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Should You Join a Startup?

Questions to ask before taking the leap

By Peggy Albright

Many computing professionals, at one time or another, consider working at a startup. There’s something alluring about the prospect of teaming up with a small group of highly capable, self-driven experts who use cutting-edge technologies to pursue an idea that a traditional business might consider downright crazy.

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Working at a startup can help you fulfill a personal need to participate in a creative process that has the potential to make business or society better. And of course there’s that possibility that a startup might bring you personal wealth if the effort results in a successful commercial product.

Considering the state of the economy these days, one could assume that this isn’t a good time to join a startup. On the contrary, business leaders in the startup industry encourage getting into the industry now if that’s what you want to do.

“I think this is an ideal time,” said Steve Fredrick, general partner with Grotech Ventures and a founder of StartUpHire, a job search engine that focuses exclusively on career opportunities at startups.

According to Fredrick, the worst days for startups in the current recession are over. From his perspective, the downturn forced the startup industry to go through a weaning process. Companies that were in precarious situations didn’t make it or are not hiring. Those that are hiring are likely growing in spite of the economy, believe their future is still promising, or expect they’ll be in a position to succeed when the economy finally turns around.

How to find a startup

One of the challenges in the startup industry is that the companies are often under the radar and aren’t household names. StartUpHire was formed two years ago specifically to address this problem. It helps startups get the word out that they are hiring and it makes it easy for people who are looking for jobs at startup firms to find and apply for jobs.

Right now, the organization lists 10,000 job opportunities at venture-funded startups around the country. The majority of the jobs are in the software sector. Job seekers can search the site by geography, industry, or other variables and set up an email alert to receive notifications when new jobs become available.

The Silicon Valley Association of Startup Entrepreneurs is another resource. Focused on the Silicon Valley area in Northern California, the SVASE site currently lists around 1,000 jobs in the area for roles ranging from software developers to systems administrators to network engineers.

Another way to find a company that interests you is to attend events where startups pitch their products to venture firms for funding. The events are typically hosted by startup organizations, VC firms, law firms, or trade organizations. In Silicon Valley, it’s easy to find an event of this type practically any week.

Ed Esber, a PC industry pioneer and founder of The Angels’ Forum, says this approach can be invaluable because you can listen to company presentations given by the company founder or another key member of the leadership team, as well as the feedback offered by panelists or judges. If a company seems promising, it’s usually fairly easy to approach the company when the session is over to ask questions or make an introduction.

“If you see what they like, you can approach the founder and get involved,” Esber said.

Types of skills required

Generally, there’s no time or staff to provide on-the-job training at a startup. If you want to get hired, you must have the skill set and capabilities needed to step into the job and begin making a contribution to the company on Day One.

You must also have a variety of other work traits. In addition to the expectation that you will likely have to work very long days with few days off, you must be comfortable working as an integral and meaningful part of a tight, highly motivated team. You must be self-directed, able to work without much supervision, and able to meet your deliverables on time. You should not place high priority on your job title or worry about where you fit on an organizational chart or require a bureaucratic structure. You must be fully responsible for your contributions to the company. If you need constant reassurance that you’re proceeding correctly on a project, you’ll get weeded out.

“The one thing you can be sure of is that working for a startup is nothing like working a 9-to-5 job at a big corporation. And you don’t understand how difficult it is until you do it,” said Chris Gill, president and CEO of SVASE.

Prior experience working at a startup is not a requirement for getting hired at most companies, but it can give you favor during a selection process because it indicates that you’re familiar with the startup culture and lifestyle. Lack of experience in the startup industry is not a disqualifier. What’s really desirable is a strong track record in a given field, combined with market vision and the ability to see big ideas. These are rare traits that will get a company’s attention.

“If you have a domain and experience on the technology side and understand a market and you see an opportunity for disrupting a market or technology, that’s very interesting because not many people can do that,” said Joyce Chung, managing director at Garage Technology Ventures.

Financial motivations and rewards

For all but the earliest startups, you should expect a salary that is in line with the market rates for the type of job you perform.

If the company is in the earliest stage where it is supported by financial contributions from friends and family, you may have to work for a reduced salary or even for free. People who decide to get in at this phase must really believe in the company’s product and strategy and they must have the ability to weather the financial uncertainty for three months to a year, advises Esber.

Any company that is backed by venture funding will probably provide a salary and a basic benefits package that includes health insurance, vacation pay, and a 401K, although the package may not be as extensive as it would be in a traditional company.

The upside is the opportunity to have stock options in a company. Generally, the stock options offered to a new employee will represent a very small fraction of ownership in a company, sometimes as little as a single percent or even less. Those who join the company in its earliest stages have an advantage over others because the stock options offered for certain positions will decline in value as the company grows.

Also, those who come in early and stick with the company will likely have opportunities to accrue additional stock. Thus those who join a firm early will likely enjoy a higher percentage of equity in the company than those who join later.

When to get in?

Because the financial incentives favor early participation, it is best to get with a new company early. Also, a person who joins early will have better opportunity to advance to a senior role in a company.

However, it is much more risky to join a company that is in its very earliest stages. The risk does go down each time a company reaches milestones. As it brings in venture funding, begins to receive orders or has customers paying real money for products, concerns about risk are replaced with questions asking how big could the company get and how quickly will it grow.

Thus deciding when to get in with a company is a personal question and depends on your own ability to tolerate risk. If you just got laid off from a big company and have a severance package that will give you enough to live on for a year or so, you might decide you can afford to put 3 to 5 months into a startup and give it a try. But if you’re considering leaving a big company and have a mortgage, the risk may not be compatible with your need for financial security.

If you think a company is likely to find venture funding, it is often possible to join it on a part-time basis while you’re performing your full-time job at a traditional company. Once the startup receives funding, you can make your move with more confidence and smoothly transition into your new job.

How to know if a startup is viable

There is no easy way to determine if a startup is financially viable. Those that are the most promising are more likely to receive funding, but those are the exception rather than the rule.

For example in Silicon Valley, about 20,000 people are thinking of becoming entrepreneurs during any given year, according to SVASE’s Gill. In 2009, he said, about 300 received funding from venture capital firms, and another 300 found funding from angels. Of the 600 that were fortunate to find funding, about 20 to 30% will do reasonably well but only 10% will make it big.

To assess a company’s promise, you need to assess the company’s internal strengths and weaknesses as well as external factors. Ask these questions: Does it have a real product? Does it have a unique core technology that’s different from the competition? Is it beginning to gain traction in the market? Are customers buying the product? If it is in pre-product phase, are customers saying they will buy it? Do other people believe in the company, and if so, who are they? How strong is the management team and what is their track record? Is there another company out there that is going to crush this one?

Ultimately, however, you have to believe in the company or its product, Esber advises, because you’re going to put your heart and soul into it. If the product is something you would personally identify with and would pay money for, that can help you justify your decision.

What if it doesn’t work out?

If a startup is now going to work out you will usually know fairly quickly. If you’re been a good contributor to the company and a valued member of the team, you’ve got a good chance of finding another job at another startup because venture firms will often look to teams they’re familiar with when they need to help a new firm bring in talented professionals. In fact, the tendency of VC firms to pull talent from one organization to another can provide a type of career advantage to technology professionals that often can’t be found in traditional businesses. (Career Watch, 18 March, 2011)

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