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Nov 04, 2022 Daniel Broome

8 ways to decide if the risk of joining a start-up is worth it

You like your job. The company is well-structured, well-run, and…predictable. And that’s a good thing, but you have a niggling doubt that there might be something else out there for you. Part of you is grateful for the stability of your current job, but the other part is restless to test yourself. How would you react to the controlled chaos, the fast-paced environment, and the possibilities that joining a startup would bring?

Of course, you are not going to cavalierly run off with the first startup that promises you the metaverse, but if the right chance came along, who knows? The opportunity to have a real impact, make your mark on the business, and just maybe get a massive payout in several years is thrilling.

Len Schlesinger, a professor at Harvard Business School, advises you to weigh up the "passion and excitement" about joining a startup "against the time, money, and reputational capital" it will cost you. Here are eight things to consider when you evaluate if the risk of joining a startup is worth it. 

1. What are your own motivations?

When you are excited about an opportunity, it's easy to focus on the positives (economic reward) and overlook the risks (uncertain future). So, to make the potentially life-changing move of quitting a job and joining a startup, you need to think deeply about your motivations. 

  • Are you committed to the startup’s cause?
  • Will you learn new skills by joining?
  • Will joining the startup contribute to your long-term career growth?

If you have a definite answer to these questions and believe that the startup will help you achieve these goals, then your motivations are likely to hold.

2. Are you the right candidate?

If the startup is right for you, ask yourself whether you are right for the startup. What makes you a good candidate, and what do you have to offer the company?

Generally, startups want flexible, multi-disciplinary employees who are happy to take on responsibilities that are not strictly related to their job. Job functions are not rigid—startups want people who are interested in everything and can seamlessly move from one role to another. The right candidate has to be fluid and able to adapt to change.

3. What does the research tell you?

Google is your friend—and you should research what employees, customers, and investors say about the company. But you should also examine the startups' position in the market. What are the founders' backgrounds and previous experiences? Have they successfully run companies before? And is the startup successful so far, and why?

You want to feel confident that the company’s founders and/or leadership have experience in building and managing teams—or that they hired someone who has. In startups, the founder is the key to everything, so ensuring they have a proven track record of success rather than a tonne of cash with no real plan or direction is hugely important. Have they done it before, and how likely are they to do it again?

4. Who are the employees?

Researching employees' profiles on LinkedIn is also a great way to see if others have faith in the company. If employees have made the leap from successful, established companies to this startup, other people in your position have confidence. But the outlook is not as hopeful if the rest of the team is there for work experience.  

In startups, the people are the culture—and company culture is essential to your happiness. Employees who are allied with the company culture are far more likely to be satisfied and motivated. Gaining insight into how the company operates and how you might fit in could be a good way of judging whether the company is right for you on a cultural and behavioural level. 

Carrying out a small project with the company before committing could allow you to learn enough to make the right decision. You will find out if you are a right fit for the culture and understand the company's way of working. 

5. How about the numbers?

As a new hire, ensuring the company you are joining has sound finances is generally not a concern. However, when considering if you want to work for a startup, finding out about its revenue, competitors, and funding is a good idea. If you can’t find this information online, you could ask the founders directly. 

Answers to questions like the following would give a broad view of the company's finances.

  • How much does it cost you to make your service?
  • How much does it cost you to make each sale?
  • What are its current sources of funding? 
  • How quickly will you burn through the money you have right now?
  • What are its future sources of funding? 
  • What’s the difference between your growth rate and your profitability?

Although asking these questions might seem invasive, the founders should understand your motivation to ask—and be able to answer. After all, the job offer could include share options or an equity stake, so you need to know the company is on its way up, as well as how long it will take to get there. 

6. What are the right interview questions to ask?

The interview process should be a candid affair during which you interview them as much as they interview you.

Your questions, of course, depend on your role and the type of organisation you are engaging with; however, three main questions will help you assess if the risk is worth the reward.

First, startups are naturally innovative and built to overcome the inadequacies of products or services already in the market. They disrupt and change the way that companies operate. Ask about this innovation. Where did it come from? What does the market research say about it? What do customers say about it, and how does it resolve their problem? You want to guarantee that the startup is not just a good idea but a viable, long-term, scalable business model.

Second, you want to understand the company's funding structure. It is crucial to ensure it is and will continue to receive funding. But it is also necessary to enquire about the investors. Do they have a successful history of investing in this type of business? What are their expectations? Ensuring that they are the right investors committed to the business's longevity is vital. 

Third, ensure that the team has the skills to make the company successful. The idea can be great, and the startup can have financial backing, but without the right team, it is doomed to failure. You want to be sure that the leadership team has the right background to succeed—and if they don't, who are they bringing on board to fill the gaps?

Last, if the startup is headquartered in the US and expanding internationally, you might have some additional questions relating to your employee experience. Knowing that you will be supported in administrative areas such as payroll, your contract, and general HR is essential.

7. What are your alternatives?

If you join a startup, you will not continue with comfortable predictability. It will change how you work, earn, save, and live your life. Due to the job's demands, your relationships are likely to change, not negatively necessarily, but things will be different. Are you ready for the compromises needed to work in this environment? The reward is potentially huge, but it is not without risk. 

So forget the reward and honestly ask yourself the question: if it wasn't for the possibility of a future windfall, would you still want the job? If the answer is no, you should probably stay where you are. But if the answer is yes, you know what to do. 

8. What is each case scenario?

We can all imagine what happens in the best-case scenario. You join a dynamic team in a company whose culture resonates with you, allowing you to make your mark and grow professionally. All this, and within two years, the startup goes unicorn. Happy is an understatement.  

But how about the worst-case scenario? If the startup folds in a month because of a lack of investment, you need a plan. In today's market, top talent is in demand, but, of course, it's always a good idea to ensure you have sufficient savings for the few months it will take to find another position.

Conclusion 

Life is risky, and moving from a comfortable job at an established company to an unknown startup is a risk. Being courted by a company offering a big potential reward tomorrow for a slice of you today is not a decision that should be taken lightly. And as Warren Buffet said: “You only learn who has been swimming naked when the tide goes out,” but doing your due diligence and asking the right questions should tell you everything you need to know to decide whether to invest yourself in the startup. But if you invest your most valuable asset in the right startup, you might just make it big.

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Published by Daniel Broome November 4, 2022
Daniel Broome

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