You’ve heard these pitches.
You watched with amazement at the “ease” of funding, the fantastic company multiples thrown around and how “immediately” ordinary people were transformed into multimillionaires, even billionaires.
They were just ordinary people with ordinary talents.
Just folks at the right place at the right time.
It could have been â€“ should have been â€“ you.
There’s an adrenaline high in building a new company.
There’s a thrill in building something new from the ground up.
People need to be confident in their expertise, experience, certain they can make a difference.
There’s a feeling of solid satisfaction in doing things the way they should be done and seeing the results of your efforts pay off for the companyâ€¦and for you.
The dotcom bubble is nothing but a painful memory.
We once again have a rapid proliferation of new business opportunities.
Hardware, software, service, consumer products and special interest activities are being started.
Fueled by great ideas and a new influx of venture capital money the start-ups all have something in common. Starting salaries are low because of the stock options, benefits are reasonable, job security is nonexistent, hours are long and resources are in critically short supply.
Facing the Challenges
What the optimistic founders don’t tell you is that the chances of success are extremely slim. Actually less than two in ten survive after two years and only one in 20 will experience modest to major success.
For those who choose to join the startup it still means sharing used desks and chairs, troubleshooting your own computer, shortages of office supplies, long hours and tons of weekend work.
It also means adjusting their lifestyle to the reduced paycheck, carrying company expenses on their credit card, wooing investors and ridiculous deadlines. It also means understanding the uncertainty in knowing that a giant in the industry could roll over in its sleep and crush the fragile organization with better products/services, stronger distribution, greater visibility/credibility, more aggressive pricing.
Sometimes it means coming to the realization that the investors, not the individual or the founders are calling the shots pushing the company in a different direction. It means meeting arbitrary investor deadlines to keep the infusion of cash flowing.
But the options are still in front of you and you’ve been getting good press coverage.
Things are looking good.
Then it happens.
An investor pulls out.
A competitor beats you to the market with the same or slightly better product or service.
Key developers or personnel defect.
People underestimate the difficulty and the time required to accomplish key tasks.
Product or key supplier delays force the company to delay the product/service launch.
Startups have a much narrower margin for error. The events that are outside of the individual’s control can have significant repercussions.
Keeping the bad news inside the organization is one of employees’ responsibilities. Keeping the investors happy is also their responsibility. Getting mediocre to luke warm reception for the “almost ready” product or service is their responsibility. Not getting favorable coverage for the company’s progress to date is partially their fault.
Suddenly, they are tainted. They are infected. They are fired.
Before people enter the promising world of the startup, they need to understand the odds. There are lots of statistics available. The bottom line is that very few startups are successful. Many of them fail spectacularly. Those that are successful are not necessarily incredibly successful, but they mange to keep their heads above water.
If you’re still inclined to take the plunge, you should do your due diligence.
Is there competent management?
What does the competitive environment look like?
How is the company being funded?
What are the company’s contractual requirements to the investors?
Who are the key employees already on board?
How sound, realistic is the business plan?
How long before the company is profitable?
If people are going to join the company they should have an employment lawyer review the documents, especially the stock options package.
Options are lottery tickets. They aren’t primary compensation; they are a fringe benefit.
If you look closely, many of the IPO “instant” millionaires/billionaires really aren’t. Many vest over a period of years. In some instances the options can be counted (and taxed) as income. Typically these options can’t be sold for six months to a year after the IPO.
Until the company is sold or goes public the stock is nothing more than expensive wallpaper.
If you’re being recruited to a startup, have an exit plan.
What will you do if the company fails?
What happens if you get tired of the heavy workload, long hours and low pay?
What happens if you don’t meet the company’s expectations or the company doesn’t meet your expectations?
Have a written agreement covering your leaving the company, especially if you’ve got a piece of the action.
The options may or may not be worth something over the long haul but the pressure cooker environment of a startup isn’t for everyone.
Believe in YOU
Once you’ve made the commitment, you must believe in yourself.
Listen to the inner voices. Be intuitive.
If it feels like management is cutting too many corners or is shady in some of its dealings, listen up. If something tells you management is desperate and has hit a fiscal or physical stone wall, listen.
People should pay attention to their gut feelings. They are probably right.
Over the past 25 plus years we’ve collected more wallpaper than we care to admit as a consultant to startups. We’ve justified in our own minds each of these times that we could make a difference, we could overcome the situation, we could help turn things around.
It hasn’t workedâ€¦yet.
But who knows. Maybe your next startup will be the one that changes the world.
Wouldn’t it be great to play a part in making it happen?