How do you recommend paying employees if your start-up is not generating revenue yet? We are a service-based start-up that is still in its seed stage.

Generally bootstrapped startups should avoid salespeople, for a few reasons: a. they typically can't afford the base and overall comp required to attract sales people who can actually sell / or afford to support them with marketing, management, etc b. it will be very difficult to find the rare person with the right mix of sales and startup DNA along with the critical domain knowledge, consequently the startup is likely to settle c. the founders need to be very involved in the selling and customers will demand it That said, if the plan is still to hire a salesperson, find someone who has demonstrated sales success in startups and is excited by the early stage in company building. Create a comp plan heavily leveraged on sales results (unless you are in an industry where 100% commission is a common practice, would recommend against $0 base as this creates the false impression that your hire isn't passing time with one company while looking for another job with a richer comp plan - you want your rep focussed). Sell the vision and opportunity to be part of a growth story. I have written a several blog posts on hiring sales people into start-ups. You might find these useful: http://www.peaksalesrecruiting.com/ceo-question-should-i-learn-to-sell-or-hire-a-sales-person/ http://www.peaksalesrecruiting.com/start-up-sales-and-hiring-advice-dont-stop-selling-once-you-hire-your-first-sales-rep/ http://www.peaksalesrecruiting.com/hiring-start-up-sales-reps/ http://www.peaksalesrecruiting.com/startups-and-salespeople/ Good luck!

One word: Royalties This means you generate the idea and develop it enough to look interesting to a larger company who would be willing to pay you a royalty for your idea. This happens all the time. Rock stars, authors and scientists routinely license their creative ideas to other companies who pay them a royalty. Anyone can do it. Your business, therefore, would be a think tank. You (and your team, if you have one) would consider the world's problems, see what kinds of companies are trying to solve those problems, and then develop compelling solutions that they can license from you. You have to be able to sell your idea and develop a nice presentation, a little market research and an understanding of basic trademark and patent law. The nice thing about doing this is that if you develop enough cool ideas you will have royalties coming in from a lot of different sources, this creates a stable, passive revenue stream that requires little or no work to maintain. Start in your spare time and plan on the process taking 3-5 years. Set a goal to have a few products in the market that provide enough revenue (royalties) to cover your basic living expenses. Then you can quit your day job and dedicate more time and increase the momentum. A good idea business should have dozens, if not hundreds of license contracts generating royalties. It's possible to pull this off. And it is a fun job (I'm speaking from experience).

As you may suspect, there really isn't a hard and fast answer. You can review averages to see that a CEO typically becomes a major shareholder in a startup, but your role and renumeration will be based on the perceived value you bring to the organization. You value someone's contribution through equity when you think that they will be able to add long-term benefits, you would prefer that they don't move company part way through the process, and to keep them from being enticed by a better salary (a reason for equity tied to a vesting arrangement). Another reason is when the company doesn't have salary money available but the potential is very strong. In this situation you should be especially diligent in your analysis because you will realize that even the best laid plans sometimes fall completely short. So to get the best mix, you have to be very real about the company's long-term growth potential, your role in achieving it, and the current liquidity necessary to run the operations. It should also be realized that equity needs to be distributed. You cannot distribute 110% and having your cap table recalculated such that your 5% turns into 1% in order to make room for the newly hired head of technology is rather demotivating for the team. Equity should be used to entice a valuable person to join, stay, and contribute. It should not be used in leu of salary that allows an employee to pay their bills. So, like a lot of questions, the answer is really, it depends. Analyzing the true picture of your long-term potential will allow you to more easily determine the correct mix.

It stands for allowing someone to continue doing or use something that is normally no longer permitted (due to changing regulations, internal rules etc.)

Greater risk = greater equity. How likely is this to fail or just break even? If you aren't receiving salary yet are among 4-6 non-founders with equivalent sweat investment, all of whom are lower on the totem pole than the two founders, figure out: 1) Taking into account all likely outcomes, what is the most likely outcome in terms of exit? (ex: $10MM.) Keep in mind that 90%+ of all tech startups fail (Allmand Law study), and of those that succeed 88% of M&A deals are under $100MM. Startups that exit at $1B+ are so rare they are called "unicorns"... so don't count on that, no matter how exciting it feels right now. 2) Figure out what 1% equity would give you in terms of payout for the most likely exit. For example, a $10MM exit would give you $100k for every 1% you own. 3) Decide what the chance is that the startup will fail / go bankrupt / get stuck at a $1MM business with no exit in sight. (According to Allman Law's study, 10% stay in business - and far fewer than that actually exit). 4) Multiply the % chance of success by the likely outcome if successful. Now each 1% of equity is worth $10k. You could get lucky and have it be worth millions, or it could be worth nothing. (With the hypothetical numbers I'm giving here, including the odds, you are working for $10k per 1% equity received if the most likely exit is $10MM and the % chance of failure is 90%.) 5) Come up with a vesting path. Commit to one year, get X equity at the end. If you were salaried, the path would be more like 4 years, but since it's free you deserve instant equity as long as you follow through for a reasonable period of time. 6) Assuming you get agreement in writing from the founders, what amount of $ would you take in exchange for 12 months of free work? Now multiply that by 2 to factor in the fact that the payout would be far down the road, and that there is risk. 7) What percentage share of equity would you need in order to equal that payout on exit? 8) Multiply that number by 2-3x to account for likely dilution over time. 9) If the founders aren't willing to give you that much equity in writing, then it's time to move on! If they are, then decide whether you're willing to take the risk in exchange for potentially big rewards (and of course, potentially empty pockets). It's a fascinating topic with a lot of speculation involved, so if you want to discuss in depth, set up a call with me on Clarity. Hope that helps!