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In my over two-decade journey as an entrepreneur, there have been several occasions where I wasn’t sure how I was going to pay employees the next month’s salary. The most depressing moment for a founder is when a bunch of folks who have joined the start-up trusting the leadership have to be given the bad news of delayed salaries or, worse, layoffs.
As an entrepreneur, the only thing I promised myself was that, if ever such a situation arose, my conscience should be clear that I did my best before resorting to salary cuts or layoffs as a last resort and that I walked the talk by first cutting my token salary before asking colleagues to share the burden. I recall a particularly tough phase in Indiaplaza where, for over a year, I cut my salary to zero and later wrote off the amount from the books and from my mind.
So, whenever I read about storied and iconic start-ups going down rapidly with plunging valuations, I am able to empathise with the founders until I learn that only the company is in deep trouble whereas the founder(s) have already accumulated huge personal wealth.
This is a moral dilemma, at least for me.
I strongly feel a start-up is a founder’s baby and all the available nutrition must be utilised to meet the needs of the growing baby.
The start-up must have first right on all scarce resources and it’s morally incorrect for a founder to create personal wealth from the struggling company, even though legally and procedurally things may be above board.
Make no mistake. I am not advocating the romantic image of start-ups where the founders struggle to make ends meet, because this approach makes no sense. As far as possible, I always tried to take a small salary every month just to keep things going at home.
The number is less important than the idea and I urge founders to implement this as early as they can. However, the entrepreneurs’ fiduciary responsibility is to make sure their start-ups do well financially; and, until the company reaches profitability, I am not convinced that the founders must create personal wealth.
On at least two occasions, I had an opportunity to complete a secondary transaction of some of my shareholding with investors, but I chose not to, not because I wanted to maintain my shareholding but because it just didn’t pass my personal smell test.
When things went downhill later and I ended up with nothing, I was left wondering, “What price straightforwardness?”
There’s no right or wrong here. To each, his or her own. Just make sure that next time you decide to set aside a nice nest egg while your start-up is still deep in the red, just inhale deeply and smell harder. Then do what you must.
(The writer is a serial entrepreneur and best-selling author of the book ‘Failing to Succeed’; posts on X @vaitheek)
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