This article originally appeared in the Wall Street Journal.
GUEST MENTOR Dan Hogan, CEO at Medalogix: Most startups work on shoestring budgets, of course, which presents a particular difficulty in recruiting talent. You need the best of the best to help you launch your enterprise, but you don’t have the budget to lure them from their high-paying jobs.
Luckily, it’s not all about salary.Leverage ownership. In most cases, the rock stars you want to hire will have to weigh the pros and cons of a pay cut if they want to join your team. In my most recent startup, each team member took a 25% to 40% salary cut when they signed on. To make up for it, I offered variable amounts of equity in the form of incentive shares in the company that vested over a term of two to four years. Most talented professionals never have an opportunity to leap over the fence from employee to the ownership side. If you can offer that, it’s worth a lot.
Offering equity is effective not only because it’s a potentially lucrative financial proposition, but because your employees are literally invested in the company. This promotes a sense of shared sacrifice and success because their incentives are aligned with the company’s. When the startup wins, so do they. This mentality creates a team energy that’s invaluable to the success of your new venture.
Attract visionaries. Working at a startup is not for the faint of heart. The future is unclear and you’re often trekking through uncharted territory. The good news is, your startup allows motivated, talented people the opportunity to challenge themselves and create a solution the world has not yet seen. As a result you tend to attract people who are bold, adventurous, innovative, creative and yearning to make a difference.
This unique opportunity to be a part of something big can be currency on its own.
Create and maintain a collaborative environment. There are fantastic ideas floating among the ranks of your rock star employees. It is a startup leader’s role to find and foster those ideas. When you not only allow but encourage your team to influence the direction of the organization, they will feel empowered and valued. What do you think? is an inviting and welcomed question.
Allow your visionaries to attract visionaries. Top talent follows tops talent. When one visionary is working on a project, their visionary friends or contemporaries realize it’s a legitimate enterprise to pursue. That’s one reason it’s vital to recruit the best when you’re laying the foundation for your startup.
As for the founder, you typically have the most to lose and the most to gain. In my most recent startup, I did not draw a salary until we became profitable. Before then, I borrowed from my personal savings. I didn’t feel right taking from a business whose future was still unclear. I had a responsibility to my team to do everything in my power to ensure the startup took off. Not taking away from the business’s bank account was one way I did that.
Lastly, I recommend complete transparency. When you’re beginning conversations with rock star recruits, let them know the ins and outs of your business plan—including the finances. They need to know what they’re getting into so they have a realistic viewpoint of how and if they can contribute.