Startups Don’t Pay On Time or Don’t Pay at All and Shutdown
It’s part of hustle that leaders of startup should make sure that they are growing workforce only in right direction and can pay them on time. If they don’t have runway for few months and betting everything on resources they surely will fail to deliver. Hira Saeed, a Journalist, started a discussion at Pakistan Startups platform where she posed a sensible question for discussion whether startups pay on time. She posed an even serious threat of failing startups closing down without paying at all.
So a lot of our startups and software houses do not pay employees on time or in worse do not pay at all and shut down the companies. Because startups are uncertain, we all know that!
This is one of the main reasons why fresh grads are reluctant to work for Startups or small companies.
In such cases, what are the measures we as an industry should take to fix this dilemma?
Lack of planning is the main reason for this dilemma. When we are starting up, we have got passion and energy but this two are not good enough to feed employees. Financial planning is life blood of any organization and we seldom pay attention to it. On contrary, big companies have got huge budgets, better connections and proper planning to survive any uncertainty. However, startups can minimize their expenses, work day and night, meet targets and grow with time. Check and balance plus non stop motivation for your work can drive us thorough.
It’s the nature of the startup. The employee knows it already that the company is a startup and no one force them to join. It’s unprofessionalism mostly at the fresh graduates side too when they leave the startup without giving proper notifications. The initial employees jump on a ship which the founders try to push in the ocean. If it starts sailing properly, everyone enjoy the perks. If not, everyone drowns. It’s not just the employee who runs out of cash. Do not run out of cash! Have a look at this awesome industry leading Startup Resource tools [List] Startup Tools and Technology Directory.
Pathetic it is not pay someone his due remuneration.
It is not just startups. Well established enterprises in Pakistan are famous for paying late. Paying salaries not on time or don’t pay at all are matter of concern. But we have seen restructuring of big organizations all the time and all of a sudden big companies were also used to shut down and lay off thousands of employees. One such example is Enviro by Ruba Group. Talented employees stayed and got some jobs even before or during lay off process. Startups are not an exceptions at all for this. One more thing which is considerable that lots of software houses are not properly registered or has proper policies for empolyees protection or even medical, EOBI or retirements funds sort of things. So even if they lay off employees or shut down their companies empolyees will go empty pockets to home at the end of day. But again if employee is talented he/she will always get gigs or jobs to do. We should build trust, the most lacking element in Pakistani society and since it’s not there in the environment it does not exists in the business industries. Be it startups or conglomearates.
Equity Distribution among Employees
With my reasonably long experience of working with startups and private equity/VC in GCC and Pakistan, I’d like to add that Startups should try their best to take only risk partners on board, who work hard shoulder to shoulder with the sponsors to become wealthy together. As soon as your business starts getting positive operating cash flows, convert it into a private limited company, and issue shares to all working partners. Set aside some shares for salaried people, to get the maximum from them. Hire reasonably, if you can’t pay your employees nor your startup can run without them then you aren’t superior to them. stop calling them your employees but partners and offer them equity for their time and effort.
Related: Why has Pakistan Startup Culture Failed Before it Actually Begun
A startup, by its very definition, is a risky venture; not only for the founders but also for early employees. That’s the only reason early employees are provided stock options. By working in a startup, the employee implicitly agrees to the risk of things going south. Having said that, a startup should not employ people as ’employees’ if it doesn’t have the budget to pay salaries. Put another way, if these early employees don’t see their salary by the due date, they should (ideally) pursue same legal options as if they were working for an established firm. Working on ‘promise to pay’ is naive, to say the least. Apart from welfare states, there isn’t much you can do if a company declares bankruptcy. Even if legal processes are followed, the employees are on the trailing edge of the queue to get paid. To sum up, if you are going to work for a startup, especially in early stage, you are taking considerable risk that things don’t work out. On the flip side, if things DO work out, you get a (few) Teslas. Hence the stock options.
Board of Directors
The Board of Directors of the Company have an oversight role to play in the Company to ensure the CEO is acting in the best interests of the shareholder. The Board has a claim against the CEO if it is found that the CEO hired consultants/employees knowing that the Company will be unable to pay those bills. The Board members will become personally liable if it is found that they knew about the actions of the CEO and approved additional expenses that the Company did not have the present or foreseeable means to pay those bills as they became due and payable. As a Vendor, your best bet would be to initiate legal proceedings against the Company, its Board, and CEO for non-payment of bills.
Hire only for jobs you cannot do yourself
Know how to hire the right talent. Startups need to know, that the major responsibility lies with them. Why would an employee work, if not enjoying a tremendous learning experience (and that is rare) , with a startup that fails to pay on time? Lets be honest, everyone is out there for the money and a chance at a better life. When you compromise that basic reason, everything else is irrelevant. There are bad apples in every basket, but if a good or even an average employe leaves, it is because you failed to keep them satisfied at their job. THAT was your job. If you can’t pay them, dont make them work tirelessly for nothing either.
Hire slow, Fire faster
Right working and analysis leads you to perfect startup. Make sure you have a stable income source or a good amount of working capital when you go for hiring, something that can help you go on for a year or 6 months at least. If you can’t pay them shut down immediately because you had a failed business plan. If you can not do some basic maths starting up your business, you don’t deserve to be here. Unless you have developed a stable business model very fast, go for seed investment before big hirings. Employees everywhere keep looking for better jobs so take it as normal. In fact you can take interns and let them go within a few months. Have a legal contract in place before giving your time to anyone with a future plan. Train resources to scrutinize offers base on their legal grounds as well.
Killing our ego for a start maybe?
We really need to understand that having a business is not just about being a “boss” and enjoying the perquisites since day one. It is never about being the boss anyway. Not being a “CEO @ MYBUSINESSISMINEONLY” and associating renowned individuals as partners might help. Startups should hire once they’re sure they’ll be able to sustain payroll for at least a year of loss. Unless you feel you’re busy enough and need extra help, there isn’t much of a point in hiring for a startup. Outsourcing tasks is a better option. And of course, you should be sure your idea will kick off and has a market. Being passionate helps only when you’re not going in circles. You should know what you’re doing before you start doing it so incase tomorrow half your team doesn’t show up, you have yourself to fall back on.
Related: A Criminal Scam: Idea Croron Ka Giving False Hope
SECP has made company registration a lot easier. At the same time SECP has made every Tom Dick and Harry an entrepreneur and on the other side, there is no one to keep a check on those wanna-bes. After so much time in Entrepreneurship, you should now get out of this “have to” and “should be” atleast, and start implementing the things you mentioned above, so no further people got hurt by your unprofessional approach. Paying late is bad even if employees are doing bad. As far as having initial investment/capital is concerned, it is perhaps all about lean management and minimalism. Forecast and save up an initial amount which you think is “absolutely” necessary. The rest, you earn from the business and then reinvest in resources. Young techies thinking about or having started their startups, please get someone (like me for example) as your unpaid mentor.
What do you think vendors and employees should do if a company or client fails to pay them?
Joining a startup?
Do not join a dorm room company. If you dont know company would even be operating from same room the next day. Startups don’t really care to understand the needs of the employee. All they do is to take the best out of them (without any appreciation). Moreover, they burden them up with the workload of 3 to 4 people and expect them to give their best. This is certainly not possible. Mostly, these startups lack proper staff and then for the negative outcomes, they blame their employees and terminate them without paying any salary at all. Surely, there are startups which are following a complete professional code but not all. They call themselves the ENTREPRENEURS but they’re more like the shop keepers. Do employees come to the front and what do they get if they name/shame?
Before joining a startup a person should see: the business / startup plan and evaluate himself if it can be successful or not. Further he should see the management, if they are competent people and vigilant enough then the employee should not care for the lay offs as being at job it is an inherent risk of being fired or losing a job. But joining a good startup or new business will always give someone an entrepreneurial base and a lot of learning. So someone should try putting all of his efforts in playing his part well to grow himself along with his company. Those who put efforts in right direction, beleive me its never wasted. Even if that does not work for the company, the individual gets invaluable experiences. You must check the reputation of the startup specially if they are funded enough. You should have your personal experience as well like what caliber your co-workers have, what are their expertise and experience and how they communicate with each other and with you. Give this process one month, this way you can make a judgement whether or not to go with that startup. Also, whoever is joining a startup should understand this uncertainity to some extent. The talented employees always get the salaries, perks, and job easily.
Do companies take this seriously? In short, it’s not the fault of the entrepreneur or the startup. It’s a risk taken by both the parties. So you can’t just criticize the startup.
Credits: Many people (including Hassan Raza, Saad Ahmed Khan, Farah Sadiq Khan, Naveed Ahmed, Abid Iqbal, Salman S Janjua, Nadeem Ali Khan, Danish Khatri, Mohammed Rayhan, Omer Farooq, Wahib Ul Farooq, Emraan Khalil, Fuzail Zubaid Ahmad, Abdulla h Piracha, Shabir Mandvawala, Usman Sheikh, Abubakar Hashmi, Malik Mudassir, Rehman Hassan Sattar, Zayn Ul Abidin, Muhammad Sumeet, Mian Umar, Homam Tariq, Zohair Seeharh, Zafarullah, Ozair Akhtar, Muhammad Saeed Paracha, Nyma Malik, Haris Jabbar, Hasan Kuzagar, Talal Masood, Ahmed Hasan, Arooj Hasan, Wakas Ahmad and our very own Waqar Muhammad) took the responsibility to answer the above.
