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|Is a Start-Up Company Right For You?|
By Scott Cadwalader, Manager Partner, Diligent Partners LLC
Start-ups can be extraordinarily stimulating places to work. Everyone, from senior management to the receptionist, feels like they are on a mission from God. The hours are long, the pace frenetic, and emotional swings as sudden as each day's latest win or loss.
Deciding whether one should accept a position at a start-up - versus a well established company - requires more than idle thought. There is much more to consider than simply whether you can afford being unemployed for several months after your employer fails to make payroll. Many talented professionals feel they can always find new jobs if their employer fails. With that confidence, many professionals - especially young professionals - will take that risk, over and over and over again, ever optimistic that they can strike it rich in stock options or stock grants.
There's more at stake than one or more months of unemployment. Your career, for one. The choices you make in employers, and their success in the marketplace, may have long term consequences upon your marketability.
In this economy, employers are scrutinizing resumes more than ever before. They are being highly selective. They want to hire employees with talent and drive, and they want to hire employees who will stay for the long term. People who repeatedly have taken positions at doomed start-ups often are assumed to be job hoppers, and get eliminated from consideration at many future employers. The problem is that screeners for hiring managers cannot discern from a resume why someone's tenure was so short. If there's a pattern of brief employment, they see a red flag. They see risk. They see instability. Something must be wrong with this person. Next applicant, please.
You may be entirely correct in your belief that you are destined to help a start-up achieve Wall Street nirvana and to be rewarded handsomely for your contribution. But before you rationalize yourself into justifying an emotional decision, research your potential employer and consider the following.
Beware of marketing hype. Many start-ups are founded by entrepreneurs who are Masters of Marketing - to customers, investors and potential employees. They know how to paint a rosy picture, sometimes right up to the end. Just ask the former managers and employees at Global Crossing, Enron, and tens of thousands of start-ups that never grew past 6 employees.
Don't fall under the spell of genius. The founder may be a wunderkind or MIT's top graduate, but technical brilliance alone does not guarantee that the founder's big idea is sound or marketable.
Consider the past successes or failures of the founding partners. It takes a rare and special alignment of knowledge, experience and fortitude to launch a new venture successfully. If the founders have no track record, or simply a bad one, your risk is high. Consider the qualifications of the management team. If the president was previously a regional sales manager, or the CFO was a finance manager at her last job, what makes you think they are qualified to step up to these higher level responsibilities?
The track record of the investors is just as critical. Quality investors bring much more to start-ups than a fat checkbook. They bring expertise. They bring connections. They bring influence. And if their track record is sound, chances are they know a good thing when they see it. If they have made a substantial investment in the company, they will work very hard to not let it fail. On the other hand, you may find their methods of remediation to be a bit draconian, so beware.
Does the company's business offering make sense? Does it fill a defined need, or is the offering just another among a sea of equally competitive options? Is there true differentiation, and can the company make itself heard in the din?
What is the projected ramp-up until the company expects to be profitable? What stage is the company in? If it is a late-stage company with executives and funding in place, your risk is likely to be lower, but the upside for latecomers like yourself will be considerably less. Is this a pre-seed company with few executives and only marginal private funding?
If company stock is substantial part of your compensation or benefits, you need to delve into the minutia. If you are to be an officer, is this a stock grant requiring approval of the Board, or stock options? If options, at what discount, or based upon what date and at what price? What class of stock? When do options vest? How often are they awarded? Will they still vest if the company is acquired? Are there planned offerings for you in Year 2, Year 3? Depending on the size of the stock component, you would be wise to discuss the stock benefit plan with your accountant and your stock broker. Your stock broker may, in fact, be an excellent sanity check on the viability of the company's competitive prospects.
Beyond all these financial considerations, there remains a core question that you should always ask yourself when considering any new employer. Will this position provide career growth?
When the number of employees is small, people are asked to bear broader responsibilities. Because everybody is busy, there is little time for management oversight, let alone mentorship. You either sink or swim. That, in and of itself, can provide professional growth, in a Darwinian or Nietzsche sort of way. "What does not destroy me makes me stronger." That you can achieve stretch objectives and be successful with new responsibilities can suggest a lot about you as a resource. In the absence of strong management oversight or guidance, you have survived, maybe brilliantly.
Then again, if you are honest with yourself, maybe not. Maybe you simply survived. Possibly at the expense of valued personnel, or clients or trading partners. The fact is the frenetic pace of your start-up may have masked the details of your actions from otherwise distracted peers or superiors. Maybe the decisions you made or the actions you took were sufficient to accomplish certain goals, but they weren't the best options. A strong superior or a concerned mentor might have taught you a different path. In other words, maybe you haven't grown as much as you think.
For a senior executive at the peak or even the downhill side of his or her career, professional growth may be less important than the upside of a well considered risk/reward ratio. But for someone in the early stages of their career, professional growth is tremendously important. Lessons learned from great mentors are lessons that will be applied for life. They are as important to the young professional as a great secondary education to future college graduates. That isn't to say that mentors can't be found in start-ups. They can be found anywhere. But if learning the art and science of your profession is important to you, work for a company that will provide you a mentor, be it a staid Fortune 500 or a renegade start-up that markets gold-plated Jujubes.
Whatever you decide is best for you, know what you are getting into, mitigate your risk and make the most of your decision.