How to Pick a Startup to Work At
Startups today attract huge levels of attention and interest, and every year, more and more people are choosing to work for a Startup rather than an established company.
Startups today attract huge levels of attention and interest, and every year, more and more people are choosing to work for a Startup rather than an established company. But Startups are not created equal, and for someone considering which Startup to join, making a Great choice versus a Not-so-great choice can have enormous impact on your life and career.
As one of the first posts on the Craft blog, we wanted to share our recommendations for deciding which Startup to work in.
This post is aimed at someone considering joining a Startup as an Employee, rather than Founders (let’s face it, there is no shortage of blogs and advice aimed at Startup Founders! :)
1) Pick a Startup focused in a sector that you genuinely care about
It takes 7-8 years for a startup to reach some kind of “Exit”. And the financial rewards mainly go to those who stay with the Startup all the way through to that Exit.
So our first and most important recommendation is pick a Startup where you care so much about what you are building, that you will be motivated to work on it for a long time, through good times and bad, without getting bored and wanting to leave.
Personal story: several years ago, I joined a Startup as an early employee and got significant % ownership in the Company. Even though I loved the team, the problem the Startup was solving was not a deep passion area of mine, and after 2 years I became restless, and wanted to make a change. By then, I had vested a significant number of stock options, but to exercise them would have cost me $35,000 in cold hard cash, with no guarantee that I would ever be able to sell them. If the Company did not reach an Exit, as most Startups don't, those shares would be worthless, and I would have thrown away $35,000 in cash. I could not afford that risk, so I walked away from those shares, letting my options expire. Fortunately, I remained an Advisor and received a separate Equity grant for that. 4 years later, the Company was acquired. While I made a gain on my Advisor shares, it was less than 5% of what I would have earned if I had stayed with the Company through to the Exit.
To maximise your risk-adjusted chance of a financial return from the Startup you join, plan to stay with it for a long time, through thick and thin, and that is 100X easier to do if you really care about and really believe in what the Company is building.
2) Pick a Startup in a large and/or fast growing market
Startups are essentially experiments, and whether a particular decision will turn out to be right or wrong is usually impossible to know at the time. If it turns out the decision was wrong, then the Startup’s survival depends on its ability to ‘Pivot’ and manoeuvre back onto a successful track.
Playing in a large market means there is much more room for error, i.e. many more ways to recover from errors and still find success. If a market is growing rapidly, with each passing day, the room for manoeuvre is increasing and that improves the chances of success.
Financial Technology (“FinTech”) is a good example of a large market. Virtually every person in the world uses some form of money to pay for something nearly every day. Startups innovating in that process are playing in a vast market, with tons and tons of room to manoeuvre and try different things on the way to success.
By contrast, to create a new product for fans of Classical music (while a personal passion of mine), is to play in a small market. Only about 10% of the population listens to Classical music, and that % is staying steady or even shrinking. To try to build a Startup for that market would require impeccable execution from the outset, and any mis-steps would be unforgiving.
3) Pick a Startup with an excellent Management Team
The fate of Startups often has to do with many things outside their control, also known as "Luck." When it comes to factors IN a Startup’s control, none are more influential than actions of the management team, especially the CEO.
It is vastly better to join a Startup with a high-quality management Team. Quality includes many factors, and it is rare to find all of them at once, but in our view, the most important include:
a) Track record - look at what the CEO/Senior team have done previously. If they have built or managed a successful Startup before, that experience can help them with the next. They will have “seen this movie before” and figured out many things to do and not do in certain situations. Important caviat: there are many CEOs who had a success in their first Startup, then failed on subsequent attempts. Sometimes it’s inexperience and fearlessness that lead to success straight out of the gate. So track record is not a watertight indicator. But on balance, more often than not, experience helps more than it hurts, so a team with relevant experience is a better bet.
b) Leadership skill - for a Startup to become a big success, at some point it is likely to grow to hundreds and possibly thousands of employees. To successfully manage that many people and that amount of stuff is an incredible human feat, and relatively few people have the ability to do it. There are many different theories of good leadership, but in our view, the 2 most important skills to look for in a leader are:
i) ability to listen - that is their ability to learn what to do,
ii) ability to motivate - that is their ability to get a team of people to work together to do it.
4) Pick a Startup backed by great investors
If a Startup has raised funding from quality investors, who have a strong track record of investing in successful Startups, this is a meaningful validation, compared to a Startup that has either not raised capital at all, or has raised capital from unproven investors.
Funding is a market, which these days operates pretty efficiently. The best entrepreneurs with the best ideas in the best markets are going to find the opportunity to pitch to the best investors. And if all the best investors said No, there is some intelligence to be taken from that. Like management track record, it's also not a perfect measure. The top investors get it wrong all the time. Every now and then a great startup comes up that was passed on by all the well-known investors, and it’s great when that happens, but it’s rare.
The Startups that are funded by the top Investors have an advantage at every step of the way. Those investors help recruit better new employees, facilitate partnerships, help raise further investment and facilitate Exits. They have deep pockets which means it is easier for them to give the Startup extra funding to withstand hard times.
On Craft, we'll be highlighting the most successful investors and the companies they have invested in, believing that they represent above average Startup opportunities.
5) Pick a Startup at the right stage for your personal risk/return profile
This one is very dependent on your personal preferences and circumstances, but I think there are some generalizable guidelines around what the realistic risk/return is at various stages of a Startup that you can take into account when picking:
a) At or near Inception
At this stage, a Startup’s risk of failure is astrononomically high, as is the risk that you will not learn anything particularly useful or transferable other than how hard it is to build a Startup. If you are early in your career, this is not a great place to learn and grow your skills.
At least there’s money in the bank for a modest salary, but this scenario is still super-risky, as chances are 80-90%+ that the Startup won’t make it to Series A
c) Series A funded
At this stage, the Startup is starting to take early shape. Some aspects have been validated and there is early traction. At this stage you can learn some valuable skills. And you likely have an equity share in the Company that could become quite valuable.
d) Product-Market Fit Stage
The company has found something that works and is selling products to real customers, generating real revenues. It’s probably growing fast, as investors and management pour fuel on the fire. This is a great time to join, with plenty of excitement, valuable experience, and much of the risk has been removed.
e) Late Stage / Pre-IPO
Strong for learning and experience. Having an IPO or Exit on the resume looks great, and will likely open future doors. Probably not as exciting financially as earlier stages, because of smaller equity grants that are likely to be on offer.
At Craft, our mission is to help people discover and decide the best place for them to work at every stage of their career. Starting with fast-moving sectors such as FinTech, Digital Health, Online Video, News, Music, we track and analyze the most promising Startups and Large Cap companies, providing our members useful data and insights to help make great career moves.
This blog post outlined some of the criteria we use when evaluating and recommending Startup opportunities. It is a model that we will forever be refining and updating. We would love your feedback. Please share any thoughts you have by replying or emailing me at: ilya@craft[dot] co. Thanks!