This question is related to the question: "Do newly funded startups offer salaries which are comparable to market rate? "
Apparently, it is quite common for startups to offer salaries which are 20% to 30% under market rate. Now, the question is: How do these startups attract top talent, which is needed to be successful? How do they compete against Facebook and Google?
A strategy that has worked well for us is to recruit fresh university graduates who are looking for their first job. Finding clever people that get stuff done. These people had a chance to grow with the company and they didn't come with bad habits.
Decent company culture doesn't offset a huge decrease in salary, but it does help to attract and retain staff. Offer free fruit, drinks, flexible working - have an open culture and get people at all levels involved rather than imposing a dictatorial structure. Get them engaged.
Paint a vision of where the company is going and think like a big company. If you're unable to offer market-rates then think about what you can offer them. The chance of more responsibility early on in their career, the opportunity to grow with the company and be at a much more senior position than if they'd joined an established company and fought up the corporate ladder.
You have to believe in stock options or they just won't buy it when you mumble something about it in the interview. If you don't believe in stock options then what you are saying is that you don't believe your company is going to exit, and ultimately be successful. Of course it is. Of course stock options in your company are going to be valuable. That's how you have to think.
Based on 20+ years recruiting technical and executive talent, mostly for startups, the biggest reason people join a startup as opposed to a Facebook, Google, or Oracle is a function of their tolerance for risk and a deeply subjective understanding of what they desire in their job. That desire usually boils down to the real culture, and culture boils down to values.
All startups are not the same (any more than all large companies are the same); each reflects the values and attitudes of its founders.
Some people prefer startups is to be on the "bleeding edge" of whatever technology is involved.
Equity is important and stock grants should reflect the company's publicly stated values and culture.
In short, people join startups because they "fit" and the environment makes them happy. What it does not make them is better than the person who works at a large company (Facebook is a large company).
When you are hiring look for people who understand your vision and share your passion and create a culture that will attract them.
Here is my list
Truly talented people, or potentially talented, will value these as much, if not more, as a good salary. In fact people only concerned about salary are not a good match for a startup. Startup is sharing the risk but also the reward of a successful outcome. The project may fail, but if in the mean time one had a very good time, met and worked with talented people and learned from the experince, it is still attractive.
If you really want talented people working with all their guts and hart for the success of your project, don't hire mercenaires.
Beside the salaries they usually offer some stock options.
This a job market. As on any market, you can get better value without paying higher price. For instance, Facebook or Google may skip a talented guy out if consideration just because he/she doesn't have resume matching the position exactly. Being on tight budget, I'll consider people more carefully and you might notice and hire that talented guy. Don't be afraid of big companies. After all, Facebook and Google used to be startups in the beginning.