Startup Execution: Developing an Employee Offer and Negotiation Process

In seed and even A-round stage companies, the hiring process is often loosely defined. I work with a lot of companies that have very informal conversations with the folks they want to bring on board and it can lead to complications with hiring new folks and create issues after a new teammate has been hired. Here are a few steps to create a simple but effective offer and negotiation process.

1. Outline job responsibilities upfront

This may seem like an obvious step that most people will think that they complete. However, most job descriptions I read for startups are incredibly high level and don't clearly articulate what the day-to-day job will be for the new hire. More often than not when a startup hires someone "too senior" for a position - you know, the person who doesn't complete the tasks of a job but needs to oversee a bunch of people to do the actual work - it could have been prevented in the offer and negotiation process. Rather than writing high level job descriptions like "Responsible for revenue growth," startups need to list out the daily activities that need to be done by the hire in order to achieve the desired outcome of filling the position. For example, with your first sales hire, rather than telling them they are responsible for revenue growth, which technically is true in a sales groups of one or two, write out the daily activities like:

These are quite detailed, but it gives the prospect a much clearer idea of what they will do on day to day basis and will vet out any candidates that won't fit the actual job you need done.

2. Determine two compensation package options

As I outlined in our last post about determining compensation packages, you should have a range on the cash and stock compensation you are willing to provide. I make two offers, one with higher cash and less stock, one with higher stock and a bit less cash. Almost always I make the offer with less cash and more stock a larger overall offer with regards to dollar amount. I personally want people that want stock because it shows a bit more of a commitment to the long term.

3. Send an offer letter with an expiration date

While the high-level details of compensation and benefits are discussed throughout the recruiting and hiring process, I always make the formal offer via email with an offer letter. Since startups are clearly at-will employment situations, the form offer letter can be very lightweight, which your counsel should be able to provide a template for that you can reuse. One key point to the offer letter is an expiration date. I have little time or tolerance for offer shopping (not that I necessarily knock people that do it, just not my top choice of teammates) so I typically make offers expire in 48 - 72 hours depending the situation. You must give the prospect enough time to ask any questions about the offer and do a bit of homework on their end. 48 hours should be enough, 72 should easily be enough.

Additionally, regarding my strategy of providing two comp packages to choose from, I very rarely negotiate on them. If you do your homework on the market rates of certain positions and what you need to get out of the position and what it is worth to you, you should be disciplined in sticking to your budget. Over extending on a hire or two may not seem like a big deal, but over extending on anything is something that becomes habitual and will ultimately become costly, increasing your expenses and cutting your runway.

Previous posts about the startup execution process

One-off startup execution cases