Joining an early-stage startup comes with many tradeoffs. In a team of just three to five other employees, the company can feel more like an interest club at times. On the one hand, you get much more autonomy, your work is likely to have more impact, and you enjoy the work you do. On the other hand, the risk of failure is very high, you might be busier and more stressed than with a normal job, and the pay may be lower than average.
Therefore, when it comes to deciding whether or not you should join a startup, selecting the right one matters: it will help with reducing the risk and maximizing the upside, although you may be just as busy, if not busier. While it feels like a big guess, there are many considerations that you can take to help with measuring the risk and potentially avoiding a dud.
What’s the Team Like?
Early-stage investors care more about the team than the business idea. That’s because ideas are a dime a dozen, but it takes the right people to transform another worthless idea into a unicorn. As a potential employee (or even a cofounder), you should also prioritize the team when deciding about joining the company.
How Transparent Are They
At the beginning of the startup, there are very few people — that’s a given. Five of you may have to do the work of 50 people. Everyone has to be on the same page and moving together as a unit; sidetracks from one person consumes 20% of the company’s efforts, which can be detrimental to a startup that needs to move quickly. To avoid sidetracks, transparency is key.
At some point during a startup’s growth, full transparency may no longer make sense; e.g., employees churn, and cofounders may not want them leaving and taking all the company secrets with them. The first handful of team members, though, should be those you can deeply trust. Thus, transparency should not just be key; it should be natural.
Founder transparency with the early-stage team indicates a few positive signals. First, everyone can be aware of problems and prepare for them much more effectively. If founders can bring up problems to the team, then the team can work collectively to solve it; otherwise, once the problem manifests to a point where the entire team has discovered it individually, it may be too late.
How Do They React Against Pressure
During flights, airplanes often experience turbulence. In those moments, the reactions of the crew will impact the subsequent reactions of the passengers. The pilot could turn on the intercom and start crying, but that wouldn’t be a response that inspires confidence in the rest of the people on board.
Startups will experience turbulence, too. While panicking is natural and emotions are warranted, the founders need to continue steering the vessel; otherwise, what begins as mild turbulence can become a much bigger problem. Although my analogy of turbulence seems self-explanatory, the reality is that being in the situation and navigating first-hand can be tough for many founders and the team.
How Experienced Are They
Experience is important, and what you are looking for here is relevance. Check out who’s already on the team and what their past work experience was — the more relevant the work experience, the better. For example, if you’re looking at a fintech startup, you might be looking for fintech and finance backgrounds on the team.
Seeing professionals with relevant experience on the team indicates that experienced people validate the startup’s idea. These people are more familiar with the intricacies of the space. They know how the industry works and understand how the startup’s idea fits in to solve a specific problem.
Furthermore, additional product validation and finding the first customers will be easier. Those potential users are instead one WhatsApp message away or on speed-dial, rather than a cold LinkedIn message that will likely be perceived as spam. The faster a startup can launch an effective MVP, the faster they can start shipping, selling, and validating the business.
Another aspect of experience relates directly to the founders: have they started companies before? I’m not saying that first-time founders will automatically fail, although statistically there is a difference. Regardless, an experienced founder brings many resources to the table. First of all, they’ve previously done a startup, which is an invaluable experience. They will have a better sense of how much time certain things will take (e.g., raising money), they’ll be aware of potential pitfalls looming on the horizon for product development and sales, and when turbulent situations arise, they’re more likely jaded and able to continue navigating. Also, if their previous startups had successful exits in the same space, then they have a strong reputation with investors and potential clients.
How’s the Company Doing?
Looking at the team is an important step because those are the people you’ll be working with every day and entrusting to help grow the startup from just an idea. While getting to know everyone will give you a good sense of how effective the team will be, researching some perspectives from other lenses will provide you with a good sense of what others may think about the team and idea.
Learn About the Investors
Apart from examining the seemingly amazing team, it would help if you also looked at the investors who believe in them. Relevant investors who have deep, specialized knowledge in the space are great. Using the fintech example again, a good indicator would be a fintech VC (better yet, a few) investing in the company.
They’ve already done a lot of homework for you. Out of all the experts they’ve spoken to and the competitors they looked at, they decided to invest in this startup. It’s a bonus if they follow on additional rounds because it indicates that they have a continued interest in the company.
Ask for a Competitive Landscape
Of course, you should do one yourself, too. But your landscape may not be as precise as one done by the startup company itself. Usually, a startup shouldn’t have a problem providing you with that information; after all, if they don’t, you can go on Google and do the research yourself. Getting it from them will be much faster, though.
Use the competitive landscape to learn more about other companies in the same space, doing something similar, if not the same. Learning about them will frame the uniqueness of the startup. In other words, is the unique value proposition that the startup is attempting to deliver truly unique? What keeps other competitors from entering and competing on the same value proposition? Those answers can affect the startup’s positioning and survivability, especially in a crowded space.
Ask for Things They Say They Have
If they’re talking about their amazing product, ask them for access to it to try it out yourself. If they mention how their current investment talks are going well, and investors love their pitch deck, ask to see it. You want to see that the reality of the business is aligned with the expectation of it.
Startups have to move, and they have to move fast. They may not have the perfect product yet. If they’re talking about the product as if it existed to all their potential customers, investors, advisors, and others, then there is a problem: everyone’s expectations are not aligned. That misalignment causes other issues. For example, if an advisor brings in a colleague from their network who might be interested in being a potential user, that colleague may end up with a bad experience because there’s nothing to use. At that time, the advisor will realize that there isn’t a product yet; furthermore, the advisor just looked bad in front of his or her colleague. That impacts their reputation and affects how they want to work with the startup in the future.
Working at an early-stage startup is extremely risky. Even if you do all your homework and everything checks out, the business may still fail. Often, situations emerge outside of anyone’s control: as a recent example, the sudden coronavirus shut many businesses down regardless of how great those businesses were. When you want to join an early-stage startup, asking the questions that I posed will help you understand whether a future failure will likely be due to a controllable or uncontrollable factor. The uncontrollable ones are unavoidable, but the controllable ones can be identified and addressed. It’s up to you to figure out if the team you’re joining is the right one to solve those controllable issues.