Everywhere we look, a relatively young company is changing the way we live. From Stripe to Spotify, old industries are finding themselves more vulnerable than ever. And the rate at which new companies are being created has exploded in recent years. It’s become so mainstream that even Hollywood has joined the party, glamorizing startups in movies and new TV series on Hulu, Apple TV, and Showtime.
When most people talk about “startups,” they’re referring to venture-backed companies in their early stages of growth (publicly traded companies with 12+ figure valuations probably aren’t that anymore). From 1995 to 2017, US venture investment averaged just under $40 billion dollars per year, with a peak of $119B in 2000 and a low of $7B in 1995. Since 2018, that same average has gone up to $182 billion, including 2021’s monstrous $330 billion of investment activity. That kind of money draws all kinds of attention, including media coverage. Stir that in with a renewed focus on wellbeing and a pandemic, and you have more workers than ever rethinking where they spend ~90,000 hours of their life.
But are startups for everyone? Is it really all nap pods and free artisan meals? Or is there more to it?
Startups aren’t for everyone
To some, cilantro tastes like soap. It’s not an acquired taste or issue of preparation, it’s literally genetic. The OR6A2 gene “codes for the receptor that picks up the scent of aldehyde chemicals,” which is found in both soap and cilantro. You don’t have a choice. And in many ways, ones experience with early stage companies is similar. Some folks love it and others don’t.
To get an understanding of what might excite one person but drive another crazy, it helps to understand what goes on in the earliest stages of a business. Here are a few traits that are somewhat more acute in early stage environments:
Responsibilities are
poorlynot defined: Under ~200 employees, it’s highly unlikely that there’s clear ownership lines on any team. Titles may be conferred, but the sheer amount of work to be done and the relatively few individuals assigned to any given function forces rationing and lots of sharing. This creates tons of opportunity for learning and growth, but can be frustrating as the lack of clarity creates confusion.Constant Change: For the first several years of existence, a company is likely to reinvent itself every 6-12 months. A product that was being sold in January may not exist in December or a person’s job responsibilities could be completely redefined. The pace of innovation is exhilarating, but it’s not the most stable environment.
Sense of Urgency: Almost every venture-backed company operates at a loss. They do so because there’s a shared belief that the long-term opportunity is worth the short-term burn. However, it creates a need for an sense of urgency to keep their lead or dominate the competition. Experiments get designed with ruthless efficiency in mind, products are built with minimal scope, and timelines kept short. The pace can be draining, but it’s fulfilling and necessary.
Win / Fail Rollercoaster: With no disrespect to those that have it, I’ve often wished I could have on-demand amnesia. While moving fast creates lots of small wins, it creates even more failures. It’s by design, but also can take an emotional toll if you’re not expecting it.
Shared Sense of Purpose: It’s hard to think of this being anything but positive, but it’s not uncommon to have a culture feel almost familial. Oftentimes there’s an expectation that your team becomes your extended family given the amount of time you’re spending with them. For some, this crosses a line and can feel intrusive.
What to look (out) for
As you’re evaluating early stage companies, the goal should be to get to know the people on the team even more than the product the company is building. Do you sense a shared/similar value system? Do they have a similar sense of humor? Is there a playfulness that matches the desire to win?
If you stay long enough, it’s highly unlikely that the company you start at will look anything like the company you exit from. Cliche as it may be, the teams that win are the ones that stick together and compliment each other. If everyone you talk to has only been there a few months and the company is 3 years old, run away. If interviewers gossip about a leader’s “bad side” and how they all avoid them, it’s probably not worth pursuing. When you’re being interviewed, try to dig into the team culture.
Goldilocks
Startups, much like humans, have very different feels depending on their stage. While this tends to align to fundraising milestones, the last couple of years have seen that become slightly disjointed. A company might raise a Seed and Series A run with < 25 FTE’s (full time employes) and even a Series B before reaching 100 heads. But if you fit the profile of someone that craves the excitement of an early stage company, don’t forget to get there early. The stories of Silicon Valley lore tend to come from the early days in a company’s existence when experimentation and risk tolerance are high and process is non-existent.
Conversely, there’s a “no-man’s land” at a certain point where process is being ironed out and most of the responsibilities have been dished out, but not yet delivered on. I call this Adolescence and it’s an ugly time to be at a company. Even the compensation can be disappointing as the best companies have already piled on tons of capital by now and unless the company turns into a $100B+ exit (statistically low probability), the value of the equity you receive is not likely to eclipse the opportunity cost of working at a mature company (with liquid stock or a higher salary).
Location
On the controversial front, if you have a choice, working in a geography with a strong concentration of early stage companies can have lots of benefits. While the talk can be a bit monotonous at times (HBO nailed it), there is a special craziness that is hard to identify with unless you’ve lived it. Take the Bay Area for instance - last year (before valuations peaked), the aggregate market cap of publicly traded companies in the region was over $10 trillion. With a T. Only 2 countries have a larger GDP (China and the US).
Even in the new remote world that we live in, the in-person experience at a young company is rich. Despite all of the great tools available, building a culture is harder with a distributed workforce. Not impossible, just harder.
Make the experience the reward
If you do decide to take the plunge, try to relish the experience. While many also dream of an outsized financial reward, the numbers rarely work out that way. Unicorns don’t really exist.