee with high equity and lower salary, and then increase the salary as you secure funding, based on the completion of specific milestones.
Let’s be honest: no candidate (technical or not) wants to risk taking a lower salary with equity for a company they don’t believe in. In other words, you need to sell it! There are reasons why you started this company and why you’re expanding the team and product, so make sure you know how to communicate that in a way that gets your candidate (or any audience for that matter) excited about it.
As hiring in lean startups increases, building a development team based on equity-heavy compensation plans should not be eternally stressful. Through a survey of Stack Overflow users, we found that room for growth, smart coworkers, good management, independence, and excitement about the company’s products all come above salary in terms of importance when evaluating a new opportunity. By using the above steps to show a candidate the possibility of these aspects, you can not only easy the pain of hiring with equity, but also ensure you find the right person for the role.