Flat Rock Speedway

Beginning a business involves risks, a vision, and a lot of individual sacrifice. Among the most burning and emotionally charged questions that founders of startups are asking are the following: "When should I start paying myself a salary?"

This decision can feel like walking a tightrope, too soon, and you may risk draining limited funds; too late, and you may burn out or even compromise your well-being. It is not a matter of right or wrong when it comes to every single startup, but there are guiding principles and milestones that could inform the decision-making process.

1. The Early Stage: Sacrifice Mode

At early stages, the majority of founders do not take salaries. This can be called by the name of the sweat equity. The founders put their faith, their abilities, and even their bank accounts, into making a product, testing markets, and gathering initial users. At this stage, the startup typically has no or very minimal revenue and is either self-funded or backed by friends, family, or early angel funds. Through this stage, the founders usually:

• Cut down on individual spending to the bare minimum
• Depending on savings or side income
• Do not withdraw money from the business

Failing to pay yourself in this initial phase demonstrates to the investors and the early employees that you are all in. It also maintains as much capital as it can to expand the business. This is not, however, supposed to be permanent.

2. Post-Validation or Seed Funding

When the startup has reached some amount of validation (via early traction, early revenue, a successful seed round), it is time to begin thinking about a minimum viable salary. This is not a market-rate salary, but it is enough to cover your necessary personal costs, and you will not need to think about paying your rent or getting food on the table.

A sensible yardstick to measure this by would be: How little can I live on, without starving? At this point, you may begin earning a humble salary in the case that:

• You have closed a funding (Seed or Pre-Seed)
• The company has begun paying regular income
• It is something that will not cost the startup's growth

The small amount of salary would enable you to sustain your physical and mental wellness, which are vital to the business. Many experienced investors are more than happy when founders accept only a low salary because this guarantees that they will be focused and sustainable.

3. Series A and Beyond: Adjusting to Market Rates

Your startup will be more stable at some point, probably around Series A, or beyond, when you need to consider startup payroll structures in terms of:

• The runway and the burn rate of the startup
• Income gains and earnings ratio
• Market founder Compensation standards

The pay grade at this stage is supposed to not only be content with what you would be doing, but also your economic state of the company. What founders want is to be a bit less conservative and more in touch with the salaries of people in their industry of the same size.

4. How Much is Too Much?

Investors usually question founder compensation, particularly during the early stages. Key Duck, receiving such an immense salary early, can only portray the wrong message, making people believe that the founder is focused on short-term comfort over long-term expansion.

• Executives accepting market-rate pay before product-market fit
• Increases in salary that are not pegged to revenue or milestones
• There is little personal financial risk to founders in the business

An equitable salary for founders is a compromise between saving and sacrifice. The idea is to pay well to ensure founders do not have to worry about finances, though not to an amount that burns important early-stage expansion money.

5. What If the Startup Can’t Afford Any Salary?

Sometimes a low level of salary may not be available: during pre-revenue periods, or bootstrapping. Transparency and planning are the main factors in such cases. The solution may be as follows:

• Deferred salary: Accept payment of the salary in the future when the firm has generated funds or earned revenue on an agreed scale.
• Equity grants: Pay founders extra equity instead of salary.
• Side gigs: Many founders choose to work part-time to support their lifestyles in the initial phases, but this is dangerous because it stops them from focusing on the success of the startup.

In that case, it is vital to reconsider the plan periodically and make sure that you are not playing with the risk of burnout and resentment.

6. Communication with Co-Founders and Investors

You do not have to go alone, as this has been the case with some, but when it comes to compensation, you must be honest. Disjointed expectations may initiate conflict. Write down agreements on the timeline of salaries introduction or changes and make them dependent on the specific milestones that can be measured, e.g., in terms of revenue or rounds of funding.

Investors also welcome compensation schemes. When you are open about your needs and when you are tactical with the timing, it shows how mature and responsible a leader you get to be.