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Deciding to accept or decline a job offer is a difficult task. It becomes even harder, when it comes from a startup. We are talking about a recently established company with low chances of survival, while potential gains could be high too. And you are expected to make this risky move by dedicating years of your career to something so uncertain and to put all your eggs in one basket.
But what if there was a systematic approach to evaluating startups from an employee perspective? What if we could come up with a framework to understand better the startup dynamics and decrease the risk of making a bad decision?
When venture capitalists evaluates a startup, they use an investment memo. The memo contains criteria such as team, product, market and traction of the startup. By going through this standardized process, VCs will:
Ensure, that they have covered 360 degrees of the complexity about the startup - the industry, the team, the product, the financials etc.
Minimize the risk of making the wrong investment decision, as it allows for a clear comparison between different startups.
The aim of this article is to provide you with a similar set of guidelines, which you can apply to evaluate startup offers. I call it the Startup Employee Memo.
Letâs dive in.
Team đ„
Before writing this article, I asked two startup communities, Friends of Lennyâs and Reforge Members, what to consider, when joining a startup. The responses pointed to several aspects, but they reached a consensus on one of them - the founding team. The founder of Reforge, Brian Balfour, weighed in on the discussion and shared the same opinion (adding a market as a second aspect and providing an insightful link on the topic):
The founding team is the most important asset of a startup. In the early days, the founders have huge influence on the way the company will develop in the future.
To understand whether the founders are capable of leading the startup, you can look into their background and motivation. The background will reveal whether the founders have knowledge of the industry, or if their skills from previous jobs are transferable to running the startup.
Understanding foundersâ motivation is essential to estimate their willingness to face the hardships to come from running the company and still keep grinding towards success. Identification with the foundersâ aspirations and motivation will play an important role during your time at the startup. You will seek guidance and leadership from them. The quality of their leadership will not only define your future during your stay at this startup, but help to pen your potential for the future roles. Additional positive traits of founders to look for are good communication skills, optimism and a healthy dose of courage.
A major advantage of great founders is that their vision is so compelling, that they manage to recruit an outstanding team. Strong founding members will increase the probability of a startup's success. Run a quick check on your future teammates to see whether these are people youâd like to work with and learn from.
Traction đ
Strong traction is what differentiates successful startups from mediocre ones. Or as Paul Graham puts it in his essay âStartup = Growthâ:
âThe slope is the company's growth rate. If there's one number every founder should always know, it's the company's growth rate. That's the measure of a startup. If you don't know that number, you don't even know if you're doing well or badly.â
You must build an understanding of how mid- and long-term growth will be achieved. Can the company grow 10x or 100x?
Information about the traction will paint the big picture about the startupâs real performance. Some interviewers will be reluctant to disclose data such as revenue, but you might get the number of clients, active users, orders, engagement or other relevant KPIs. Strong traction is an indication, that the startup has found an initial product-market fit. If traction is lacking, but the startup has been in business for a while, consider it a red flag.
An exception - pre-seed and seed companies or startups, which need a longer research and development phase may lack traction as they are still building the product or looking for product-market fit.
Financing đ”
If the startup doesnât generate a lot of traction, you must ensure that a strong financing plan is in place. Your career path should depend only on your performance within the company. You donât want to join a startup only to find yourself looking for a new job three months later, because it ran out of cash. Depending on market conditions and performance, a startup might have hard times raising capital. Ask about the number of months the startup can operate before going bankrupt without raising money in a future fundraising round.
You will either want to ensure, that the startup has at least a 12-months runway or that a financing round is about to be closed soon. As a word of caution - âa great interest from investorsâ doesnât mean an investment. It might take years before this interest is converted into an actual investment.
Market đïž
If a startup is in a dying market, chances are that it wonât succeed. On the other side, even mediocre startups can be successful if the market is large enough and growing fast. Startups struggling in a growing market also have higher chances of recovery and getting back on a growth trajectory. You can do some basic research or even connect with people from the industry on social media to get a good overview of the market dynamics.
Product đŠ
A startup product may change more than once until it reaches a product market fit. But positive reviews from customers online are a great sign. A product value is essential for a startupâs success. It is useful to understand how the product is or will be different from the competition, what are its best features. Market leadership attracts more investment and leads to more growth for the company and your career.
Purpose â
I am referring to the purpose, that drives the company. Why was the startup created in the first place? Does it help businesses become more efficient, ease human pain or fight climate change? If you can identify yourself with the purpose, you will be more willing to go through hard moments and stay engaged at your workplace.
Career Perspective đȘŽ
Itâs hard to define a career perspective early on in a startup. In a rapid growth stage, your position may change several times a year. You need to, however, request upfront information from interviewers about career growth plans. You will not only be ensuring, that you have potential to grow in the company, but you will also be testing the interviewerâs plan about your position and yourself. It is only logical, that by becoming better at your craft, you are given more responsibility and more chances to grow.
Knowledge tip: how to get the information that you need from interviewers?
Evaluating and accepting an offer from a startup is challenging. It requires a lot of research and effort on the applicantâs side, but diligent work will help you to pick the best opportunity. One aspect, that you need to master before interviewing is theReverse Interview Process. By using this method, you will be able to get the various information, which you will need to make the right career choice.
May the ForceâŠ
Once you use the Startup Employee Memo, you will be much better equipped to make right career decisions. Sometimes several factors might be enough to decide to go for an offer.
The memo lists the major aspects, which may be considered. But in many cases, you should strip rather than add complexity, while making the decision. My advice is to use this as a guiding tool and not as a set-in-stone process. Stay flexible, while evaluating each aspect and only add a new one if you believe, that it may change your decision in one way or the other.
Sources and additional reading:
Startup = Growth by Paul Graham
Impact = Environment x Skills: How to make career decisions by Bangaly Kaba
The Reverse Interview: How To Choose Your Next Company by Elena Verna, Crystal Widjaja, Zainab Ghadiyali
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