Not sure you should take that startup job? Think like an investor

This guest post was written by entrepreneur Elli Sharef.

Last week I wrote a short piece on VentureBeat about the pros and cons of working at a startup. While I got tons of questions and feedback in response to the piece (thanks, VentureBeat community!), the most common question I received was this: “How do I figure out whether or not a particular startup is worth joining?”

One candidate put it this way: “I know I have what it takes to work at a startup — the grit, perseverance  comfort with ambiguity– and I am fine taking a pay-cut, but how do I evaluate a startup before I join them, given how little public information is available?”

Here is my advice: If you are thinking about joining a startup, ask yourself, “Would I invest a million dollars into this venture as an investor?” Joining a startup is an investment (of your time, energy, opportunity cost) so think of it in the same terms. Here are the five main things investors (and you) should consider before you take the job.

Assess the founders

Who are the founders of the startup you’re joining? Most investors will tell you that when they choose early-stage startups,  it’s always a bet on the people. This may be unintuitive at first (doesn’t the idea behind a company matter more?) but as fellow entrepreneurs can confirm, it’s execution, not good ideas, that really makes a company.

Y Combinator’s Paul Graham put it well in a recent post on Hacker News: “Joining the young Microsoft, for example, was a bet on Bill Gates and microcomputers, both of which turned out to be very good bets,” he said.  Meet with the founders (and insist on doing so even if the startup is already a bit larger) and make sure you think these are people who can really build a big business and have the ambition and vision to do so. Use your gut.

Understand the size of the market and the vision for the future

If the market is small or isn’t growing, it’s virtually impossible for the startup to become huge. This doesn’t mean that it’s bad for a startup to focus initially on a small niche. There just needs to be a future expansion play. For instance, many e-commerce startups begin by focusing on one very specific product, but have broader plans in other product areas.

Ask about profitability and growth

Investors always want to invest in startups that have seen traction. For early stage startups, 10 percent month-to-month is good; 20 percent is stellar. Does the startup you’re joining have that kind of traction? If not, there may be some good reasons for it  — but I would think twice before joining them. It’s hard for numbers to lie: If a startup’s active users or revenue is growing at 20 percent month-to-month over a sustained period of time, there is probably something interesting going on.

Make sure to ask about run-rate

Make sure the company has a bit of run-rate. You may be recruited by a startup that only has a few months left before it runs out of money. If there’s a good plan in place for raising a round (and if growth has been good), this may not be an issue. But you should make sure to ask your manager about this. Too many candidates coming from corporate backgrounds forget that startups are often operating with less than six months of cash in the bank!

Ask yourself what you’re going to learn in this job

Finally, make sure you look at each job within the broader context of your career goals — where are you hoping to end up? Does this job help you get there in terms of skills and experience? One candidate explained, “I wanted to get out of Flash and into HTML5 so I went and found a bunch of HTML work.” What is your plan for the next few years? Figure out where you’re going and make sure the job you take helps you get there.

Getting a job at a startup is really tough if you’re not an engineer. So, when you get an offer from a startup it might be tempting to take it without thinking twice. But if you value your time and energy, make sure to assess each startup as if you were an investor. Would you invest a million dollars? If not, you shouldn’t join as an employee either.

Elli Sharef is co-founder of HireArt, a jobs marketplace that uses online challenge-based interviews to vet job applicants. She began HireArt to fix a broken hiring and interview process and get people hired based on skills, not connections. Since starting HireArt, Elli and her team have placed hundreds of candidates in sales, service, and marketing jobs at dozens of employers. Prior to HireArt, she worked as a Business Analyst at McKinsey and Director of Strategy at the University of Phoenix.

 

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