Articles / Negotiating for Nerds

Negotiating for Nerds

From endless semesters of CS classes and/or endless cola-filled nights, hackers learn all the skills of their trade... or almost all. Who sat you down and taught you how to navigate an interview to make sure your next job is right for you? Since the answer is probably "no one", we're presenting an editorial today from Dennis Faust, who has spent a lot of time on the company side of the interview desk and offers his suggestions about what he should have heard coming from the other side.

INTRODUCTION

You are in business for yourself. You just don't know it and most of you don't act like it. I've hired dozens of engineers and have had only a few negotiate AT ALL. Given the value of compensation packages these days, it pays to get educated and to negotiate. This is true even if you are happily and comfortably employed or if you have ten good offers in hand. Never trust headhunters, hiring managers, or human resources personnel to take care of you. All have interests which are not perfectly aligned with yours.

The only way to make sure you get what you want is to negotiate for it. To negotiate, you need information. Go prepared to every interview where you might be offered a job.

Don't be afraid to ask ANY business question. If they hesitate or refuse to answer, you have to assume the answer is bad or that they don't trust engineers. Either way, it's not a good sign. Keep looking. Just make sure you are asking the right person.

Chances are you won't get rich. That's not why you're in this industry. However, you want to make sure you don't make foolish mistakes that waste your most valuable commodity -- time!

RATING THE INDUSTRY

Is the industry the stock market's darling or whipping boy? Will it be around in a couple of years? Is it known to treat its people well? Do you have friends in the industry you can check with? Often, a high salary blinds people to the number of hours expected and high burnout rates. Ask about both! Are you likely to be asked to move, travel, or work with out-of-date technology?

RATING THE COMPANY

For this discussion, I'm going to assume the company's stock is not publicly traded. Public stocks are relatively easy to value. Look in the newspaper and keep in mind that you only make money on options if the stock price increases! How likely is that?

For private companies, you must feel good about the sources of funding. Why? Because if the funding dries up, you're unemployed. It's happened to me several times. Best is if the company is profitable enough to fund itself. This is rare in startups; most are venture funded.

Venture capitalists are professional investors. They crave the huge returns possible with successful software companies. Usually, they have a number of companies in their portfolio. Ask about the company's source(s) of capital. How much capital does the company have on hand? How long will it last? This is the 'burn rate'. Check it out.

Find out the success rate of the company's investors in this industry. Do they pick sure winners or are they new to the game? Have they stood by companies during lean times in the past? How big is their fund? When do they expect to get their investment back and in what way? This is known as the 'exit strategy'. What is it? Keep in mind that only two or three of every hundred startups goes public.

Next, check out the management team. Have they been successful in this industry before? Do they 'get' the technology? What happened to their previous companies? Would you enjoy working with these people? Do you trust them? Would you give them your money? If not, why would you invest your time?

PRESENTING YOURSELF TO SUITS

Have a list of business questions from your research above. Ask to speak to your prospective boss's boss and ask this person. They love to talk about this stuff. Keep in mind that they live for 'deals' and 'the industry'. Talking industry is comfort food for suits. Read (*gasp*) Upside, Red Herring, or Business 2.0, because you can bet these guys do.

Keep in mind that you're not trying to impress them technically. You are trying to make them think you are manageable. It's a pass/fail test, and if you do a little of the above, you'll pass with flying colors. Once they think you're ok, you can ask them all your zinger business questions and they'll gladly answer. Make sure that you really listen. Nothing makes people think you are more intelligent than when you let them talk! Remember to nod at the appropriate times!

THE BEST OFFER

During the interview process, your goal is to get an offer, because you can't make a judgment about the company without the offer in hand. Make sure you get the offer in writing. I've learned the hard way that verbal offers mean nothing. Yes, you could sue, but what would that get you? Get it in writing.

Be professional at all times and don't get flustered. Don't answer questions pertaining to salary requirements or what you made at your last position or other offers you may have in specific terms. If you name a number first, you deprive the company of a chance to offer more. Don't be afraid to ask questions like "How much flexibility do you have?" or "What is the range for this position and where does this offer fall?" Ask these questions for stock as well as salary.

Here is the number one piece of advice I have for negotiating: SHUT UP! Sales people do this all the time. Ask a leading question and then let it hang. Let the other person get nervous and fill the space with a number or a suggestion. You never know what you'll get using this technique, but I guarantee you won't get less. Ask leading questions and then SHUT UP!

RATING THE OFFER

The main idea is to come to a valuation for the entire package. Here are some quick guidelines: For options, ask what investors paid in the last round of financing. That's a good proxy for the share valuation. The closer the company is to a liquidity event such as going public or getting acquired, the higher value you should place on these shares. Keep in mind that very, very few companies actually do well enough for average employees to do well. This just means you need to negotiate well to increase your chances.

The younger and riskier a company is, the more shares you should get. Ask how many shares there are outstanding and divide it by the number you've been offered to see just how little they think of you. (Just kidding!) If there is any question about what outstanding means, I always ask, "If the company were sold today and everyone who could exercised every possible option, how many shares would that be?" Seriously, run the numbers and see if you are being invited to share in the business or if they're just giving you a few token shares. Expect to be offered in the range of one to four year's salary worth of stock.

If a company does not have excellent medical, dental, vision, and 401k plans, keep looking. Even if the company is a raw start up, these are not negotiable. Entrepreneurs are often willing to forego insurance and other things to get the company off the ground. You shouldn't.

Last but not least, take a moment to think about how this position will look on your resume a year or two from now. Will it add or detract value? Only diamonds are forever.

GETTING WHAT YOU WANT

Almost any aspect of the job is negotiable these days. Even companies which are very tight with compensation will often deal when it comes to time off before starting, vacation, working conditions, hours, working from home, etc. Decide what is important to you and ask for it. Do this AFTER the company has given you an offer. At that point, they have decided they want you. They will think you are negotiating. If you do it too early in the process, they will think it shows bad attitude, and you won't get an offer. Make sure your requests are commensurate with your experience. I've had a rookie ask to work at home three days a week so he could play in a band. This person didn't get an offer!

ITERATE

Our industry is changing rapidly. If the company doesn't have a six month review policy, you should pay attention to the market and approach them if you feel you are not keeping pace. Also, any time you significantly improve your skill level or increase your responsibilities, you should sit down with your supervisor and review your compensation package. Keep in mind that you are in business. Your business is trading mental acuity and the ability to create new technology for salary and a piece of the action. Do your homework and make sure you get your fair share.

SUMMARY

  1. Educate yourself about the specific industry and the company.
  2. Talk to the business people.
  3. Ask hard nosed business questions.
  4. Make the other side blink first -- let them name specific numbers.
  5. When presented with an offer: Ask a leading question, then SHUT UP, listen, and wait, wait, wait!
  6. Iterate #4 and #5 until you get what you want.

Good Luck!


Dennis Faust is the Director of Web Development at more.com (http://www.more.com/) and was previously Director of Development at Digicash, Inc. (http://www.digicash.com/). He has been a Development Manager for more than fifteen years and has managed groups of thirty or more developers on several occasions. He is a technical advisor to JustGive (http://www.justgive.org/) and EverySchool (http://www.everyschool.org/). He humbly gives thanks to all the developers he has had the great good luck to work with over the years. He can be reached at: dennis@faustian.net.


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Recent comments

24 May 2000 16:59 Avatar andreb

Companies Running Out of Money
I could not agree with wegrzyn more on what to do when a company is running out of money. It is all to easy to get all carried away in the "We all have to do our part" hype. There are precious few companies who went under because they were tens of thousands of dollars short and the losing a chunk of you pay will hurt you far more than it will help the company. If things are really bad the company should have the balls to cut everyone’s pay.

22 May 2000 17:37 Avatar occam99

Negotiating
I think that the article was very well written and the advice was sound.....now if people would just take it to heart.

I've seen this many times, from the other side of the desk. I've had numerous candidates that came in for jobs....great technical skills....very poor interview skills. Most of the time they do not know who we are or what we do.....didn't know that we had a website....and want major dollars because they just got their MCSE or CCNA.

Yes, knowing your worth is important, but knowing the company and their environment is important as well. If you come in knowing how much money you want but nothing about the company, all it shows is that you'll be a short timer and be looking for your next gig the day you start.

20 May 2000 20:59 Avatar bhillou

View from the other side
I am a nerd that started his own company, and while I think a lot of the advice you gave seems perfectly reasonable, most of it should only apply to the interview process.

During this phase it can be a tough game but once the contract is signed, both parties should go into a "truce" mode otherwise they will never manage to work together. Both an employer and an employee ARE after all finding a way to work for each other, so keep that in mind.

I personnally don't really like negotations, I find them mostly an obligation to avoid problems in the future, but most of them ARE based on a principle of mistrust, and I don't think this is a healthy relationship for a work environment. But maybe this is just me being idealistic.

I would just like to finish by saying that from my chair I'd just like to remember that startup founders are mostly human beings that are taking huge risks in order to realize their dreams (yes I know for mosts it's getting rich, but not all are after just that :))

Anyway, nowadays everybody is focused on money. I say let's remember that money is only an "enabler", but without real value, that is to say people working together, all the money is the world will never accomplish anything.

20 May 2000 14:03 Avatar mobrien12

Thank You
Thank you for this good article. I'm not an IT professional, but I am in a "nerd" profession. What you wrote makes alot of sense and looks like it is based on what young people need most: experience.

20 May 2000 13:22 Avatar raven17

Negotiating
I think these articles are GREAT!

The one thing I would add is that stock options can be completely "phantom" benefits. Many companies will try to avoid actually paying you "REAL" money by giving you stock options. If a company has a plan in place that lets employees buy shares, I would take that over giving up salary.

You will have to use your best judgement but I would take $75,000 and no options (if I could buy shares) as opposed to $60,000 and $15,000 in options.

I know way too many folks who took 25%-50% pay cuts for Hefty bags full of stock options for companies that never went public or watched their stock whistle like a brick thrown off a building down to $5/share. Kind of sucks if your options were at $75, huh?
Your salary now can help drive your salary in the future. When you leave, your salary is what your vacation is cashed out against, not your options.

Besides, do you really know enough about the prospective company to make a long term financial investment in it?

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