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)

Who am I, Why this Blog?

My name is Antony Passemard. I’m french and came in the US only a couple years ago to study for an MBA at Haas (UC Berkeley). I will certainly talk a lot about what I have seen, heard and learned while at Haas as I went there to focus on entrepreneurial skills and felt blessed by the tremendous amount of resources I had there.

Before coming to Haas, I was an entrepreneur.  after graduating with a Master degree in Computer Sciences from EFREI (LINK) in 1998, I have been focused on developing my skills to be able to start a business.. The opportunity came up in 2001 and I co-founded with 3 other partners my first company INTEGRITY. This company was to provide high level of services around network security solutions (Checkpoint, Juniper, Fortinet, Cisco, Sophos, etc…). We opened our doors on September 11th, 2001 (tough) and after much lessons and some good business, we closed them in the summer of 2005.

At the end of 2005, I joined the funding team of INIFLUX a small startup in Paris providing services around Open Sources solutions. I took a general management role and helped growing the company from $300K in revenue to close $1.3M while enjoying a very fun work environment thanks to Eric Paumerat and Benjamin Devichi, the founders of INIFLUX. INIFLUX is still on track to become more than a small business and I warmly recommend them for any IT services you would need in Paris.

During my two years at Haas, I have been very involved in the various entrepreneurship programs, obtaining a Certificate in Entrepreneurship at my graduation. I have been the Manager of the Venture Lab for the Center of Entrepreneurship and Technology (CET) for one year, and held a role of Graduate Student Instructor (GSI) for an undergraduate entrepreneurship class for 2 semesters. during those semesters I worked closely with amazing professors: Iklhaq Sidhu and John Burgstone from whom I have learned a lot. I have been an organizer of the UC Berkeley business plan competition 08 responsible for Mentorship (finding mentors for participating team reaching the semi-final) and reached the final stage of the BPlan competition 2009 with my company ulteamail, now known as Effecteev. I also initiated the new program that Haas has launched this year: The Venture Launch Pad which seemed to be a missing link between wannabe entrepreneurs and the fantastic resources available at Haas. All this involvement was rewarded by the Gloria W award that I received for outstanding leadership in entrepreneurship at Haas.

I still haven’t launched a startup in the “Silicon Valley” sense of the term but I feel that I have valuable insight from INTEGRITY and INIFLUX but also from what I have seen from students and friends. In the last 2 years I have personally been involved in about 5  ventures and analyzed over a hundred business plans.

Today I am working at Yahoo learning a tremendous amount about the “Consumer Web” and those insights reinforce and complete other area I have worked on before.

This blog is about entrepreneurship, in the hope that wannabe entrepreneurs will succeed.