Negotiating Salaries as a Startup

Startup cost saving ideas

There comes a point in every founder’s entrepreneurship journey when they realize they can’t go it alone and need help. The problem is, employees cost money, and many startups don’t have mountains of cash to spend on anything other than absolute necessities. At least at first.

A key part of establishing a business is learning how to staff that business, and how to negotiate salaries with prospective employees. Even though most startups have money issues, if you want to have any success at hiring the right people to help you grow your business, you’ll have to find a way to compensate them that makes them feel valued and appreciated.

Many startups prefer to hire young talent and pay them less due to age and inexperience. In exchange the employee gets a chance to cut their teeth in an industry, beef up a resume and polish a specific skill set. This can be an effective method of putting together a sharp, motivated staff on a budget, but youth and lack of work history are still not excuses for paying drastically below market rate. People still need to be paid close to what they are worth in order to do the best work they can for you. Nothing is less motivating than working hard for half of fair market value for your role.

If your employees are severely underpaid, expect to see high turnover rates and low employee satisfaction. When your business starts hemorrhaging employees, it can get expensive. According to the Society for Human Resource Management, the annual turnover rate for US companies is roughly 19 percent, and the cost of turnover is incredibly high, generally costing a company a full 20 percent of a worker’s salary to replace them. Other studies put that figure higher, up to as much as 40 percent. In other words, replacing an employee with a 60K salary costs between 12 and 24K. For a startup strapped for cash, those are intimidating numbers.

A general rule of thumb when negotiating salaries as a new startup is to pay people 10-15% below market value for the role, but to make it up with other benefits that will, for the employee, offset any costs lost. Consider offering the difference in stock options, vacation days, personal days, or quality, challenging work that will teach them how to master a new and useful skill set.

Another thing that can draw in qualified candidates who are worth more than what you can afford to pay them is to offer an excellent work culture that emphasizes work-life balance. More and more companies are trying to create an environment like this, as it has a great return on investment, but the question is how to build it.

What I’ve found in my own experience at StickerYou is that creating a positive work environment means relying less on rules and more on creating an open, honest and receptive environment where people feel heard and valued. Set the tone with (work-appropriate) humor, keep things light and don’t hold back from sharing essential company information with your team.

Make sure to reward team accomplishments in some way, even if it’s as simple as ordering pizza to celebrate a marketing win, or handing out swag as a thank you for putting in extra hours for a special project. Gestures of gratitude don’t have to be grand or sweeping in order to be appreciated. By building a work culture that is appreciative and accepting, you’ll have something very attractive to offer potential employees that can help make up the cost of the lower salary.

Once the business takes off and money starts coming in, you can start moving salaries up to match current market value for roles, and, if you find a real superstar of an employee, perhaps exceed them to maintain a high quality workforce. But until that point, make sure that you’re paying as close as you can to market rates. Paying 10-15% percent below market rates is ok, paying 50% below market rates is not. But with a little ingenuity, flexibility and creative thinking, there’s no reason why you can’t build a dream team to take your business to the next level.

Author: StickerYou Founder & President, Andrew Witkin

Andrew

As the founder of a global e-commerce leader in custom-printed, die-cut products, Andrew Witkin is widely recognized as a leading authority on e-commerce, customization, startups, marketing and the tech economy. Witkin has also served as VP North American Licensing for Nelvana/Corus Entertainment and Director of Marketing for MegaBrands/Mattel.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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