Identifying which startup to join can be hard. No one knows for sure which companies will go on to become Unicorns, IPO, and become the category defining companies of tomorrow. Still, we have to make the best possible decision with imperfect information. Usually, joining a startup means giving up greater liquid compensation today for the chance of gaining other things that compound over time like personal networks, learning opportunities and equity (also known as a lottery ticket with the expected value of $0). If you’re optimizing for things like network, equity, and accelerated career trajectory, you’re much better off choosing a successful startup than an average one.
Below, I have outlined a few areas of consideration to think about when evaluating startup companies to join. This framework can be used to identify startups to join, for questions to ask during interviews, or to evaluate offers with.
Financial and Operating Growth
The top career opportunities come from the companies that are primed to grow. The best way to assess whether or not a company is the right fit is to analyze any evidence as to whether or not the company is already succeeding. Similar to how investors will ask for key financial and operating metrics, prospective employees should be seeking growth. A startup with $5M in revenue, but flat growth YoY is infinitely less exciting than a company that went from $0 to $3M in six months. Company growth and the potential for success should always be top of mind for prospective employees.
Growth Questions to Ask:
What was your trailing fiscal year revenue? What are your revenue goals for next fiscal year?
What are your KPIs for next year?
How many customers or users do you have? What was the growth rate YoY?
What type of customers are purchasing your product? Were there any interesting trends in the buyer profiles?
What’s your strategy for acquiring customers?
Team
Next, you need to evaluate the strength of the team you’ll be working with. In early-stage startups, the team could just be the founders. Many times, it can be challenging to evaluate founders. Sometimes, traditional signals can be inverted. For example, someone who’s spent 10 years at Facebook might only thrive in structured environments where they have tons of support teams, millions of data points on product analytics, and more. Despite a founder’s pedigree, most startups won’t have that type of traction for many years. Instead of relying solely on what school a founder came from or what college they went to, I like to assess founders / managers by understanding the talent they’re able to attract. As a rule of thumb, if you’re the most impressive person in the room, you probably need to reach a little higher.
Here’s a snippet I like from Harj Taggar, founder of Triplebyte:
“My advice would be to focus on how impressive the accomplishments of the founders are relative to their peer group and environment. Starting a company and convincing investors to invest is an accomplishment that contains strong signal. It contains more signal if achieved by a 19 year old college dropout from Milwaukee than a Stanford computer science graduate.”
Team Questions to Ask:
Where did the company’s best employees come from? Where did they exit?
What does employee success look like here?
What is your secret to attracting top candidates?
What is your vision for how the team will grow in 1 year, 3 years, and 5 years?
Product
Always assess the quality of the product but don't look for a perfect product. An imperfect product with bugs can still have potential if the founding team can explain how it is maturing and solves the user’s problems. Understanding the vision for the company is critical for assessing the company’s product. Moving quickly and breaking things is important for gaining users in a new or emerging market. However, the same strategy doesn’t always work when competing with large incumbents who already have strong products.
Product Questions to Ask
What was the company’s MVP like? What was the “ah ha moment”?
Has the product or strategy had to pivot? How has it evolved?
How does the product stack rank compared to the competition? What makes this company different from competitor x?
What is the “lowest hanging fruit” upgrade you need to make?
What was the hardest product decision you’ve had to make thus far?
How often do product managers speak with customers?
Market Opportunity
In previous posts, we’ve dove into the different market dynamics (e.g., market expansion, market penetration, market creation) that startups operate within. Any founder or hiring manager you talk to will have a persuasive vision for how the company grows to beat out incumbents. Having an informed opinion on the market dynamics can help prospective employees assess the company across a variety of areas including team, product, strategy, equity opportunity, and more. While it’s good to know that the total addressable market is valued at $100B growing at 12% CAGR, that doesn’t help as much as understanding the competitive dynamics within a market and how the end user’s affinity for the product or customer pain points have shaped the team’s views on product development, customer acquisition, fundraising, recruiting, and more.
Market Opportunity Questions to Ask:
How do you view the market dynamics for this product?
What hidden secret made you want to build in this area / join this company?
Who is the elephant in the room? Which incumbents do you most admire?
What is company x doing differently than the rest of the market that will make you successful?
Investors
Times are crazy. Capital is cheap and there is more VC money flooding into private markets than ever before. Despite a hot funding environment and inflated valuations, a strong cap table is a positive signal to prospective employees. While there are many companies that have been successful without marquee investors, it’s hard to argue with the backing of Sequoia, Bessemer, a16z and more. Valuations aside, it’s reassuring to know that successful investors want to work with the company as much as you do. Having top VCs is helpful because they can signal to other employees that the team is strong, the product is working, the company is making money, and the founder knows what they’re doing.
Investor Questions to Ask
Who has invested in the company?
Who is on the board of directors?
How much runway (cash) does the company have?
How long did the most recent fundraising round take?
What is our valuation multiple* (more info here)
What’s in it for me?
Lastly, the most important area of consideration is rationalizing how joining this company will help you reach your own career goals. At the end of the day, only you will know what feels right. As mentioned in 3 Questions to Answer Before Diving into Startups, you have to assess your own risk tolerance, identify the sectors you care about, and understand what you're optimizing for.
Making sure that you’re betting on the right horse is the most important thing you could do when joining a startup. Anyone who’s ever had equity as part of their compensation has calculated what price the stock would have to reach for them to become a millionaire. A rational person would rather have 1,000 shares of a successful company than 10M shares of a company destined to fail. Similarly, you can figure out what type of company you should join by backtracking where you want to end up in your career — start 10 years out and work your way back. If you want to be VP of Product with Director-level reports and even Associate Product Managers, it’s important to understand the trajectory of the company and how this role will help you reach your goals. Like I mentioned above, only you will know when it feels right.
Questions to Ask Yourself:
How will joining this company help me reach my goals?
Do I respect the people I am working with? Will they help me grow in my career?
Can this founder / team execute on their vision?
Why won’t this work?
Is this a problem I could see myself working on for the next 1, 3, or 5 years?