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HR/BENEFITS

Joe Entrepreneur Is No One-Percenter

The average founder doesn't make a whole lot of money. New data shows that it usually takes a while before an entrepreneur can reap financial rewards.

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Yeah, you're in it for the idea, the journey, the passion of running your business--but let's be honest. At some level, you're in it for the money, too.

According to data from Compass reported by The Next Web, three-quarters of startup founders in Silicon Valley take home less than $75,000 per year, and two-thirds make less than $50,000.

It takes a little while before entrepreneurs see real financial reward in their personal lives. Founders don't allow themselves significant boost in pay until their product hits a high-growth phase. And even then it's not like they're buying second beachfront homes.

According to the data...

  • During the concept phase, the average founders salary is $39,907.
  • Working prototype: $39,559
  • Development: $41,376
  • Functional product (limited users): $44,624
  • Functional product (high growth): $63,424
  • Mature product: $70,109

Funding level, as you might expect, also has an effect on founder salaries. Again, according to the data from Compass...

  • Companies with between 0 and $500,000 in funding report an average salary of $35,529.
  • $500,000-$1 million: $38,287
  • $1 million-$5 million: $45,755
  • $5 million-$10 million: $62,150
  • More than $10 million: $81,659

Other recent research--from American Express--slots the average small business owner salary at $68,000. That's a bit better than the Compass findings, but not by much.

That entrepreneurs are generally reporting middle class salaries carries some benefit. The Next Web points to a 2008 letter by investor Peter Thiel, suggesting that a founders' salary as a key judgment point of a company's level of seriousness. Sacrificing money, it should be noted, is easier said than done, but it's worth knowing some potential funders feel this way.

"The CEO’s salary sets a cap for everyone else," Thiel wrote. "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."

Other research has shown that executives who live large might be more liable to commit corporate fraud or unintentional accounting errors, suggesting that a founder who doesn't have money on the mind might also ultimately be a better leader.

The data also belies the myth of the millionaire founder. As entrepreneurship develops increasing cultural buzz, it's easy to forget that most founders don't experience the glamor of TV spots and magazine covers that come with making it big. A more realistic measure of success for entrepreneurs--not that they shouldn't set their sights high--involves building good companies and earning decent salaries to support themselves and their families.

Last updated: Jan 17, 2014




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