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I've been freelancing for a former colleague of mine who has started a new business. I've known the colleague about 4 years professionally, and he reached out to me to join his business as an employee. The new company is made of mostly ex-colleagues of his so far. He has given me a full time offer contingent on the business reaching its next funding goal, likely in 1-2 months.

The problem is the salary offer is about 15-25% lower than my previous job, depending on if I ignore the bonus factor. My previous salary was generous overall. I'm curious how I might negotiate this to a more reasonable number? At the very least I'd like not to take a paycut from my previous base salary. I've seen that the company is doing well so far, and the next funding will solidify it, so I don't think they are hurting for cash.

The unique factor seems to be that he specifically sought me out for the position based on my unique skillset to offer within the new company, I'm the lead. I've got 10 years experience in what I do, and have created similar things to what they want in past, with lots of transferable knowledge/tools. I plan to use the next 2 months to deliver amazing results, such that he wouldn't want anyone else for the role. No one better, and no one new either.

What is the best approach at getting the 15-25% more I expect? I feel like if I just stated the minimal 15% higher, it would be compromised down to somewhere lower. And if I stated "I was thinking 15-25% higher than this number", 15% is the best that would be possible. If I went high at 25% more, it might be considered absurd.

At the same time, I'm interested in continuing this role, so he may know I'm not going to walk away from the low offer. I've been interviewing elsewhere with no offers yet, perhaps I play-up other company's interest?

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    If you aim at something comparable to your previous job or a couple of percent more, it isn't "absurd". If your colleague thinks it is, you may need to introduce him gently to your actual worth. Also, have you thought about equity as part of the compensation? That may not cost your colleague a lot at this point in time, but it may be worth a bit to you later on, assuming things work out. – S. Kolassa - Reinstate Monica Apr 3 '14 at 15:34
  • There is a small equity value attached. It shouldn't dramatically alter the offer though, as equity was present in my past role and is expected in potential jobs from other interviews, varying based on company age of course. Even as an early-employee though, the equity % is not dramatic. – Miro Apr 3 '14 at 15:46
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It sounds like you don't have any misunderstanding and you don't have anything to hide. Honesty is the best approach. I would go forward with:

"Hi John, this is great and I'd love to work for your company, but your offer involves a 15% pay cut. Can you match what I currently make?"

One thing I'd like to note is that you shouldn't assume that they can afford higher salaries unless you have a complete picture of their financial projections. Be prepared for "no" as an answer. What I would suggest in that case is to try and negotiate some sort of an equity/stake in the growing company to compensate for a lower salary. This is fairly common in the start-up world.

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If I went high at 25% more, it might be considered absurd.

And? The worst they can do is say "no," but it certainly sounds like he really wants you, which puts you in a position of power, from a negotiations standpoint. And, speaking of that, here's an article I think you need to read. Written by an engineer, for other engineers, but most of it's applicable to anyone, especially someone like you whom the hiring manager specifically wants to hire.

Ask for +25%, but settle for not taking a pay cut (maybe - personally, I'd probably settle for a smaller than normal pay bump in this spot... +5%, instead of +10%... call it a friend discount, if you can talk me down to it).

You're worth it, you know you're worth it, and it sounds like he does too - that's why he's seeking you out. Emphasize those aspects, rather than inventing other job offers, or interest from other companies.

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So... this is a draw - he knows you, and you know him. He knows he wants to work with you, since he appreciates your skill. You know that the company is doing OK, although it's clearly still starting up and getting funding.

Whether you state, point blank, your bottom line expectation (for example, not taking a pay cut) or whether you aim high and let yourself be bargained down is largely a matter of how you think this particular individual will react and what your personal style is. I'm a bad enough bluffer that I don't feel comfortable implying things that are not true (that I make 25% more or have other offers) - but some folks do fine with this approach, and some cultures expect to haggle.

Under the covers, there is a tradeoff that you just can't get the answer to - the company will decide, at some price point, that you are too expensive and that they can do better things with the money that they were going to pay you. No one's resources are infinite, and if the company is making offers contingent on venture capital, they don't have the money in the bank to pay you for the offer they've made TODAY, much less a higher offer.

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Where is the new business in its financial track?

This is a very important question in how you approach the question, and how you approach the situation should really be tied to another question:

How much risk can you take on right now? Can you buy in to a startup?

  • Early Funded and No I cant

Probably not a good fit for you to make a move. Let them know you are still really interested and you want to be part of making him successful, but when they are in a little more stable place, come back and talk to you about coming over.

  • Early Funded and Lets roll the dice

Make the jump and realize that base salaries are highly controlled in new businesses that have either VC or personal backing. Instead, seek to make up the gap by negotiating less on base salary and more on long term equity and/or other targets associated to growth of the business. This is a shared risk scenario but if you can make enough money to live, going back on salary for a startup is not looked at in the same way as taking a pay cut from one employer to another would be at stable firms.

  • Slow Grow and No I cant

You may have to settle for a small pay cut if you are really interested in the new opportunity. This is the tough scenario where it may just not make sense to move and comes as much to your personal motivation and risk tolerance as anything else. Seek good bonus compensation and work like hell to bring that bonus in.

  • Slow Grow and Lets roll the dice

Make the jump, and seek either strong bonus or company equity to manage the impact of the pay cut. Try to push back a little bit more on the amount of the pay cut than you would if it was early funding or stealth mode with no income. If they have income and a strong business plan, they should have a plan for how your eventual market value is met by the value that you personally play in the business, "golf buddy to the boss" as your business value may be a sign of a stronger long term threat to your stability with the new firm.

  • Stable customer base

IF they have stable income, push on the pay issue and by all means be careful about the value of the pay cut. Ask yourself if you have control over some of the bonus targets. If you do, its pretty common for sales roles to carry quotas and Management By Objective triggered upside. Just make sure if you take any base cut at all that the risk is well outweighed by the upside and you have an almost 100% of break even, and good odds of going beyond based on what you know about the business, the product, and the marketplace it's going into.

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