The ONLY guaranteed way to attract & retain A-players.

I tried to pay my employees as little as possible. I thought I was being resourceful—& it seemed to work. Until it totally backfired. I learned my lesson the hard way.

No founder wants to hire B-level or C-level talent. Everyone is looking for A-players. But most founders don't put in the work. And they end up with B-level teams.  

If you're serious about getting and keeping A-players there's only one way to do it. You need to have a coherent strategy, you need to be intentional, and you need to make it priority number one. Here's how.

Takeaways

• Why paying employees less than they're worth incentivizes the wrong behaviour
• Why you need to have a system for regular performance reviews and salary adjustments.
• How to attract and retain A players 
• How great junior talent can outperform B-level experienced talent.

Keywords
founders, compensation, hiring, A players, salary strategy, employee retention, startup culture, leadership, team building, performance reviews

Transcript

I remember when I was running gym track, we started off, like we hired a good friend of mine who was just finishing off his engineering degree really, really smart. And so we started off and we kind of built off his network and ended up hiring a bunch of his classmates. And they were all solid A players. Frankly, one of the great things was because we got them right out of school, we also got them for pretty cheap. And I mean, we're talking over 10 years ago, so the numbers won't necessarily align with today's rates. But we were paying, let's say, $50 ,000 a year salary for these.

really junior developers, but who were awesome. mean, they were excellent. Not only that, was great chemistry amongst them. They worked really well. were all in, or at least I felt like the culture was solid. Like everybody got along, everybody worked well, everybody worked hard. And then one day, a few years in, one of these developers, let's call him Johnny, comes into my office and out of nowhere, or seemingly out of nowhere, he's like, I quit. And I'm like, what do you mean?

You quit, like I hadn't seen any of this coming. I mean, as far as I was concerned, everything was great. Johnny was still loving it. Johnny was all in and he's like, yeah, I quit. I mean, I got an offer at $65 ,000 somewhere else, you know, in the city, you're paying me 50. It just doesn't really make sense. And so I'm out. And it turns out Johnny had asked us before about like, you know, comp changes and frankly, we just like put it off. I mean, in a sense, like obviously we're trying to do things as cheaply as possible as most founders are. And I also felt like I kind of had a lot of power and there's this line.

Pablo Srugo (02:28.76)
funny enough out of Entron, where Ahri's boss, right, like Ahri's boss says to Ahri, you know, power's a funny thing. You don't realize how little of it you have until you have none of it at all. And that's always stuck with me, and in this case, was especially true. It's really easy, at least it was for me, like as a founder, and especially with these junior developers, to feel like I had the power. And I don't mean that in negative sense, just like, hey, these guys, they're happy, they're employed, they're having a good time together.

Yeah, sure, we're probably underpaying them, but like it's okay. And the problem is it wasn't okay. And it only took one developer to go out there and hustle even just a little bit, me completely on my back heels. Because now from a positioning perspective, all of my choices are bad. Either I say, okay, cool, leave. And I lose a really solid engineer who I was underpaying in the first place. Or I do what I did and I'm like, okay, well match your new salary.

will match your 65k. Now Johnny ultimately said, you know, screw it and still left. So we still lost him. But there's a huge problem there because what I didn't fully appreciate at the time was that by playing the game that way, I incentivize exactly the wrong behavior. Because when I decide to match Johnny's salary just at the time that he's leaving, what I'm inherently telling all of the other developers in my organization, because guaranteed they're gonna hear about this,

one way or the other, is that the way to get a raise at this company is to go out and solicit a better offer somewhere else. And if you come to me with that, I will respond. And if you come to me with something softer, like, I've been doing a good job, I want a raise, or maybe even better, if you don't come to me at all and just perform, I'm not gonna just give you a raise. I'll give you a raise if you put me in my back heels, gun to head, and I think like I want to keep you. And that's not the sort of behavior.

I wanted to incentivize what I really want to incentivize. And what you really want to set up is a system where you have control, where you say every six months or every year there's an annual review. And in that annual review, we're going to look at what performance was like last year. We're going to look at marketing conditions. We're going to decide as a company, by the way, where we want to be relative to the market. Do we want to pay 75th percentile, 50th percentile, 25th percentile, 90th percentile? That has to be an active and conscious decision.

Pablo Srugo (04:50.926)
and then you have to apply it and reapply it at steady intervals over time. Again, it can be every six months or every 12 months, something like that. And that way, you set up a system where people know in your company, the way that you get a raise is you just do your job, right? So the point is you think that because you're away with paying people less than what they're worth, like you're getting a discount because you're resourceful and you're cheap, the reality is it's a ticking time bomb. I mean, if you really think about it,

who's actually going to accept less than what they're worth. There's only a few options. I either the person that you think is an A player is not actually an A player, either the person is naive and at some point, if they're truly an A player, they're gonna figure out that they're underpaid. They're gonna put you in you know, gun to head kind of spot. Or three, I mean, maybe they're so invested in the mission. They love your company, they love working there. They know they're underpaid, but they're totally okay with it, which is exceptionally rare and not something that you can scale. You have to be intentional about this.

you have to decide as a company, where do you want to be? I'm not saying you have to pay 90th percentile. I'm not even saying you have to pay market. You just have to decide intentionally strategically where you want to be. And if of course you decide that you're going to pay market or less than market, you've really got to wonder about, okay, if you're going to do that, how are you actually going to attract A players? Because there's something there that doesn't fully click. mean, A players, generally speaking, are going to go for top quartile earnings and sure that's going to include

salary and stock, but just like you can sell the dream, you can sell the vision, so can other startups. Now if you're like the next Facebook, the next Stripe, and your numbers are showing it and the fundraising activity's showing it, then sure, you might be able to get away with paying market and still attracting A -level talent. But most of the case, even those companies are paying 75th, 90th percentile because they have the funding to be able to do it. So that's the challenge is you're navigating a world where it's not just you. I mean, it's competitive, it's dynamic.

and you have to a strategy that actually, like a hiring strategy that actually makes sense and puts you in a position where you're likely to attract A players and retain those A players. And that's probably not by paying median salaries and hoping nobody goes out there and gets a 20, 30, 40 % better offer than whatever you're paying them. And another thing related to this is the whole topic of experience. I remember I was at

Pablo Srugo (07:17.666)
you know, there was this talk that Jeremy Levine, who's a partner at Bessemer and one of the investors who backed like Shopify, Yale and Pinterest. And he said, one of the things that Shopify did exceptionally well is they went after, for the most part, inexperienced junior talent, like at the beginning. And he said that what they were able to do was find A plus great junior inexperienced talent, build them within the company. And what that got them is

loyalty and retention way above what they would have gotten with other candidates. But the other thing he said that was related to this is that he thinks that often founders want to go out and get experience and they think that their million or two or $3 million ARR startup can attract a truly A player VP of X, like a truly A player VP of sales, a truly A player VP of marketing who has like 10 plus years of experience. And his point was like the truly A players VP of sales

with 10 years of experience, can go work at the $50 million, $100 million ARR business, make like five times as much as you could ever offer them, get even more credibility, get a bigger stamp on the resume, have more responsibility, basically more of everything. And so his point was like, sure, every now and then you might get, you might kind of like luck out and get one of these. But as a strategy, thinking that you're getting a player, experienced people in the early days,

is kind of a fool's errand unless you're like a proven founder who already has had let's say multiple exits or a big exit and so that's kind of what you're using to attract these people or maybe you have an existing network and then you're pulling people because people believe in you. But if you're a first time founder, especially a young first time founder with relatively little network, you have a startup that's getting some traction, it's got a million, two million AR, but it's still not the next stripe, it's still not the next hottest thing and you somehow believe

that you're gonna go and attract like a 10, 15 year experience VP of X who is truly an A player, not a B player, you're probably wrong. You're probably getting B players and maybe that's fine. Like maybe that's what you need at this time. Or maybe the other option, like Jeremy said, is to build a team of less experienced, kind of diamonds in the rough, people who haven't been 100 % proven yet, but who you realize are absolute killers. And those people, if you build them up,

Pablo Srugo (09:45.068)
will reward you not just with excellent work, but also with above average loyalty, above average retention rates. I say all these things because I've seriously never met a founder who said like, I want to build a team with C players or B players. Every single founder is saying, I want to build a team of eight players. I think every single founder realizes that there's really not much more to a startup than the people inside that startup and the team that you build. And yet the vast majority of founders don't optimize their entire strategy to attract

and retain these A players. They kind of assume they can just fake their way to do it, they can just be opportunistic about it, and somehow they'll end up with a team of A players. And the reality is, A players are on very high demand. So unless you're strategically about this, unless you're designing an entire approach about how you're going to land and retain these A players, you probably have a bunch of B players on your team.

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