There seems to be a lot of confusion out there on whether or not entrepreneurs get paid anything as they bring their projects to life. Lets take away any venture capital or additional funding acquired and look at this from the lens of a bootstrapped entrepreneur. Bootstrapped doesn’t mean broke, but rather only means that every expenditure and every penny counts. There are many bootstrapped companies out there that have revenues in excess of $1 million but yet still consider themselves bootstrapped. I personally consider bootstrapped companies as the ones that simply don’t have the pleasure of collecting major profits from their ventures and whose spend dollars have to be stretched as far as possible.
So what should your expectations be when becoming an entrepreneur?
Your expectations should be that you probably won’t get a salary equivalent to what you typically could get paid for if you worked for someone else, especially not one that includes a compensation package full of benefits and extras.
You should, however, understand how your salary plays into your venture in the long term since too many entrepreneurs today focus on surviving on savings instead of having a plan to convert company profit into a sustainable salary source for themselves.
Remember that you are the core of your company in the earlier stages and your mental and physical state will impact what you do and how well you do it.
The best way to handle your salary is to set a timetable of 3 easy to milestones to break for yourself outside of company goals you set up.
1. Survival Salary: This phase is usually the entry phase and should be a phase that enables you to leverage your savings with small increases paid to yourself over time. If you saved $40,000 and that is supposed to last you 2 years, then consider the impact of adding a $1000 to your pocket monthly from your company. As small as a $1000 may be, it can help now stretch that $40,000 to last you 3 years instead. Your goal will be to be able to add a few bucks each month to that number until you reach your growth salary level. This phase should not last more than 24 months
2. Growth Salary: This phase, on the other hand, is when you reach the minimum level of money needed per month to no longer have to use your savings. In other words, your company is making money and the profits enable you to at least take home the bare minimum needed to not cost you further savings. While you still cannot go from survivor to driving a Ferrari, you shouldn’t have to sink your personal money to keep yourself afloat. This phase usually occurs from 24 – 36 months, and sometimes up to 48 months.
3. Profitable Salary: This part is the part where you simply have to make sure you don’t go overboard, and set correct guidelines for pay. While most entrepreneurs typically don’t scale up and instead wait for this phase to get paid, things tend to get messy as they pay themselves too much. We have seen this happen to many wheel companies and other non tech businesses as owner quickly spend profits without forecasting growth or savings. That said, look at what someone in your industry should get paid and even if you are paying yourself, it is advisable to take less but include a year end milestone bonus instead. Allow your business to keep going, rather than gouging the profits all at once.
The big difference between Corporate America and entrepreneur salaries is obviously the residual value built in the company itself. While it does take time to build to the stage where you are compensated equally to someone who works for others in your field, it also means that by the time you exit, you are most likely to gain a substantial amount of money, allowing you a greater sense of financial freedom.