4 reasons why titles matter in startups
August 5, 2014 Leave a comment
So you have just been offered a product management job in a startup, but the job offer does not mention any specific title. Should you bring up the title in your offer negotiations? I say Absolutely. In startups everyone is expected to wear multiple hats, but titles still matter for the following reasons:
- Equity offered is directly proportional to your title: Startups have what is known as a capitalization or a cap table. In its most simplified form, you can think of it as a two-column table – first column lists the titles in each row and the second column lists the % of ownership each title is given. Founders get the most equity, a hired CEO gets the next big chunk, VPs get more than Directors, Directors more than Managers and then at the bottom are those who are individual contributors. So your title determines what you get. Of course, there may be exceptions especially for the first few employees, but the cap tables are a general rule of thumb when it comes to equity grants. Note that I specifically used % of ownership as opposed to number of shares (this is another pitfall you should avoid). The number of shares mean nothing other than possibly stoking your ego. Being granted 50,000 shares may make you feel good, but if the outstanding shares are 100 million, you have just 0.05% of the company. This means if the company gets sold for $100M dollars 5 years after you join, the maximum you will ever get in exchange for your 5-year sweat equity is $50,000 (and even this is not a given and it depends on the terms at which money was raised from investors). Instead if you had 1,000 shares in a company that has 100,000 shares, you own 1% of the company. If it now gets sold for the same $100M, you could get a sweet $1M.
- Current title typically determines where you go next: Very few startups succeed, actually only a minuscule of them. You may have a fancy title of “The Cool dude” in the company that says titles do not matter and one that touts great culture. Even if you were responsible for all of product management, it could hurt you in the future. Future employers will not know what “The Cool Dude did” or may not even believe what you did. I would any day choose a title of Director of Product Management or VP of Product because it sets you up for your next stepping stone. Note, the founders of a company will make sure that they have the title of “Co-founder” in their titles for a good reason – it demonstrates their entrepreneurship and risk taking abilities. So I don’t buy when I hear startups say “we are not big on titles here”. Don’t get me wrong, I have always done what is needed to get the job done independent of what my title states, but that does not mean that the title is not important.
- HR cares about titles: If your startup gets acquired and if the acquirer decides to eliminate positions, severance payouts are usually based on your position in the hierarchy. I have seen execs walk away with a much bigger pot of gold than individual contributors have. Even if you are not let go, your compensation structure (bonus, stock options etc.) in the new bigger company will be dependent on the title you held in the smaller acquired company.
- Titles matter when speaking to customers: “The Cool dude” on your business card is not going to help you much if you are trying to close a deal for your sales team or if you are trying to meet with an executive of prospective clients. Titles like Director of Product or VP of Product Management likely will. Customers want to spend time with whom they perceive has decision making authority and not with “The cool dude”.
Just my opinion. What’s your take?