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At a startup where the senior dev team have been here 3years, almost since the start, and their options are now vested. We have product in the market, are just about cash-flow positive, but are still a few years away from an exit.

How do I stop the team leaving?

If they were really motivated by startup excitement , risk, and options then the logical route would be to leave here, banking the shares, and find a new early stage startup and do it again.

If the product was mature, stable and moving into maintenance then; Fine - they leave and I get a bunch of 'B'-student completer-finishers to grind on. But we still have a lot of hard work to do now that we have customers "to delight".

I can't go to the board and say I need a 50% pay rise for everyone - just to compete with what regular dev jobs pay, never mind what Google/Facebook etc would offer. Especially not if I'm also saying - the all-nighters and weekends stop now we are a regular company.

I can't go to the devs and say; there's no more pay but keep working hard to earn the salesmen their massive bonuses, and your efforts will raise the value of the company and your options will be worth a few % points more.

What do companies do to retain staff in these circumstances?

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Give them raises. Sorry, but you gotta do it. – Andrew Bartel Apr 16 '14 at 15:28
Each person is different in what motivates them, but the generally-accepted and most fair way of guaranteeing their continued dedication is money. If the board won't buy a raise across the board, you need to find a bonus program that is designed to incent your employees to stay on. – Garrison Neely Apr 16 '14 at 15:31
possible duplicate of How to motivate people (employer perspective) – gnat Apr 16 '14 at 15:42
Money is not a very good motivator, but it is absolutely a prerequisite. These devs get a little older and a little more worldly and start to realize that they deserve a big pay day as well. If the company valued retaining them they would build the culture around the developers and rewarding the developers instead of rewarding and retaining management and sales people. – maple_shaft Apr 16 '14 at 18:37
Salary is a generally believed to be "hygiene factor" in motivation for most people - that is, extra salary won't neccessary be motivating, but lack of salary will be demotivating. If you're saying that the team needs "50% pay rise for everyone - just to compete with what regular dev jobs pay", i.e., you're paying them very significantly below a fair market wage, then that actually is a serious issue that you won't be able to avoid; it's a sign (at least perceived) of disrespect and unfair treatment, so it will be demotivating while it is so. – Peteris Apr 16 '14 at 19:48
up vote 17 down vote accepted

Especially with a small staff, it helps to know them and to learn what they want in a non-salary sense. Different people are motivated by different things and figuring out who to give what to can make a big difference. Here's some options:

  • People motivated most by money - may be good with the promise of a future bonus. Many companies have periodic options reissuance - so while these options have vested, more options could be issued to vest over the next 3-5 years - it's delayed costs and it can be done in tandem with company success (options will vest iff the employee is in good standing, working here at the time of vesting and the companies financial state is XYZ). Similarly cold, hard, cash bonus options that pay off in increments over time.

  • People motivated by opportunities - start talking to each employee - what are they trying to grow towards in their careers - give them the work and the responsibility that will get them to that place. Many folks are willing to delay on salary, if they know they are building the skills and experiences that make getting the higher pay later on an easier option.

  • People motivated by visible status - some folks feel rewarded if they have a visible sign of status. That may be a bigger desk, an office, special privileges or a nifty title. The goal, though is to connect the status to the work - "If you can do more sales support work, I can justify moving you to an office, since you'll be on the phone a lot and needing the privacy" for example.

  • Control, ownership and supportive management that gives good feedback - probably the headiest motivation cocktail for anyone. People will stick around longer if their bosses are fabulous - and fabulous does not mean "nice", "easygoing" or "constantly complimentary" - it the motivation of having a boss who supports you with both the right of self-determination and real feedback when you're screwing up. If you can get your management to this point, you have a really powerful corporate culture that can do almost anything.

  • Competitive policies and perks - what specialized perks can you offer that other companies can't? A bidding war is hardly advantageous - so just copying local competition for employees may not be the way to go. But helping people save money for their families vs. giving them more money can often be an option. And people can be strikingly myopic about the money you are saving them. For example, I get all excited over saving $15 on parking, even if it takes me 10 extra minutes, and is less than the cost of my lunch.

There's no 100% retention plan out there. I have a friend who's baseline condition for a "good office" is that he be easily able to keep in touch with the senior levels of the company, as a high level individual contributor, which really becomes impossible at a company of more than 300 or so. He's just not someone who will stick around when a startup gets "unstartuplike". There's not harm here, or reason to bend over to retain this person - he's great, but he's also not intereseted in conforming to some of the processes that make it possible to grow the headcount of a company in an effective way - so he's not the optimal candidate for trying to retain.

Not everyone joins a start up for the same reason. My friend loves the small size, but another person may love the challenge (which doesn't leave when you grow!) and another may just love a smart, close knit team... knowing who needs what is the essence here.

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That's my main concern. The founders/leaders are fantastic - but as the company grows it gets layers of management between them and the devs. My team leads report directly to the CEO not me (CTO) so I can't "promote" them and they are all old/wise enough not to fall for a business card with "architect" on it. – NobodySpecial Apr 16 '14 at 15:55
Then it has to feel like these people are not disconnected when they start reporting to someone else. That may be hiring management who are just as awesome as the CEO, and/or getting the devs to realize that the organization cannot grow if the CEO is managing developers rather than doing bigger picture, cross-business work. And no - a title can't be empty. Being a senior, principal, uber whatever has to have real skills, and real responsibilities... but it can't be defined by "how high up the ladder is my boss" as the ladder will be undergoing some major changes. – bethlakshmi Apr 16 '14 at 16:04
Some of the "self-determination" end is also figuring out if there are developers who want to be managers and whether that sort of promotion is a viable angle for retention. – bethlakshmi Apr 16 '14 at 16:06

You made a critical mistake when you didn't tie the compensation of the top-level development team to revenues, as the sales staff (apparently) is.

You need to fix that immediately.

Tie the compensation for them (senior developers) to performance metrics that they have at least some control over, and you will see enthusiasm the likes of which even God has never seen! (Sorry - a little Dune crept in there).

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That's the problem in the years between launch and acquisition - the revenue goes to build the company growth/value toward exit. The only "performance metric" is, if you don't keep working hard the exit will fail and your options will be worthless - which isn't exactly motivating! – NobodySpecial Apr 16 '14 at 21:39
@NobodySpecial - No one said you ply ALL the revenues into compensation. You have to give the key contributors a taste, though. Sales is already getting it. Key developers can't be excluded. That's a formula for mutiny and disaster. – Wesley Long Apr 16 '14 at 21:46

Ask your board

This seems to be a serious strategic issue with the compensation strategy of your company. Extra motivation perks will help and you should consider them, but they don't solve the underlying problem.

Salary is a generally believed to be "hygiene factor" in motivation for most people - that is, extra salary won't neccessary be motivating, but lack of salary will be demotivating. If you're saying that the team needs "50% pay rise for everyone - just to compete with what regular dev jobs pay", i.e., you're paying them very significantly below a fair market wage, then that actually is a serious issue that you won't be able to avoid; it's a sign (at least perceived) of disrespect and unfair treatment, so it will be demotivating while it is so.

There is a stage in startups where it is appropriate to pay people below-market salaries. It is not sustainable for too many years. At some point that stage is over, the startup is maturing and you must plan for across-the-board salary reviews to get your compensation in order. Unless your startup collapses, you will have to move beyond that stage, and move your compensation from the current model to market-rate salaries. The earlier employees will have an extra benefit of having [more] equity, but that's not in any way relevant to this year's salary, that was about those previous years.

The question is when should you do that. '3 years', 'cash-flow positive' and 'C-round' are words that may signal that this point may be arriving, but it's a strategic decision that needs to be made. You seem to be in a CTO position - this means that this question shouldn't be solved by you. This is mostly a decision for the board, and definitely for CEO as well - but you should rise this issue to them in a serious manner; waiting out problems and hoping that they go away by themselves usually isn't a good management strategy.

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I've been in this situation with one of the most successful start-ups in the UK. I watched over 80% of their technology staff disappear within a few months because the company didn't grow on target (yet they still grew

This is the beginning of the end of a culture of staff who will collectively pull out all the stops to make something happen.

Warn the board that the imbalance between Sales bonuses and Core technical staff has not gone un-noticed, and while sales are important, it's also very important to deliver their promises. A ship needs all hands to co-operate collectively otherwise you'll have a mutiny to deal with.

Expect people to leave. You're actually fortunate to know they are disgruntled. Sometimes they say nothing and expect you to work it out. Even worse they'll tell you everything is fine but they need a change.

More Stock options is a good retainer, as is a token pay rise or good-will bonus.

Nobody like to be taken for a mug, and engineers are smart... it won't take them long to figure out whether the gesture was a genuine sweetener..

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