The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question, “How do you negotiate a raise at a startup?” is written by James Green, CEO of Magnetic.
Startups have strengths and weaknesses that jobs in larger companies don’t have. There’s much less bureaucracy, fewer rules, and you’re much closer to the “coal face,” meaning that your actions have direct repercussions. However, startups have less cash and may lack the necessary resources to improve compensation for employees. When thinking about asking for a raise, you should take these things into consideration.
First, what not to do. Most startups lose money, which means that cash is a scarce and dwindling resource. Asking for money because you’ve been at the company for any period of time is a bad idea and will be annoying to your manager. Annual raises may be the norm at a large company, but not at a startup.
The good news is that you can directly affect the company’s success. So before you make the ask, think about what you’re doing and how it helps the startup. Here are some examples:
It goes without saying that if you’re bringing in big dollars, then you should be able to make big dollars. The cost of a sales force should end up being around 6% of revenue. If your total income is less than 6% of the dollars you’re bringing, check what the metrics are in your company (everyone is different), and see if you can make more money. If you’re already above market, ask for equity instead.
Do your clients renew at a higher rate than your peers’? Were you able to upsell your clients and bring in more dollars? Did you automate your job so that you can support more clients for the same cost? Do any of these things and a raise or a spot bonus is on the cards for you.
There are many different disciplines within the marketing function (digital, communications, demand generation, events, field marketing, etc.), and all have direct impact to the bottom line. Top marketers have a pulse on real impact, and understand how their contributions lead to sales opportunities. Your marketing team doesn’t track or know how they are contributing? Make this your number one priority this year and it will validate a pay increase.
Have you reduced expenses? Have you enabled others to make the company more money? Have you provided product insight that has improved your company’s offerings? These are the line items that will bring you a raise and a promotion.
Analyze, dig, repeat. It’s all about insights. Prove why things are working and double down, or why things are broken and fix or abandon them. Senior management values this. The tricky part for you is being collaborative. You have a view across the whole company, and it’s likely that only the CEO has a similar view, so you should be able to spot things that others cannot see. If you do so in a way that everyone feels supported—you’re a rare finance animal—you’ll become invaluable and can ask for a raise.
Product and engineering
Product people own the future success of the company. Keep track of metrics about the success of the latest updates and improvements so you can present how you’ve made an impact. If the product is working, then almost everything else is working, which is a double-edged sword. Ensure communication between product and engineering teams is seamless. Any hiccups here and your individual input will become murky. Also in your favor is your roles are typically the hardest to hire for. Look for continual feedback about your individual contributions, and if positive, pounce at the right moment and look for that raise. Engineering is even more of a team effort than product, so all of the same rules apply.
Now that you have your proof points, how do you go about asking for the raise? The secret is in playing the long game. Whenever you start with a new boss, sit down with them and make sure you understand how they measure success. Ask explicitly, “How do you measure my success, and how can I be successful in the organization?” If the discussion is vague or falters, then suggest some of the items that I’ve written above. When you’ve got your answer (it should be a discussion), ask, “If I’m able to do these things, can I expect promotions and the things that go along with promotions (cash and equity)?” It’ll be hard for them to say no.
You should be meeting with your manager weekly, and at every meeting, asking, “How am I doing and how can I be better?” For all of the people who work with me, I keep a working (shared) document that clearly states the objectives and key results I expect. You should do the same if your manager doesn’t offer it for you.
By doing all the above, you will help achieve a milestone for the company, and that’s the time to ask. You always want to ask when things are going well. (Don’t ask for a raise when the company is in trouble or things are going wrong!) After high-fiving and celebrating, meet with your manager in private and be diplomatic. Say, “I’m so thrilled that we were able to achieve X, Y, and Z and that I played a part in it. I am hoping that now we [have increased revenue, decreased costs, increased retention, etc.], the company will consider giving me [a raise, more equity, a promotion],” or whatever it is you are asking for. If you can figure out how to make your boss feel like it’s their idea, even better.
In the end, don’t push it. The company and your supervisor specifically should see the value in your work. If they don’t, then you probably need to find another job. In most tech industries, people don’t stay at a company more than three to four years. If within this time frame you are not providing value that is recognized by the company, then it may be the startup’s problem. Lack of financing, poor management moves, or regulatory hurdles may exists that are out of your control. If key team members begin leaving and your skills and value are not increasing, then see the writing on the wall and move on. In that case, you’ll likely achieve the raise you were looking for.