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If I can pick and choose any start-up to work for, I’ll pick … Part 2

October 6th, 2008 · 1 Comment

Questions you should ask before you join a start-up

Is the start-up in a high-growth market?

When you purchase a house, you want to buy a house in a good neighborhood. Even an old house could command good price if the house is in a desired neighborhood. A company that operates in a good "neighborhood" (I.e. market) also tends to have a lot going for it. I have seen plenty of mediocre companies survived for a long time, not because of its management, but because the market is growing and is pulling the company upward. I put market first because you could have the best management team, most talented engineers, and a truck load of funding, but you’ll still have limited success if the market potential is not there. Market first.

Does the company have a product that you can play with and evaluate?

If yes, please try it. What problem does the product solve? How well does it solve the problem? If you’re not familiar with the industry the product is intended for, find people who knows the industry and the problem. Ask them for their opinions. Where to find those people? Use Facebook or LinkedIn.

What if this is an very early stage company with no product? This is a very dangerous territory. You really don’t know if they’re solving a real problem, and if they can execute and create a compelling product that address the problem. I’d be very careful to join any company that doesn’t have a product. Even a beta or version 1 product is much better than nothing. If you’re evaluating a company without a product, I think you should join them only if 1) you know the founders and early employees, and you have a high level of confidence that they’ll be able to execute and 2) you have a deep understanding of the problem the company is trying to solve, and you’re convinced their solution will address the problem and 3) you get paid for the high level of risk you’re taking.

How many customers does the company have?

Ask the company who are the customers. Ask them what products these customers bought and how much they paid for. If they cannot reveal the numbers to you, they should at least give you some ball park figures. Look for a few things:

  1. are these customers "Real"? some start-ups "sell" products to other start-ups who are part of their venture capital firms’ portfolio. Those are not real customers.
  2. are these customers paying? very often a start-up will offer product for free or deep discount in order to get brand names onto their customer list. But, those are not real customers.
  3. are the customers buying the primary product the company is selling? One trick start-ups are playing these days is to get a consulting project with a big company in order to generate some revenue and credibility. However, the consulting project could have nothing to do with the core product. And the consulting project requires a separate team of people to maintain and support.

What’s the company’s burn rate, how much money have they raised, and how much cash they’ve left in the bank.

You absolutely need to know the financial of the company you’re joining. If they don’t tell you, then you shouldn’t join the company.

What’s the attrition rate of the company?

This will give you some ideas of the company’s management and culture. How can you find out? Ask them directly. Do a search on linkedin to find all people "who are currently working for the company or who had worked at the company but left." Analyze the data. It’ll be pretty telling. 🙂

Do you feel comfortable with the people at the company?

Do you think you can get along with your future manager? I’d focus more on the overall company culture, and the kind of employee they hire. I’d be less concerned about any particular individual because start-up tends to change a lot, and it’s unlikely that you’ll stuck with the same manager or team. So, you need to make sure you feel comfortable with the overall environment and company culture.

Tags: Start-up Success

1 response so far ↓

  • 1 Ted Howard // Oct 10, 2008 at 12:29 pm

    I commented on the last entry in this series explaining that it would be best to perform full, strong due diligence on a startup that you might join. I also mentioned that potential employees will never have access to as much information as a potential VC will have. This post touches on a few important pieces of information available to you to perform due diligence.

    As a startup gets more serious in courting you as an employee, for instance when you get an offer, start asking more questions. How much money do they have in the bank and what’s their burn rate? (especially important in this macroeconomic climate) What was their last funding round, pre-/post-value? (that should tell you founders’ dilution and ownership in a general sense) etc.

    A VC invests their limited partner’s money, their own reputation, and their own time and wisdom (esp. if they’re on the board). You will be investing your reputation, time, and wisdom. In both cases, their will be other potential startups where the VC or yourself could put those resources to work. So, one way to view the key question of this blog post is to choose your startup like a VC chooses its investments.

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