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How to negotiate your salary offer at a startup

There was a time when working at a startup was considered a bad career move – and a desperate one, too. However, that perception has changed so significantly that nowadays, it seems that everyone wants to live the “startup life.” There’s an air of passion and commitment in a startup that can be quite addictive for people who want to make it big.

So what do you do if you get an offer a startup? You’ve done your research, and you’re definitely interested to join the company. But you also have to address the tricky issue of compensation. No matter how good the offer, there’s always that niggling question: Can you get a little closer to your current value in the corporate marketplace?

Sure, you can – if you negotiate.

There are more than enough startups to work for, but not all are going to succeed, says Greg Carney, who had stints at several startups and is now the director of consulting for Miami engineering firm Carney-Neuhaus. As he explains, “My guess would be, one in 20 really hits it substantially, and one in five continues at all. If you’re working for a startup and your compensation is dependent upon the company doing well, you’re taking a significant risk.”

What to consider

There is no certainty when it comes to compensation, so you’re going to have to make a bet. But you can consider several factors to help guide your decision.

  1. Look into the market rate.
    Go online and read about the startup and other startups in the same (or fairly same) industry. Figure out what the market rate is and how much is an average individual making at the position you’ve been offered.
  2. Seek information about compensation.
    Check out how much other employees at the same startup are making. These details might be difficult to find online, so maybe you can try and talk to someone at the company to get a fair idea.
  3. Dig up the startup’s financials.
    As part of your research, you should also get data about the company’s financial future. A a great paycheck won’t help if the company goes bankrupt in a few months.
  4. Doing some pre-IPO research to get a sense of performance averages.
    Websites like CrunchBase provide data on a company’s valuation and financing. It can be a good resource to help you verify a startup’s amount of financing and rounds of investment to date. This will help you determine its viability and potential.

A numbers game

Now that you have zeroed in on a number, how do you get the best offer?

Every offer is negotiable. It all comes down to what your strategy is and how well you discuss what the other party puts on the table. However, you also need to tweak your approach: a startup isn’t a Fortune 500 company where you ask for the corner office or request more vacation days. Startup offers are meant for individuals who are willing to take the risk of compromising on salaries, leave credits, and long-term payoffs.

Sunil Goel, managing director of executive search firm GlobalHunt, notes that with many startups failing gradually, employees have a tendency to rely on the cash aspect.

For example, “bonuses are generally a short-term component, paid either yearly or quarterly,” he points out, and they’re “becoming an attractive option even if [they’re] one-third or one-fourth of the value as compared to the employee stock ownership plan (ESOPs).” However, Goel also adds that startups are now at a consolidation phase with lot of buyouts, mergers and acquisitions, so ESOPs might be more beneficial in the long run.

Keeping these factors in mind when you’re at the negotiation stage. All involved parties want to close the deal feeling like winners, but be mindful of what you want to win. This is where your research will help. Use all that data to identify what matters to you.

Have a face-to-face meeting with a clear focus on either raising your salary or bumping up the equity. It can only be one of the two. If you’re somewhat risk-averse and are taking a big pay cut, then chase the salary. If you see potential in the company and can afford the risk, then opt for equity.

But in either scenario, you need to make your case, and it must be a strong one. Be prepared to answer why: discuss your value in the market and what you bring to the company, plus reiterate your motives and commitment. But most importantly, talk data.

Ask questions – carefully

One of the reasons why people avoid negotiation is fear. You feel awkward, you’re not sure how to negotiate, you don’t have much experience doing it… the list can get long. However, one trick that often seems to work is to just ask.

Evaluate the startup’s business plan so you can make a well-considered decision, says Ian Ide, New York technology division general manager for Winter, Wyman & Co., a recruitment firm based in the US. As he advises, “It’s fair for someone to ask a potential employer: How do you make money? What’s your revenue stream? When do you expect to be profitable? What’s your exit strategy?”

Be clear about what you want. The more the clarity there is, the better it will be for everyone. Then put your expectations on the table, and back them up with data. Moreover, ask what the other party’s expectations are from you and then communicate how you can fulfill them to the best of your capabilities.

There is little emphasis on internal equity within most startups. Moreover, the perceived risk of joining a startup compared to an established organization means that potential employees should consider pushing for a more generous base salary and bonus structure. But don’t be afraid to ask for something a little different, such as tuition reimbursement. What’s the worst thing that could happen? They might say no, but it wouldn’t hurt to ask.

One of the best approaches here is to be strategic about it – avoid making it personal. Working for a startup is a serious decision, so you need to make it about the business and the value you can add to it.

The most crucial element here is your commitment. If that’s missing, then a negotiation is a lost cause. But if you do you homework and choose your priorities, then you might just come out feeling like a winner.