Building a Team
So you have an idea - should you build a team of cofounders? Or go it alone? And how do you compensate cofounders (and/or early employees) if you have no (or not much) money?
The Startup Genome Project found that startups with a team (better yet - startups with a balanced team; a team that wasn't 100% developers) are more likely to succeed.
Managing a Startup Team
A startup cannot afford team members that are not a fit and who are not contributing. Choose team members carefully. Perhaps try a trial period. And if it isn't working, it's much better to correct the situation by making a change earlier instead of later!
Finding CoFounders
Meeting prospective members comes down to networking. Start by identifying the skill sets that you need. Being clear on that will make your networking a lot more effective. Then get pragmatic about what events you might attend to meet those kind of people. And write down a list of people you know who might know people who would be a fit. It's all networking. But start with a clear notion of what skill sets you need.
Compensation and the Early Stage Startup
There are not a lot of guidelines for startup compensation models. A lot of it comes down to putting together a win-win model that on the one hand is compatible with the realities of the company's cash-flow today, and on the other hand is a win for everybody if revenue ramps.
When the company is pre-revenue and has not received any investment funding, you certainly see situations where the founding team doesn't take any salary at all. But that can get into issues. Employees need to be paid (state law says so). So you should check with an attorney or with a human resource professional to make sure you set up your compensation structure in a way that's legal!
Stock is often a key component of a startup compensation plan. Be sure to review some of the founders-stock considerations in the Decide on Stock Ownership section of the Road Map.
Employees vs Contractors
Sooner or later, you'll be hiring employees and using consultants. In the case of consultants, it's important to make sure they qualify as consultants. There have been cases where companies paid people consultants, when actually they should have been employees, and calling them consultants was just a way to avoid paying taxes and providing benefits.
So get advice from your attorney on the difference between contractors and employees. For some general background, see the article from Ater Wynne in the Contractor section of the Articles and Papers page.
Compensating Contractors with Stock
As part of the compensation for consultants and other contractors, you might consider paying them partly with stock and partly with money. In particular, for a contractor, you'd be talking about Non Qualified Stock Options (NQSOs also sometimes referred to as NSOs). For more information on stock options, see the Stock Options heading on the Articles and Papers page.
One thing to watch out for: NSOs generally don't cause any tax consequence when granted because they generally don't have any clear value. However, if you inadvertently assign value by saying to a consultant "give us a $xx,xxx discount and we'll give you some number of stock options" then you just put a value on those options, and there might be some tax impact to the contractor. Talk to your accountant for advice.
Hiring
With a little luck, hiring more people will be one of your challenges. It's important to follow some guidelines to make sure you do this correctly and legally.
You should get some professional advice from an HR professional to make sure you cover all the bases (see the Service Provider page.)
Interviewing
Check out the HR Guidelines we have in our Sample Documents. Those were provided by HRAnswers and they included pointers on interviewing. This is important. There are questions you can not ask -- questions that can get you into legal trouble.
Offer Letter
Check with an HR professional to make sure your offer letter says the right things. (There is a sample letter in the HR Guidelines -- see Sample Documents.) An offer letter should include:
- The job title, start date, and compensation
- A requirement that the employee sign a non-disclosure, invention-assignment, and non-compete agreement before starting work.
- It should have the appropriate wording about employment being "at will" and their employment can be terminated at any time for any reason or for no reason
- If the offer includes stock options, remember to say "I will recommend to the Board of Directors that you be granted xxxx options". The Board has to approve options, unless they've delegated that to you
State and Federal Requirements
The Oregon State Corporate Division "Employer's Guide to Doing Business in Oregon" will walk you through a number of employer issues, such as:
- There are some required posters that must be properly displayed in the workplace. For more information, see the state of Oregon Civil Rights Division website.
- You'll need a Federal Tax ID (see the IRS website)
- You'll need Workers Compensation Insurance (check out SAIF).
- Fill out an Immigration & Naturalization form I-9 for each employee (get the form here)
- Report new hires to the Department of Justice Division of Child Support (see the Employers tab on the Division's website)
- Contact BOLI (Bureau of Labor and Industries) for Employer Information
- Determine if you comply with the Americans with Disabilities Act (ADA). The Northwest Americans with Disabilities Act & Information Technology Center has information.
- Check into OR-OSHA safety and health regulations