Working at a startup is a chance to be something new, to help build a company from the bottom up. It also has its risks to consider.
Weigh the pros and cons thoroughly when considering a startup job. Things to consider include:
Company's financial stability
Value of product
Mission and strategy
Before working at a startup, it's important to assess the financial health of the company. Hopping on board takes a willingness to chance a little uncertainty, including whether you'll get paid on time. The majority of the time, startups fail.
You are taking a risk. Ask to see a business fact sheet if one is available. Don't be afraid to ask some tough questions while considering a startup job. Among them:
- When was the last funding round, and how successful was it? If the company continues to attract the same investors, that's a good sign it's proving its worth. If not, there may be reasons why it's not getting that same backing. That could be a potential red flag.
- Are you making sales, and how much has your customer base grown? It's a tough question to ask, but getting right to the point can help you judge whether a company's on the way up or in a downward spiral. While company officials may not give you all the information, if it's making a good profit, they are likely to take the opportunity to gloat a little.
- What compensation are employees being offered? Rather than just cash, it may be cash and equity in the company. Also ask about health and retirement benefits. If you will be dipping in your own pocket to pay all your insurance benefits, it's definitely something to consider before saying yes.
Get any offer in writing. Ask your employer for an employment offer letter that spells out your starting pay and job responsibilities. Use our free employment acceptance letter document to provide written confirmation of your understanding of the terms and conditions of employment.
Once you are hired, you may sign an employment agreement.
Value of Product
When considering a startup job, also consider the product being made or service being offered and whether there's a big enough need. Ask whether you can see any analyst projections or studies into what the potential is for continued profit. Also ask who the major competitors are. A lack of any may suggest that there's not enough of a customer base for whatever the company's selling.
Don't forget to ask about the "burn rate." The burn rate is how much money the company goes through each month. It basically means how fast is money being spent and how long can the company go before it either must make a decent enough profit or reach out to investors again.
Startup compensation packages usually include equity in the company as well as cash. Most likely that share will be in the form of stocks, which means you own a fraction of the company.
To know how much you are being offered, ask for the total shares outstanding. Divide how many shares you are being offered by that to see how much ownership you will actually have.
Ask the company which round of funding it is in and who its backers are. It's important to ask what the stock's valuation is and how that may change as the company goes through another round of funding. Your share is likely to be diluted, dipping your ownership percentage lower. Go for the best equity deal you can, and keep in mind it may not always be worth that much.
Also ask how long you have to be "vested," or how many years you must work for the company, before you can cash in your stocks at full value. Likely leaving before that time means you'll only get a percentage of the worth.
As always, get it in writing. Request an equity incentive plan document if your employer offers you shares in the startup.
Mission and Strategy
Finding success as a startup employee isn't only about the money. It's also about believing in what you are doing. Consider the company's mission and its strategy for fulfilling it while considering a startup job. Why did the founders launch the company and what did they hope to achieve? What measurements are they using to see if that goal is being met? Basically, how does it measure success?
Don't be upset if, as part of your employment, your potential employer asks you to sign a non-disclosure agreement. This type of agreement protects the company's proprietary information, and it's in the company's best interest to have everyone sign it who may have access to trade secrets. It doesn't mean the employer doesn't trust you. It means the employer is taking the wise step of bulletproofing the company against risks.
Often a company is only as good as its leaders. When pondering a job at a startup, inquire into the experience of the people managing the company. Is this their first startup? If not, what was the success rate of their previous companies? What roles did they play in those companies? Do a little Internet research of your own into the company's founders and top executives and, if possible, talk to people with whom they've worked before.
Working at a startup really means being a deciding factor in whether something's a success or not. It's a triumphant feeling being part of the winning team when that startup meets success. Not all startups meet that success, though, so consider strongly whether the move's for you as you consider working for a startup.