This article was published on September 16, 2012

How to evaluate whether or not you should join a startup

How to evaluate whether or not you should join a startup
Alex Taub
Story by

Alex Taub

Alex Taub leads Business Development and Partnerships at Dwolla, a payments startup based in Iowa. Alex Taub leads Business Development and Partnerships at Dwolla, a payments startup based in Iowa.

When interviewing for a job at a startup, you might focus on the questions you will be asked by the interviewer, but there are also a series of questions you need to ask yourself. Are you ready to grind yourself into the ground for the next 5 years? Do you believe in the company’s mission? Can you live off this (likely lower) salary? In the case of a successful exit, what future opportunities does this job provide? This article provides a series of information startup job candidates should consider and answers to commonly asked questions. It’s tailored more for those in business roles than those in technical or design roles.

Do you believe in the company’s mission and are you ready to work on it for the next 5 years?

This should be the first question you ask yourself. If the answer is no to both, then you are probably not joining the right company. While not everyone always gets to work for a company they truly believe in, if you plan on joining a startup and getting paid much less to do something you don’t believe in (or are excited about) you may as well go to a bigger company and get paid more money to do something you don’t love.

The one exception to not believing in the company mission and not being ready to spend the next 5 years working at it is if you are in education mode, and have an opportunity to work for an individual (or multiple people) who will be able to teach you everything from starting your own business, scaling the business, raising money, closing partnerships, getting press, and so on.

While one should always be looking for opportunities to professionally educate, I am referring to the rare opportunity at the beginning of a career in which candidates should learn as much as possible about business. If you get the chance to work with an absolute rockstar (i.e. working with Mark Zuckerberg at Facebook, even if you’re passionate about the pharmaceutical industry), then you should jump on it, no matter the field.

Who is your manager?

There are tons of people who believe that knowing who you will be reporting to is the single most important thing in deciding whether you should join. I tend to agree with them. If you are reporting to someone who knows what they are doing and is very good at their job, you will accelerate your career two, maybe even five years. Working for a well-respected individual in the industry will help legitimize you. Ask them to take you under their wing, bring you around to events, introduce you to their network, etc. It will go a very long way in building your career. Don’t be discouraged if your boss is only a year older than you, or even younger! It doesn’t mean that they don’t know what they are doing.

What will you be doing at the startup?

The next thing you should be thinking about is what your role will be. What are their expectations for you? What are your short term goals? Long term goals? What will you be doing Day 1? Understanding what your responsibilities will be, will help you evaluate if this is where you belong.

Do you get along with the employees?

Have you met the team yet? Do you like them? Do they like you? All very important questions, because you will be grinding yourself into the ground with them for the next few years. They are your brothers and sisters in the army that is your startup. You will share wins and losses together. If you don’t get along with them, then you are probably at the wrong startup. If you do get along with them, and they seem to like you, then you are probably a good culture fit.

What salary are you hoping to earn?

Expectations here vary from startup to startup. The best general rule of thumb is that if your role is to generate revenue for the company, then you are in Bucket X. If your role is not actively creating revenue, then you are in Bucket Y. From my experience, Bucket X is typically in the $90-150k range whereas Bucket Y is typically in the $30-90k range. Now these are pretty wide ranges, but I’ve seen them hold up in the real world. For example, if you work for an ecommerce startup in a sales/business development role and are doing deals that bring in money for the company, you are probably in Bucket X. Whereas if you are in an industry where your BD/marketing/community role doesn’t bring in money, then you are in Bucket Y. These numbers are not for C-level executive roles and are general estimates.

What about company stock options?

Ah, the infamous golden ticket. Here is something that they don’t tell you when hiring you, unless you join a rocket-ship, you are probably not going to get anything significant at a startup. Making those large sums of money only happens if you join the next billion dollar startup (only a handful every few years) or if you are a founder. If you think that by joining a startup you are going to strike gold, then you are in the wrong industry.

That being said, one of the perks of working for a startup is receiving equity in the company. Depending on your role and where the company is, you are most likely getting on the lower end of .05-.30% in your junior role (if you thought you were getting 1%, dream on!). What you need to understand is actually how much it is worth. The CEO telling you that you are getting .1% of the company in stock options doesn’t mean anything unless you know what the valuation of the company is!

To figure this out you need to know how much the company is worth and the number of outstanding shares. This will help you value your options. Once you receive this information you can estimate the value per share minus the exercise price multiplied by the number of shares and you should come up with a basic value of your stock options.

Some companies grant stock options, while others grant restricted stock units. The difference there is that options grant the employee the right to purchase shares of the company at a price (often a small fraction of the actual price) whereas RSUs mean that the stock is given to the employee free of charge.

Where is the company financially?

This is only important in terms of figuring out if the company will be around so you can grind yourself into the ground trying to achieve the mission. Try to get a good grasp on where the company is financially. If the company raised $1 million dollars eighteen months ago and makes no revenue, it is probably not a good idea to join them since they are bleeding money. Even if you can get some of the information in the press, if you are serious about joining the team, ask the management at the company. Be sure to ask how much runway they have and when they think they’ll need to raise money again. It is something that any smart interviewer should ask.

I would even preface it by saying that the press isn’t always 100% accurate and you’d love to hear from them about where they are financially. If someone in the company gets insulted by this question, then that is a big red flag and you should be wary. A confident and comfortable interviewer (likely the CEO or founder) should be happy you are asking such an important question and not blindly jumping into the unknown.

What is the most important piece to properly evaluating whether you should join a startup?

This entirely depends on you. What do you find most important? If you are looking to strike it rich, you probably have a better shot at doing so by being a moderately successful co-founder (.1% of a $100M exit is $100k, 30% of $10M exit is $3M). If you are looking to accelerate your career, then you probably should go work for a superstar and have them take you under their wing. At the end of the day, what is most important to you will depend on how you evaluate whether you should join the startup or not.

Image Credit: jips

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