Here’s the checklist to follow:
Has the CEO built a business before?
This is not always reliable (Mark Zuckerberg or Larry Page hadn't’t built businesses before) but there’s an interesting stat: 85 percent of startups fail. If the CEO has built and sold a startup before, then the odds go down to 25 percent. So you might as well have the statistics on your side.
Does the company have good funding?
By good funding it means two things:
Enough money to last at least a year. And, by the way, this is an important thing to note: if the company has six months or fewer worth of funding then they are already out of business. Which is why it is important to know if the CEO has built a business before. Good CEOs know this.
“Good funding” means people (or funds) who will also write second checks. If all they have is one year’s worth of friends and family money, then you are taking the risk in a year they will run out of money. Why take risks when there are plenty of other good jobs out there? It also shows they are the type of company/CEO who can raise money, sell his vision, etc.
Do you believe in the vision?
This can mean several things.
- The CEO is creative enough to develop a strong vision and he’s also a good enough communicator to convey that vision.
- You would use the product (if the product was applicable to you).
- You can’t use the product but you can easily see how this product can help a million or more people.
Here are two examples; one good and the other bad:
Good example: Tesla. You would work for Tesla if you believe in Elon Musk’s vision of reduced need on fossil fuels, or if you want to drive a Tesla, or if you think everyone driving an electronic car (and having a powerwall) will help a million or more people.
Bad example: an idea where consumers can pick the type of ads they see. How will this really help a million or more people. So would you work for a company like that, answer obviously should be a ‘No’.
You’re presumably getting options at a startup and, depending on the value you contribute, those options will increase.How do you know if their latest round valuation is good?
Forget for a second the money they raised. But imagine you had, in cash, the amount of their full valuation. Would you be able to create a better product with more traction? Like, for $46 billion, would you be able to beat Uber?.
Don’t work for a company that is easily replaceable at a lower valuation. Also, if you believe in the valuation, make sure your options are not at the venture capital price but at the “409A valuation” price.
There’s a great story about Sergey Brin interviewing people. He can usually tell in the first few minutes if he’s not going to hire someone. So then he spends the rest of the interview making sure he learns at least one thing from the interviewee.
Make sure that even in the worst case scenario where you misjudged everything else, that you at least learn one thing fairly quickly after you take the job so that it adds to your skill set and you can move on to get a better job.
You can either move on to take up a better job or maybe even start your own company.
Always try to gather more information about the company owners, employees and partners if any. Always look for the subtleties.
- How do the partners get along? The entire culture of a company comes from the top down. So if the partners who started the business don’t have their emotional act together, the company itself won’t be emotionally sound. In a co-CEO situation if one of the CEOs gossips about the other then definitely not a wise choice.
- How do the employees talk about the clients? Read the biography of the founder of JetBlue. He would stay up to 3 in the morning every night responding to customer service emails. Once a month he would ride on one of the longer plane rides and starting at the back of the plane and moving to the front he would sit with every passenger and ask them if they had any problems with the flight. He actually hired employees that way. That’s the CEO but everyone in the company should have that attitude toward customers.
- Your boss and his/her boss. A lot of bosses make hiring decisions based on “would you ride in a cross-country airplane next to this guy.” You should make your decision the same way about your potential bosses. Believe me – they need you more than you need them. So you have to like them.
Also, think ecosystem again – try to see their relationships with other people in the company. All gossiping is bad. Hopefully they think highly of the people they work with. Else you shouldn't’t work for them and you shouldn't’t work for that company.
Warren Buffett is not a value investor. Everyone thinks he is but he hasn't’t done real value investing since the early 1960s. Warren Buffett is a demographic investor. Two quotes from Buffett:
- “If a company is going to be here 20 years from now then it is probably a good stock to buy.” and
- “If you have a strong demographic wind behind you then the company will do well even with poor management.”
For example, the book Bold lists a lot of demographic trends that take advantage of Moore’s Law that are getting bigger. Robotics, Internet of Things, 3D printing, etc. That’s one start. Another start are companies disrupting healthcare since that is such a mess right now.
Light At the End of the Tunnel
You can’t ask in your interview, “when will you IPO?”
It’s unpredictable when a company will exit. A good company might wait 7-10 years before an exit. In fact, a good company should wait 7-10 years. Why? Because if they’re good then they are undoubtedly growing faster than the market. So they should stay private as long as possible to maximize benefits for shareholders and employees.
But here’s the problem: The average employee stays at a startup for 3.1 years (perhaps that corresponds to vesting schedules).
Make sure you can wait for that 7-10 year run. Also, try to figure out if management is ultimately interested in an exit. Some CEOs are not.
Make sure you see the path to profitability. Some startups might be years away. But the good thing about working for a company that ultimately has huge margins (not just profits but margins) is that they have a lot of perks.
This seems like a big checklist before you decide to work for a startup. But don’t forget that YOU are the valuable person here. Take care of all of your needs and then you will have more freedom. Be able to demonstrate greater competence at your job, and have better relationships with the people you work with.
In other words, you will be happy. And that’s a nice reason to take a job.