Tech Winter in Indonesia: Lessons Learned and the Importance of Stock-Based Compensation
بِسْــــــــــــــــــمِ اللهِ الرَّحْمَنِ الرَّحِيْمِ
In the name of Allah, The Most Gracious and The Most Merciful
May 4, 2023
As a software engineer working in Indonesia, I have witnessed the impact of the tech winter that hit the industry around the start of Q4 last year (2022). It came after the Covid pandemic started to show significant improvement. At that time, I had just left RuangGuru and joined GudangAda; my engineering team (warehouse) got restructured, and more than half of it got folded to the other team. Eventually, I resigned and moved on to work at Hijra, an Islamic fintech company in Indonesia.
However, my new job was also hit by the winter wave, in which the company converted a significant employee salary into ESOP (hello, future passive income!). I was happy to have a part of the company’s ownership, but I had to restructure my financial budget quickly. And as one of those blessed with the excellent opportunity to give daily sustenance to almost ten people, this left me with happiness and a feeling of uncertainty at the same time.
The impact of the tech winter was not just limited to me. There were layoff words everywhere every week, and many tech start-ups got affected. It made me sad because many of my friends and colleagues got affected. Including my ex-team, whom I painfully help grow, and my friends, whom I consider top-notch software engineers in Indonesia. But, as they say, life is designed to twist and pressure us to elevate us to the next level.
The Immaturity of Start-up Employees and Founders in Indonesia
During this period, I noticed that most of my country’s engineers and start-up founders were not mature enough. Many software engineers were clueless about the reality of a start-up: almost all of them were not profitable yet. Start-ups hire us to achieve profitability in the future. The challenges are significant, the time is short, and the stakes are high, so they hire those ready to be productive without much training from the company.
And in my opinion, given that condition, it is not reasonable most of the time to aim for a 100% work-life balance in a start-up. This is why start-ups gave us a high salary because they are, by definition, not profitable/stable yet and need to run as fast as possible. You should consider yourself one lucky bastard if you have that.
Moreover, by the time of this writing, many founders are too stingy, and it is pretty rare in Indonesia to have a start-up that gives their core functional employees stock-based compensation. Every core start-up employee should have a stock-based reward because it is a fair payment for both parties. In my opinion, the overtime wage is not worth it. The price of working overtime in a start-up is too high for our mental health and close ties. In my experience, I worked for several years in a tech start-up without stock-based compensation. And although that place gave me tons of lessons on the do’s and don’ts of software engineering and life and catapulted me to where I am now, at my current career stage, I will not work with that compensation schema again when another option is available. The price of it is just too high to be endured for a long time.
In the US, my boss (Mas Ariya Hidayat) said that if you work in a start-up, you will usually get compensated with stock-based compensation. There is even a cap for the cash part of compensation. This is to avoid hiring mercenaries only for the money, not the vision. While it is okay for the corporate world, working in a start-up needs to have an adequate passion for the company’s vision of the world. Or at least that is what the Y Combinator said.
Stock-based compensation is what makes working in a start-up worthwhile. In fact, in big tech companies, I heard that the cash part of early and senior-level compensation is not that different, but the stock-based reward gap is higher (e.g., https://www.levels.fyi/companies/google/salaries/software-engineer). Get your skin in the game, remember?
Stock-based Compensation and 3 Phases of Software Engineering in Start-Up
But enough about whining; let’s discuss the benefits of using stock-based compensation. I believe there are three phases of a tech start-up that require different types of engineers as its engine: bootstrap, scale, and world scale. Ownership is one of the main benefits, but what else? It is the easiness of the much-needed team restructure.
We don’t know whether our ideas will work in the bootstrap phase. In this phase, we need to deliver! Fast! And the software architecture doesn’t matter here. We typically only have a few engineers in the company. It’s okay to build things that don’t scale. All engineers should value delivery over anything else. See this YouTube video by Y Combinator for further reference: https://youtu.be/TCPjk8Tpb5c.
In the scale phase, we already know that the ideas will work, and we have some degree of product-market fit, but the economic value might not be there yet. So, we need to scale our service in the race to achieve it and grow. In this phase, the architecture starts to matter, and due to the deliver, deliver, deliver attitude needed in the previous stage, there is also a good number of tech debt. The focus of engineering in this phase is how to scale our services (productivity and performance-wise) while still delivering business impact.
At this point, most engineers should realize that they need to scale the practice because building things that don’t scale starts to hurt and reduce delivery velocity, which will slow down the business if not addressed correctly. It’s like changing your vehicle tire without going into the pitstop, and it’s that hectic!
The next is world scale, where Google, Amazon, Microsoft, or other big tech companies operate. Only relatively few companies work at this scale; at this point, the company is already “profitable” or too big to fail. The company could typically last 5+ years in winter conditions (without income), and the domains are already so complex that the principal+ levels and specialists are needed. This is why big tech companies worldwide have that hiring process and particular engineering roles.
Stock-based Compensation and Start-Up Restructure
So what? Remember when I said that every phase needs different types of engineers? Let’s get real! Not everyone has what it takes to adapt to the next level. Yes, managers should put in the effort to try to level up the employee from the previous phase, but living a little bit in the tech world, you will know that a significant portion of them will not be able to. Because it is not what their natural talents are optimized for.
As the lessons from the “First break all the Rules” by Gallup organization, people will not change that much, and I agree. Stock-based compensation will make the company and the much-needed “restructured” employee feel easier and fairer. There will not be much-screaming competition on the termination because they know the different stage is not theirs, and it’s okay. Their legacy (financially) will stay for them. And we can go separate ways in good faith, knowing they are already getting fair benefits from each other.
The employee should get stock-based compensation because the other form will not give this benefit. The stock-based reward is about ownership and motivating employees to stay and work hard toward achieving the company’s goals. It also ensures that the company and the employee align with each other’s interests and goals. It helps ease the process of team restructuring and ensures that employees are compensated fairly for their contributions. Stock-based compensation ensures employees are incentivized to stay and grow the company rather than just being in it for the money. It also ensures that employees are compensated fairly for their work and have a stake in the company’s success, which is even more critical in tech-winter uncertainty.
Closure
In conclusion, even though this tech winter gave me a headache due to the pressure it has put on me and those around me, it has also taught me valuable lessons on how to approach work-life balance and to see things from both sides (not just from my perspective as a software engineer and employee). These lessons are essential for someone like me who has lived in a country (Germany) where strict work hours have been the norm for years to understand the price that must be paid when entering different types of companies and cultures, also how to structure compensation for employees when the stakes are high. In this case, I see stock-based compensation as one of the fairest options for everyone. Although it may not be commonly used in most companies in my beloved country, it will be a serious consideration when I have greater control over a company or own my business.