in Startups

Don’t Overpay Developers

The cost of an engineer is inflated right now. Informally, I poll salary expectations each semester from Waterloo co-ops. 2-3 years ago it was $65k-$70k. Last year/this year its $95k (the base Google, Facebook new grad offer). On top of that lots of engineers are able to source funding for their own social-mobile-cloud startup, more incentive not to join your own startup. Its not even a North American phenomena, in India I know technology managers making $120k+, in China I know guys turning down $100k offers now. There’s really no such thing as low cost development anymore.

So, whats a startup looking to build product to do?

“Ideally, to protect against inflation, you want a royalty on someone else’s sales so you don’t have to invest any more capital—you license it to them and you make money as their volume grows.” Warren Buffett, Berkshire Hathaway AGM, April 30th 2011

Don’t build new stuff and overpay inflated development costs if you don’t have to. Find partnerships so you can sell more product to your customers. Find more channel to resell your product. And so on. Maybe its time for more hustle and less hack??? (I’m a hacker, so writing this hurts a little bit).

  1. I think people take the salaries at companies like Google out of context. The areas of California where many of these high paying companies are based in have insanely high costs of living, hence the high salaries. I believe in paying good developers good money, but 95k for fresh out of school does sound a little crazy.

  2. I think its more market factors than cost of living.  In New York or San Fran there are loads of apartments in the $1500-$2000 range (or less depending how you want to live).  Toronto you pay $1200-$1500 for the same caliber… and in Toronto you basically need a car.  In SF/NY you don’t.

  3. What!? You don’t need a car in Toronto. Have you seen all the condos being built in the downtown core?  You can find a place for $1500. Most of my  100+ co-workers don’t drive to work.

    Also, as a former Waterloo co-op student myself, I wouldn’t put much stock in your source.  At that age you haven’t yet learned that you don’t always get what you want. is much better source, what do they say:
    Facebook Sofware Engineer Salaries (33 samples): Low 80K, High: 190K, average: 109K. 


  4. Earlier this week, I saw my first Ottawa city bus in a long time wrapped with a recruitment ad for developers, a sure sign that the froth of the late 1990s and early 2000s is once again being whipped into the labour market.

    A second data point was provided yesterday by the CEO of a startup who complained his developers are being poached by a fast-growing company here in Ottawa whose voracious appetite for developers is also swiftly inflating pay expectations.My counsel to him was that he cannot afford to engage in an arms race based solely on compensation, that he must make his company a more desirable destination for scarce, expensive talent. This requires a mix of non-salary compensation elements such as profit sharing, the chance to work on truly exciting and world-changing projects, workplace environmental perks like the lastest technology, flexible schedules and the little things like pizza lunches and impromptu celebrations of small victories.

    Few developers are motivated by money alone; most want to work on exciting stuff with interesting people in cool environments where their contributions are recognised.

  5. That probably explains why you see more and more international startups coming here to spain.

    Lots of great developers, thriving technical communities, salaries without match[1], and a fair amount of sun.

    [1] : $40K/year is a ceiling most spanish based devel won’t reach for a long time

  6. Dan, what you claim is completely untrue.

    Toronto is like any other developed metropolitan. You have the TTC bus, the street car, the subway and taxi cabs. The traffic is horrible, I would know. I have to drive through rush hour every single day. The problem with your argument is that you claim that somebody needs a car.

    Walking is completely acceptable around most of Toronto since most retail stores are in close proximity of each other. Food is available in abundance at grocery stores spread out all over Toronto. If you need to get somewhere farther, the subway is the way to go.

  7. Here’s my theory: in the current market, new grads are overpriced, but experienced developers aren’t. Companies like Google and Facebook, and well-funded SV start-ups, pay a premium for new grads because they are seen as most willing to put in lots of hours (hence 3-free-meals-a-day, overnight hackathons, lockdown hours[1]). CS enrollment dipped around 2007[2], which is about when current new grads started university. So the supply of new grads is down, and the demand is up. Since neither of these effects apply directly to experienced programmers, I suspect their salaries would be less affected, but I don’t have the data to find out.


  8. If one considers the data carefully, one will see that the cost of an engineer is not inflated right now but quite the opposite. Everyone that wants to play down the cost of talented engineers (ostensibly because they are in a hiring manager-type role) are not considering one very important factor:  the consumer price index. 
    The numbers of 2-3% annual inflation that are released by government budget offices is pure fiction. The method for calculating the price index for a basket of common goods and services has increased much more than government budget offices are willing to admit. For a more honest look at real inflation levels, have a look at John William’s — which uses methods that were more honestly employed by government budget offices 30 years ago, before the era of substantially heightened misinformation set in.

    Incidentally, it is in governments’ best interest to grossly underestimate the rate of inflation, especially when there are many social programs that are annually price-adjusted based on these numbers. But going to the grocers, filling up at the gas station, paying for rent and utilities, the price of a home, etc. show the real price of inflation for the average person.

    Instead of the 2-3% annual inflation one typically sees put out by government budget offices, these more honest statistics show 3-4x the rate of purported inflation, with inflation rates averaging between 8-10% per annum.

    This site does a good job at allowing you to select a dollar amount in any given year, an inflation index to measure against (such as government budget office data, or even John William’s Shadow Stats data) to arrive at the equivalent value in a target year. For example, a $75k salary back in 2000, today, would need to be $200k for the same quality of living using John William’s Shadow Stats.

    The savvy developer understand this, and don’t buy for a second the numbers that hiring managers typically throw around. Try to tell a talented developer that the market is $75k for the work they do, and you’ll see that developer politely about-face faster than you can blink an eye. The less savvy, less talented will buy it, however. In the end, you get what you pay for.

    So the crux? If you want to attract top-talent, and don’t have the cash, you have to offer something else: remote work options, flex hours, ownership, profit-sharing, and even less costly perks like paid/catered lunches/dinners, quality child care, Wi-Fi’d morning and evening shuttles, etc. Look at the big boys like Google, Apple, Facebook. Even with high base salaries, they still offer a lot of perks to attract and keep top talent. So stop crying over spilt milk and “inflated” development costs. And instead figure out how to get competitive.

  9. My apologies for the typo, that should be

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