I had been writing versions of this, and then Eric Bahn wrote an excellent post outlining all the elements of a startup job offer, so I can spend far less time defining everything. For many of the terms I’m talking about here, I highly recommend reading his recently published article here.
I’ve been on both sides of job negotiations, both as the job-seeker and as the hiring manager. So, I’ve seen a fair number of tactics executed in the process of people attempting to match a new role for themselves.
This post is designed to help the job-seeker through the negotiation process.
After the Offer
So you managed to do well enough in the interview to get an offer. Congratulations. Time for phase 2.
Now that you have an offer, you should be happy. You’ve done the hard work to convince the company you want to work for them, and now they are invested in you.
Oftentimes, the prospective employee does not realise the amount of power they have. The company has decided they want you more than other candidates and they are going to fight to get you. And if you are in a hot tech market (like we are right now) there’s a high chance that they don’t have many alternatives.
So what should your goal be? In my opinion, you should extract the maximum amount of personal value from the company without sacrificing your reputation or ability to be a successful employee.
Let’s walk through a couple of hypothetical examples and how you can negotiate well and not so well:
Scenario 1, the offer that is higher than you expected.
You’re probably floored. You got more money than you expected and the equity stake is great. It’s probably just time to accept and move on right?
Wrong. Almost every company builds offers with upside expecting negotiation. Sure, you might be tempted to just accept and be happy. And if you don’t like negotiating, I suppose that’s fine. But the goal here is to extract the maximum value for yourself, and you’d likely be leaving money on the table.
Here’s a hypothetical. You were making 80k and had .1% of a company as an early stage marketer.
You receive an offer for 100k and .2% at the new opportunity. (For simplicity, let’s assume that your shares are equal 1:1 between old and new company).
While you might be tempted to take this 25% increase in salary and 50% increase in equity, I’d actually argue that a rational company probably actually has about 10% more salary available and maybe 20-25% more equity.
My immediate reaction would be to counter, and look for something in the 110k range and .25-.3% of equity.
Why, you might ask? This offer is great, and you want to work here. Because, the company expected you to negotiate, they want to hire you, and this is likely to be one of the biggest salary jumps you’ll see in your career.
Never forget that last piece. Once you’re locked into a salary with a company, you’re not likely to see raises or comp increases similar to those possible when moving from place to place. You have to take advantage when the opportunity presents itself.
With these tactics in mind, you have a high probability of pushing up you salary another 5-10% and gaining a significant chunk of valuable equity.
Scenario 2, the offer is lower than expected.
Oftentimes, this is a tougher situation, especially if it’s a company you want to work for. Consider the following example:
You are currently making 100k and have about .2% of the company. You receive an offer from a company you like, but they can only pay you 90k and offer .15% of the company.
In this case, you have a couple of measures to play with. For one, is this company more cash-strapped than the first one or at a different stage? If that’s the case, you may have a lot of leverage to argue for a significant bump on the equity side.
For example, it would not be a bad negotiating tactic to ask for .30-.40% of the company, explaining that you for the compensation you are giving up, you want a larger piece of upside. For a company that is trying to conserve cash in an earlier stage, this is often an attractive alternative.
You also have to decide if you’re willing to walk away from the job opportunity. If you are absolutely unwilling to accept a role for less money, it’s important that you think through the implications of that in advance. Scenario planning your negotiation is always important. If you are ok with taking the pay cut because you desperately want the role, make sure to build that into your negotiation mindset. (And your pricing model)
I’m also making an assumption that you are looking at two jobs that are largely similar. If you are career switching, going from a big company to a small one, or doing something of that nature, the role and stage of the company can have a major impact on your expected compensation. Make sure you think about this before you get to the offer stage so you set proper expectations.
Scenario 3: You Have Two (or more) competing offers
In my opinion, there’s almost nothing better. Multiple companies are interested in hiring you.
Before starting any negotiating in this scenario, it’s important to step back and analyse a couple of questions:
- Do I strongly like one company more than another
- Does one company offer me experiences or expertise that are more valuable than money
- Is there some long term career or title benefit I get from one role and not another
Each one of these variables can and should be factored into your equation. An easy way to do it is just to incorporate each as a discounting factor. If Company A is your preferred company, what difference in pay are you willing to accept to work there over Company B? 10%? Therefore, an offer of 100k at A and 110k at B is equal so you should accept A. This isn’t perfect, but it provides you a formula that you can use to roughly assess competitive offers.
It’s best to inform the companies that you have a competing offer. Also make sure they understand what amount they’d need to pay for you to immediately accept. This is a powerful tool with your first choice company.
Here’s an example. Company A is your first choice and they have offered you 90k and .1% in equity. Company B is your second choice, but they have offered you 100k and .2% in equity.
At this point, you might have a better chance of extracting more total value from Company B, but you still prefer Company A. A potentially useful tactic is to explain to Company A that they are your first choice, but that financially, you have a more compelling offer. Then tell them what salary and equity are needed for you to be comfortable and end the negotiation.
I don’t love getting two companies into bidding wars. While it can be fun, it can also leave the companies with a bad taste in their mouth about you because you leveraged them to drive up value repeatedly. I think it’s ok to leverage that tactic once or twice during negotiations, but doing it repeatedly sends a negative signal about you to the company.
There’s a lot missing here. I’m not considering benefits, culture, or many other elements that need to be thought through when accepting a job. Please don’t interpret this blog post as some indication that you should always take the highest offer – it’s far from that. Instead, it’s designed to give you tactical advice as you think through the final steps of a job search.