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Naval Ravikant Headshot

Why Startups Can't Hire

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There isn't a shortage of developers and designers. There's a surplus of founders.

The cost of starting a company has collapsed. It's now just (minimal) salaries. For entrepreneurs, desks are free, hosting is free, marketing is online, and company setup is cheap.

Raising the first $25K for product development is easy - join an incubator. Raising the next $100K is easy - investors are following the incubators with automatic notes. Building a product and launching a product are easy - develop on Open Source Stacks, host on Amazon, launch on Facebook, Android or iOS, get your early traction.*

Getting real traction is hard. Raising millions of dollars is hard. Building a sustainable, long-term company is hard.

Yammer can hire. Square can hire. Twitter can hire. These companies have achieved product / market fit. Your pre-traction company has not, and so it has a hard time hiring.

If the costs of founding a pre-traction company have gone down, then returns to pre-traction founders must go down.

Throw out the old cap tables. A founder doesn't get 30% and an early engineer shouldn't get 0.25%. Those are old numbers from when you had to raise VC capital before you could build a product. Before everyone could and did start a company.

Post-traction companies can use the old numbers - you can't. Your first two engineers? They're just late founders. Treat them as such. Expect as much.

Your next five designers and developers? Your cap table probably can't even afford them until you have traction, and the cash that follows it.

Close the equity gap, and hiring will get a lot easier.

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* Of course nothing is ever "easy" - but it's a lot easier than it used to be.

** This is just my opinion, not that of my employer. But you can see what they're doing to help at AngelList Talent. Coincidentally, the lead hacker on that project put up this related must-read post on his own blog yesterday.

This post originally appeared on Startup Boy.