What Would You Ask a Startup?
A friend of mine recently accepted a job at a really cool startup company in Boston called TrueJeans. I will talk more about the startup because I think it is indicative of a broader startup trend but in the meantime, I wanted to post an answer to a question that my friend asked me. Here is his question:
"I've already had this discussion with some of you, but I didn't take the best notes, if any. Suppose you were considering joining a small startup. What questions would you ask? I'm primarily interested in the questions you would ask to make sure that the business plan was solid, the executive team was competent, your paycheck wouldn't bounce, and that your offer was appropriate (both in terms of salary and options/ stock). (I'll take advice on other sorts of questions, too, of course.)
You can assume that you're at the stage in the process where you're about to get an offer, and that the company is small enough that you'll be negotiating directly with the CEO.
Thanks in advance for any help you can offer. :-)"
My thoughts on joining a startup a pretty varied. Here are some thoughts. I will try to refine this post over time because I am not sure that I am very good at expressing my thoughts on the first go-round. But as is always the case I am hoping at some point that I won't be the only one answering this question. I hope that some interested folks will discover the blog and chime in. Anyway, here are my thoughts...
Generally the major concern that most people have with startups is risk. I think it is kind of funny because I think that there is certainly risk in joining a startup but I am not sure that the risk is any less than working in a "stable" job at a big company. Big companies are competitive environments just as startups are. Yes they tend to not go out of business as often as startups do but they also have no shortage layoff periods during difficult times. Also, isn't making a lot of money one of the ultimate risk cushions and, generally speaking, you are probably more likely to have a shot at making a lot of money at a startup than you are at a big company. So now let's look at the downside. Generally speaking startup employees are paid quite well--especially employees in key roles. In large cities the pay gap between startup pay and big company pay may be larger but I have not infrequently seen situations where startup pay actually exceeds the pay the same person would be likely to get at a big company. So what happens when a private, venture-backed company doesn't perform. Well, speaking from experience, generally the investors continue to invest money in the company. Often investors will continue to invest money in the company for years. So, generally speaking, you will usually have plenty of time to find another job if you think a startup is going down. Even if a startup does go down, most VCs worth their salt provide for some sort of compensation package that at least gets employees several months to find new jobs. Several months may not sound like a lot of time but remember you usually can see signs for years before the actual shut down occurs. So let's now assume that you are without a job and you need to look for a new job. Does working for a failed startup hurt you? Definitely not if you were not one part of the management team. There is a highly liquid market for startup talent and many people will actually view your experience with a failed startup as a positive. If you were part of the management team, again, I am not sure that it really reflects all that poorly on you. One of my friends whom I admire thinks that you basically get 3 strikes or so. I don't believe that because the general statistic is that, on average, entrepreneurs fail multiple times (up to 6 times) before they succeed. Well now I am rambling.
In terms of actually evaluating the prospects of the company you are considering joining, I would put myself in the shoes of a VC. Evaluate the company the way a VC would. Generally, this involves looking at the following elements of a company:
"I've already had this discussion with some of you, but I didn't take the best notes, if any. Suppose you were considering joining a small startup. What questions would you ask? I'm primarily interested in the questions you would ask to make sure that the business plan was solid, the executive team was competent, your paycheck wouldn't bounce, and that your offer was appropriate (both in terms of salary and options/ stock). (I'll take advice on other sorts of questions, too, of course.)
You can assume that you're at the stage in the process where you're about to get an offer, and that the company is small enough that you'll be negotiating directly with the CEO.
Thanks in advance for any help you can offer. :-)"
My thoughts on joining a startup a pretty varied. Here are some thoughts. I will try to refine this post over time because I am not sure that I am very good at expressing my thoughts on the first go-round. But as is always the case I am hoping at some point that I won't be the only one answering this question. I hope that some interested folks will discover the blog and chime in. Anyway, here are my thoughts...
Generally the major concern that most people have with startups is risk. I think it is kind of funny because I think that there is certainly risk in joining a startup but I am not sure that the risk is any less than working in a "stable" job at a big company. Big companies are competitive environments just as startups are. Yes they tend to not go out of business as often as startups do but they also have no shortage layoff periods during difficult times. Also, isn't making a lot of money one of the ultimate risk cushions and, generally speaking, you are probably more likely to have a shot at making a lot of money at a startup than you are at a big company. So now let's look at the downside. Generally speaking startup employees are paid quite well--especially employees in key roles. In large cities the pay gap between startup pay and big company pay may be larger but I have not infrequently seen situations where startup pay actually exceeds the pay the same person would be likely to get at a big company. So what happens when a private, venture-backed company doesn't perform. Well, speaking from experience, generally the investors continue to invest money in the company. Often investors will continue to invest money in the company for years. So, generally speaking, you will usually have plenty of time to find another job if you think a startup is going down. Even if a startup does go down, most VCs worth their salt provide for some sort of compensation package that at least gets employees several months to find new jobs. Several months may not sound like a lot of time but remember you usually can see signs for years before the actual shut down occurs. So let's now assume that you are without a job and you need to look for a new job. Does working for a failed startup hurt you? Definitely not if you were not one part of the management team. There is a highly liquid market for startup talent and many people will actually view your experience with a failed startup as a positive. If you were part of the management team, again, I am not sure that it really reflects all that poorly on you. One of my friends whom I admire thinks that you basically get 3 strikes or so. I don't believe that because the general statistic is that, on average, entrepreneurs fail multiple times (up to 6 times) before they succeed. Well now I am rambling.
In terms of actually evaluating the prospects of the company you are considering joining, I would put myself in the shoes of a VC. Evaluate the company the way a VC would. Generally, this involves looking at the following elements of a company:
- Management team. Have they done it successfully before? What experiences have they had that qualify them for this? Are they hired guns or are they passionate about the outcome?
- Market. Is the market established or will you have to educate the market? Is it large and diverse enough to support a new competitor? Is it growing? How competitive is it?
- Product or technology. Is your product distinctive? Do you have some kind of sustainable barrier to potential competitors?
- Business model. How does the company plan on making money? Is it a believable plan? Will people pay for it? Are there comparable companies that have done something similar? What are the companies margins (at model)? Are they sustainable?
- Deal. What is your compensation? How much of the company do you own. In a perfect scenario, how much money would you make? In a moderate scenario? In a downside scenario? How bad could it be if it really went bad?
Labels: Evaluating Startups, Start Up Jobs
posted by VentureReturns at
10:29 AM
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