“I was so excited to join their team,” our friend Emma* shared with us. Two years ago, Emma left a secure job where she was a solid performer and joined a startup. The picture they painted of the opportunities was so exciting and she thought she would have a positive impact on the team. Now, Emma is looking for another job. The company she joined has had mass layoffs over the past year and her division has gone from 200 employees to seven.
Many people, similar to Emma, get excited by the buzz of joining a startup. Why? The allure of working with charismatic, forward-thinking leaders. Not having to deal with the “red tape” that comes with working for a large organization where it can feel, at times, like it takes forever to get anything done. The ability and flexibility to “make a difference” and tap into your entrepreneurial spirit. These are all very appealing benefits. While there is always a risk in starting a new job, many times the good outweighs the bad.
Before joining a startup, it’s important to understand some of the data and to do the right research, especially if you are currently working at a more established company.
First, the data:
- Only 80% of startups make it past the first year, and roughly 54% make it past the first 4 years.1
- Health care and social assistance companies have the highest rates of survival over time, while construction companies have some of the lowest.2
- Startups founded by businesspeople with technical expertise are more likely to succeed, largely because these companies are “more likely to introduce new-to-the-market innovations.”3
- Female entrepreneurs tend to receive less funding than their male counterparts. “In 2018, male founders raised $109 billion in VC funding in the U.S., while female founders only managed to raise $2.86 billion.”4
- Despite the odds, “companies with a female founder performed 63% better than investments with all-male founding teams.”5
- In addition, founding teams with younger members (average age of 25) and those that went to top schools were also more likely to be top performers.6
In order to assess the risk, here are some points worth exploring before joining a startup:
- How is their growth being funded?
- Who are their competitors and how do they rank amongst them?
- What is the background and experience of the management team?
- What do analysts say about their potential for success?
- When is the last time they had to lay someone off and why (outside of typical termination for performance, etc.)?
- Do they have a severance policy? (If they don’t, ask if they would be open to putting one in their offer letter.)
- What has the employee growth been since the inception of the business?
Once you understand the general risks of joining a startup and the intricacies of the particular company you are considering, it’s important to factor the parameters of your life into your calculation. Consider the stage you are at in your life and how the outcome may impact you and those around you, especially given the risk of working longer hours. Weigh this against the many benefits of startup culture, like being able to tap into your entrepreneurial skills and work with charismatic leaders.
At Pivotal, we have had the opportunity to work with many startups and it’s been exciting to see how they have thrived. It is, however, very important to arm yourself with as much information as possible before joining a startup in order to ask the right questions and make an informed decision.
*Name has been changed for anonymity.