Lessons from my first exit

great write up.

> $920k over four years

so this gives an average yearly salary of 230k. Very close to FAANG senior salary with much more risk, effort and (probably) worse life-work balance. OP quit from google in 2018 and ran some other business, and this is his biggest sale so far. I think it shows how hard it is to make better money outside FAANG even when extremely talented and lucky like OP. But it's probably more about lifestyle choices.

Kinda sobering when you think about it.

It’s not worth it. Neither is freelancing. One of the appeals of freelancing was being able to work from anywhere in the world and still make money, but with wider availability of remote jobs that advantage evaporates.

Working for a good company is still the best most consistent way to make good money and have a good life.

interesting to reconcile this with calls to tax the rich. maybe we should be rewarding such effort after all? think about the tens of thousands of jobs created from people working at Google who'd make L3 or less at Google working twice as much...

A big part is that you are not working for man but yourself.

I'm not sure I follow what you're saying. People who work at Google should pay more/less tax? Or that people who start companies should get more tax breaks (or pay more?)

I'm European so I don't really click with the obsession some places have with avoiding tax, so you may have to explain it like I'm 5 :-)

It's not quite apples-to-oranges, because he started a hardware company, which historically has much smaller margins than software.

The difference isn't just working for FAANG vs running a business, the difference is also working in software vs working in hardware.

> Very close to FAANG senior salary

Base salary maybe. But more like ~40% of FAANG TC. (Which only furthers your point)

Don’t forget your investors and your board.

High risk activities are never going to be accurately represented by a single data point.

It's a bootstrapped business, no investors/board.

good point it's the 99 out of 100 cases that fail miserably that more accurately reflects expected value.

How many companies let you work 3 days a week? Not from home, just three days a week aka5 day weekends every week?

The difference is working for yourself. It’s the business version of achieving adulthood (for some).

Senior devs are closer to 400K-500K total comp. Very senior devs are above that.

Still, the value of working on your own project full-time (rather than someone else's thing) can easily justify accepting the difference.

Speaking as a small business owner/entrepreneur myself, there are lots of tax deductions available to people like me that aren’t to some collecting a salary. And that’s without doing any of the borderline or outright illegal stuff that I see many other business owners do, such as taking fancy vacations, leasing luxury cars, or buying real estate for personal use but writing them off as business expenses. The IRS basically now lacks the resources to go after most such cases, and even if they’re caught, the penalty often just amounts to paying back the avoided taxes. There’s really very little incentive to play by the rules. I’ve had CPAs tell me outright that I’m leaving money on the table by not using some of these so-called tax minimization strategies. Anyway, it’s all kind of beside the point because “tax the rich” as policy covers so much ground that it’s impossible to discuss the pros and cons without specifying what specific proposal we’re talking about. My point is simply that business ownership and entrepreneurial activity are already quite well incentivized/rewarded by the current tax code.

There is already a very big tax break for entrepreneurs: QSBS.

You have to stick it out for 5 years (the rollover provisions are not well aligned with SAFEs), but all your capital gains are tax free up to $10m.

Reforming the rollover provisions or making it not a hard cut off would certainly be helpful though.

Depends. Are we talking hours? Because if so, then most companies barely give 2 days worth of work per week. And in many cases, people probably work half of that, maybe 4 or 5 hours of actual focused work per day.

A freelancer spending very little time working probably isn’t making much money. But an employee who spends little time working, is still bringing in those same paychecks, week after week.

we go into debt 2T every year without the extra money I would argue a lot of the nice to haves get cut from people's budgets.

where do you think Netflix and google ads fit in Maslow's hierarchy of needs?

Also, big tech had a huge amount of jobs cuts recently.

What are these miraculous tax deductions you are talking about?

Writing personal expenses as business expenses is tax fraud, not tax optimization. CPA suggesting this should be fired.

It's not clear to me if the $920k is including his salary. If he paid himself a good salary, the numbers will look different.

1. The Trump era automatic 20% deduction for LLC or corporate income. Totally unjustifiable, it's 20% off your revenue for everyone with a company for no public policy reason that I know of 2. You can mostly avoid paying into SS/Medicare by taking the large majority of your compensation via distributions, not salaried income

Just off the top of my head

You mean QBI? To apply, it needs to be matched with W-2 wages so you won't escape SS/Medicare, and it's not against revenue but profit.

It seems like the $920k include all profits. The sale alone yielded $490k in profit.

If you are maximizing income, go work for the company that pays you the most. If you consider other things then it's not that simple: * control on which project you work on * choose your cooworkers * choose your office location * return to office policies * choose process and bureaucracies It's about how many degrees of freedom you want.

Sure, its educated gambling, but it is not fair to exclude high value exits too.

Correct, I did not draw a salary.

Should be but won't be.

I can also attest that in my local small business community I have been met with puzzlement and suspicion for not engaging in expense fraud and PPP fraud. Deviation is almost completely normalized.

Money wise, FAANGs are more like 2x of $920k with comps. If the output is guaranteed, and stress is kept at 2x FAANG, it's like trading stress and the thrill and difference in experience for money. I would choose this.

It is when they’re effectively lottery tickets.

Of course it’s against the law, and so is not obeying the speed limit. And both are being done every day widely and more or less blatantly with little to no chance for consequence. In fact you’re probably more likely to get a speeding ticket than to be audited. Hence the CPAs who would recommend some of these “strategies” as long as there’s even the slightest plausible justification, because in their experience there’s very little risk for pushing the envelope.

my very first exposure to this was paying for parking. i worked at a large private university which had a beautiful but very big campus. ofc for some reason the institution decided that employee's had to pay for their own parking, which i disagreed with on moral grounds and the fact that parking was so far away it was like a 20 minute walk just to get to my work space...so i did an experiment where i basically never paid for parking in my entire 4 years there.

it would have cost me about 2 grand to diligently pay for parking. the actual expense from tickets? about 100 bucks maybe 200. and some of them got automatically thrown out just by challenging them. now towards the end of my time there i did see a guy get towed as he was walking up to his car. i started paying for parking then.

It encourages paying more wages, but it’s still a 20% giveaway to the business owners for paying themselves. I know that my own effective tax rate went down a couple percent when QBI took effect. If the idea behind the requirement to pay reasonable wages is to get more SS/Medicare tax revenue, then QBI more than offsets any gains. Plus the business owner can tweak their own numbers to determine what’s the most advantageous mix of W-2 vs K-1 income. It’s another advantage not available to regular wage earners.

Lol, Europe is the home and crown palace of tax evasion, look to the Netherlands, Ireland, Switzerland, Liechtenstein, Andorra, Gibraltar, Isle of Man, Jersey...

I'm surprised no one here has factored in the very real risk of getting laid off.

Do you think that this risk is bigger than you business being hit by the market?

Meh. He could have made 10M or 0.

Google founders themselves could have got a nice job at IBM.

Op is free as in bird too.

>so this gives an average yearly salary of 230k. Very close to FAANG senior salary with much more risk

this is just bad analysis, and as part of that you don't understand risk.

Financial risk is the variance of the expected outcomes, it is not a component of the expected value. The risk that you will fall short is always balanced by the risk that you will strike it rich; otherwise, you have calculated your expected value wrong. Expected value does not include variance, it's the missing factor.

your faang salary is your upper bound on income, is the cost you bear eliminating the risk; the risk the entrepreneur takes is rewarded by the option on vast riches.

You are looking backward as if you could have guessed a priori what would happen. If you could guess looking-backward-in-advance that you'd wind up with a faang salary running your own gig, definitely worth "the risk".

Probably not, but it's still not 0

I don't understand this. Afaik the parent argues that the 230k/yr is a lucky outcome of starting a business, far more people end up with less or nothing. And this "winning" situation of gaining 230k/yr is barely in range of a "sure" outcome of being employed at Google. Concluding that if even a successful entrepreneur is set to gain less then an employee at faang, entrepreneurship is not a sound decision for fang employees. How is risk portrayed wrong here?

>How is risk portrayed wrong here?

because he portrayed risk as "the risk of losing money", but that is not a proper definition of risk.

it's easier to understand the concept with the stock market because there is a market price (there is not a market price for startups). If a stock in the market has a price, what does it mean to say that it's a risky stock? that it might drop? No, not if you say that to the exclusion of the risk that it might also go up.

If a company has a price in the market, and you are an omniscient who can definitively say that there are a bunch unaccounted for factors that increase the probability that that stock will go down, what you would conclude (because you are an omniscient who also understands risk) is that the price of the stock is wrong, not that the riskiness has been mis-assessed.

This is an important area of finance, it's the basis, or rather the inescapable conclusion, of option pricing, the famous Black-Scholes model. It turns out the option price calculation does not contain any of the probabilities of what might happen to the stock/company in the future, the option price is only based on the variance of the outcomes. How can that be? Turns out the probabilities (the expected value) have already been accounted for in the market price of the underlying security. If a market is fairly pricing stocks, riskyness means degree of variation in outcomes.

There is a probability in variance, the probability "that you will wind up away from the mean". the FAANG salary is the mean, with no risk, meaning you aren't going to fall below or go above. He called out the other option as "risky" and somehow decided that the outcome this founder experienced was the upper limit, had no chance of being higher. He had no basis to think that, and his analysis is basically Monday night quarterbacking. "Since you didn't make the field goal, you shouldn't have tried, should have tried for a touchdown instead", ignoring that on average it's easier to get a field goal.

Interesting, I had the exact opposite experience as a student at a public university in California. There were meter maids patrolling the parking lots constantly, and it was common for people to be ticketed within minutes. It must have been a huge revenue driver for the school. The enforcers were so zealous I received multiple tickets despite having a valid annual pass displayed clearly in my window, which I then had to burn time fighting to get dismissed.

Anyone whose run their own business knows you're not working for yourself.

I think a big part of the difference in tax acceptance between the USA and Europe might be that European populations per country tend to be a lot more homogenous.

In the USA I think you get a lot of resentment over people paying for populations who they don’t feel they themselves are part of. Whereas in Europe it’s more plausibly a “there but for the grace of god go I” situation, where the person using some form of government assistance may plausibly be your second cousin.

Of course no one talks about this directly because it’s wrong think. I suspect this is also why a lot more right wing people are anti tax and left wing people are tax accepting. On the left you have less of the in group out group sentiment, for whatever reason.

Depending on how he managed things, possibly tax advantaged; especially if he could take advantage of the Qualified Small Business Stock (QSBS) tax exemption - 100% capital gains with no taxes.

In Europe most average people are happy to pay tax, despite there being a number of tax havens as you point out. I'd say most people have a low opinion of them. Versus the USA particularly, where it seems many people dislike paying tax.

I have no idea what you're talking about. I don't know a single person happy with the tax rate or the general performance/effectiveness of government spending. Practically every single restaurant, bar or other kinds of brick-and-mortar shops is evading VAT and income tax, it's so normal that when I was buying winter tires this morning, they straight up asked me whether I need a receipt or want to skip the VAT over phone. Every single aspiring entrepreneur I talk to asks me how to incorporate in one of the tax havens and otherwise lessen the tax and bureaucratic load. My city is full of immigrants from western EU countries who wanted to pay less tax.

Yeah, in general the big tax advantages from a limited company mostly relate to the ability to be flexible with how you get your compensation, as there are a bunch of ways to minimise tax paid/get government support.

The millionaire farmer near us (in Ireland) got state support for sending all his kids to university because of this kind of flexibility, while my parents (wage earning suckers) didn't.

You're not in Western Europe, which is where more people tend to be happier to pay tax (particularly the Northwest/Protestant areas), because they believe they'll get the benefit from paying the taxes.

OTOH, look at places like Italy where there's more evasion, because people don't feel that they get anything back.

Even when I visit the west and tell people I pay 10% income tax with healthcare and social insurance included, they immediately ask me how hard is it to move.

Especially funny with Germans who still believe they are richer than the eastern part of Europe, but a SWE working for the same US company from here makes 10-20% more due to lower tax. The faces they make when they finish the mental calculations are incredible.

Yeah, that's fair. I can totally see why people without family commitments et al would move.

I'm not massively happy about the amount of tax I pay, but I do like living in a relatively prosperous society without too much suffering, so it's fine I suppose.

The thing is, I don't see a relatively prosperous society without too much suffering when I am visiting the west or north of Europe... At least not more than the east, and definitely not enough to justify the tax hike.

Generally, the east of EU is much safer and while it's poorer and that is its own kind of suffering, there's nothing like the bombings, muggings, general dirtiness everywhere, etc. I feel perfectly safe any time during day and night in Warsaw, Poznan, Prague, Brno, Bratislava, Ljubljana... Definitely not in Paris, Berlin, Brussels and so on.

I am very surprised no one factored - starting own company can be much more realistic to achieve than landing $400k/year gig at FAANG - it is not like one walks into a lobby and gets a job.

Keep in mind stories of people telling how they were passed on by some big name corp just to go on to build something big.