Salaries

How should you compensate your first employees?

I didn't pay myself any salary for more than three and a half years. Here's the reality: until you secure your first significant round of funding, regular salaries are off the table. If you and your family aren't prepared—both mentally and financially—to go without a steady income for an extended period, entrepreneurship isn't for you.

This "no salary until proper financing" principle applies to co-founders too. Your priority should be conserving resources until you've validated your product with real customers. Yes, you'll face the challenge of finding founding team members who are hands-on and willing to work without immediate pay. That's, however, the only viable path forward. If you're working solo, you'll likely need to outsource tech and product work—but avoid giving equity to agencies, as this often creates messy situations later.

Salaries should become a focus only after securing funding. At this stage, be transparent with potential team members about your financial runway. Avoid making unrealistic promises just to attract talent. Make it crystal clear that salary reviews will only happen after your next funding round or once you've secured substantial recurring revenue from customers—this is an absolute must.

Those joining will likely do so for the nature of your project and the technical challenge, not (yet) the compensation. What about offering equity instead of competitive salaries? In my view, equity only makes sense once your venture is more solid. There's no need to invest time and legal fees into a compensation model that might ultimately prove worthless.

When we incorporated flyiin in Berlin in the summer of 2015, my original co-founders agreed to work without immediate compensation. However, one left almost immediately, and the other devoted only a fraction of his time to the project—which was problematic enough (even worse, we hired his own design and usability agency to create the prototype of our Air Travel Marketplace. Can you spot the glaring conflict of interest? Looking back, I still can’t believe that I allowed this to happen).

In the meantime, the back-end tech work was outsourced to a software development agency in Budapest. That turned out to be a good move for two reasons. First, the lead developer eventually became my final co-founder. Second, they built a prototype that landed us a very favorable term sheet with investors who would have been excellent partners. You already know how this ended.

When we were ready to pay salaries, we managed to strike the right balance. We needed to be attractive in a competitive market—the pool of talent in our chosen tech stack was scarce at the time—while also considering our monthly burn rate and return on investment. Though it went against my initial stance, I approved targeted and reasonable salary adjustments that helped us retain our entire team—which proved crucial for our eventual exit to Priceline.

As I highlighted in the previous chapter, our mistake wasn't spending too much on salaries. Instead, we made the mistake of investing in unnecessary roles like product managers and a sales person.

Key Takeaway #21

With limited funding, prioritize achieving the highest return on investment. Pay your team members at market rate, but clearly communicate that improved compensation hinges on more solid financials (e.g., new funding rounds or large customer contracts). If a team member receives a better, above-market offer elsewhere, don't try to match it at that point.