Tough questions you must ask before joining any startup
Looking to join a startup? Avoid buyer's remorse by asking these fundamental startup-centric questions.
So you're looking to join a startup. That's great! Startups can offer the most fulfilling years of your career.
At the same time, you need to be careful. It's worlds apart from working at a large, traditional company. Victory isn't assured, and you incur significantly more risk. I'm not trying to peddle some disaster scenario. In a relatively short period, the recent market downturn has caused a fair share of massive layoffs and company failures.
Only when the tide goes out do you discover who's been swimming naked.
Despite those layoffs, good companies will still survive and thrive in the long run. So whether or not to join a startup isn't the issue. What matters is that you make an informed decision. I've compiled a collection of questions I think everybody should ask before joining any startup.
When starting out
- What are you building? How far along are you? How long have you been doing it?
- How do you (plan to) make money? Who are your customers?
- Who are your investors? What were the terms of your funding?
- Who are the founders? Do they have any sort of track record?
Your goal when talking to a new startup is to understand the basic context. That means understanding the business model and whether the work will be interesting. Understanding the startup's age and progress will give you some insight into its velocity, which I'd argue is the most important trait of the company.
This is also the opportunity to gather some light, anecdotal intel about the company. Understanding who invested in the company can give you some signal about the rough quality of the company. Typically, top-tier VCs will not invest in obvious duds. Knowing a founder's track record can also be useful. For example, Domm Holland, the former CEO of Fast, left his previous startup with a trail of legal issues behind him. Employees who joined the company before it failed would have noticed several red flags if they looked into the issue.
- Who will I be working with? Are they good?
- How did you find this company? Why did you join?
- How did the company compare to your expectations?
- What don't you like about your job?
Interviews go both ways. Someone may be interviewing you, but you're also assessing your interviewer. During an interview, you're talking to potential teammates. Do your due diligence and assess whether these are people you'd enjoy working with.
I recommend knowing whether your hypothetical teammates are competent, sane, and happy with their jobs. It'll foreshadow whether you'll remain sane and happy with your future job.
Before getting an offer
- What's your burn rate? What will be your burn rate in 6 months?
- How much runway do you have?
- What's your revenue? (Current numbers, NOT projected.)
- When do you expect to become profitable?
At this point, assuming interviews have gone well, you're looking to understand a company's financial fundamentals. Do not accept hand-wavy answers for any of these questions. Every company needs to know basic math.
The burn rate of a company is roughly how much it spends, while its runway represents how long it'll be before the company runs out of money. In my opinion, a healthy company should have at least 2 years of runway. Otherwise, it may risk having to accept unfavorable terms in its next funding round (or just failing outright). There was recently a leaked presentation from Sequoia about adapting to the future, given the current state of the economy. The days of "growth at all cost" or blind hyper-growth have fallen out of favor. Startups having solid fundamentals will matter a lot more moving forward.
After getting an offer
- How many outstanding shares are there?
- What's the strike price (or fair market value) per share? What were the historical strike prices?
- What's the preferred price per share?
- How does the company plan to liquidate its shares?
- Do you have early exercise?
- What's the exercise window if I leave?
If you're working at a startup, you're likely being paid in stock options. So you pay money to buy shares of a company and bet that the price of those shares will go up. That's not easy to measure, so you must make sure you understand how equity compensation works.
Working with stock options can have tax implications, so you may have to make a strategy even if a company is doing well. Early exercise can reduce your taxes (at the expense of upfront cash). If you don't want to exercise any options yet, be sure to know when those options expire. It's usually 90 days after you leave a company, but it can vary. When I was at Scale, if you worked there for at least two years, they had a clause that extended that exercise window to five years after your last day.
Talking to the CEO
- What's the biggest existential threat to your company?
- Who controls the company's board seats? What conditions would cause the board to fire you?
- What's the worst-case scenario that you project happening to the business? What's your contingency plan in such a case?
- What's your vision for the company? Under what conditions would you sacrifice that vision?
Before you join a startup, you should have at least one conversation with the CEO. And it's not the time to make small talk. You must ask the tough questions. This is the person who's steering the ship, and the person who's probably thought the most about the company's destiny. Like with the questions about company financials, if you get hand-wavy answers, run away. You do not want to be working for this person.
The question about the worst-case scenario is partially a test to see how well-prepared the CEO is. Leaders should be ready for pretty dire situations. Sometimes these situations can require hard decisions. If a company's burn rate becomes too high, make sure the CEO has considered doing a layoff to cut costs. If runway becomes a problem, the CEO should be willing to take a down round to keep the company alive. Is this a person who will make unpopular decisions for the company's best interest, or is this someone who engages in wishful thinking? It's your job to find out.
Talking to former employees
- How long did you work at the company?
- Why did you leave? What could have made you stay?
- What were some good things about the company?
To avoid "drinking the Kool-Aid," I recommend talking to at least one person who has left the startup. You get an example where things didn't work out, and you can talk to someone with no incentive for you to join the company. It's an opportunity to hear an opposing viewpoint and uncover red flags.
Be sure to understand how much the former employee actually knows about the company and whether this person was fired. (People may not always be upfront about that information.) Ironically, if this is a person you wouldn't work with, a company firing that person may be a green flag.
Thanks for reading! Please share this if you have friends who are looking at startups.