I have had the pleasure of working in 3 startups over the last 9 years and I’m happy to save they are all still in business. While I’m not sunning myself on some tropical beach they have been great experiences and are successful businesses today. Here are the things I look for in a startup:
- Can the CEO explain the business, and convince me of it’s viability, in 5 to 10 minutes? If they cannot then they are not going to be able to convince VCs or potential customers either.
- Has the leadership team been successful in prior startups? If the answer is no this should raise concerns.
- Ask around and get as much information as you can about the leadership team. Beyond just working in startups, have they survived economic challenges. There will be some ahead, how will they react?
- Meet everyone in the company that you can. Can everyone articulate the goals of the business and do they match what the CEO stated. If not, walk away.
- If you were trapped in a blizzard with your potential co-workers, would you have fun? Startups are not 9 – 5 and you had better feel reasonably well about the team you’re going to be working with, professionally and personally.
- What technologies have been selected? I have stayed focused in companies that are built on the Microsoft technology stack. If the company is using Ruby, Java, PHP, etc.., I have to give it a lot more thought.
- Ask questions about the market.
- What is the current market size? My rule of thumb is anything under 1/2 billion is not worth my time.
- Who is the competition? If there is none, make sure there truly is a market.
- On the technology front make sure the leader has gone from small to mid-size. You don’t want to change leadership too early in the company although you may have to down the road.
- On the sales and marketing front make sure these folks have experiences explaining new markets and justifying the existence of new companies. They will have to do a lot of education early on.
Usually, if I feel good after going through the above questions I bang my head on the wall and ask myself why do I want to go through the ups and downs of a startup again. The answer is easy for me though. Building new markets and new solutions to expand those markets is a major rush.
What about you, what do you look for?
-John
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February 28, 2009 at 2:49 pm
[...] Win the lottery, choose the right startup [...]
February 15, 2009 at 1:25 am
John,
I was so excited to see this post and since a long time an article like this was playing on my mind but I was wanting time to “wordpress”, but I guess you have done a jolly good job on this one- I would only contribute on what was running through my mind. I am an Indian myself, in the U.S working for a startup dotcom. I’d say that we(Indians) are just not cut out from childhood to take risks due to economic and social hardships we face. If I were to do the same thing in India, people would think I am a loser and I am crazy. But I guess everyone should salute the spririt of Entrepreneurship and be the that ‘Important Cog’ in the whole wheel. No company was ever big, they all started in garages and homes. Look at Microsoft , IBM and Google (started in stanford dorms). So someone did something and took a risk, and now you can see the results. I am not saying that you should join a startup because you could be a millionaire next year, but join one to learn and innovate and Grow.
Keep up the spirit, and join a startup. But, HEY, you should be careful. Look at the product, the idea, the market size, the exit strategy, the CEOs resume, are there any VCs waiting for the prototype for them to pour some money in? These are some questions you should ask yourself.
There are many benefits associated with joining a startup as an employee at any level (energized work atmosphere, little bureaucracy, upside), but there are many significant risks coupled with them as well. Of course, a prospective employee should ask numerous questions of both his/her role and the company before joining any firm, but there is a set of questions specific to joining a startup that people should pose. I’ve tried to outline what I think are some of the most important questions below.
Keep in mind that this is by no means an exhaustive list, merely a suggested seven to get a discussion going. I encourage everyone to suggest additional comments on these.
On the Company side- ask the following to yourself.
1) What is the value proposition(services oriented0 or a Product Idea which the company has or is trying to develop?
2) Check the current Clientele base or the order books(I know this is difficult for a new entrant but gather information on this)
3) If you are receiving employee options, what is the number of fully-diluted outstanding shares?
4) How many employees did/does/will the company have six month ago, now, six months from now, a year from now.
5) Has there ever been a down round, a flat round, or a CEO change? Any of these three events are an indicator that the startup has faced some difficulties in the past and may not be on track moving forward. If one of them has occurred, prospective employees should seek out as much information as they can the context of the situation.
6)What is the burn rate and how much cash flow is in the bank now? Are there suitable VC’s to back it up during downtimes or sponsors to fund an idea?
On a personal side, ask the following to yourself:
7) What is the plan of your exit strategy and its timeframe?
8) Could you meet the CEO, the founder(s), and those on the management team? What feel did you have talking to them. Could you connect to them on a personal level as well?
9) Do you personally feel that you could do wonders with your skillset and be a contributing factor towards the growth of the company? What is the “Sweat Capital” which you could put?
10) Sniff around the Organisation to smell the ‘Air’ around the organization? How are the existing employees feeling about their jobs?