As a recruiter or founder, you’re probably tempted to wait until the final stage of the recruiting process before negotiating compensation with the candidate. But in the world of startups where time and resources are scarce, I recommend that founders flip the script and collect the company budget for the role beforehand and the candidate’s compensation expectations in your very first conversation with them.
If you wait until the final stages of the process before you start negotiating compensation, you risk wasting all your effort if those numbers don’t align. Instead, as a founder, decide the range you can budget for the position. If you’re a recruiter, collect that information upfront from the hiring manager or founder.
Once you have that number in your head, you can ask the candidate for their expected range and move forward knowing you’re aligned and likely to close them if all goes well.
It helps to be somewhat flexible when it comes to your budget. The key to closing candidates is understanding what the particular candidate is looking for and translating that into the different options that you’re presenting back.
Most people only think of cash and equity when they think about compensation, but there are several different dimensions of compensation a candidate might consider. Here are seven that I’ve seen factor into a candidate’s decision of whether to take the job or not:
Depending on the candidate, they might value some of those dimensions more than others. For instance, someone without a family might take a lower base but want more equity because they have a higher risk profile. It can all vary. To illustrate my point, here are three hypothetical candidate profiles you might come across:
As you can see, there are several factors that might motivate any one particular candidate and determine what you should include to offer a compelling compensation package. I advise founders to take the candidate’s life situation into account, be empathetic, and try to understand what is most important to the candidate. That means thinking about the compensation package comprehensively and being helpful when needed with lifestyle arrangements.
On a related note, be conscious of where you select your office because it might impact your ability to recruit. For instance, it might be more expensive to choose Mountain View over Fremont, but more candidates can get to Mountain View. Consider other expenses that might aid your ability to recruit, like sponsoring Immigration and Visa Candidates and extending benefits to family members. All these small benefits factor into your ability to attract talent.
When you put together your compensation package, don’t forget to provide a couple different offer types, depending on the candidate’s life situation. You might include one that’s higher on equity with less cash, another higher cash and lower equity, or another with additional conditions or benefits. In other words, take the range of what you want to pay and create multiple tiers around that number. For example, an offer to a candidate might look like this:
The candidate can then choose the option that best suits their needs and life situation.
One effective closing strategy I’ve seen is encouraging the candidate to think about the exit. Prompt them to consider what their 1% of equity would mean if the company got bought for $1B. When you present the offer, include the number of shares (i.e. 250,000 shares) as well as the percentage to help them visualize what their ownership could mean.
Similarly, walk the candidate through what the opportunity could mean for their career trajectory. For instance, you might highlight how coming in as an early engineer can be a stepping stone to them becoming a future Engineering Manager or Director of Engineering. One advantage startups have over larger corporations is that they can emphasize the ownership candidates can have in building a company and not just a product.
Another closing tactic I’ve seen is emphasizing that should the candidate perform well, the company guarantees bringing salaries up to market. For instance, everyone who was willing to take a step back in pay during the seed stage will receive a bump in cash compensation once the Series A closes.
If the candidate is still outside your budget, there are still ways to get them closer to accepting the offer. Say your offer is $20k below their compensation expectations. A one-time $20k signing bonus can help bridge the difference. Candidates joining a startup usually know they're taking a cash hit, but a signing bonus can ensure it’s not a huge lifestyle adjustment.
If you try all the tactics above and you still can’t close the candidate, don’t be too disheartened. You can’t win them all. Add them to your applicant tracking system for when you secure more funding and routinely check in on them. Their life situation might change.