Creative Ways to Pay Employees in Your Startup Stage

When you are getting started, you know you need help but often don’t have the money to pay employees. Every entrepreneur faces the question of how to pay employees during the startup stage when money is tight and the business has yet to prove itself. When getting your company off the ground, there are ways to compensate workers that won’t break the bank.

“When getting your company off the ground, there are ways to compensate workers that won’t break the bank.” 

Some Broad Perspectives

Here are some creative ways to compensate your employees during the startup stage:

• Hire Stay-at-home Moms and Dads. Part-time employees, particularly stay-at-home moms and dads, are a secret weapon for startups. When my company first launched, we advertised for “flex time” employees in local papers and were surprised by the number of highly qualified applicants we received. For less than half the cost of full-time staff, it’s possible to attract experienced employees to your company. If you plan to hire a stay-at-home mom or dad to work at your company, be wary of assigning them critical time-sensitive projects.
• Defer Compensation. One of the most common ways that cash-strapped entrepreneurs hire employees is by convincing them to accept deferred or delayed compensation. There are different ways to do it: a deferred cash bonus until the business generates a certain amount of revenue; an increased salary when the employee hits performance milestones; or back-pay provided when the business becomes profitable. Consider offering an increased salary rather than a cash bonus or back-pay because one-time lump sum payments tend to offer short-lived gratification and tend to give you less bang for the buck. In addition, employees feel more pride when their salary is permanently increased due to business progress or personal achievement.
• Use Equity and Stock Options. Another alternative is to offer employees equity grants or stock options instead of cash. This is only a viable alternative for companies that have realistic prospects for liquidity; in other words, don’t offer stock options if you don’t think they’ll be worth anything. Nevertheless, stock options tend to motivate employees more than cash bonuses at the startup stage. Avoid stock options (and the legal costs of setting them up) unless you genuinely believe they’ll be valuable one day.
• Employ Interns and Volunteers. Hiring unpaid staff is an obvious solution for startups but one that’s often overlooked. Colleges and universities are teeming with bright young workers willing to work part time or full time during vacations to gain experience. Just posting an internship announcement at your local college will draw applicants.It takes effort to set up a win-win situation for both intern and employer, however. It’s important to remember that interns are not like part-time employees who are primarily interested in a paycheck: You can’t expect to give them menial work for the duration of their internship. One way to motivate interns is to ask them to list their learning objectives for the internship. Have monthly meetings with them to track how well they’re doing on reaching these objectives. Then even doing menial work becomes tolerable if it’s put in context.
• Focus on Revenue. As any entrepreneur will tell you, the best way to pay for three employees when you only have the financial resources to hire one is to generate more revenue. The first employees you hire should be the one that will get you closest to generating sales so you can afford to hire more. It’s never too early to start selling-or pre-selling-your product to get funds in the door.

These techniques can help you lessen the burden of the need for resources.