Should you go and work for a startup?
The low down on risk, equity, wearing many hats, and the lifestyle implications of working for startups at their various stages of evolution.
I’ve long supported entrepreneurial people find the right opportunities for where they are in their lives whether that’s building their own business or joining an early-stage startup.
In January this year I did a podcast episode on the pros and cons of working in a startup as well and some trade secrets I’ve learned throughout the years in startup recruitment. The episode came out this week. You can listen to the full version here or watch a snippet below for a taster.
Today we’ll delve into this a little further, answering what actually is a startup, and how to decide whether it’s right for your stage of life, based on what the realities of working for one are.
Firstly, what is a startup?
Google is not a startup.
There was a time when ‘internet technology’ and ‘startups’ were synonymous. But this was back when working for an internet company meant working for a new company. Now the internet is no longer new and many internet companies are the biggest companies in the world.
By startup, I refer to businesses with a so-far unproven business model. Such as banks without a banking license (early days of Monzo), sleeping in a stranger’s home (early days of Airbnb), or streaming music on your phone (early days of Spotify). In their heyday, these companies were startups, but are now proven businesses with established operations and large scale.
Many people will call any new business a startup. But whilst a new restaurant or hairdressers may be uncertain (will this price, location, taste be popular?) it is not an unproven business model.
Offline businesses can be startups but they are rarer because of the fixed costs that are incurred, and it’s also rarer to find physical products outside of a pre-existing category (phone, toys, clothing, home appliance, etc).
So a startup doesn’t have to be an online business, but they very often are, thanks to the low-costs and speed at which you can set one up thanks to cloud computing and open-source software products. I like to think of technology with hardware as something in the middle. Drones, wearables, or 3d printing are physical but what makes them unique is often the software component that makes them new and unproven.
So in not so succinct terms, there is my startup definition: a new company with unproven market demand, most likely using new technology.
So now we are familiar with what a startup is… should you go and work for one?
Deciding whether to work for a startup
Whether you say yes to this question I believe comes down to your answers to the following questions:
- Risk v reward — what is your tolerance?
- Breadth v depth — what is more important to you?
- What problem they are solving — do you care about it?
i) Risk vs reward
Is working for a startup risky?
The earlier stage the company, the riskier it is.
Broadly speaking stages in a startup are based on the funding they have received. Funding will generally come in the following stages:
NB: not all startups go through each stage. Some never make it to the next stage because they fail, or some get acquired early on. Instagram was acquired by Facebook in 2012 after they had raised their Series B funding round, for example.
Most startups are financed with external funding from investors. Startups who do not take external investment would need to grow through their sales revenue alone (being bootstrapped) which happens occasionally but most startups need time to figure out their business model — which is unproven- so generating sales income straight away is not possible.
My coaching business is bootstrapped for example, but I have not invented coaching as a business model nor is it a technology business.
So looking at that list again, the earlier the funding stage, the less cash a startup has raised. Generally, a pre-seed or seed-stage company is still yet to be proven and the risk that it will no longer exist in a few months or years time is higher than a company that has raised later funding stages. In order to have reached these milestones, these businesses have demonstrated sufficient market demand for investors to continually put money in, based on the certainty they are seeing. What size investment round did they raise too? They are not all created equally. Investors take risk but they are looking for winners. They do not keep pouring money into failing companies.
So should you just join businesses with later funding stages?
As with many things in life, the higher the risk, the higher the potential reward.
The earlier the funding stage that you join, the more equity you can have in it (ownership). You can own more equity because there are fewer owners of the business as fewer people (investors) have put their money into it and fewer employees exist to own a piece of it.
The more money that is put in, the less of the pie is left to own. So getting in early increases your chance of owning more of the pie and the potential upside is higher.
This pie might grow to be worth millions (or billions). Facebook’s first 1000 employees made millions of dollars each in its IPO (according to the reputable Daily Mail, at least).
But there are not many Facebooks in the world.
My old boss used to say that an equity payout will either be car-changing, house-changing, or life-changing. The kind of return you make depends on how much your equity ends up being worth. This is calculated by the percentage of the company you own and the value the company ends up being worth.
It might be worth nothing at all.
So whilst the upside is higher, but what about the likelihood of it ever coming to that point?
This Quora thread has some interesting anecdotes on how likely equity payouts are for startup employees (rarely are they significant).
So the upside is higher in an earlier stage but startups with more advanced funding stages are more likely to have an IPO or exit because they are generally past the first few years of existence and more established in their business model. So you are probably likely to have a car-changing or maybe house-changing payout by joining a winner at its later stages.
These startups can also afford to pay you more in cash (salary, benefits, and bonuses) than earlier stage companies can. So even if the upside is not as high, you absorb less financial risk year on year, as you get paid decently. Whereas seed-stage businesses cannot afford to pay you as much as the traditional going rate simply because they’ve raised less. They have less cash to give you and so will compensate with more equity.
So don’t join a seed-stage business and expect short term financial success. And definitely don’t join without equity. Push for as much equity as you can!
So ask yourself: how important is earning short term cash at this point in your life? If it’s very important, then join a more established company. If it’s not that important and you’re up for the risk and excited by the prospect of that turning into more longer term, then you could be a candidate for startup life at its earliest stages.
Remember that the earlier you join, not only will you be rewarded with more equity but also more responsibility than people who join later on. Early employees can grow with the company and end up reaching senior levels quicker than traditional career paths would allow as a result.
ii) Breadth vs Depth
Generally, the earlier stage the company, the more breadth of opportunity available to you in your role.
The earlier stage means fewer people, but that rarely means there are fewer things to do overall. A Founder often takes on the role of sales, marketing, operations, strategy, finance, and office cleaner. A team of two splits those tasks, and so on. The first 20 employees often take on a blend of multiple functions, with some menial tasks thrown in for good measure.
I joined a startup (briefly) last year in recruitment and also found myself doing HR, social events, admin, and being the unofficial office therapist. I surveyed 56 other Heads of Talent in startups and found that most of them did more than just recruitment, which many found exhausting. However, they also found that having exposure to so many parts of the business and being so ingrained in its fabric and everyday operations to be highly rewarding. I wrote about this study and my own experiences in Sifted (FT backed publication) here.
If you join a bigger company, the operations are more established, and so are the associated tasks and responsibilities that go with it. You can’t do Product when you’re in Marketing in a big company — there’s already a Product team and you’d have to apply for those jobs.
But you probably can in a small company. You probably are doing it and don’t realise because everyone does a bit of everything to get things moving.
This might sound amazing or it might sound terrible. You should decide whether working in a few different roles is beneficial (you’re still figuring out what you’re good at and like variety, for example).
If you already know what you’re amazing at and want to do only this without veering outside of your remit, then you might be better joining a later stage company with a more siloed role with the chance to go deeper into your discipline.
What do you want to be?
I shaped people are good at one specific thing and would be best off in a very siloed specialist role. The Generalist can work across multiple roles (great at the early stages whilst things are being defined) and a T-shaped can work cross-functionally but has depth in one specific area.
If you’re an I or a T (or trying to be) you may find yourself frustrated at very early stages where you don’t fully get to work on your specialism.
So remember — the earlier the funding stage — the more uncertain the product-market fit is for this business and the more things will change. This is good if you’re still flexing your skillset and like working on a range of things.
But I should add; the people who climb quickly end up centering on a particular discipline (product, engineering, sales, marketing, operations, hr or finance) and climb the ranks through faster than staying a generalist for too long.
iii) What problem are they solving?
Startups exist to disrupt the status quo. Gigantic industries get turned on their head by tiny companies built out of a basement.
Digital cameras killed Kodak. Film streaming killed Blockbuster. Digital technologies are disrupting retail, banking, healthcare, and many deeply ingrained societal norms.
All this to say that you join a startup and its inherent uncertainty, for the purpose of change. A startup that isn’t trying to change something is lacking purpose and dedicated leadership.
So figure out what is this company trying to change?
Get clear on the problem they see in the world and their approach to go about solving it.
If you are missing a career mission of your own, join a company whose mission you believe in. You’re going to be working longer hours for less pay than many other places you could work and so you want to care about the ‘why’ behind the business.
The startups that succeed generally do so because they are solving a real problem (not one they have invented as an excuse to create a business).
- Deliveroo solves the problem of take-aways traditionally being cheap, unhealthy foods by creating the infrastructure for any restaurant to deliver food
- Bulb solves the problem of efficient green energy being difficult to install at home
- Cazoo solves the problem of the rental and second-hand car market being so fragmented with a poor user experience
- Patch solves the problem of lack of access to high-quality plants for inner-city living
- WeFarm solves the problem of farmers without internet by giving them access to SMS based answers
- Jolt solves the problem that MBAs are expensive and soon irrelevant given the changing pace of education
I’ve listed fairly well-known UK based startups with later stages of funding. There are literally thousands to choose from in major cities like London, San Francisco, Tel Aviv, Berlin, and major tech hubs but soon with the rise of remote work, we’ll be able to work in these companies from anywhere.
Caring about the problem they are solving is so important because it will dictate what work you do, the kind of people you work with, and the kind of reputation you create.
Ask yourself: Would the world be worse off if this product didn’t exist? Have the founders thought deeply about the problem they are solving? Do they have any personal association with this problem?
It might be the perfect role for you but you may be less enthused about the problem. And if you lack excitement and passion you’ll lack creativity and energy that are needed to get things off the ground and find the momentum required to be successful.
And the point of a startup is a whole bunch of people working together to make the impossible possible.
So, is it for you?
The main way to decide would be to answer the question of what journey you want to go on next in your career.
The role and company direction might change, the money might be tight, layoffs frequent, but will you find the meaning, purpose, and impact you are seeking working in a startup?
Many people do.
I asked some of my friends why they chose to work in the startups they’re currently in:
A Talent Acquisition Manager said:
I liked the idea of joining a startup that was at such an early stage as I would see the impact of my work, I was basically building the business for them and it’s good to work with other people that are there for the same reason
A Customer Success Manager said:
I really like working in a fast-paced environment where everyday is different. I also enjoy the casual feel and more employee-friendly culture of startups. There are so many things culturally in startups that are better than the corporate world, it’s not about the ping pong and unlimited holidays, it’s more about your voice being heard.
A Marketing Manager said:
The opportunity for growth and the possibility to make a direct impact on the business is what attracted me to starting my career in a startup. It’s also exciting to be working in an environment centered on innovation and seeing the business progress so rapidly all the time.
Its true, impact and progression are unrivalled in startups.
You can see the direct consequence of everything you do because the teams are so much smaller and the work you do so much more game-changing than established corporates can offer.
So that’s the question of whether to work for a startup laid bare.
I’ve covered lost of practical considerations, but as I explain on the podcast, your gut is one of the best filters to make your decision.
Your intuition knows that is best for you deep down. My gut advised me not to join the startup I did (and soon left within 3 months) and my gut told me to quit when I did. The company soon laid off 60% of its workforce so I made the right call.
Looking for more support with your career decisions? The Ask coaching services are designed to provide the clarity and direction you need when pursuing new paths. Find out more or book a discovery call today.
Originally published at https://theask.substack.com.