Monday, February 1st, 2010...1:01 am
How To Evaluate A Startup Job Opportunity
People in my network sometimes hit me up to learn more about what it’s really like to work at a startup company. They are intrigued with the idea of having more control of their career path, a bigger stake in the success of their company, and a more passionate work environment. Then again, perhaps they just want an escape from the soul-crunching monotony commonly knows as the “corporate world”.
Those who are not familiar with the startup culture in their own industry or city are sometimes uncertain how to uncover and evaluate career opportunities. Luckily, it’s not all that difficult to get up to speed. Entrepreneurs are eager to see their friends or associates take the plunge into the startup world. Just be persistent, energetic and resourceful…and by doing so you’ll prove to yourself and to those you connect with that you’re ready for the challenges that lie ahead.
I’ve been planning to write specifically about how one can evaluate a start-up opportunity. Then the other day my superstar dodgeball teammate Charlie O’Donnell wrote an interesting blog post about the misconceptions of MBA’s who are interested in startup opportunities. If you take MBA’s to mean anyone with a distinguished corporate/legal/b-school background that is looking for a mid-level to sr. opportunity than his post covers most people that I have connected with as well. I urge you to read it (and the comment discussion) before you continue on.
Let’s just assume that you’ve proven your value to a startup and now you’re evaluating an opportunity to join a young company. This is a bit more complex that evaluating a corporate offer where the clearly defined levers are the company reputation, salary/cash compensation and position/role. But in a startup, this can be shrouded in smoke murkier than the black stuff on the island . When I was evaluating different startup opportunities (before I started at Sportsvite), I felt overwhelmed trying to figure out which was the best one for me.
Last week I was helping my intern make a similar decision. He is contemplating a move to San Francisco to join a small ad network and was trying to determine if it was as good a fit for him as his Lehigh wrestling uniform was in college. We developed a framework of issues to resolve in order to make a comfortable decision. The key fundamentals of this are company, position, compensation, intangibles. He then worked through the issues, did the research, and dug for the answers he needed to make an informed decision.
I thought it would be worthwhile to share this framework.
Assuming you like what the company actually does it’s important to also understand the current state of the business. Startups come in all different shapes, sizes, philosophies and funding cycles. It’s important to understand where the company is in its growth and where it hopes to go. The obvious and easiest thing to do is learn how many employees are in the company. But that can be misleading, and I would suggest digging a bit deeper to understand the company’s funding and financials.
A startup that is venture funded often means that it has an exit strategy, specific goals with deadlines and some kind of management/organization structure already in place (although this will undoubtedly change in the future). Even the funding round (Angel round vs. Series A or Series B) or investors can hold clues as to the company’s projected path.
In terms of financials, key metrics include current revenues, burn rate and proximity to its break even point and subsequent profitability. This information can help determine the best case and worst case scenarios for the startup as well as the timing for those milestones.
- How is Company X funded and who are the current investors?
- Does Company X plan to raise future rounds of finance? When? How much?
- What is the projected growth of the team? What are the next hires/positions?
- What are the revenue goals this year? What is the 5 year plan? (Even if you don’t see specific financials it’s worth a discussion)
- What companies are your closest competitors? What startups have been successful in this space?
A startup is like a sports team. Not only is talent important, but every person needs to play a specific role in order for it to be successful. It’s super important to understand the exact position and make sure it’s a perfect fit. An All-Star point guard isn’t going to be effective on a team that already has a great point guard but needs a big man. Since most Startup organization are still small (less than 40 people) it’s not impossible to get an understanding for how you would fit within the entire organization. Speak to both people above and below you as well as others in lateral positions (since many startups are often flatter than large organizations) and you’ll learn a lot about the organization as well as the culture.
It’s good to begin a dialogue to understand how this position might evolve as the company evolves. In early stage startups, people are often asked to wear more than one hat. If the position includes both marketing and business development duties, find out when they eventually plan to hire someone and what role that hire might play. Also, if you come into an early stage startup (less than 10 people and early in its funding cycle) realize that there is a very good chance they will hire above you as the company matures. That means you can start by reporting directly to the founder or CEO but soon find yourself separated by one or multiple levels as the organization expands.
- What do you envision the perfect employee to be like?
- What are your hesitancies/questions with me fitting into the role/team?
- How do you see my position evolving in the future?
- Will I always report to you?
- What do you expect from me above and beyond the job description?
- Would it be possible for me to talk to other people in the organization?
Startups are ALWAYS cash-strapped. If they act like they aren’t, that probably means they are wasting money (and that is cause for concern). When I joined CSTV, I figured they had millions and millions of dollars to spare since they had raised a staggering amount of capital from high profile investors. But I soon learned how severely we were burning through cash and how tightly we needed to stick to meager budgets. Since most startups aren’t profitable, it’s a race to get revenues up in order to be profitable or exit before the company runs out of capital. The more a startup keeps down their costs the longer they can go (kind of like a patron in the champagne room).
This means that the base salary will be low. It’s going to be lower than what your market value is in the corporate world. If you are in a revenue generation position, you might be able to negotiate higher commission or bonus structure.
To make up for the salary disparity (and to give employees a stake in the game), startups often offer equity in the company to their employees. I’ve found that it’s very difficult to understand the value of equity agreements (which is already uncertain since it’s usually based on the value of the exit). It’s difficult to quickly get up to speed on equity agreements so its important that you request all the proper documents (equity plan, corporate operating agreement, capital structure) and have somebody who has experience (either a lawyer, VC, or startup veteran) to review your equity agreement and help decipher a potential payout in different scenarios (which might depend on additional funding, that could lead to dilution, and exit value). As I was trying to understand my equity plan at svite, I actually found myself in a private email chain with Fred Wilson and Brad Feld (Two of the most successful venture capitalists in the world) and both agreed it is an incredible complex, unique and cloudy topic. Even with both their advice I was totally confused.
If you agree to an equity plan, make sure you sign all the appropriate documentation BEFORE you begin. If the company is in such an early stage that they haven’t finalized documentation, have your own lawyer put together a document that outline the agreement.
- Obtain copies of the equity documents; operating agreement and capital structure (at least understand the employee stock pool and amount of outstanding shares at the current valuation)
- Understand if bonuses can be taken in cash or equity?
- Discuss salary increase philosophy (influenced by additional funding, individual or company performance)
- Ensure that health benefits, retirement plan, expense account, etc. are aligned with expectations or assumptions
My most important advice is that you need to BELIEVE in the company and be PASSIONATE about it. The honeymoon ends as soon as you tie up your laces and start chopping wood (only to realize your Ax is plastic and made by Fisher price). A startup is a roller coaster ride and you need to make sure that you stay committed during the dips. The best way to do this is to truly believe in the mission, team, and eventual success of the company. Believe in the founders, in the management, in the concept and in the strategy. If you join a startup thinking you can do it half-ass or just go along for the ride then you are as off as a Chris Duhon three point attempt. As Charlie wrote ” If someone is hiring one of the first 10 or 20 or even 50 people in their company, they need to be awesome. You can’t hide in a startup and there’s no room for dead weight or mailing it in.”
Sometimes, there is room for some flexibility in a startup organization and you can actually influence some of the details that might be set in stone in a bigger organization. This includes vacation time, ability to work from home, computer and equipment budget, etc. In many startups your job becomes your life so it’s important that it’s comfortable for you. The perfect time to negotiate this is when you know you want the job but before you accept. These sweeteners can play a big role in your overall happiness. Do realize that as the company matures some of these perks might need to be adjusted.
- Do I believe in the founder, team?
- What is the background of the members of the team?
- Who in the organization has startup experience?
- Does this keep me up at night with excitement for the possibilities?
- What do I think I will learn here?
- What are the risks? What are the rewards?
- If the company fails, where will that leave me in my career?
- What will I do with all my chedder when we hit it BIG?
Hopefully, this is a helpful framework to better understand and evaluate startup opportunities. I know I’m missing tons of good information so please leave your thoughts or experiences in the comments. As always, hit me up if you want to chat through this stuff in more detail.