Every now and then I get a call from a former colleague (typically working at a large company) asking me my opinion about a particular startup that she/he is thinking of joining. Not that I profess to be an expert, but having had my share of working with startups, I have gained some insights that I thought I would share.
First of let us set some premise here
- This article is primarily based on software/technology startups. Other industries (of which I am not an expert of) might have other guidelines that work better.
- Any company that has had meaningful traction and has been in existence for more than 5 years does not qualify as startup in my list.
- Judge the startup by its founders. In the early stage you are most probably meeting with the founders who are still running the company. If they have hired a CEO who was not part of the founding team, then run for the hills. If they found a person more qualified than the original founders and got her/him to join them to run the company, then most likely she/he would also be a founder. If they brought in a expert CEO to run the place, then they have already given up on doing the hard yards (finding the business model, finding early customers etc) and left it to this new “professional” CEO. Look for the hustle.
- Belonging – The founding team should be comprised of people who can significantly contribute to the vision of the company. If it is technology startup then it is imperative that one of the founders is a technologist. While it is fashionable to think that people who are not “married” to the workings of a particular industry can come in and disrupt that industry, that occurrence is very rare. So gauge the founders’ understanding about the industry and problem space – not just some Gartner stats. Better yet do your research about that industry and see if that industry is ripe for or going through disruption – talk to some one who works in the industry to get a better understanding.
- Stage of the startup (and milestones). There is the early stage and then there is the very early stage. Find out when the company was started and how long have they been at it. While at it also ask them about the key milestones they have managed to hit. If the company is at it for more than a few months and cannot show you some iteration of their product, that should ring a alarm. If they are still showing you slide-decks or mock-ups, then you should definitely ask them about the plans for go-live of their first version. In this day of rapid iterations, a good startup will have product iterations going on lockstep with “customer development”.
- 2 C-title rule. If you see the company is in the early stages and has more than 2 C-titled people, bad place. They are more focused on printing business cards and leadership page of the website, instead of solving the actual problem.
- Ask them about Funding. Startups are risky. You are never joining a startup for a higher salary. Assuming you are not joining a company that is already on a rapid upward revenue trajectory and hiring for growth, it is important to know the company’s financial strength. It is conceivable that they are not flush with cash. In fact, they might even be working towards milestones and then try to raise money. If you hear “we want to gain traction and then raise funding“, it is definitely a good strategy for the company, but at least it will give you some understanding of the risk you are taking.
- Engineer-to-Non-Engineer ratio. If an early stage company, in the technology space, has a bunch of marketing, finance/sales people and has less engineers that should be a cause for concern. That tells you a little bit about their priorities. If the company is outsourcing their product development, that should raise your concerns to a higher degree. Of all the cast and crew, engineers easily relate to challenges your company is seeking to solve. They would be the easiest bunch to convince to work for the company, if the product/idea is as good as the company claims it to be. If they are not able to hire engineers then something is wrong. If they have outsourced the product development and they say – it is to prevent dilution at the early stage it should be an issue. Till product has found resonance with customers, equity has no value. If they say, engineering can be done anywhere these days and much cheaper offshore and hence their decision to get product development done offshore – move on.
- If they overpay, runaway. You know your real worth. Notwithstanding your wish for being paid more than you make currently, deep inside, you know how much you are worth. You were in your current job because you felt it was a fair compensation. If the startup readily agrees to pay you that higher salary you asked for and does not counter with some form of “we want to preserve cash and we would rather compensate you with higher equity” then you are surely in the wrong place. It is natural for startup founders to value equity more than its true worth but if they would rather pay “precious” cash to a new hire and preserve equity – you are working with someone who does not know enough or does not have good advisors around them.
- Customer Development – Talk about their customers (or prospects if they don’t have customers yet). See why the product is useful for their target market. How have the founders validated the need? See if they have talked to not just the end users of the “would-be” product but the leaders in those companies to see the benefit to the company. Based on the customer acquisition strategy (Top-Down or Bottoms-Up), if they are focusing on grass-roots user now and later will go up the chain, that should be fine. But see if they have thought about it. Just targeting the end-users will be commodity business (think expense statements, leads). Look for “we know what our customers want” and if they are not talking to their customers enough – be skeptical. Build it and they will come or we know what our customers want works for only in few cases cases. (A common example thrown around by less experienced people is “Steve Jobs did not ask anyone if they needed iPod”, but then again there is only one Steve Jobs)
- Distributed Team – By itself a distributed team is not bad. There are scores of companies that have made it work. But in the initial stages not having the team concentrated in a single place is a problem. Startups in the early days should work like a nuclear reactor – there should be ideas/problems/solutions bouncing off of each other rapidly and precious cycles are not wasted. Aligning the availability/commitments of different team members in a distributed team becomes a challenge while trying to hit rapid milestones. You don’t want to introduce unnecessary delays. Having a bunch of people “moonlighting” is not an efficient model for a startup. As the company gets to a later stage it might be feasible to make things work with people working in a distributed team model .
This by no means is a definitive guide but hope it will serve as a thought provoker. Working in a startup is a rush. You will never be short of challenges. So if/when you are ready by all means explore opportunities.