How Much To Pay Yourself While Growing Your Startup

Away with you, two minute noodles and instant coffee.

17/06/2016 6:24 AM AEST | Updated 15/07/2016 12:53 PM AEST
Getty Images
Not taking a wage while you grow your startup doesn't have to mean leftovers and no social life.

Alex Louey was earning $1500 a day as an international project manager when his inner entrepreneur started shouting so loudly he could no longer ignore it.

He and his mate Nick Bell decided they wanted to create something that could embrace technology and change the way people engage with their audiences.

Six years down the track and AppsCore -- a specialist in app development, Ux-Ui design, website and SEO -- is now a global business with offices in seven countries and an annual revenue of $15 million.

But it didn't come easy, or without sacrifices.

In the first three years, Louey didn't take a wage, instead putting all his resources into the business.

AppsCore founder Alex Louey had to miss out on a few things while growing his startup, but it's been worth it.

"I made sure the company was the priority, not myself, so I was essentially living off nothing," he told The Huffington Post Australia.

"It was a real challenge, starting a business from nothing. The business was started on a really limited budget, it was really bootstraps. I was pretty cushy and to go from that to nothing for three years was hard.

"But you've got to plan for these things. I planned for a worst case scenario, that if the business wasn't successful in the first five years, we had to shut it down.

"I had savings I was living off, but they had to stretch a really long way."

Louey said growing a business from nothing was a steep learning curve.

"I was a project manager before starting my own company but when AppsCore began I became a project manager, a salesperson, I took care of admin, hiring and business development," he said.

"But nothing gets you through like the will to survive. The biggest struggles were the ups and downs -- one day you'd think you'd landed a great client and the next day, it's taken away from you. After a few years of that, it does take a toll.

Getty Images
Growing your startup can often mean you have to become a multi-tasking wiz.

"It's important to have good supportive people around you, people who are like-minded and can pick you up when you're down, and for me that was Nick.

"Even with such a great business partner, there was probably three times I thought I was going to quit."

As a startup entrepreneur, figuring out what to pay yourself really is the million dollar question; too little and you may struggle to survive. Too much and your business might be at risk.

Small business cloud accounting provider Xero has come up with a guide to help business owners strike the right balance.

As a general rule, Blackbird Ventures managing director Rick Baker said his firm advises founders of early-stage Aussie startups to not take a salary in the first six to 12 months or just enough to scrape by, before they seek external funding.

Here Louey shares his tips on how to survive in that early startup phase without going crazy, or living on two-minute noodles.

Floresco Productions
You might not be able to go every week, but you don't have to miss out on Friday beers while growing your startup.

You don't have to miss out on Friday beers

"I had to remind myself that my priority was the business, even when that meant turning down social events with friends," Louey said.

"But living on nothing didn't mean turning down every Friday beer. My priority was making sure my company was successful so when I was spending money in my personal life I had to remember to spend wisely and not splurge on unnecessary purchases."

Make the most of free experiences

Louey said that by not taking a salary, it can be easy to feel like treating yourself isn't possible, but that isn't the case.

"In the immortal words of Janet Jackson and Luther Vandross, The Best Things In Life Are Free," he said.

"You can still live normally you just can't live five-star. I started taking advantage of the free natural beauty around me, I went hiking, got back to nature and visited some amazing places.

"It is pivotal to reward yourself one way or another, you need to have time to play because otherwise your passion for the work can start to dwindle."

Getty Images/iStockphoto
Alex Louey rewarded himself by getting back to nature, and taking in the natural beauty around him.

Be resourceful with what you have

Having income restrictions teaches you to be creative with your resources, he said.

"Sometimes you feel like you are living in an episode of MacGyver, and you have to turn a paperclip and a filing cabinet into a multi-million dollar enterprise or the world will end.

"The more resourceful you can be, the more successful you will be."

Let go of the nay-sayers

People will try to cut you down when you are growing your business, even friends. People can start playing on your mind, make you double guess yourself, your conviction and your goals," Louey said.

"Surround yourself with good inspirational people that can get you up when you're down. Something else that worked for me was having a co-founder."

Alex Louey surrounded himself with supportive people, such as AppsCore co-founder Nick Bell, during the startup phase of their business.

Focus Focus and .... FOCUS

Focus is vital to the success and longevity of your startup," Louey said.

"Focus, combined with drive, resilience and determination to see things through, is a solid combination.

"The most challenging part of starting a business is the early years. Things are tough – you're most likely to be cash strapped, wearing multiple hats and making plenty of mistakes.

"This is the time you need those other qualities to help see you through. Business is a sport and every day is a game."

Once you get past that tricky startup phase, you then have to think about on ongoing salary, taking into consideration the basics, such as how successful the startup has been, growth and revenue projections, payroll and other ongoing expenses.

Seth Levine, managing director of one of the largest venture capital firms in the US Foundry Group, said the best advice when trying to come up with a figure was "don't starve".

"There's no sense in paying yourself so little that you can't live or will be overly stressed about paying your bills," he said.

"You don't need to tighten the belt so much that it ends up distracting you from your focus on building a great business."

More On This Topic