While the vast majority of high-tech startups fail (stats range from 75 percent to 90 percent), they are still a key driver of job creation in the United States. However, with the unique opportunities typically associated with working at a high-tech startup, there are also risks that the job seeker should carefully evaluate, say experts at Harris Allied, a New York City-based executive search firm.
“The Alibaba IPO is a good barometer for what is expected to be a hot market for tech startups. We are already seeing high-tech startups outpacing the private sector in terms of job creation. While these companies have lean beginnings, they grow rapidly in the early years, adding jobs along the way, often at a greater velocity than other kinds of small business. But there are some inherent risks in accepting employment at the wrong startup that should be carefully weighed when considering an offer,” says Kathy Harris, managing director of Harris Allied. “A job seeker needs to look beyond their fun and enticing workplace cultures and see clearly that their failure rates can destroy jobs as well.”
Harris says job seekers should evaluate the following when considering employment opportunities with a high-tech startup:
- How much funding does the company really have? Is it funded with “friends and family” money or is it VC-backed? If it is VC-backed, what state of fund raising is it at? How long can the company stay in business with its current cash supply?
- How does the startup fit into the larger scope of the industry? Is there a real need for the product or service that the company offers? Where is the opportunity for it to thrive and succeed? Look at the firm’s competitors and ask how the firm fits into its market space. Does it offer a significant uptick within the industry or does it do or offer something innovative? What obstacles does the company face when breaking into the marketplace? What are the real opportunities to generate revenue and what are the triggers that will make this company profitable?
- Who are the principals and what is their track record in starting and running companies? Has the management team made money in the past? Who is actually running the company day-to-day and do they have hands-on experience in dealing with legal, compliance, cost containment and regulatory matters, for example? In a startup, there are not many people to delegate those responsibilities to. Does each member bring with them unique expertise that collectively makes for a strong executive team? What relevant industry experience do they have? Do the principals have experience with small companies or have they bootstrapped a startup before? Have they had experience generating revenue and building a business that does not have a big brand name?
- What is the growth plan for the business 3, 6, 9 and 12 months out? This is a fair question for a candidate to ask, but it needs to be asked in the correct manner. Private companies are not quick to disclose their revenue projections, but you can ask about the company’s plans for expansion and growing market share. How will the startup grow its customer base and what kinds of customers will it target? Is the firm targeting a single vertical or are there plans to diversify the business focus? What size client will the firm target? A key consideration when evaluating a job offer is whether the firm is limited to a small number of clients.
- Is an IPO in its future? What is the exit strategy? Ask about equity participation – is it part of the compensation plan and, if so, what kind of liquidity event is planned? Most startups will offer equity to people that join the firm in its earliest stages, so a job seeker needs to inquire what that really means in terms of the growth of the company.
“The answers to these questions should absolutely factor into a job seeker’s decision to accept a position with a high-tech startup. Just as important, however, is the job seeker’s own stage of life. If you have a young and growing family and would like to purchase a home, a high-tech startup may be too risky a move for you given their rate of failure or some potentially lean early years. However, their compelling workplace environments, the opportunity to get your hands on cutting-edge technology, and a chance to grow something from its infancy can be very attractive to savvy high-tech professionals,” says Harris.