In today’s episode of The Startup Chat, Steli and Hiten talk about personal finances for founders.

One of the biggest mistakes founders make without realizing it, is neglecting to manage their own personal finances while they focus on starting, building and scaling their startups. This can be disastrous if it goes wrong as not paying attention to your own finances, ultimately slow down the development of your startup

In this episode, Steli and Hiten talk about common monetary situations founders find themselves in, recommendations on when to take a salary, the importance of having savings and much more.

Time Stamped Show Notes:

00:00 About today’s topic.

00:50 Why this topic was chosen.

02:35 Common monetary situations founders find themselves in.

02:19 Hiten’s recommendations on if a founder should take a salary.

04:02 Why survival is your game if you haven’t raised money.

05:03 Steli’s advice on how to manage your finances.

06:37 When you can expect to see ROI.

06:58 The importance of having savings.

07:52 Why you should live one level below your income level.

08:55 Hiten’s experience with founders who struggle financially.

09:31 How Hiten started his business initially.

3 Key Points:

  • As a founder, if you weren’t doing your work, you’d have to work for your money.
  • If you raise money, you should definitely take a salary.
  • If you haven’t raised money, survival is your game.


Steli Efti: All right. Hey, this is Steli Efti.


Hiten Shah: And this is Hiten Shah.


Steli Efti: And today we’re gonna talk about Hiten Shah’s favorite topic, money. Right?


Hiten Shah: It was a joke.


Steli Efti: Particularly.


Hiten Shah: It’s the topic I never talk about, so it’s great.


Steli Efti: Yes, yes. Personal finances for founders, we wanted to chat about that.


Hiten Shah: Let’s do it.


Steli Efti: So here’s the reason why I wanted to chat about this with you, Hiten Shah. I had a little bit of a back and forth email chain with a founder that basically, I’ll summarize his situation. There’s a lot more going on, but I’ll summarize it to successful quote unquote founder, raised a good amount of money, had a strong salary, so was thinking about himself as wealthy? Started to immediately do a lot of angel investments. Started to live a pretty great lifestyle. And startup is has been going through troubles, cannot raise more money. Had to let a lot of people go. Had to decrease salary and now has started to be having growing personal financial issues. Credit card is piling up, bills are piling up. Personal debt has to, had to lend money from a few people. Is now worrying what to do about all of this. And basically there’s a whole other component that we could do an episode on on like him, I feel like there was a big, big part of his trouble is him mourning how rich he thought he was and then how poor he thinks he is right now. I think a lot of that is bullshit, but I thought that this prompted to me particularly the idea of like talking a little bit about how to, maybe some basic advice that we have to give to founders on how to manage their personal finances as they are starting a startup. What’s your immediate reaction to this?


Hiten Shah: There’s been a few blog posts about how much founders should get paid and things like that, early on or later on and things like that. I think the number one thing I learned if you’re a founder is you’re in one of two situations, basically. You’re in a situation where, if you weren’t doing your startup, you would have to work for money. There’s another situation which is regardless of you doing your startup, you wouldn’t have to work for money. And I don’t mean you’re rich or anything, I just mean that like you have enough money or you have some kind of passive income or you have a services business and you’re working for money but you’re not working. How about this? You’re not working for someone else for money. And I think those two things can definitely shape how you think about, what do I need? What are my needs in terms of money? For me, what think is fair is, let’s just take a scenario of if you raise money you should definitely take a salary. And you should take a salary that makes it so that you’re not dipping into your savings in order to keep continuing the business that you’re in, the startup you’re in because your investors wouldn’t want you to take money from savings if you’ve raised money, it makes no sense. There is things like ramen profitable and making sure you’re not like living in like a $5,000 per month rent place if you can’t afford it with the startup budget that you have in terms of your salary, because quite frankly you have a lot of ownership and that startup, right? But you shouldn’t be a martyr and make it so that you’re not able to cover your living expenses at the very minimum. That that’s my very straight forward advice. If you’ve raised money. I Think, if you haven’t raised money Steli or I’m sorry, yeah, if you haven’t raised money, survival is your game. You have to figure out how to make money no matter what. So you might be doing consulting, you might have side gigs, you might have something else that you need to do in order to sustain whatever you need to to continue doing your company. That’s why we see so many companies and base camp, 37 Signals being the poster child of this so to speak, come out of a consulting company. We came out of a consulting company, too. My first SAS business, Crazy, came out of our consulting company because we were able to do consulting and make money and then we were able to fund our software and that’s how we did it. So I would say that this is a very important topic, but it depends on if you raise money or not. And if you can afford to not make money.


Steli Efti: There you go. There you go. So I love that. I think on top of that, one thing that I saw him in this founder’s story and I’ve seen many, many times before in other situation, this might be something that’s hard for you to actually relate to because I think you’re very different and a unique case on this. But one of the kind of foundational advices that I give to people in general is to always live one or two levels below what you could afford paying for, right? So a lot of times as people progress in their career and as they generate more income or more personal wealth, what happens is they upgrade their lifestyle instantly. Right? And if anytime you have more income, you instantly increase your expenses because you’ve improved your lifestyle. That can make for really great life. But the problem is that if your income or your wealth goes down at some point, which for most people it will, like it will fluctuate. There will be some bad times potentially in there no matter how successful you are, now you’re instantly in trouble, right? Because you instantly have to change your lifestyle because you can’t afford all the expenses anymore. And so especially with founders and in this case like what I see is a founder that the moment that he thought his company is succeeding, he instantly maxed out on how much income he could pay himself and instantly upgraded the car he was driving, the apartment he was living in, the kind of expenses he had. And he instantly thought of himself as this wealthy guy because of some kind of evaluation and started taking the savings he could accrue and instantly invest them, so wanted to be an angel investor, right, instantly investing the bit of savings and cash flow that he had on the site into other startups. That’s a very aggressive way of managing your personal finances, which means you just spent all the money you have. It doesn’t matter if you invest in startups. Investing in startups means you might take forever to see the money back and in most cases you’ll never see that money back. So when you’re very little savings and savings buffer on the site to deal with bad times, quote unquote, and you instantly always upgrade all your expenses and your lifestyle to max out on spending all your income, you cannot afford a time that is tough financially. You can’t afford a time where your company isn’t doing well or where income isn’t coming in the way that you have now been used to it. And that creates an increased amount of unnecessary stress in my mind. So to me, that was the biggest mistake that this founder made. And I see a lot of founders do this. Once they see a little bit of success instantly start making angel investments like there, they’ve now for the first time in their life they have 10 K in savings. So boom, now the angel invest them. They’ve invested 5k into startups. It’s like, and that can work, right? But, but oftentimes my biggest piece of advice to founders is, I mean obviously in the early days you have to be as scrappy as possible, but even as you become more successful and as you generate more wealth and more income, my advice would always be to live one level at least below your income level, so you have some buffer. So if things go a little bad, you don’t have to instantly move houses or apartments. You don’t have to instantly sell a car. You don’t have to instantly change everything about your lifestyle. I think that’s the simplest piece of advice to give. It’s not that complicated, but it’s, I think a tough thing for many people, for many founders to do, especially the ones that made a lot of sacrifices for a long time. And then finally they’re seeing success and money and they feel successful and maybe even quote unquote rich. And so they wanna spend their money. They ant to live in that great apartment, buy that cool sports car, and want to spend that money and kind of treat themselves. But that obviously has the big risk that if things become a bit tougher again at some point, they’re going to be in real trouble.


Hiten Shah: Yup. I mean, I think you laid it out. I can relate to this simply because I talk to a lot of people about this. I definitely have been in a position where I was taught since I was a kid that I need to work for myself and figure out how to pay my own bills and things like that and not work for anyone. But I meet so many people who are in the situation where they’re struggling with this and making sure that, I think you have to make sure you’re taking care of. You have to make sure that you’re able to live up to whatever commitments you have to other people, including your family, yourself, and take care of yourself and being able to make money is in this society, such a big part of that. Right? I mean, one thing I’ll say is, for the longest time when we were running our consulting company, back in the day, I actually lived at home. I was married and I lived at home, at my father’s house. My rent was zero. And so I made decisions like that in order to start my businesses. So to some extent I kind of get it, even though I already had some money because what I wanted to do was put all my money, not in to have to live somewhere, but literally in our businesses instead of that. And so that was really helpful. And even my cofounder, Neil, lived at his parent’s house throughout the, he was getting into college when we started our first business together and he lived at home as well. So I think there were these things that we did that some would say are sacrifices or things you wouldn’t do because you don’t want to live with your parents or whatever. But myself and my wife were actually able to do that. So there is some level of context there that that can be helpful. But it was a conscious decision. I wasn’t forced to do that. I did it because I thought it was the right thing to do for achieving what I wanted to.


Steli Efti: Beautiful. So right, I think that the big thing that we’re sharing here, there’s no news. But I think the important thing is if you’re early on, obviously money is such an important thing. You want to be careful, you want to be resourceful and make sure that you are in a stable situation financially. And once you see a bit of success, might not want to get overly enthusiastic and instantly spend all that money but want to be a bit careful. Especially if the main source of your income is very risky and not super stable and there’s highs and lows and explosiveness in all directions. You might want to be careful of how quickly you spend all the money you’re generating. Because it might be fun in the short term, but in the longterm in my cause all kinds of trouble and stress that then circle back into the way you run your business and the decisions you make. This founder in many, it seems like a bunch of, there’s a bunch of options on the table and his personal financial troubles are now influencing the way he looks at these options for his business. Right? Which is a tough spot to be in and one that you particularly or that you could force you to make some really bad decisions for your company, your team, your employees, your investors, because you personally have overextended yourself and caused yourself to be in kind of troublesome situation. So I think the call to action here is that the riskier you live life as a founder and with your startup, maybe you want to be a bit more careful and a bit more conservative with your personal finances to give you a chance to take bigger risks, make bigger bets with your startup. That’s it for us for this episode. If you have money trouble or personal finance questions, not that we’re experts, but we’re always happy to help. So you can always get in touch with us, and Until next time, we’ll hear you very soon.


Hiten Shah: See ya.