Can you make “big money” as an employee in software?

http://thinkfaster.co/2015/03/can-you-make-big-money-in-software

by swimorsinka • 11 years ago

53 82 11 years ago

33272• 11 years ago

startup case:

the short answer is no. Why ? Statistics. 1-2% doesn't get you anywhere, after dilution, vc's getting, stake and if an eventual takeover happens. A 50mn takeover will leave a founder with about 6mn is an O.K aprox. Granted he had 50% of the company to start with, where does that leave you?

established company case: As an employee you can hit the 1mn mark over a few years depending on the company. But that depends on what you mean by "big money"

Assumptions: big money > 5mn

dangravell• 11 years ago

I guess we all have our different requirements but I think that's quite a high bar for "big money".

dataker• 11 years ago

As a co-founder, how much does 10-15% leave you with?

philbarr• 11 years ago

At least I can make database connections as an employee in software.

seansmith1020• 11 years ago

Lolzzz

Bachelor• 11 years ago

Or at least keep them in tact...

kelukelugames• 11 years ago

Was the article worth reading? It had a very clickbait title.

gedrap• 11 years ago

A summary of big tech companies (Apple, Google, etc) salaries in the USA according to GlassDoor. You haven't missed anything :)

ForHackernews6• 11 years ago

Maybe they should have thought faster.

cubano• 11 years ago

Yes, but will they lead to Big Money?

nakovet• 11 years ago

In between GlassDoor data he talks about founders being the Lords of the Startup Feudalism and I kinda agree, companies used to pay 25-40k to an employee, a programmer/engineer can take several jobs from the industry henceforth the salary is 3x the regular salary. However the successful founder become rich and invest in other companies small, medium, big and help raise the inequality.

ChuckMcM2• 11 years ago

That is the broken narrative.

An employee can get stock in 5 different companies in 5 years, a founder is, at best, able to get one company off the ground in 5 years. An employee can move change jobs (and often get a pay raise) when the unexpected hits a company puts it on the skid. A founder will never be invested in again if they jump ship on the company when it hits a big problem. An employee can work for a cash salary every year, a founder often will spend one maybe two years without salary. Founders file for personal bankruptcy, employees generally don't.

And the interesting thing is that any technical "employee" can work for 5 years in the Bay Area and get up enough cash to be a "founder" for their first startup. (I went 12 years before going into a startup but the earliest I've seen it be successful is 5, you have to know enough about running a company to make it work).

The reason the narrative is so skewed though is because you here stories about the successful founders but few about the marginal ones. You rarely hear about the person whose personal bankruptcy has made every part of their life that involves running a credit check harder. For every successful billionaire founder there are THOUSANDS of millionaire employees.

The problem here is the notion "big money" and perceived inequity of distribution. But if you actually put everyone who identifies as a "Founder" in a group, and everyone who identifies as an "Employee" in a group, it is much more likely the people in the latter category will have retired early.

mooreds• 11 years ago

Right. If you view your labor as an investment (and you should), employees are diversified and founders definitely are not.

An interesting book on the subject is "Are you a Stock or a Bond" [0]. It really makes you think about how your time/labor has a risk profile in the same way that financial instruments in your 401k do.

    [0] http://www.barnesandnoble.com/w/are-you-a-stock-or-a-bond-moshe-a-milevsky/1111895174?ean=9780137127375

ForHackernews6• 11 years ago

A founder will never be invested in again if they jump ship on the company when it hits a big problem.

Is that really true? What about all the "fail fast" mantras we hear so much about? It seems like I read about plenty of founders who have run three or four companies into the ground before finally having a success?

api6• 11 years ago

Yes, in a few ways I am familiar with:

(1) Finance. They make so much "free" money that they can afford to just pay massive salaries and not blink. You just have to be okay with doing things that basically add no value to anything.

(2) As a very early employee in a hugely successful startup. But this is roulette, since most startups fail and some only succeed after so much dilution that your share ends up tiny.

(3) Working your way up to a CXO level (or near) role in a very large established company. This is hard and takes years of both work and corporate politics.

(4) There are some niches, like doing IT for oil and gas operations in remote areas, that I've heard pay very well... but these are almost like joining the army.

I'd say #1 and #4 are probably the most straightforward. If you want to pursue #2, you should approach employment with a super-early startup by thinking about it as if you are an investor. Would you take a small chunk in a seed round with this company? If not, pass, cause if you are taking a lower salary + equity you are making a seed investment.

patio11• 11 years ago

Google/Facebook both minted several thousand millionaires at IPO. The vast majority weren't CXAnything.

I don't know whether the article is about income or wealth, but if one puts "big money" at, say, $250k of gross income, then it's clearly achievable in software. Options include a) get a job at AppAmaGooBookSoft and stay in it for 5~10 years or b) hang out your shingle as an independent consultant and charge $8k+ per week at 75% utilization.

UK-AL2• 11 years ago

Google/Facebook level IPO's are quite rare, and you had be in relatively early to get enough.

matthewmacleod• 11 years ago

Yes, but I think those events are rare enough to be classed as outliers. Ultimately, the guidance of 'work at a company that's going to make it really big in the future' isn't all that helpful in practice!

cat9• 11 years ago

Or $12k+ per week at 50% utilization. 75% utilization sounds a bit stressful.

For that matter, $8k+ per week at 50% utilization is still $165k at the same fudge factor for taxes & overhead. That's already well beyond my threshold for "I've increased this variable to the point that further increases are nice but not a primary motivator, and I'd rather that further optimization focus on quality of life as the primary variable."

dccoolgai• 11 years ago

(3) also probably takes something akin to an MBA, from what I've observed. Not a hard and fast rule, but just what I've seen.

I would also add that the "billion dollar VC series-B startup or bust" is not the only alternative to grinding away under the yoke of someone else. If you find a nice little niche that isn't drenched with developers (non-profits, serving lawyers, etc.) - You won't be a billionaire, but you stand a much better chance of creating a $million+ sustainable product or service company in that space.

watty• 11 years ago

(3) Isn't a "software employee"

33272• 11 years ago

great answer

LeonRobrotsky• 11 years ago

You just have to be okay with doing things that basically add no value to anything.

So, most silicon valley startups?

venomsnake2• 11 years ago

Silicon valley startups are good at redistributing the money from the top to the bottom.

Plough_Jogger3• 11 years ago

(2) As a very early employee in a hugely successful startup. But this is roulette, since most startups fail and some only succeed after so much dilution that your share ends up tiny.

This is a very poor way of describing the risk / upside of joining a startup.

In the aggregate, the odds of any randomly selected startup may present odds similar to roulette, but practically, you have the ability to choose who you work with and which company you work on.

Given the ability to be selective, you can dramatically increase your odds of a successful outcome, assuming that you have the skill set to a) identify / evaluate market opportunity / team capabilities and b) utilize your technical ability to add significant incremental value to the company.

The early team at PayPal did not have a 1/48 chance of success; it was probably closer to 1/10.

Edit - (Not actually 1/10, but significantly higher odds than those of a startup selected at random) Odds were chosen to correspond to the given example of roulette.

wuliwong• 11 years ago

I would say that being a developer on average doesn't give any special ability to evaluate the probability of success of an early stage startup. And if you don't have an special ability to evaluate the probability of success, 1/48 is probably generous.

wlesieutre• 11 years ago

Roulette players also have the ability to be selective. You just put your money on the number/color that is going to be successful, and then you have much better odds than someone who didn't put money on the one that will be successful.

UK-AL2• 11 years ago

If you can predict company success, why would you be a developer?

Technical prowess, does not actually mean company success. Some really successful companies, have had some really bad software practices.

And companies with really good developers have failed.

api6• 11 years ago

You're right, and I hit on that at the end. Problem is twofold:

(1) You get the most by being a very early employee -- like #1 - #5. It's a hockey stick distribution here. The later you get in, the exponentially lower your stake will be.

(2) The most successful startups are outliers.

Getting in that early means you do not have a large team or a long track record to look at when making your decision. The big bucks will come from the coffee shop hobo or ramen-snarfing grad student outfit with 1-3 full time people (all founders), barely any capital, and no track record. People will laugh at you and they're probably right.

Probably.

But if they're wrong, you will laugh more later.

If it has success written all over it, it will look "hot" and "cool." That means there will be a ton of competition for those early positions. You will be edged out by someone with a Magna Cum Smartypants degree from an Ivy League school. It's also probably going to be so capitalized (since it looks "hot") that they'll just skimp on the equity and pay more, which invalidates the thesis here and makes it just a regular job from a purely financial risk/reward perspective. (It still might be worth taking for the experience and fun factor.)

That's why if this is the strategy you want to take you are more or less doing what seed stage angels do. You are looking for feral unicorns that poop unpolished diamonds. If everyone else thinks it's a good investment too, the market will behave "efficiently" and you will not get rich. The market doesn't "want" you or anyone else to be rich. Rich people are outliers.

Google and Facebook are great examples by the way. They both looked stupid: "another search engine?" and "so it's like MySpace and Friendster but with no capital and some Harvard dropout nozzle running it?"

Edit: the reason your equity/stake drops off exponentially the later you get in is precisely because of the stupid unicorn factor. Really early stage companies have to offer you a fatter option package because you're an idiot to work for them and they know it. There is no other way they can compete for talent. If they're successful, those options turn out to be very expensive -- they come out of the founder's equity pool.

rch2• 11 years ago

Isn't (1) roughly equivalent to working for a monstrous telco monopoly, or stodgy office equipment manufacturer?

api6• 11 years ago

Yeah. Any boring money printing machine has to offer fatter salaries to attract talent because there is no other intrinsic appeal. Finance is just a particularly big one.

I might also add government, though you want to avoid lower-level contractor positions there and go for higher-end stuff or becoming a direct Federal employee. Also avoid sexy areas like space if your goal is to get rich, since these will have intense competition. This is part of why science pays so badly -- people want to do it.

lgieron• 11 years ago

(4) sounds interesting, can anyone contribute some details?

oilman• 11 years ago

I have personal experience with (4). I work for a company that creates systems that are used on oil rigs. I came about this job in a round about way. I used to work in SF at a big name tech company, but I'm from a small town with no tech community whatsoever. My parents got sick, and I wanted to live closer, so I made the move home to support them. Found this job though connections and here I am.

The systems we create are complicated and require automation (PLCs, embedded systems, PCs) to function, so the company requires programmers. The money is fantastic for two reasons: they have a really hard time finding people and money for oil companies shoots out of the ground (most of the time).

The work is different from most systems someone would deal with at a startup. The systems range in age from new to 20 years old. Object oriented is a new and scary thing. I write and debug a lot of pascal and C. Also do a lot of sysadmin work on ancient systems, token ring networks etc.

The biggest difference however is work environment. Most rigs have an absolutely awful (think dial up) satellite internet connection, so there is no remote work. Everything gets done on site. This leads to a lot of travel, which is where you make the big money if you are willing to do it. The work environment is a lot different from a startup: Folding chairs and a table in the corner of a room if you are lucky, sitting on the floor if not. You get to see some interesting and scary parts of the world, police escorts from the airport, body guards on the way to the rig in really bad places, which can be very isolating as well as traveling for months at a time.

Aqueous• 11 years ago

"Error establishing a database connection."

I see what you did there.

gue5t• 11 years ago

Fuck money. Hacking is about the novel manipulations of technological systems, and you're supposed to be poor while you do it.

aeykie• 11 years ago

I always thought of hackers as people who loved various forms of freedom, including but not limited to economic and technological freedom.

bdcravens2• 11 years ago

Yet $2800 MacBook Pros

beat2• 11 years ago

I have a term I call "win at money". You've won at money when you have enough capital to live comfortably for the rest of your life just on the interest from low-risk investment.

Can you win at money in software? Yes, but pretty much only by founding your own company or being among the first handful of employees at a startup that gets huge. On the other hand, you can make a comfortable middle-class living at software very easily.

zrail• 11 years ago

Your "win at money" is similar to the philosophy on Mr. Money Mustache[1]. He advocates shifting your lifestyle down a few notches in places where it doesn't affect you much, reducing your cashflow needs and making it easier to "win", or in his parlance be financially independent and retire early.

[1] http://mrmoneymustache.com

kkamperschroer• 11 years ago

That is essentially the definition of financial independence, and it's certainly possibly with a job in software. It just involves saving as much as you can afford to and taking advantage of compound interest early on.

jeffreyrogers• 11 years ago

I think this is a good point. It's also worth noting that there are pretty much no careers where you can just get a normal job and end up "winning at money". Finance is a possible exception, but it comes with its own tradeoffs and the biggest players generally leave their finance jobs to start their own funds.

beat2• 11 years ago

Right. The system is designed so you'll finally save enough to "win at money" about the time you're too old to work effectively anymore.

What kills me is seeing friends whose jobs involve hard physical labor. They can't save enough to win at money before their bodies start giving out from the abuse. In better economies with unions and cultural support, they just sort of loaf away their less productive, later years. In America, they get laid off and can't work anymore.

brational2• 11 years ago

live comfortably for the rest of your life just on the interest from low-risk investment.

50-100k/yr is a comfortable life in most places. That's 1.2-2.5 million in capital. Definitely don't have to start a company of be in a start-up for that at all.

a_c_s• 11 years ago

Btw, is commonly referred to as Financial Independence (FI). There are also several online communities devoted to FIRE (Financial Independence Retire Early).

ForHackernews6• 11 years ago

FIRE is also an acronym for "Finance, Insurance, and Real Estate"[0] which are business sectors famous for paying loads of money. So working in FIRE makes it easier to achieve FIRE.

https://en.wikipedia.org/wiki/FIRE_economy

signa11• 11 years ago

was it peter-thiel's talk that mentioned that you are not a lottery ticket ?

mathattack• 11 years ago

The link was dead. But to answer the question - I've known several engineers who have done very well. It's not $100+ million money, but in the 5-10 million range. The key was both being visibly talented (the kind of people universally recognizable as being capable of solving the hardest problems) and joining companies that grow like a rocket (Apple, Google, etc).

beachstartup• 11 years ago

site is down.

after starting my own company and seeing modest success, i wouldn't want to get rich any other way. i feel much more in control this way, and even if it is an illusion, it's a useful one.

JanneVee• 11 years ago

Found an archived link of it if you get the database connection error. https://archive.today/WyTCF

arbitrage3145• 11 years ago

If you want to make "big money," you should pretty much avoid WORKING at startups at all costs. Instead, get a high-paying job at an established company, and invest the difference in the startup's equity.

I've considered lots of startup jobs because I believed strongly in the companies. Every single time, however, I was able to get a larger chunk of the company by keeping my current job and simply investing.

To give an example, my current job pays about $250k, and one year, I invested $100k of that into a startup, leaving me with ~$150k of salary. This $150k + startup equity was a better deal than the startup was offering in both salary and equity. Plus, equity bought as an investor is much less tax toxic than equity options received as an employee of a startup.

On the other hand, most people who work at startups aren't interested in money. If that's you, that's totally cool, and I respect that!

burger_moon2• 11 years ago

This may be a really stupid question, but how do you cash out your investments in these startups? Do you have to wait for them to get bought out or can you sell your stake in the company to other investors?

arbitrage3145• 11 years ago

Hi burger_moon! There are a couple of options: 1. Attempt to sell back to the company 2. Sell your shares to an independent buyer that you've found (the company typically has right of first refusal, which just means they're allowed to outbid the independent buyer) 3. Wait until the IPO, and sell them on the open market. 4. Sell your shares on EquityZen, SharesPost, or something similar.

giuscri3• 11 years ago

Can I ask you what is you current job?, the one that pays you $250k per year.

arbitrage3145• 11 years ago

Hi giuscri! I work as a developer at a large company (e.g., think Google, Facebook, Goldman Sachs, IBM, etc.).

conjecTech• 11 years ago

Your comment assumes your presence/work has no impact on the success of the startup, which is an unfortunate thing to assume. Otherwise the two equity stakes have different payoff expectations.

arbitrage3145• 11 years ago

Yep, that's a good point. If the startup will be less successful without you, then it's not a perfect arbitrage opportunity. This would be especially true if the company were small or starting out.

For most established companies, however, I think the difference of one person is typically quite low.

svimma23• 11 years ago

Blog is back up now

jrockway• 11 years ago

Because California income taxes are 10%, salaries in San Jose lose an immediate 10% when compared to those in say, Seattle.

But I get to deduct state taxes from my federal taxes, so it's not exactly 10% different.

mdorazio• 11 years ago

It's still a lot, though. Let's say you make 100k a year. State tax is 10k. If you weren't getting hit with the state tax, you would be paying $21,175 or 21.18% in federal tax (filing single). If you deduct the 10k from state tax to reduce your taxable federal income to 90k, you're still paying $18,375 in federal tax.

So let's compare total taxes: $28,375 with state tax vs. $21,175 without. So you're paying an extra $7,200, or 7.2% of total income. That's on top of the sky-high cost of living in CA compared to other locations.

tracker1• 11 years ago

NOTE: In many locations without a degree you can't call yourself an "Engineer".

bdcravens2• 11 years ago

Key word: "employee". Where someone else tells you what to do and controls your destiny. You can wrap it up in whatever words are prettiest, but employees serve the founders' visions for the product, financial rewards, etc. (which is of course perfectly fine, given the risk founders take)

That doesn't mean the only choice is to become a founder, not everyone is there yet. Looking at the article though, you see the bias that defines so much of the literature: despite the fact that we're creating software that reaches the world, the only place to get a job is the west coast of the US, right?

Wrong. There are tons of places doing 7 and 8 figures in industries driven by software. Small businesses. Be prepared to rethink how your career works. If you want to just hack and live in your little hacking world with your fellow hackers drinking hacker beer and listening to hacker music, then you're just an employee. If you're willing to stretch, and embrace what makes business happen, and apply your technical skills to those problems, and tie your success to the success of the business, there are some tremendous opportunities to be had. There are plenty of non-VC'ed businesses owned by people making real money who are more than happy to reward those who help them make more.

giuscri3• 11 years ago

Small businesses. Be prepared to rethink how your career works.

could you explain better?

HeyLaughingBoy• 11 years ago

He means start a business doing something profitable.

army• 11 years ago

Great, another person who doesn't understand marginal tax rates.

ultrasaurus• 11 years ago

As the informal statistics police, I'm uncomfortable with directly comparing jobs such as lawyer or doctor that require specific (and in the doctor's case limited) degrees to ones that anyone can claim to be (there are no 15 year old part time doctors).

Also, while maybe not relevant to a discussion of $200k+ jobs, averages among employed people may not be the average relevant to you -- it's much easier to find work as a junior marginal software developer than a junior marginal lawyer.

hacknat• 11 years ago

I know an Engineer at Microsoft who makes in the $500k+ range. Trust me, none of you would envy him (okay, some of you might). The way he does it is he's the guy who solves tough (not necessarily interesting) technical problems in the shortest time possible for x important feature. When .NET 4.5 was shipped you couldn't use the `await` keyword in a try-catch statement, because there was some issue with the debugger. He created a proof-of-concept in one month, but he threw an ungodly amount of hours at it. He's divorced and he lives at work. He's gets huge stock bonuses every time he does something like this, but, IMO, it's cost him a lot to get that money.

Can you make “big money” as an employee in software?

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