The tech industry is one of the most competitive job markets in the world. As the demand for new technology increases and innovation reaches new heights more and more opportunities become available at a rate that is outpacing the graduation numbers for computer science majors. In short, the need for skilled software engineers is becoming dire and that makes competition in the market fierce. With FAANG literally throwing money at engineers and the prestige that comes with saying, “I work for Facebook, Apple, Amazon, Netflix, or Google”, it’s becoming increasingly difficult for startups to secure the best talent. As an engineer, this gives you leverage to choose to work for companies that offer the compensation, stock options, culture, and benefits package that best suits you and your lifestyle.
According to a study conducted by ADP, which surveyed 330,000 U.S companies and 24 million U.S private sector employees, it is more likely that you’ll get a pay increase when changing jobs, as compared to asking your current employer for a raise. If you are looking to take your career to the next level a job change is likely your best bet.
In this article we will be tapping the experience of Joseph Gordon, Senior Executive Recruiter and George Atuahene, Founder of Kofi Group. After spending several years recruiting for startups at various growth stages, they have seen and negotiated over one hundred offers, honed-in on strategies that deliver consistent results, and ditched those that aren’t effective.
Most startup offers will include a base salary/cash compensation, benefits and equity. Typically, seed-stage or series-A startups offer higher equity with lower salaries, and later-stage startups offer larger salaries (comparatively) and less equity. Being offered a founding engineer role can be exciting, but if the salary is much lower than you expected, negotiations can quickly turn sour. To prevent this from happening, Joseph Gordon, shares:
“In my experience, candidates who have been transparent about their comp expectations have been more successful in getting what they want. If a company has gone through the entire interview process and is ready to extend an offer, they want to make a strong offer and put their best foot forward. Being transparent about what you want allows the company to provide that for you. I have seen several offers get declined at the last minute because expectations were not set properly and managed along the way.”
Do you know how to determine if you’re leaving money on the table or if you should just accept a generous offer? Let’s discuss a few salary negotiation best practices and how to navigate the process.
Salary Negotiation Starts Before the First Interview
You should know the salary and total compensation you are expecting before the interview process even begins – have complete clarity about your bottom line. During your first discussion with a Kofi Group recruiter or a startup, you will most likely be asked about your comp expectations. The best way to handle this question is to answer honestly. This is critical because messing up at this stage can cost you a good opportunity. Many engineers fumble at this stage due to the fear of either giving a number that’s too high and being disqualified, or undervaluing themselves and leaving money on the table. George Atuahene offers his perspective:
“I think there is a school of thought which some startups and engineers follow that essentially says, ‘keep all of your cards close to your chest until the offer stage…whoever says a number first loses’, but this approach drastically increases the chances that the entire process will be a waste of time for both parties. This approach can also hurt the reputation of either party, regardless of whether an offer is accepted or declined.”
The last thing anyone wants to do is waste their valuable time, especially if you are passively looking.
A popular, but ineffective strategy to deal with the compensation question is to provide a range. General Assembly advises engineers to, “Determine a range for yourself, then ask for the upper half of it, so you can negotiate down if needed. Giving a range demonstrates flexibility. It gives you the opportunity to ask for more when an offer is presented, and negotiate other variables, like 401k contribution, remote work options, or vacation days.” George Atuahene disagrees and shares “The problem with salary ranges is that everyone involved in the negotiation has selective hearing. If an engineer says they’re looking for $150-200,000/year then they are probably expecting something closer to $200,000…the problem is that the company heard $150,000 and now they’re $50,000 apart in their expectations. In my experience, it’s much more effective for engineers to clearly communicate the specific salary number they’re expecting at the beginning and stick to that number throughout the process.”
Tips for determining your market value
Do Your Research:
– Use websites like Angel List’s new salary feature
– Research the company and their current valuation on Crunchbase (We will share with you how to leverage this knowledge for better negotiation power later in the article)
– Be realistic about where you are in your career, your technical skills, and the value that you would bring to an engineering org compared to other engineers.
Work with a Recruiter:
If you’re new to the startup world, then leveraging the professional expertise of a recruiter can save you a lot of time and can literally make you more money. You already have a demanding job, so you don’t need to spend your free time researching every startup out there to make sure it’s well-funded, has a viable product, offers the benefits and comp you need (info that you may not be privy to), etc. Instead, work with an experienced recruiter who can do the legwork, make valuable introductions, and give you access to insider knowledge so you can make the best decision.
Joseph Gordon explains the benefits of working with a recruitment expert instead of applying directly:
“Being represented by Kofi Group means that we are able to ask the important questions that you may not have thought of…given our domain knowledge and experience with start-ups, we know exactly what to ask and how to read in-between the lines. We’re able to paint a full picture of what an opportunity truly looks like and the long-term implications.”
A good recruiter can save you from the discomfort of haggling in the final stages of negotiation. Approaching the recruiter with transparency regarding your objectives and expectations will help them to assist you in this process and save you the time, effort, and emotional stress. George Atuahene adds, “We have an 88% offer acceptance rate when startups and engineers are transparent with us, maintain consistent communication, and allow us to facilitate all comp negotiations.”
Negotiating at Offer Stage
It may be tempting to accept an offer right away. Many times, software engineers are tired of the interview process and waiting in anticipation of what will happen – this feeling of lost time can pressure them to make a decision too soon. Negotiation expert and former Chief Hostage Negotiator for the FBI, Chris Voss says, “Approaching deadlines entice people to rush the negotiating process and do impulsive things that are against their best interests.”
Tips for what TO DO and NOT TO DO after an offer has been made
1. Slow it Down
Thank them for their offer, reiterate your interest in the opportunity, and let them know you’d like 24 hours to think it over. Most likely they will attempt to use the pressure of the deadline to move you forward. “What is there to think about? Let’s get started! What day can you start?” Let them know that this opportunity is important to you and you want to make sure you have the full support of your family or discuss it with a mentor to ensure you are making the best career move. Why slow it down?
a) You should review the offer carefully and develop questions on anything you are unclear about. Make sure you understand the offer fully.
b) This buys you time to discuss the offer with your recruiter, so they can make sure you are not leaving money on the table.
2. Do Not Tell Your Boss…Yet
Many engineers have used an offer from a prospective employer as leverage to negotiate with their current boss for a salary increase. Not only is this unethical, but it’s a lose-lose situation. If you’re successful in using this tactic to get a salary increase and decide to stay in your current role, then you’ve likely burned a bridge with the prospective employer (and your recruiter) and left your current employer with a bad taste in their mouth. According to Harvard Business Review, after accepting a counteroffer “nearly 80% of senior executives and 60% of HR leaders cited diminished trust and compromised reputation among the executives and board members of the employee’s current company. Nearly 80% of senior executives and 67% of HR leaders cited the same consequences with the board and executives of the spurned company. And 71% of senior executives and 67% of HR leaders also said that superiors in the current company would question the employee’s loyalty going forward.” On the other hand, if you’re unsuccessful with this tactic and you end up leaving anyway, then you’ve left on bad terms and burned a bridge with your current employer.
3. Ask Questions About Funding and Equity
The last thing you want to do is get overexcited and join a company that doesn’t have enough runway. Do your due diligence and ask questions about the company’s funding and relationships with venture capital partners. If you are able to speak to the CEO or CTO, ask about the current funding, plans for the next round of funding, and their vision for the future.
Probing questions will be the key to help you get the most in your salary negotiation. Joseph Gordon shares:
“Ask detailed questions about the exit strategy of the company, their current burn rate, and any merit increases with subsequent rounds of funding. I have seen lots of early stage start-ups offer higher equity and lower salary which more than makes up for six months down the road when the company has raised a new round of Funding and has issued pay raises to the team.”
Let’s take a deeper look at specific questions you should definitely be asking.
Key Questions to Ask about Equity and Funding
When was the last funding round and what was the most recent valuation?
This information can help you to determine the value of your equity grant and confirm that the startup has solid VC-backing. Many startups will be very cautious about sharing this information, but it doesn’t hurt to ask.
What percentage of the total shares does my equity represent?
i.e. do you have 10,000 shares out of 1,000,000 (1%) or out of 10,000,000 (.01%)?
The number or value of shares alone can be somewhat deceptive if you don’t know the total number of shares. It’s best to think in terms of percentage of the fully diluted shares.
What is the formula you’ve used to come up with X amount of equity? And what is the compensation value you attribute to this offer?
This will provide insight into the perceived value and help you to better understand the number of shares you have, the total number of shares, and their plans to grow in future.
“When did the company have its most recent 409a valuation done? What was the valuation given?”
A 409a valuation is essentially an appraisal that should be performed annually or after each new round of funding for tax purposes. This is important because it directly affects the exercise price of options.
What is the vesting schedule?
Typical equity grants have a 4-year vesting schedule, but it’s important to know whether the vesting schedule is just based on a time period or if it’s tied to company or individual performance metrics.
Do the options terminate after I leave the company? If so, when?
The options almost always terminate when you leave the company but knowing when may provide you some leverage or insight.
Negotiation Best Practices
Do Not Push and Pull Too Many Times
Many large corporations can afford to make a hiring decision over time as they have large teams of engineers executing their projects. In a smaller startup, they need the right people to get started and hit the ground running as soon as possible. If you repeatedly stall the process you will appear to be uninterested in the opportunity and they may move on with a more willing candidate. According to an article by Hackernoon, “If they don’t budge after two asks, don’t push anymore. What they gave you is probably the best offer you’ll get. All that’s left to do now is to decide whether this offer is good enough for you to accept.” We agree that it’s best to not drag it out too long. Either this is the right move for you or it isn’t.
Support any Counter with Business Reasons, Not Personal Ones
Be wise and know that if you are negotiating you’ll need to give a little to get a little. An article by The Muse said it well,
“Everyone wants to feel like a winner in a negotiation, but make sure you are negotiating for the important things. If you need a larger salary, then reduce the equity and provide business reasons why. If you want more equity, reduce the salary and provide business reasons not personal reasons.”
Business reasons that can help support your request include: pointing out that this position will require you to take on new responsibilities, elaborating on relevant skills you’ve acquired and how that relates to the startup’s goals, your market value, and the steps you are taking to increase your value such as completing extra courses or degrees, and open source projects which may add value to the startup.
Join the Startup of Your Dreams
Choosing to work at a startup is often an emotional decision. Some people prefer the big salaries and prestige of working for FAANG, but there are many others who want to be pioneers and play a significant role in the next unicorn. To be an early team member and able to say, “I worked here before we got acquired… back then it was just our small team.” To be able to look at their work, see how it directly impacted the company’s success and share in the success alongside the founders. It’s not for the faint of heart but can be extremely rewarding.
Don’t let your fear of salary negotiation keep you from a fantastic career move. If you’re ready to take on new challenges at a startup that positively impacts the lives of millions of people, contact Kofi Group today and see what the future holds.