A startup founder’s hourly rate

Here is an awesome interview on Mixergy, and I like a ton of them on there. This one is Jason Cohen who has been popular in the startup community for awhile. There’s a lot of gems in this interview, but the one that stood out the most was his bit about how much a founder’s time is worth. I’ll summarize it for you here, but it’s worth watching the entire interview.

Most folks starting a business will assume their time is worth whatever their hourly rate was before staring a business. If you were making $100 an hour doing consulting before, well, that’s what your time is worth now.

So any calculus, done on the opportunity cost sacrificed when you screw around and don’t work on things that will actually get your business to start paying you, uses that $100 an hour number in your head.

For example, let’s pretend you’re starting a business. Let’s pretend it’s 6 years ago and you are starting a prediction markets company with 2 other guys, and the 3 of you just moved into a barely furnished apartment. And then let’s say, one guy.

Hypothetically now.

Wants to go drive from Mountain View, California to somewhere near Eureka to go get a second car from his parents and a bunch of pots and pans for cooking. Because wouldn’t that be handy?

It’s like a 5 hour drive each way. Need to stay overnight. Not the most convenient but it’s going to take up “less than a day”. And then we don’t even have to rent a second car or buy all these pots, pans and dishes and some other junk at Target. Maybe that’s $200-300 saved from Target shopping, and at least another $200-300 we’ll save not having to rent the occasional car. We’ll save at least $600! Plus free meals with the family, etc.

The thing is, that $100 an hour number in your head isn’t right. As Jason explains, that $100 was $100 when you could expect to be paid. You did the work, and you got your paycheck. Almost 100% of the time. But now, you’re working on a startup where the odds of you getting paid for the work you do on your business is something like 1/5. And that’s even optimistic. Maybe it’s 1/10.

So to make your $100 an hour, you really need to be working on things in your business you can expect to be valued at $500-$1000 an hour. Now does saving $600 on this trip sound so swell if your time is worth $1000 an hour!?

To our credit, 2 of us didn’t think this trip was a very good idea. But through the above lense we should have probably raised an even bigger stink. And I’m picking on one of us, but we all occasionally screwed up this logic.

Because it plays out with a lot of things.

You want to run a wordpress blog for your company, but don’t want to pay the extra little bit to host a separate wordpress instance somewhere. So you try to squeeze wordpress onto the same instance of a server you’re running your application on. And you spend a bunch of time learning how to install wordpress, and screwing around with it’s settings, and on and on down a rabbit hole so you can save $10-30 or so a month.

Got free tickets to another conference? Are you sure those tickets are “free”?

Like Paul says, stop fucking around. Another wise Paul, last name Graham, likes to always say something like this while you’re getting your startup started:

You should only be working on two things. Talking to users. And making features.

Those are $1000 an hour tasks.

P.S. You might dig following me on Twitter.


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