I’m at a crossroads now. I really don’t want to offer an equity stake to developer for phase 2 which amounts to about 1/10th of work already completed (he’s already rec’d lots of cash for core SaaS product dev’t), yet I don’t want to bring in someone else.

Not sure which direction to go…leaning towards offering a limited %, but not overly thrilled about it.

I did that once and it was quite a learning experience. I traded sweat equity for a shot and ended up better than most. I didn’t recover the lost salary I would have made in a safe job but I made enough to pay off the credit card debts I accrued while I was working without salary for the “Founder”.

First it’s much easier to iterate and grow as a start-up when everyone is in close proximity, Communication is instant and includes the social element, something that is missing with chat. Also having a beer after work is an important part for start-ups which is where a lot of great ideas come up and where everyone gets the necessary team spirit to work at hundred percent.

In addition to that start-ups are a stressful environment, and people easily panic. The further away people are the more they rely on outside influence. As the old saying goes, you either sit at the table or are part of the menu, and people tend to feel that way.

Finally, selling a team is always a fallback option. This however is much easier if you have a packaged team in one place that can be easily integrated into a larger organization.

That said there are amazing opportunities out there to hire especially developers who work remotely, possible on the other side of the planet. Smart companies do that, despite the drawbacks listed above.

Yet there is a glut of founders and a lack of developers.

Engineers that work night and day and christmas and new years when a project depends on them… and don’t worry about making payroll, have skin in the game and deserve founder status. Don’t give it to them and you suddenly have no product. Good luck with payroll then.

Giving them 0.2% cut is an insult when “entrepreneurs” can’t achieve shit without a great engineer behind them.

The market has spoken and @naval is simply explaining why.

~ Supply. Demand. Life isn’t fair. The end.

To the founders posting in the comments about “skin in the game,” consider opportunity cost. A developer who signs on to your startup is working for a company with an uncertain future, with one motivating factor being the potential value of an equity stake. This individual believes that your vision will succeed, and is actively working to further that goal rather than accepting a certain (likely higher) paycheck at a more well-established competitor (developers are in demand, remember?). If the startup collapses or fails, this developer has invested considerable time and isn’t even left with a deliverable product to point to on his or her resume.

The bottom line is if you offer someone equity because they bring a UNIQUE skill to your team and fills a much needed gap, they still need to have skin in the game in the form of a cash investment. Then you know they are really committed. Otherwise, you may give someone equity who still has an employee mindset. The minute things gets tough, as they most certainly will at some point, they will go looking for a job. Now you have a guy who has equity in your company who isn’t even a full time contributor. Been there, done that. Be very stingy with equity folks.

I’m all for giving more equity to team members. All good…

Somebody wrote earlier that the problem could be too many founders working on the same problem.

http://marginalrevolution.com/marginalrevolution/2011/12/the-great-start-up-stagnation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+marginalrevolution%2Ffeed+%28Marginal+Revolution%29

If you’re 6 months into a project and you’re company’s value will double or triple by adding a talented developer you’re doing something wrong.

I’m a developer, and dare I say a talented one, so this “developer as a diva” talk is something my ego wants to hear, but I’m also an entrepreneur and I know that having talented developers is important, but it’s just one piece of the puzzle.

Your company will fail or succeed based on the value it provides to the marketplace and its capitalization. The most common reason for failure of the new companies is that they run out of the money, the second most common reason is that they don’t provided the value to the marketplace.

There is a big difference between an employee and a founder. The founder is in “get rich or die trying” position, he risks everything, while for the employee this is just a job. If you’re a talented developer and you’re tired of making other people rich – do your own thing! If you’re hired as an employee, do your job to the best of your abilities and stop whining about not having the same equity as the guys who started the company because you’re not one of them. If you want big rewards take big risks and start your own company, otherwise STFU.

I have employed more than 60 people in my life so far and my experience is that there is a huge drop off in terms of risk and sweat between real founders and first employees, and even between founders and co-founders.

The founders take a bigger leap in deciding on a direction and spend many man-months before they could get to even a YC level funding. Even with all the newer improvements their risk is way more than the initial engineers. So, it might not be always right to give a founder level equity to an initial engineer – unless you get a prized hire who has revolutionized companies b4.

The fact that most smart people jump on the founder boat themselves, it is quite likely that your hires might not be as smart or as risk-taking (otherwise, they would have startedup themselves given the low costs).

I definitely think there are a great shortage of startup quality engineers and designers. Even Google and Facebook are finding hard time acquiring talent. In India, Facebook and Google offered some fresher bachelor level engineers at $150K salaries. World as a whole educates far less quality developers than the demand.

Do you think that the kind of developers who would prefer the risk and excitement of being an early employee at a startup are actually bad at negotiating? In my experience, they ask for what they want, and if they don’t get it, they go to Google where they’ll be paid $250k a year and ride around the office on skateboards. They don’t lack leverage, so why is it that equity distribution inside of startups isn’t “as it should be”? This isn’t charity, so why isn’t it reality yet?

I feel that you’re in an advantageous position to outline anecdotes of anonymous early-stage startups who were too greedy to give up the equity that it would take to make the right hire, and subsequently went down in flames. There’s a concrete lesson we can all learn from.