I’m a total sucker for Silicon Valley lore. World changing, totally disruptive companies started in garages and dorm rooms. Small teams going toe to toe with the proverbial Goliaths of the world. Lowly employees, even early contractors, taking payment in the form of equity and becoming overnight (multi) millionaires at exit or IPO. Thinking different, thinking better, improving the world around us, and yes – making gobs of money along the way. This narrative, this story, is one I’ve clearly grappled onto, for better and for worse.
I’ve had the opportunity to work for a number of early stage startups. I’ve tried (and failed) to start my own more than one time, learning hard lessons along the way. I’ve been a part of “who’s who” venture backed startup, rising through the ranks to C-Suite position (prior to everything blowing up in the most cliché of Silicon Valley stories). This isn’t to say I know everything, I most clearly do not, but I do feel I’ve been around enough at 38 to share a few thoughts for anyone considering the jump into “startup life”, either as a founder or an employee. Below are some of the more important lessons that have been top of mind recently…
Part One: Be realistic, most startups fail. Pick the right phase company and ask questions before taking the leap.
If you garner one takeaway from this post, it should be to recognize the correlation of risk, reward and probabilities of success based on the stage a startup is at. Though data varies depending on source, roughly 75% of all startups fail to return any capital back to the venture firm that backed them (aka, they either turn into a zombie company or go bankrupt). This begs the most obvious question; are you better at picking startups than the best capital allocators are? If you aren’t, this means you have less than a one in four chance of picking a company that will allow you to stay out of the unemployment line. However, there are a ways to mitigate part of this risk; pick a startup that is further down the path of product market fit and ask the right questions when in the hiring process. Ironically, you as a prospective employee have more in common with the venture firm that may be backing them, except you are contributing time and taking the risk of unemployment, whereas the VC is mostly just committing capital. Diligence appropriately.
- (Pre)Seed Stage: At this phase, there are a bazillion risks within a startup so go in being brutally honest with this fact. Generally speaking, these types of companies are pre-product market fit, (may not have a product at all) have very few employees, are very shaky with respect to their business model and depending on the level of experience within the founding team, is likely atop Mount Stupid with respect to the Dunning Kruger Effect. If you join a Seed Stage company, I’d be looking for really bright founders, significant amounts of runaway, a killer idea that you *really* believe in, a solid understanding of what they don’t know (this is hard) and a team that you know you can work with; oh, and the equity should be significant for your given role (compared to any other phase). Over 60% of these startups will fail to make it to the next round (Series A) meaning the runway may be all the time you get with respect to your tenure there. Below are some questions to ask a seed stage founder during the interview (you should be interviewing with the founder at seed stage). Obviously, if you ask all of these you’ll look like a blowhard. Pick the right questions. Be tactful.
- What is your runaway? Obviously, the shorter this is the less willing I would be to work here unless…(see the next question)
- What milestones need to be achieved to hit your Series A? How close is the team to hitting this milestone?
- Who are your investors? Are they passive or active in mentoring the company along?
- What is the most valuable single problem you are trying to solve? If you are given an answer that pertains to your role, be honest with your own abilities to solve this problem. If you don’t feel its possible for where you are at, be real, don’t set yourself up for failure.
- How do you keep your aim narrow and precise? If they don’t track this its a red flag. Too many startups fail for biting off too much, not for staying too precise with an idea
- How often do you talk to your prospective customers? How big of a deal is this in your product build out? What signal or intuition is the product being built upon? In effect, if the team isn’t often talking to customers and validating their product or problem hypothesis, you either need to be the person to change this or you should look for a different company. Most people underrate this part of company building extensively .
- How much of the product is built? What risks do you see here? Depending on how technical your role is within the company, this is a good time to assess how good their engineering team is. This can be hard if you are non technical, but is often a crux at this phase of a company.
- How quickly can you iterate and pivot to something slightly (or significantly) different if need be? Do you plan on iterating or changing anything after shipping? What you are really looking for here is how quickly the company can iterate on whatever they ship. The best startups do this fast and precisely. The worst make up excuses as to why the customer isn’t using it, changing nothing.
- How much thought and budget has there been around your go to market strategy? Going to market is just as hard as building the product. If there is no strategy here, be wary (or be the marketing person). If they note they plan to hire around this, that can be okay but what you really want to hear is the team knows just how hard this part of company building really is.
- What is the business model? Have the founders explain this. You should be able to do some simple math to figure out what kind of milestones need to be hit for the company’s idea to be successful. If the product is absolutely world changing, this is less important. If its more web 2.0 or a wrapper on an AI product, this really matters.
- Have you started a business before? What is your background? Have you worked in startup life before? What did you learn from that? First time founders are usually going to make a lot of simple errors, especially if they didn’t come from startup world. That’s okay. But be aware of this. Waste comes with the territory of having never done this before.
- Who do you see as your biggest competitors? How are you different? This is huge. I too often see founders build something with a lot of delusion around how they are different. Be eyes wide open here and be brutally honest with yourself.
- Series A: At this stage, the company has signal and some level of product market fit. They’ve shipped something and a limited number of users are (or should be) digging the product. At this phase its all about optimizing PMF and getting the growth engine started. If you join at Series A, there will likely be ~10-50 employees. I’d want to know how the founders are measuring product market fit, what their growth strategy looks like, what the users are saying and how long the runway takes them. About 65% of these companies will make it to Series B. Questions (in addition to most of the ones above).
- What milestone are you aiming it to raise your Series B?
- What are the unit economics of the model? Do you see this trending the right direction to be profitable? What you are looking for here is to understand if the unit economics are favorable, if the company needs to go from using a vendor to building something in house to scale at profit or if the company is looking for a broader secular tailwind (like LLMs becoming cheaper) to be profitable.
- What can you tell me about LTV, CAC, ARPU (depending on the business know the KPIs). What you are aiming to understand is how well we really know the customer, the kind of value they are getting out of the product and the ease in which the marketing team is able to target them.
- Could the company be default alive if need be? If no more capital was raised, would the company be able to stay alive in some way shape or form?
- Series B-“X”: I know I’m being sloppy putting B in with F, but depending on what dataset you look at, most startups that make it to series B will succeed in some way shape or form. Obviously, at some point after ‘B’ the company is no longer considered “early stage”. The company has product market fit, a sticky(ish) userbase and high prospect of growth. That doesn’t mean you’ll be rich and the company is guaranteed to IPO but does mean the company is likely to continue to operate in one way or another into the future, and may get taken out by a private equity fund, bought by a larger company in the space or (maybe) it does in fact IPO. Growth is everything at this phase but the likelihood of failure goes down to 1% (crazy!) simply by getting to Series B. Questions:
- If you raised zero more dollars of venture funding could the company continue to grow? This is a slightly different take on the default alive question, which is still appropriate to ask.
- Are there any other business verticals the company is considering chasing to grow? (IE, are you considering adding additional products)
- What measures are being taken to strengthen the company’s moat? Moats are everything. Durability is everything. Warren Buffet has always been right.
- Is the company considering going public or being acquired? (You won’t get an answer to this, but I’d try anyway).
Finally, remember its 2024 and things are changing fast. VC firms are deploying significantly less capital against a backdrop of higher interest rates and the idea founders can do more with less thanks in part to augmentation of productivity through AI, an easier hiring environment and the likelihood of less tech unicorns being minted through the mid 2020s. This should put more emphasis on you as an employee looking at all startups like businesses not pie-in-the-sky companies that can worry about profit “sometime well into the future”.
Part Two: Play the hand you are dealt eyes wide open.
In this section I talk all about ways to join a startup and mitigate your unemployment risk. Depending on where you are in your career, you may be able to take a sabbatical from your mega comfy soul crushing corporate job you are currently at to take a stab at startup success. Obviously, consult your employment agreement (and maybe a lawyer) being working may be a no-go as part of a sabbatical and/or there may be non-competes or COI depending on how far removed the startup is from your current industry/role. TL;DR, don’t be an idiot here. Alternatively, you may be able to moonlight on the side for a startup while you figure out if there is a cultural fit, if they have something actually cooking in the kitchen and if you actually enjoy the work (again, this may or may not be possible). Not only is this path less risky, but it can help augment your income at the same time. The downside to either one of these options is the psychological effect of hedging, you are dipping a toe in the water, but not fully “sending”. Smart as it may be, “God Hates a Coward” (that is a joke…kind of). With no real risk comes no real reward. Sometimes you need to dive into the deep end without a life vest, because its the only way you’ll really learn to swim. Having a backup plan for when things get uncomfortable can be the thing that keeps you from growing in ways you otherwise would not. If Brian Chesky had an easy $150-200K job to fall back on, I’m pretty sure he might have pulled the ripcord and not made politically themed cereal as a way to stay afloat during the dark days of Airbnb and the company never would have come to fruition. Some people are wired to go build things as a way of being happy. If this is you and you are either young or have few responsibilities, you probably are better off without the safety net. Through the fire comes the forging. However, do recognize, that sort of strategy is not for the meek and the path will not be without a lot of uncomfortableness, turbulence and chaos.
Part Three: Be ready for blind spots.
A startup is often like a toddler (at best). The company doesn’t know what it doesn’t know, which is usually where the real danger lurks. The more weak spots and “known unknowns” you can identify before you jump in, the better you can assess if the company has a risk profile that is attractive to you and if its the kind of place you’ll be able to add value. There is nothing worse than signing up for a job where you are completely overmatched and/or unable to deliver whatever is needed. While you may be able to limp along as some form of dead weight in corporate America, this is completely unpalatable in startup world. Be real. Be willing to turn down a job where you won’t be a value add. Be willing to fire yourself (I’ve said his in interviews, and whole heartedly own this, I don’t want to wake up and suck at a job where I was setup to fail). When you come onboard be curious, ask smart (but not over bearing) questions, really learn the founders vision and what the ultimate mission of the company is. Take your time and take it all in, figure out where your time is best applied. You almost cannot be too thorough here, but have a sense of urgency throughout this “diligence” process.
Part Four: Don’t be the Drama
Culture within an organization is massively important. Unlike a random Fortune 500 company, you actually have a huge impact on the culture of an early stage startup. While positive and productive culture is a great tailwind, drama filled dark triad culture can be the proverbial stealth dagger that leads to a company’s premature undoing. So how do you diligence culture prior to working somewhere? What do you do once your onboard? How do you wrestle with the fact startups often preselect for some form of sociopathy?
- Trust your spidey sense. If you talk to multiple employees during your interview process and hear any shit talking whatsoever of current staff, that’s a red light. Don’t work there.
- Lead by example. This should be obvious, but if you expect others around you to pull a 15 hour day, and you are on the golf course at 3, that is going to create terrible culture.
- Don’t be afraid to speak up. Startups select for those who are willing to disagree, but you need to do so tactfully, professionally and without drama. You need strong EQ as well as IQ to do this in an effective way.
- Be honest. This isn’t your standard rank and file type corporate experience where “yes boss that’s awesome” always works. If the idea sucks, the prototype isn’t working, or the strategy is off the mark, and you know it, you have to be honest, or it may result in a lot of waste (at best) or the unemployment line (at worst).
- Be passionate. Maybe check the Balmer level excitement at the door, but if you aren’t excited about building, shipping and seeing a business grow, you are in the wrong place.
- Have fun. Don’t take everything like the world depends on it. Learn to live within the chaos in a state of curiousness and fun.
- Celebrate wins (even small wins). There is a lot of turbulence in startup life. Find little things to throw high fives over and build team momentum around. While team happy hours are great, its wins that really motivate a team and create good moral.
- Don’t stoop, and don’t talk about people. The more you feel like a gossipy 17 year old high school student, the further off the mark of “good culture” you are. While there are times to chat about an underperformer in the context of a PIP or firing, this is not something that should help you and another colleague build a relationship over. Remember the old Ellenor Roosevelt quote.
- Stay mission driven and keep your eye on what counts.
- In person matters. While I’m torn on the in person vs remote workplace thing, one thing that does seem clear is this. If you are remote, you absolutely need to get your team together for on week (minimum) every quarter somewhere. This builds great products and great culture. While this isn’t cheap, you should remind yourself you are saving on office space, so…do it.
With that, I’ll end here for today. I know a lot of this is out there in the ether, but this was top of mind to me, and hopefully something useful to you, a person aiming at startup glory (in one way or another). Final point – if anyone actually did read all of this and bumps into me in real life (or wants to meet), beers on me. What a deal, eh? I love chopping it up over a beverage and would love to hear more from my peers.
Cheers!
