Had the pleasure of meeting a very passionate entrepreneur recently on my trip to the capital. A highly experienced professional in mid-/late- forties, the ex-CxO of at least two large professionally managed Indian groups. And, a first time entrepreneur. A rather passionate one at that, I must add. Lets, for the sake of this discussion, refer to her as Naina (not her real name).
I listened intently to the story of her career progression so far and what prompted Naina’s journey, and the pain point that the new business/start-up was going to address and so on.. Incidentally, a prelim Excel of the projections related to the business model had also been worked upon, and so I happened to glance thereupon as well. Almost the first thing that I saw made me fall out of my chair, literally!
The total team size that the business was looking at was about 27 persons, with total annual salaries of over Rs30million; yes over Rs30m, on a turnover (which always is iff) of under Rs20m. That too, for a tech-driven co with IPR-driven business model. The problem was not that the persons to be hired were NOT for the further development of the products (which, if it had been the case, would have been fine from an investor’s perspective as it would potentially lead to additional IPR accretion). The problem was also not that the number of required persons was too high to digest for a bootstrapping startup. The problem was that Naina wanted to hire top-notch professionals at top-notch salaries (quote “in order to lure them into a start-up” unquote).
These professionals for the top management team of over 6 people, and the role to be played by them were all till date being played almost singularly by the entrepreneur! Uh oh! While its only understandable that once the funding comes in, a startup can afford to hire some good talent. This enables the entrepreneur to concentrate on value building, a luxury until the funding comes in. But, this was surely going overboard!! On two counts: one, number of people to be hired, and two, the salaries to be paid to them. She wanted to hire a COO and CMO at an annual compensation of over Rs4m compensation each, and a few others at anywhere between Rs2.4 – 4.0 million. This, of course, was in addition to the Rs6m compensation for herself as was noted in the Excel sheet.
I tried to reason out with her, that these are not the salaries that startups can afford to pay. She retorted that these salaries are still just about half or thereabouts (one-third in her own case) of their last-drawn salaries. And that any investor who comes on board and does not understand the kind of sacrifice that has gone in over the past couple of years to the get the business where it has reached and who is not willing to pay her even one-third of her last drawn salary is a moron and hence unwelcome to the party! Ouch!
It took me a lot of time and effort to explain to her that a startup needs to be run as a startup. And, that one doesn't go and hire so many professionals the moment the money comes in! And, even if they are hired, they are hired for their skills as well as passion to be a part of something potentially big!! Hence, the salaries paid to them are not necessarily in tune with their last drawn salaries; that is why we have ESOPs and MSOPs. The figures she was asking for were way high from the normal trend and accepted norms in startups. The only thing that should motivate the top management of a startup is the potential huge upside that they can get in case when it turns into a successful story. A market-linked salary would kill the very hunger that investors wish to see in startup entrepreneurs/management team.
Of course, investors don't expect the promoter to work on ‘nil’ salary, but what is provided for is just about a sort of sustenance allowance, which is more in tune with the age profile and familial responsibilities that the promoter may have to take care of. The real remuneration would come only at the time of a meaningful and profitable (again, iff) exit at a much later stage.
At this point, I was almost inclined to give her the example of how a lion is just about part-fed, and not fully fed, before a gladiator fight; the hunger keeps the lion motivated to kill his prey for food. A fully fed lion would hardly make for a meaningful gladiator fight. Given the high-running passion and temperaments at the point, I chose not to so mention!
Albeit, I did use the example of our common friend, who himself was a highly acclaimed CxO of a very large telecom co, who has founded and was now running a funded social enterprise, and was drawing a salary which was a fraction of what his successor was currently drawing. She snapped by saying “I am not like him!!”
I vehemently kept trying to explain to her re the necessity to treat a startup (including a funded one) as a startup, and to keep bootstrapping. And she diligently kept trying to highlight the absolute necessity, nay indispensability, of the team that she proposes to hire and the salaries that they would have to be paid. Ultimately, we agreed that it was a deadlock! One that was big enough for us to finally end our long discussions (we fairly overshot the time, but could hardly progress on meaningful discussions). Picked the tab and bid her a sweet good bye.
Got me thinking – if I were to wear the hat of an angel investor, I would never feel comfortable about giving anything more than decent sustenance to the entrepreneur. Having your own company is not what you do when you want to protect your own salary; its what you do when you want to create your own legacy. And, for that, as an entrepreneur, you definitely need to compromise on short-term gains. Lest, they take your eyes away form the long-term goals.
And, oh, by the way, never got a chance to look at Naina’s entire Excel model; we just couldn't get around to that!
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