Compensating Employees

When You Can't Pay Employees

Written by James Garvin for Gaebler Ventures

Startups are cash poor and as much as entrepreneurs would love to hire a team of employees to assist with what is required for the business, often times entrepreneurs don't have the cash up-front to pay for employees

If a business has no employees, it can't get done what is needed.

This is a popular misconception that prevents a lot of want to be entrepreneurs from moving forward with their business idea. Many think that you have to be cash rich to get a startup of the ground. For some industries that may be true, but for many it is not. The biggest startup expense for many is employee costs.

There are several ways to get help from others with out having to pay a salary or benefits. The most common is often giving out small equity stakes in return for service contribution. Service contribution may include legal work, programming, consulting, sales, or marketing. Convincing a professional that their equity stake in your startup can often times be challenging however and giving away equity may be an expensive proposition for you as a founder.

For some services such as marketing design, website design, or other creative elements required, you may be able to get a new graduate or a new professional who is looking to build up their portfolio before they can start to fully charge clients for their work.

For non-creative work, you can also seek out undergraduate and graduate students seeking to build their resumes and get real world experience. This may sometimes require more hand holding on your part, but it is likely that students will work for free or small wage on a part-time basis to offset their lack of experience and help build their experience.

Another resort that many entrepreneurs turn to are friends and family who are happy to give a helping hand for free to someone they know and love. Using friends and family can often be like walking on a tight rope since you need to balance so many sensitive issues, but if you trust that your friends or family members have the skill sets you need to help you with certain aspects with your business, then sometimes this can be a very reasonable path to follow and even help strengthen some relationships.

Giving away equity is the most expensive form of payment you can give. While it may seem like "free work" today, as your business grows and your equity portion gets diluted, you are in effect giving away tens of thousands of dollars to sometimes millions. Some entrepreneurs are okay with this thinking that they could not have built a multi-million dollar business with out giving away equity in exchange for service. However, other entrepreneurs get frustrated when they realize that their original marketing consultant who only worked 20 hours on a project got 1% of the equity which is later worth a few hundred thousand dollars.

Ultimately it's up to you and what you are most comfortable with regarding equity distribution in exchange for service contribution. If you are okay with giving equity in exchange for service contribution, you may want to consider seeking full-time partners who will have long-term skin in the game and who will provide continuous service to your start-up rather than one off projects like many service professionals.

If you are looking to start a business, but fear not having enough cash to hire employees, do not let that be your road block. You will likely encounter much more challenging hurdles you'll need to get over. There are many options to getting the help you need to get started.

James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities


Business Glossary


Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

Leave a Reply

Questions, Comments, Tips, and Advice

Email will not be posted or shared
Code Image - Please contact webmaster if you have problems seeing this image code

Problem Viewing Image? Load New Code