Archive for January 2015
Over the last little while we’ve lost some people to startups and we’ve hired a number of people away from startups, so what factors are causing this movement? Desire for greater autonomy and more flexibility? Or is it today’s version of a Klondike gold rush where hordes set out on the treacherous journey but few strike it rich?
I’ve spent most of my career with the Sage 300 product whether at Computer Associates or Sage, both of which are well established companies. Previous to that I worked for a number of startups as well as tried working as a consultant. All of these were great experiences and all provided great learning opportunities.
When considering a startup, there are two options: one is to create your own startup, where you have a great idea and want to take it to market and the other is to join someone else’s startup as an employee. In this blog we’re considering joining someone else’s startup. Quitting your job and creating your own startup is a whole other topic that I may address in a future blog.
Some of the people working at Sage started at Basic Software Group that originally developed Accpac. They were eventually were acquired by Computer Associates and later by Sage. This was a successful startup where the original team members did quite well. Many people at Sage are here due to the acquisition of their startup. So joining a startup at its inception, you may eventually have the choice of remaining at a (now) established company or moving on to the next startup or a spin-off of the established company.
I blogged a bit about how work environments are changing here. How startups are often located downtown in shared spaces or incubators, whereas established companies tend to have larger building out in the suburbs. The established companies are working to modernize their office environments but tend to not quite go as far as the startups. Many established companies are moving their R&D centers downtown to attract younger talent. When you interview with an employer make sure you check out their work environment so you won’t be surprised on the first day at work.
The picture below is from a startup incubator where a number of companies share the space. Chances are each table is a different startup!
Generally, if you work for a more established company you will get a salary which is paid regularly and reliably. This also tends to be the main part of you compensation, with a number of other standard benefits like medical, dental and retirement matching. Stock options and stock grants tend to be quite rare these days.
However; if you work at a startup, you get a much lower salary and fewer benefits. What you get in return are stock options or stocks. These give you ownership in your company and the chance to cash in if things are successful. The danger is that if the company goes bust (which over 90% do) then these are worth nothing. What everyone is looking for is that magical IPO or a buyout by Google where suddenly everyone is a millionaire. Another thing to watch out for is that if things drag on, each round of fund-raising dilutes the equity of all existing shareholders. So often at the end of several rounds of fund-raising and venture capital, those original generous stocks and options aren’t worth nearly as much.
People at startups tend to get very nervous as to whether they will receive their next round of funding or not. They are usually entirely dependent on outside sources to keep going. They usually have no revenue coming in from their products under development. If the outside sources get nervous, lose patience or switch interests, then the company can suddenly be without any money.
If you have (or want) a mortgage, managing this from a startup can be very challenging. Similarly, if you have children and need to support your family, you have to consider if you can afford to miss a couple of paychecks when things are tight. Often this can be a deciding factor of working at a startup or not.
Joining a startup can be difficult because you will have a very steep learning curve without much support. You will also need to learn a lot of things outside your direct expertise. The team will be smaller and everyone will need to take a larger role.
Established companies will have more formal programs to bring you up to speed. A lot of times the work is more specialized although you can move around.
If you are looking to learn a lot, then startups provide great educational environments for this. Sometimes you may learn things you don’t want to learn like managing bankruptcy, but it’s all learning nevertheless.
Within startups you have a lot more responsibility. The team will be small and everyone is relied upon to play a major part. Long hours will be required. Chances are you will be working directly with the CEO.
At more established companies there are better defined management structures and larger teams so the responsibility is more spread out and there are more resources to back you up.
Some people thrive in one environment, others in the other. Which company model is right for you depends upon your level of comfort and how you like to work.
To some degree choosing between an established company and a startup is choosing the get rich slowly, a strategy expounded by David Chilton in The Wealthy Barber or Thomas J. Stanley and William D. Danko in The Millionaire Next Door. Which is basically to save percentage of what you earn every paycheck and invest it over time. Versus the startup approach of betting on a long shot and then working your guts out to make it succeed. The truth is that the first approach will always work whereas the second approach is very risky. Of course, you can do a composite and try a couple of long shots and then go for the sure thing.