Go corporate or work at a startup? A millennial’s dilemma.
Advocates of either could argue over lifestyle, culture, or “sense of purpose.”
But let’s be real — the most potent difference between startups and nine-to-fives is money. Corporations pay more, startups pay less. Corporations offer benefits, startups offer stock options. And so it goes.
But why?
Corporations
Political and hierarchical, scaling employing satisfaction is expensive. Wages at corporations are paired with 100s of job titles and uniform mechanisms (performance evaluations) to manufacture promotions systematically.
Startups
Management is often horizontal, providing autonomy and project ownership to early employees. Unable to afford market rates, stock options (ability to buy equity at a discount) help compensate for smaller salaries and reward those who excel in their departments.
So all things being equal, a capable individual has two options:
Option 1 – Go Corporate
- 100% salaried compensation
- 0% equity upside
Option 2 – Go Startup
- 80% salary compensation
- 20% equity compensation
In a vacuum, these incentive structures are about the same. Nine-to-five employees extract value on-demand and lucky startup folks make their money later. So choose whichever risk profile fits your appetite, right?
Wrong.
Compensation is more complicated than future vs. net present values, because compensation predetermines future progress. So let’s talk about the 20% mystery [equity] compensation.
If you’ve ever volunteered for an econ experiment in college, it might have gone something like this:
- Computer screen in front of you says you have $10 in a private account
- You’re randomly paired with a group of 4 peers, and everyone is anonymous
- Anyone can commit some of their $10 to the group pot, which will then double and be split evenly
- Do you put all your money in, knowing everyone will double their money, or keep your $10 to be safe?
The phenomenon of this experiment is that most participants become less trusting throughout the sequence of deposits, ultimately limiting everyone’s earning potential in an attempt to preserve one’s own funds. The coined phrase for this is the Tragedy of The Commons.
Now apply this to the real world.
If you work for 100% salary, the future isn’t interesting. You extract value from now, thus doing the same things in the same way, is the recipe that yields the results you want.
But if you work for equity, that uncertain chunk of your well-being, you’re not only incentivized by the future, you depend on it. Either you create a better mousetrap or you’ll wish you went corporate.
This begs a simple equation:
Quality of our future = (incentive) * (n incentivized workers)
… and this is why startups are powerful.
It has nothing to do with ping-pong or beer or v-necks.
The truth is, startups are organizations that live for the future and don’t mind going through hell to get there. Startups are built by people who put their personal well-being on the line to make life better for everyone else.
So what’s the key to a better future?
Having a vested interest in making it so. There is simply no incentive otherwise.