3 Must-Know Tips for Joining a Winning Start-up
Discover three essential tips to help you identify, evaluate, and join a start-up poised for success. Make your move with confidence.
I’ve been asked a few times over the last couple of years by friends and former colleagues who were exploring roles in start-ups and ventures for advice on how to approach these opportunities. So, this post is a summary of the advice I’ve given them on picking a worthwhile start-up.
Joining a start-up is exhilarating; everything is fast and furious. You’re part of an elite hit team that’s going to change the world. You’re committed because you believe there’s a chance the business will go all the way. Then there’s the promise of substantial financial rewards — work hard, play hard, right? It’s a rush!
It’s true you become part of a small, select group of people who work in a start-up together; they support each other and get involved in all aspects of the business. They’re committed and put in the hours. They are often compensated with stock options and a baseline salary. It’s a rush being part of that kind of business.
As a veteran of some 12 start-ups and venture-funded businesses, I’ve learned the hard way that quite often the hype is not justified. It’s worth noting that as many as 90% of start-ups fail (source: Investopedia.com ). The reasons are as diverse as bad ideas, running out of funding, poor marketing or partnerships, wrong market, mergers gone bad, bad product conception, lack of market adoption, among others.
So, before joining a start-up, scale-up, or venture-funded business, I apply the following rules to work out whether I’m joining something with a fighting chance of success.
- Do they have a viable elevator pitch or ‘why’ for their business?
For those not familiar with elevator pitches, these are 25-word-or-less summaries of an idea. They originated in Hollywood, where the idea was that you could pitch your film idea to a potential backer succinctly and powerfully in the time it took to ride an elevator from one floor to the next. Hence, 25 words or less.
To create a good elevator pitch, you really have to know what your idea is and refine it down to the simplest possible description. So, for example, for the film Ghostbusters, the elevator pitch might be:
“Ghostbusters is a comedy where a team of quirky scientists turn ghost hunters, using high-tech gear to save New York City from a supernatural invasion.”
Or for Facebook as a start-up, it might have been:
“Facebook is a social networking platform connecting college students, enabling them to create profiles, share updates, and connect with peers, fostering campus communities online.”
Any decent founder should be able to give you this kind of summary of their business idea or alternatively articulate the idea as a ‘why’ they exist. The ‘why’ represents the core belief or purpose behind an organisation. It’s the driving force that inspires actions. More information on Simon Sinek’s ‘Start with Why’
An example of a good ‘why’ is something like the following:
“Apple exists to challenge the status quo and empower individuals through innovative technology. They create products that inspire creativity, simplify life, and push the boundaries of what’s possible, enabling people to think differently and achieve more.”
These statements tell you that the founders of the start-up you’re approaching know what they are trying to achieve. They may not have the ‘how’ or the ‘what’ of their business yet — these are often the products or services that emerge from the core belief or purpose — but they have a clear vision for what the business is going to achieve and can articulate it and the audience that it’ll engage. This is a good sign, as you’ll know what you’re working towards at any given moment, as will all of your colleagues.
If the founders can’t articulate the purpose of the business, my advice is don’t get involved, as it’s unlikely to be successful at raising funding, developing, or marketing products.
2. Does the business have adequate funds or backing and a roadmap for future funding?
Going into a start-up, you need to know that you’re going to get paid, so understanding the current and future funding status of the business is important. If the business is at the seed stage, you may be offered a low wage with stock options and the promise that the salary will go up or that a bonus will be paid once the next stage of funding is in place.
In ideal circumstances, the founders will be able to show you a funding roadmap or at least tell you what it is and when each tranche of funding is due to land in the business. This is an important thing to understand and also keep an eye on if you join the start-up in early-stage funding. My own experience with a start-up with an excellent purpose was that once the founder had a team on board building the product, they took their eye off their main job, which was to bring in the next round of funding. The end result: the start-up failed.
My advice here is if the start-up has a purpose you feel strongly about, make sure you get a base salary that you can live on and treat stock options and bonuses as if they will never arrive (my experience is that this is often the case). There’s nothing more frustrating than doing an 80+ hour week when you can’t survive on the salary you’ve negotiated, and then the start-up fails. Trust me, you don’t want to go there.
So, be aware of how funding rounds work and what the terminology means, and don’t be afraid to ask for proof that funding is in place, and do some research of your own. For more information about start-up funding, you can use this guide from Visible.vc
3. Does the business frequently change direction?
Start-ups that don’t have a clear business purpose often change direction or pivot as they realise that their current direction is not working. In the worst cases, a business that started with a relatively clear purpose will pivot repeatedly to chase funding.
This is a sign that the founder(s) have been unable to get adequate funding for, or are not steadfast enough in believing in, their base idea. As a result, when backers offer funding with a caveat, for example, that the product incorporates a different set of features from the existing set, the founders jump on the funding and, in the process, derail their product development.
This behaviour in chasing funding is quite common in poorly managed or conceived start-ups. The outcomes are negative across the board. Everyone in the business suddenly has to change direction, often repeatedly, and is never able to ship and market a product they’re proud of. It leads to constant chasing after the latest change in direction, poor product delivery and marketing, and a collapse of team morale.
That’s not to say that pivoting is not a valid strategy for a business. One thing that’s consistent in any business is that things change. So, what may have been a good idea last year may need to adapt this year. Sensible founders might well pivot as they see the opportunity they initially sought to exploit evolve. The thing to watch out for here is that the founders can give a solid narrative as to why the pivot happened and how it builds on their initial purpose. Pivots of this type happen rarely and have solid justifications.
When you discuss your role within a start-up, try and find out if the business has pivoted often and whether this has been related to funding. If this is the case, then my advice would be to step away from the opportunity.
In conclusion
People’s reasons for joining a start-up or venture might be anything from the lure of money to a personal conviction in what they are trying to achieve. Whatever they are, I wish them well, as some of the most enjoyable work I’ve ever done has been in these types of companies.
I would not recommend the money, though, as a primary reason for going into this area of digital business. Of the 13 companies I’ve worked for, most have failed or been bought out, and I’ve not made any money out of them apart from salary and bonuses. I would caution against thinking stock options are a good thing; they cost the business and are worth nothing at seed stage. Should the business become more successful, stock splits are common. This is where, to create more stock to sell, the business splits the existing stock in half (or some other fraction). In the process, your stock becomes worth half as much as it was previously.
For this reason, I recommend ensuring you have a decent base salary and a bonus that has a clear set of parameters for how it’s given — i.e., a mix of your performance, your team’s overall performance, and the company’s performance. Possibly something tied to funding rounds as well — i.e., if a successful funding round happens, you get a bonus.
Good luck!
