Don’t plunge into a start-up blindly

Ask some tough questions before you take the leap.

Through my entire professional career, I had only worked in start-ups or as an intraprenuer in large corporations. In most of my roles, I work like an entrepreneur, being the first employee set with a task to grow a new business either in the corporate organization or the start-up.

I often meet and interview people who want to leave the corporate world to work for a start-up. It’s like a magnet drawing and attracting them due to all the hype and glamour of being the next big thing. Heck, even will.i.am admits that technopreneurs are the new rockstars.

While I can tell you that it has been mostly a rewarding experience for me, I would not encourage it for everyone. According to a Wall Street Journal article, 3 out of 4 start-ups fail – 25% within the first year and 44% within the first three years. As much as 50%-90% ends up failing. You could be out of a job when the start-up shutters and your equity option worth zero to nothing. All the hard work and countless hours of working on the promise of the next big thing may wear you down if you are not prepared.

So before you consider the plunge, here are some of my personal advice and some tough questions I encourage you to ask the start-up you intend to join (drawing from much of my own personal experience and learning).

#1. Ask how much money is left in the bank

This is important but even more if you are joining at a senior and executive level. This will give you an idea how much runway you have with the start-up before it runs out of money.  If they are looking for you to fix a number that is preventing them from the next funding run, you need the time and runway to fix the number. It is best to do it when they just receive funding rather than a year after when they are almost out of cash in the bank from their last series. Supplement with questions like what is the actual revenue and monthly burn rate so you get a better understanding of the financial stability of the company.

#2. What are the priorities for the business?

Startup at different stages have different priorities. The founders and leadership team should be able to articulate their priorities at any given stage. While the priorities change as the start-up grows, an inability to answer this is a sign of poor strategic thinking. Ask every founder, leadership team member and staff what these priorities are separately and see if they tally.

The priorities will give you an idea what the founder think is important to support their growth. If they say the priority is revenue, then focus will be on sales, customer acquisition and pricing. If it is MQL to SQL, then it is marketing and growth. If it is customer happiness, then it is customer success and logo churn. Each priority requires a different tactics. Failure to understand this is also a sign of poor leadership.

#3. Ask to speak to ex-colleagues and existing team

Ask them tough questions. Do they think they will be here 2 years later? What keeps them up at night in their role? How many people have they seen come and go? It will also give you a gauge of the company health as a whole before you join.

With Linkedin you can search just about everyone professionally, so reach out to ex-staffs informally and ask what they think about the company and the circumstances leading to their departure. Best bet is to reach out to people who have left the company the past 3 months or so.

#4. Ask the company about their poor reviews on Glassdoor

Only ask about the poor reviews and see how the founders and leadership team react. Judge if they are being honest or simply fluffing it through. A leadership team with the humility to address negativity is a rare trait and will give you a sense of the integrity of the team you are joining.

#5. Ask how many people have been hired and how many left since their last funding? How long each person stay on average?

Research the true answers on Linkedin first and see if the founders and leadership team are being honest. Short tenures and hiring sprees are common in start-up. These are often the result of each investment round. Companies that are not thoughtful about their hiring process, burn and growth often get burnt. As the investment climate shifts and targets slowed, companies are often running out of time to show growth. That’s when pressure mounts and you need mature leadership at the top to weather the storms. *Zamato had 1,200 open positions before they laid off over 300 staffs.

#6. Observe how engaged the founders are with your hire.

This is especially important if you are joining the leadership team. You may not report directly to the CEO or founder but if they are not engaged with your hire early on, it’s a sign they will not be when you joined. Having good working “chemistry” with the founder is just as important as having the same with your direct manager. If you don’t see eye to eye on many things, it’s a good bet that you will not work long in that start-up. So ask questions like what is important to him/her personally? What start-up founders / companies do they look up to? Understand them better as a person and see if you think you can work with them.

#7. Ask to be invited to a company all hands or team function

This will give you a true sense of how open the company is. I was invited to a post event dinner with a company I was looking to join and during the post event, people drank, spoke freely and the CEO joked and teased along with the team. It was unpretentious openness I felt that led me to join the company. After joining, that same openness permeate through to the entire company culture. People were not afraid to challenge the CEO, it was not a top down culture and there was a genuine sense of kinship. Looking back, that event felt right and was one of the reason I ended up joining the company.

These question are not meant to deter you from joining a start-up, but merely help you make the most educated choice in selecting the right startup to join.

I was often asked why I would do it for less money than I could make more in a corporate environment. At the end of the day, it’s not for some lofty goals of being the next billion dollar employee. Like many of you reading this article, I am looking to make a living for my family and myself. I just happen to do it well in the startup environment and as an intrapreneur in a corporate world.

Other recommended reading:

CB Insights Anand Sanwal provides the most comprehensive data-driven analyses to help you pick which start-up to work for

Onstartup asks some similiar question and additional ones for you to consider

John Rampton gives you 10 compelling reasons to consider why you shouldn’t join a startup

Why Entrepreneurship Favours the Young

Silicon Valley is filled with stories of young entrepreneurs making it big at a young age. Mark Zuckerberg who started Facebook at 20 is worth in excess of billions at 26. Oculus VR founder Palmer Luckey sold his company for US$2.3 billion to Facebook at age of 22. The rush to fund young entrepreneurs led Peter Thiel to create a fellowship which fund entrepreneurs under 20 years old to quit school and start their own companies.

The rush to support young entrepreneurs is not without merit but is based on a simple formula:

formula

Base on this formula, young entrepreneur who can spend more time creating value and spend less time on commitment outside of business is naturally more investment friendly. Experience is not included since the only experience that matters is having exited a successful prior.

But that doesn’t mean that entrepreneurship belongs solely to the young. Many over 30s and even 40s have founded successful companies. Jan Koum started Whatsapp at 35, Mark Pincus with Zynga at 41 and Robin Chase started ZipCar at 42.

But I suspect the journey is a lot harder for them than young entrepreneurs who have lots of time and very little commitment.

In order to tip the favour towards them, mature entrepreneurs may need to make more sacrifices in family time and other commitments, making the road to entrepreneurship that much harder. It’s no wonder Dana Severson wrote that entrepreneurs suck at relationships.

Mature entrepreneurs often end up minimizing their responsibilities and decisions at home to optimize their performance as a founder. It takes a lot more commitment and determination to be an entrepreneur.

The only career that is as tough as being a founder in a startup is probably being a film director. Like a founder, you are faced with a multitude of possibilities and decision making on a daily basis. Your production crew, actors and studio (whom I liken to investors) depend on you to make the film a success. The only difference, a film production may end in a year but you may not exit your startup in a year.

Is it dysfunctional?

Absolutely.

Is it worth it?

You decide.

This article first appeared on Linkedin on Jan 5, 2015.