By: Tim Gordon
Ahh, the mystique and allure of a startup. Is it getting in on the ground floor, surrounded by brilliant people that want to hustle and change the world? Or is it the proximity to the mission and the impact you have every single day? The pull is strong, and understandably so – when it works, it’s a professionally transformative experience, and maybe a financially transformative one too. But as with anything, and any career choice, understanding what you’re walking into is critical to making an informed decision and setting yourself up for success.
Be comfortable with ambiguity
If you find yourself asking what the policy on “XYZ” in the 20 person startup you just joined is, or where the process document for the project you just took ownership of is, be prepared to be told to create it. One of the things that is either deeply unsettling or incredibly exciting, is that you aren’t just building a product, or a marketing strategy, or a financial model – you are literally building the company. Larger organizations have reached a different level of operational scale, and we take many things for granted in those settings. Someone, somewhere along the line, built all that stuff, broke it, fixed it, broke it again, and saw it through evolution to the well-oiled machine you walked into. Well-run startups fine-tune the details faster than others, but there’s invariably a constant undercurrent of “change” and new developments in most early-stage companies.
Find yourself mission-aligned
Startups are hard. The work is hard, the path to “success” is riddled with speed bumps, letdowns and pivots. Priorities can change in a blink, and the pressure teams feel across the board is intense. Being aligned with the mission is an important part of leaning into the day-to-day challenges of building a company. The mission gets you through the tough days when you feel like you can’t get a win or you want to give up. Having a greater purpose, a baked-in “why”, is an overlooked table stake of life in a startup. Find something that pulls you out of bed in the morning. There are very few “jobs” in an early stage startup.
Velocity and pressure can lead to some tough cultures
Odds are, the CEOs of most of the companies that you worked for previously were not the Founders of those organizations. Before joining as CEO, they were vetted by a Board, had an established track record, and were known quantities to the organization, potentially ascending through it over decades to helm the ship. Founding a company doesn’t necessarily require any previous experience, and as a result, Founders come in all shapes and sizes, with different proclivities, views on values and culture, and styles of leadership. It’s important that you understand what type of leader you work best with and for, and then rigorously diligence the Founder and company you plan to join to make sure you align. The pressure on the Founders and CEOs in startups is immense, and recent events highlight the constantly shifting landscape and existential threats to their business they must navigate. Under pressure, even the best will find this the greatest challenge of their lives, and this can at times lead to unintended trickle-down toxic culture.
Compensation is just different
Traditionally, people head to startups for the mission and the upside, and often because the company’s stage allows for them to take on a more senior role with higher visibility and greater impact than if they stayed in a bigger, established organization. But if you’re used to the 10% 401K match, six weeks of vacation, annual stock grants, and rich benefits package, along with a big base salary and large annual bonus, you might have reverse sticker shock. Most startups are operating lean, extending the capital they’ve raised as long as they can before the next raise, doing a lot with a little. This means cash compensation in startups tends to be lower than in larger companies, and is ideally offset by equity upside – ownership that has the potential to be worth a lot of money one day when the company gets acquired or goes public. It’s important to understand this, embrace this, and make sure that tradeoff aligns with your personal risk tolerance. Not all startups have billion dollar exits, so place your bets accordingly. Which leads us to our last topic…
Understand your equity
Startup equity is a bit of a misnomer. If you’ve been at IBM for 10 years, you’ve received stock grants and once they’re vested and unrestricted, you’ve got something of value that you can sell to the highest bidder with a self directed brokerage account. Startup equity, in the majority of cases, is in the form of options, meaning you own nothing more than the right to buy stock later. You’ll likely benefit from a remarkably low strike price, thus increasing your potential for big gains in the long run, but you need to vest first, and there’s no real secondary market for startup stock (there are exceptions, but startup stock does not share the same kind of liquidity as publicly traded stock). So it’s important to focus on the present day paper value of the options you’re receiving, and then model out what different exit cases might be. Don’t forget to factor in dilution, payback for institutional investors, and the fact that in most cases you’ll find yourself paying short term capital gains tax when you exit (unless you exercise and pay taxes as you vest). This isn’t to say that if done right it can’t change your life. Equity is one of the oldest ways to create generational wealth. But a solid understanding of the mechanics, plus some guidance from your tax professional, will help you go in eyes wide open.
All of this is to say that with the right diligence, the right mindset, and the right setting, startups can be the most fun you’ll have in your career, while simultaneously being the hardest thing you ever do. Getting educated and being honest with yourself about who you are, how you work, and what you need around you to be successful is critical. Diving headfirst into a ten-person company without reflecting on what gives you energy, creates the potential for a mismatch and a lot of frustration. Take your time, ask a lot of questions, and get clear with yourself (and your family) about the risk you perceive you’re taking. Startups drive innovation, the economy, and some of them literally change the world. When you find the right fit, it can be a personal gamechanger.