Deciding to take up a startup job is confusing, even for seasoned professionals. There is limited information available about startups and the popular opinions are often subjective and based on the media hype. Result – many people either join a wrong startup or skipping a very promising one.
As an example, let’s say these two startups have offered you jobs:
- FashionNext, a hot new fashion startup that has not raised funding yet.
- TalkNow, VC backed SaaS startup with 25,000 app downloads
TalkNow looks like a better choice – after all it’s VC backed and also has some visible traction. But what if I told that the FashionNext is started by seasoned Myntra employees and is soon to raise a seed round from a marquee set of investors such as Ratan Tata & Flipkart founders?
You might be reconsidering now. But wait, here’s another fact – the team at TalkNow have an IIT/Stanford background and had sold their previous company for $25M.
Confused which one should you join? There isn’t a clear answer, but here is a model we have developed at CutShort that might help you decide.
Finding the unknown: How risky is the startup?
Let me be clear – predicting which startup will be more successful is extremely difficult. Even seasoned investors get it wrong 9 out of 10 times.
But as a potential employee, your goal is NOT to pick the next unicorn. It is to find the best startup job that offers you the right career opportunity at the lowest risk possible.You know what you’d be investing (your time & energy) and what would be the rewards (new job role, compensation, stock options et al.). What you don’t know is how much risky the startup is. Will it survive, and flourish, in the coming years? Or will it be another one to fire/lay off people or just shut down completely?
Determining that risk with certainty is difficult. But we at CutShort have developed a model to guesstimate this risk. It is based on our learning within the overall startup ecosystem in India and abroad. (It is still evolving, so please let me know your suggestions below).
The Startup Risk Calculation Model
This needs you to do some unbiased, objective research on the startup. The model simply involves giving risk scores to the startup along these dimensions.
The Stage Risk
Is the startup at an idea stage or has a working product with paying users?
The earlier the stage, there are simply more things that can go wrong. The idea might not work or be difficult to execute, the team might break apart or that committed funding may never hit your bank.
Depending on the stage of the startup, give these risk scores:
The Team Risk
Having IITians or ex-Google, ex-Paytm OR ex-XYZ is NOT always equal to having a strong team.
The strength of the team depends on the context of the startup. You need to figure out – what does the success of the startup most depend on? Is it the ability to build the complex piece of technology (like building Alexa or Siri)? Or it’s about putting together the entire value chain to solve the problem at scale (like Amazon)? Or it will come down to securing massive funding to beat out the competition (like Flipkart)? Ask the startup this question and discuss with your friends/well wishers at other startups.
Once you know the main challenge, the core team at the startup should have the necessary skills/experience to counter that. Brand names may not matter there – a team of IITians faced with the primary challenge of striking big partnerships may not look like a winning team anymore.
The Financial Risk
99% of startups fail due to running out of money.
Beyond the initial funds put in by the founders, more money either comes from the revenues or external funding. You need to understand from the startup:
- What is their next financial milestone – securing (more) funding or become operationally profitable?
- What is the expected time frame to reach that milestone?
- How much money they have as “cash in bank”, not “expected money”.
I know – you might feel a bit uncomfortable asking these questions. But asking them have two extra benefits. First, great startups actually love candidates who are serious about their careers and are not afraid to ask the right questions. Second, the startups that don’t handle these questions confidently are either not well prepared or not transparent enough and should be avoided.
A caveat though – apply your own discretion while trusting the information shared by the startups. Startups often underestimate the challenges in reaching either of the milestones – funding or getting profitable. Investors typically look for proven traction (and nowadays – even unit economics!). Getting profitable is even harder – you need to have the full product + marketing + sales + operations.
Once you have more clarity, you need to estimate the runway the startup has before it runs out of the money it has in the bank.
So should you join that startup?
Simply add the above 3 risk scores to find the overall risk score of a startup:
Startup Risk Score = The Stage Risk + The Team Risk + The Financial Risk
Congratulations, now you have some idea of the risk. But a high risk startup is not necessarily bad for everyone. Depending on your risk appetite, the current situation and career preferences, you may prefer taking more risk to get higher rewards. In fact, founders/entrepreneurs are an extreme example of such an employee!
To decide whether you should take up that startup job, use this table:
Hope this model will help you select the right startup job and while avoiding the ones that don’t fit.
The factors and numbers used in this model are evolving, so would love to hear your suggestions & thoughts on how we can improve it further.
All the best!