Low CEO salary pay determinant success factor for Startups?

Once again a realy good article from my friend at iterativepath: http://iterativepath.wordpress.com/2010/02/03/one-question-to-determine-a-startups-success/

I cannot agree more with him, judging the CEO salary as one of the most important to look at to determine success factor just doesn’t make sense.

What are we talking about here? A lot of startups actually start by moonlighting, in a garage (or student dorm) or somewhere where structural cost are near 0.. CEO salary = 0. So what CEO are we talking about? the CEO and founder of the company (which I bet will have a low salary anyway because there is a good chance that the startup doesn’t generate much money anyway), or the CEO that will be hired by the VC when they fund the business (which I bet will have a high salary because he/she will be a seasoned entrepreneur, buddy of the VC, and coming from a previously high paid environment too)..

That said, if a startup generate very low revenue, and the CEO is taking a huge salary then, the person probably doesn’t understand much to the business:

  • The money he/she takes could have a much bigger return if reinvested in the company
  • Taking out all the cashflow gives very little flexibility to the company to grow
  • The guy is short term minded.. not good in a startup environment where the expected return is between 5 to 10 years.

good idea to replace him or her anyway in that case…

To Peter Thiel’s defense, it’s probably true that a VC will not finance those very early stage Startup where CEO take no salary.. VC tend to look at fast growing startup that already generate revenue (positive even better), and therefore, the CEO will have a salary, and looking at the amount can tell you about the personality of that leader as well as his or her understanding of the business logic behind a startup.

Debate around how much should a CEO be paid (peter says somewhere around $100K-$125K) will also very much depend on where you live.. The Silicon Valley is one crazy expensive place to live in 😉

Is the fact that the CEO has young kids a determining factor in the future success of a startup? some might say yes.. Well, read this: http://entrepreneur.venturebeat.com/2009/09/07/launching-a-start-up-and-having-a-family-life-it’s-possible/

(by the way: Steve Blank is no small entrepreneur.. and is also a professor at the Haas School of Business in Berkeley)

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One thought on “Low CEO salary pay determinant success factor for Startups?

  1. Wow, this piiece of writing is pleasant, my sistger is analyzing such things, therefore I
    am going to let know her.

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