What are the benefits of working at a startup?
Working for a startup offers several distinct advantages over other kinds of employment.
- The chance to be a part of history: A startup job allows you to be there at the beginning of a company's journey. If the company succeeds, you can say, "I was there from the start." And you get to keep those bragging rights no matter where your career takes you.
- Passionate leadership: Startup founders often have more passion than owners of established companies. They likely have much to teach you, or they might simply make their company an inspiring place to work.
- Unique opportunities: Working for a startup can offer opportunities you are much less likely to find with other employers. By joining a new company near the beginning, you may be able to participate in decisions on important matters like company culture or product roadmaps.
- Personal growth: You might rise in this company's ranks, or you could leverage your startup experience into a successful career elsewhere.
- Money: Some startups offer very competitive pay. Also, if you stay with a startup long enough for it to have a successful IPO, you may see a very big payday.
What are the risks of taking a startup job?
The same traits that make startups an attractive place to work also produce some big risks. For every outside-of-the-box opportunity, you may find another layer of instability or questionable job security. Before sending an Employment Acceptance Letter, you may want to consider the following issues commonly associated with startups:
- High failure rate: As many as 80 to 90% of all startups fail within a few years, taking all their employees with them.
- High staff turnover: The average turnover rate for startups nationwide is close to 25%, which is nearly twice the rate of traditional employers.
- Lower pay compared to established companies: Many new companies, particularly early-stage startups, are still building their revenue streams. This often means less money to pay employees.
- Lack of defined equity, bonus, and pay structures or incentives: While a startup may try to make up for lower pay with stock options, the value of this kind of Equity Incentive Plan depends entirely on the company's future success. Some startups might not offer as much in the way of benefits, such as healthcare and retirement, as other employers.
- Long hours: Startup culture tends to glorify "the grind." Entrepreneurs may promise to reward hard work with a share of the company's value at some point in the future, but they may have no obligation to do so.
- Lack of HR support: A small startup might not place a high priority on human resources policies and personnel, which can lead to volatile work culture and relationships.
- Inexperienced leaders: While startup founders can inspire others with their passion, that passion does not always translate into management skills. To put it another way, having a vision for a company does not mean a founder knows how to be a good boss.
As a potential employee, how can I determine the financial stability of a startup?
A financially stable company offers job security, so employees have an interest in knowing how their employer is doing. Several factors can give you an idea of a startup's financial condition. A Business Fact Sheet can help you review important information, such as:
- Funding: Take a look at the latest round of venture capital funding to see if it was successful.
- Sales: Verify if the company has shown growth in sales and the size of its customer base. If not, determine whether sales have been stagnant or are shrinking.
- Compensation: Look at compensation rates for new employees. Is the company able to offer competitive salaries or wages?
How does equity impact a startup job?
Equity in the company is a common perk of a startup job offer. The startup might offer you stock options as part of your benefits package, or as a way of supplementing a comparatively low salary. Stock options give you an ownership interest in the company. You can determine how much ownership you have by comparing your amount of stock to the total shares outstanding. Calculating the value of your equity can be more of a challenge.
If a startup offers stock options as part of a compensation package, you might want to ask how long it takes for the stock options to vest. This is important since you cannot cash in your stock options until they have vested. You might have to work for the company for a minimum period of time first. Get every part of the offer related to stock options in writing.
How can I do my due diligence in evaluating leadership before accepting a job at a startup?
In addition to a startup's financial stability, it is important to evaluate other, more subjective aspects of the company before accepting a job offer.
- Mission and business model: Look at the mission statement and the founder's strategy for growing the company. See if you agree with the company's mission. Consider whether the business model seems sound to you.
- Track record: Find out if the startup founders have been successful with previous companies. If not, are they surrounding themselves with knowledgeable people?
- Leadership experience: Do some research to see what you can learn about the executive team members' experience. Decide whether you trust them to guide the company forward.
- Employee experiences: Read former employee reviews online, if they are available. These can tell you a great deal about whether the company's work culture may be right for you.
What are some red flags in the startup world?
While every startup is unique, some features can be a red flag for almost any prospective employee.
- Lack of funding: If a startup has not managed to attract much venture capital funding or other investors, consider whether it can bring in customers or remain in business.
- Bad employee reviews: One or two bad reviews from current or former employees on job sites is not out of the ordinary. A larger number of poor reviews could be a sign of bigger problems.
- Vague job descriptions: An employer that does not provide specific details about job duties might expect you to do a little bit of everything, or take on more than you bargained for.
- Disorganized interview process: Be wary of employers that do not respect your time during the job interview process.
- Non-disclosure agreements (NDAs): While NDAs are a common feature in Employment Contracts, make sure the terms are reasonable and fair. Do not sign anything before you have had a chance to review it. It is recommended that you review the terms with a lawyer.
- Poor work-life balance: Many excited entrepreneurs devote their entire lives to their companies, and they expect their employees to do the same. You might not mind throwing yourself fully into a job. Just be aware that you are committing yourself to this kind of work environment.
You may decide that a startup is not the right fit for you, in which case you can send a polite Job Offer Rejection Letter and continue your job search.
If you have questions about the pros and cons of working for a startup or any other issues related to your rights as a startup employee, reach out to a Rocket Lawyer network attorney for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.