What determines founder salary levels?

One week ago, Compass.co released results from a survey that showed that 73% of startup founders make less than $50k per year and entrepreneurs around the world have been talking about it ever since. To answer some of the many great questions posed, we went back to our data to bring you more answers.

For all data analyzed, current monthly revenue is the greatest predictor of founder salary, with a more than 3.5x difference between the lowest and highest tiers. Until a company makes more than $10k per month in revenue, the average founder salary does not break the $50k mark, and not until the company reaches over $1 million per month in revenue, does the founder salary break $100k. 

This may relate to the all-important burn rate equation. More revenue coming in means more money available to pay back out again without impacting the long-term sustainability of the company. This would tie in closely with Compass’ earlier findings on premature scaling.

One of the most oft-asked questions related to how much a founder’s salary changed by age. We found this is indeed a significant factor in salary, with older founders paying themselves as much as 71% more than younger ones, though the highest salary age range still barely breaks $60,000 per year.

Perhaps even more significant is the fact that 78% of founders are under the age of 40. This may speak to the rigors of entrepreneurship, conflicting family requirements, ageism, technology literacy or a number of other factors we can leave to others to debate. In any case, it may help provide additional perspective on lower salary needs.

Also contrary to the perception of the serial entrepreneur, Compass data found that 67% of founders were working on their first startup, or at least the first in a significant capacity. (Founders were asked to clarify the number of previous startups where they had been one of the first five team members and the company had raised at least $100,000.)

As shown in the graphs above, since founder salary grows by experience level. This is another reason for low average salaries overall.

In the same way Compass found salaries increased by product phase in the previous report, so to do they increase by team size.

And in the same way most founders are working on their first startup, so too are most teams comprised of five or fewer people.

What are your thoughts on founder salaries? What levels seem appropriate to you? We’d love to hear your thoughts and opinions.

Startup and software leaders can also discover their own benchmarks at Compass.co.

  • Jeremy

    Doing pie charts in varying shades of blue is really bad UX. Skipping over the whole “pie charts are bad” in general (Google it), people have trouble differentiating colors of small areas to begin with (e.g. the dots in the keys to the pie charts) on top of which many have difficulty matching colors seen in one place with colors seen in another place.

    I honestly cannot tell how many startup founders had previously worked on 4 or 5 startups.

    #1 I recommend not using pie charts at all, but if you’re going to use pie charts, a) use a wide range of colors, and, keeping in mind the large number of color-blind people, b) provide the data in a second format, such as a small table as part of the key/legend.

  • How do you define startup?

    If I understand “Average Founder Salary by Monthly Revenue” graph correctly there are startups in your survey making more than $10,000,000 per month.

  • Frank Demmler

    Your results are pretty consistent with my 30 years of experience helping and investing in technology-based startups. One dynamic that isn’t very obvious, but has been frequent in my experience is the transition period during which the venture moves from being fully entrepreneurial to one that is migrating into a commercial enterprise. During the earliest stages, money is tight. Compensation for everyone is low or nonexistent. Showing my age, I used to refer to this as the “Pepsi & Twinkies” stage. It’s often characterized by the “one for all and all for one” mindset. Somewhere along the line, many (some?) of the companies begin to demonstrate some commercial progress (your revenues could be a proxy for this, or vice versa). This often brings two significant characteristics – meaningful funding (which could range from $100k to $2 million, depending upon the company) and the need to recruit C-level teammates. These recruits require market-level compensation because they are people who are highly sought and the 3 Musketeers mindset is no longer sufficient. (This is Groucho Marx Recruiting. Groucho said he’d never join a club that would accept him as a member. The C-level recruits are to attract people who have so many good options that they shouldn’t join your company, except for the ability for the CEO to share the vision for the company and entice such a person to join the company.)
    In any event, once someone is paid “market,” the compensation of the existing employees will no longer be viewed as adequate. It’s important for the company to proactively put a compensation normalization program in place to avoid the potential backlash.
    Getting back on topic, this is often the time that the CEO gets a significant bump in compensation. Sometimes it occurs because there’s misplaced belief that the CEO needs to be the highest paid employee. Even if that’s not the case, the CEO is not immune to the need for a bump when market rates are paid to even one new executive.
    My philosophy for seed investments is to compensate founders at a level that allows them to maintain their standard of living so that they aren’t stressed at home, but certainly aren’t getting rich. In one case, I had 2 co-founders. One was single and lived in an apartment. The other was married with 3 kids, a house, and a mortgage. The single guy was paid $3k per month and the married guy got $6.5k. Relative to their personal situations, these were “equal” salaries for the founders.

  • José Alberto Franco

    Thanks Frank. The post is great but your comment is even better. As Founder, I completely agree with your arguments. You describe my own experience.

  • I think deciding the founder’s salary is much simpler than that: As little as possible needed to survive. Everything else should go into the business.

    Some more interesting comments on BJ:

  • J Kim

    Yeah. Had to look at same chart a few times to make sure I was getting the right info.