There’s a fair amount of debate about how much founders should pay themselves. In 2008 Peter Thiel famously said that the lower a CEO’s salary was, the more likely the startup was to succeed:
The CEO’s salary sets a cap for everyone else. If it is set at a high level, you end up burning a whole lot more money. It aligns his interest with the equity holders. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks.
Not that collecting paychecks is a bad thing. Other experts argue that when founders take too little money, they can be distracted by the needs of every day life. This is particularly true when founders have children depending on their paycheck to do little things like–you know–eat.
Earlier this week Compass published some data on this very question. Their survey data indicates that startups who pay their founders on the low side are more likely to succeed than ones who pay high salaries.
Additional research showed that, globally, 73% of founders pay themselves less than $50,000/year. This included funded, as well as non-funded, startups. Even in Silicon Valley, most founders pay themselves less than $50k and a vast majority less than $75k. Despite the high cost of living there, the Compass survey indicates that most founders are far from living large.
Despite the opinion of some, this data would indicate that cost of living does matter in the life of a startup. Possibly a lot. Considering that the average age of a founder is 40, not 20 as the outliers in the industry might lead us to believe, it’s safe to say that most entrepreneurs have family and life obligations that demand a decent salary. Even younger entrepreneurs can benefit from a lower cost of living, making their seed stages last longer when they aren’t based in a high-cost tech hub.
The moral of the story? You know we’re the voice of startups everywhere else, and that means we think it’s awesome to build a company outside Silicon Valley. There are a lot of factors that go into a location decision, but when $50,000 is a good salary even in Chicago (instead of near poverty in the Valley), why wouldn’t you consider it?
After all, if Peter Thiel says it…
Speaking of everywhere else: