Founders: when to ditch the ramen and give yourself a raise

Ramen noodles

Is it true that the lower a CEO’s salary, the higher the chances a business will succeed? Yes — at least according to Silicon Valley investor Peter Thiel, who spoke on the topic a few years back. He attests that no matter how promising an organization’s current outlook may be, a bloated top-dog salary is a serious red flag for long-term viability.

I believe there’s truth to that stance, and I’d never condone an unjustifiably inflated CEO salary. However, when it comes to paying yourself, there also needs to be fluidity to compensation. Increasing salary in step with company growth is often sound business practice. It’s a case-by-case call that depends largely on the stage of a business, its rate of growth and levels of success.

At the pre-investment stage, a founder’s or CEO’s pay sets an important precedent for financial discipline throughout the organization. In my case — like many startup founders — I paid myself nothing in the earliest years of bootstrapping Hootsuite. Employee salaries sometimes came off my personal credit card. Any small amount of profit we made went directly back into keeping the business afloat. This also helped instill a company-wide cash-conscious culture.

Like many startup founders, I paid myself nothing in the earliest years of bootstrapping Hootsuite. Employee salaries sometimes came off my personal credit card.

After some scraping by, we landed our first million-dollar investment. It was an admittedly exhilarating event. At times like these, it’s not uncommon for entrepreneurs to reward themselves and their teams with a bonus or salary bump to bring pay in line with industry standards. There’s nothing unreasonable or reckless about this. In fact, your investors — if they’re wise — should have an expectation that you’ll adjust your salaries to fair market value. My post-investment pay bump certainly wasn’t enough to blow on fast cars and fancy dinners, but it was enough to lift the daily stresses around money.

In the years to follow, we saw more rounds of funding in considerably larger amounts. We again increased compensation — including my own — in proportion to market value. As my workload and role expanded, it felt reasonable to set my salary on par with the top-level executives we were bringing into the business.

That said, at the end of the day, an entrepreneur’s responsibility is always to put the demands of the business above his or her own immediate concerns. As funding rounds went from millions to hundreds of millions of dollars, our priority remained keeping operations lean and reinvesting as much as we could. We made strategic acquisitions and key hires and invested in a new innovation branch within our own company. I also tried to keep our bootstrapping roots part of company culture. We may have moved into nicer offices, but financial responsibility and efficiency remained keystones.

For entrepreneurs, getting by on ramen dinners out of coffee mugs during the early stages of the business makes sense. Post-investment, this kind of self-sacrifice is not always necessary and can even become self-defeating. Clear decisions and careful planning come not from depriving yourself and desperately gunning for an exit or IPO, but from working hard and enjoying the ride enough that you stay committed to the task at hand.

Syndicated with permission from Ryan Holmes’ Medium account.

Ryan Holmes

Ryan Holmes

CEO @hootsuite, Founder @invoke. I like social, startups, grownups, cycling, am learning to walk on hands and addicted to yoga.

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