Updated: Mar 10, 2020
Startups are fun, kind of. It’s exciting to work for a company that is on the brink of disrupting an industry and changing lives. We’ve all heard stories or seen movies or TV shows that romanticize life in a startup. However, the truth is that working in a startup environment isn’t always rainbows and butterflies. It’s not for everyone. In fact, it isn’t for most people.
Sure, there is more flexibility and less structure working in that environment. Maybe you get to wear T-shirts to work, have unlimited vacation and have lunch catered in once a week but you don’t often hear about the negatives. Most startups can’t offer some of the more traditional benefits that a mature business can like 401K match, job stability, training programs, paying on time, and being paid market value.
If you have a few screws loose, like me, and think this sounds like fun, then the next step is having to decide whether that startup is full of potential, or full of shit. The fact is that 90% of startups will fail. So how are you supposed to find the 1 out of every 10 that will be successful, or at least successful enough for you to be there for a few years? Here are 6 things to look for when deciding whether or not to join a startup.
Strong Leadership Team
As is the case with any job opportunity that you are considering, leadership should play a huge role in whether or not the job is a good fit. When you’re hunting for a job, you are in the rare position where you can actually pick your boss, so take advantage.
One thing to beware of is an experienced management team. The management team in a startup will more directly affect your work and your livelihood much more than that of a management team in a large organization. If you’re going to trust people with big decisions that will directly alter your ability to earn a living, you’ll want to make sure those people are not in over their heads.
Of course, you won’t find many startups with tons of experience on the management team but if every person on the management team is in the biggest job they’ve ever had, they are doomed for failure at some point. Obviously, the most important leader in the company is the CEO. If this is the CEO’s first attempt at a startup, you are at higher risk for failure. Even if the CEO’s past ventures have all failed, the experience of going through the paces of raising capital while creating and executing a strategic growth plan is immensely important.
Sometimes you can feel company culture when you walk through the door for your interview and in other cases, it can be difficult to put your thumb on. In many startups, culture isn’t something that gets a whole lot of attention from the leadership team, but it does start from the top down. Getting a good feel for the culture of the company will also give you a sense of the characteristics that the management team values.
In a startup, culture comes first from the CEO, second from the team the CEO surrounds themselves with, and third from the type of people that those people then hire. Since startup leadership typically doesn’t spend a lot of time thinking about culture, it becomes a very honest depiction of how the company is run as a whole.
The challenging thing about culture is that you can’t exactly just ask questions about culture and get a truthful answer. Culture is not about free donuts on Wednesdays or an open floor plan. What culture really speaks to is how freely are ideas shared and collaborated on and how well teams work interdepartmentally.
All startups exist because they feel there is a gap in a market that their product uniquely addresses. Don’t get swooned by a well-rehearsed pitch on how disruptive or revolutionary their tech is. Part of your job during the interview process is to determine for yourself if, in fact, they have a legitimate product that their customers love.
To better understand product-market fit, try to learn more about their existing customer base and how they use their product. Sometimes, the product could be so innovative and forward-thinking that the market isn’t ready for it. Timing is everything in that regard. If the product is solid and the market loves it, you’re off to a great start.
The last thing to find out about product-market fit is what the competitive landscape looks like. I hear a lot of companies say, “We don’t have any competitors, no one has tech like ours”. That may be true, but they compete with something, even if it’s the status quo. Also, if no other company has a product that competes in some way, then it probably isn’t a market worth pursuing.
Once you’ve determined that there is a market out there with a gap in it that the company’s products help to bridge, the next step is determining how big the opportunity truly is. A company that is in a very large market doesn’t have to dominate the whole market, they may have a stranglehold on a niche subset and that is okay. Try to understand who the company sells to, how big the deals are, and how are they looking ahead to expand their market share.
When determining the market size, you’ll also find out how well the leadership team understands the problem they are solving. I’ve heard startups say things like, “Our market is everyone who owns a car.” That is a massive market, but it’s not well defined. A well thought out, realistic answer would be something like, “Our market is people ages 18-35 who own a car that is newer than 2012.” You can see how their market just shrunk significantly.
Also, keep in mind that a company’s market can grow and shrink. As new products emerge, they may enter new markets. Try to find out if the current market that the company is in is the long-term vision or just being used as a springboard into a larger, more exciting market. With that said, just because a company’s current market is huge, don’t assume that their market is accurately defined.
Finally, it is critically important to understand what the company’s funding status looks like. Are they actively raising capital? Have they raised capital in the past? What round of funding are they on? Are they backed by a Venture Capitalist? Private funding? Self-funded? Private Equity?
None of the above mentioned are necessarily better or worse, but each scenario comes with its own set of pros and cons. Understand which funding scenario the company fits into and then understand the common characteristics of companies in that same scenario. Most commonly, startups will be funded by a VC. Find out more about the VCs that have invested. The quality of the VC can tell you a lot about the potential of the company.
At every stage in a startup’s growth, they have different needs. A company that is pre-revenue is a much larger risk than a company that has paying customers. A younger company that is just starting to raise money faces different challenges than a company that has been around for a couple of years and is trying to rapidly grow revenue, which is different still from a more mature startup that is trying to build a path towards profitability.
All six of these things carry their own importance. At the end of the day, it’s up to you to determine which factor is the most important in your decision. For me, the items revolving around people and team dynamics far outweigh everything else. I would rather enjoy my work and my colleagues even if it means the overall opportunity doesn’t have as much upside. I’ve seen companies with good tech fail because of the wrong people in the wrong positions. On the flip side, I’ve seen companies succeed with okay tech because the team was all in working towards the same goal. In all likelihood, the startup you join won’t become a billion-dollar outcome and even if it does, will your slice of the pie make years of hard work and sleepless nights worthwhile?