By Jas Singh
Nowadays it’s cool to work for a start-up.
With the growing influence of technology on business and the legends of Zuckerberg, Bezos and Branson everyone wants to work for the industry changing disruptor.
How times have changed. Not so long ago when markets were strong and had enjoyed a 50 year unbreakable run of growth, the exclusive boardrooms of corporate business was all the rage. High pressure meetings, massive responsibility, billion dollar budgets. And if you were lucky – the corporate photo.
Now we all want to be drinking smoothies, wearing hoodies and sitting cross legged on the grass over our Mac’s trying to create billion dollar businesses.
Plus there’s the financial rewards. With the increase impact of technology, globalisation and communication there has never been such a surge in start-ups. Equity is available in companies more readily than ever before and with investors big and small crazy to invest in the next potential Twitter the dream of the big pay day looms large.
At least 50% of people I speak to daily now express their desire to work in a start-up. With the further addition of doing something more fun, meaningful and with a greater work-life balance, the appeal has never been greater.
Sounds beautiful. With only one small problem.
Most start-ups fail.
Although accurate data worldwide is hard to find, the usual mentioned figure is 90%. That means purely statistically only one in ten is likely to succeed. And that doesn’t even mean that the company will be a massive financial success. Just become profitable in three years.
So how can you increase your chances of success? How can you pick the right start-up?
Here are a few important points to consider.
1) How well backed are they?
As every business school and strategy consultancy will tell you, most start-ups simply run out of cash. Even with the best product, service or value proposition in the history of the world, if you run out of the green stuff you won’t be able to make the dream a reality.
Money is essential to pay your people (and you!), keep the lights on and generally allow the business to operate. It’s amazing how many people overlook this essential step and focus purely on the personality of the owner, possible opportunity or how interesting the product is.
I always make sure that any start-up I work with is transparent about their levels of funding – and access to new capital. I always advise candidates to do the same. Not all start-ups are equal – a dot-com company backed by Sequoia is the not the same as an offshore PE house simply having a punt with leftover end of year cash.
As a general rule of thumb, I’ve experienced that a company needs to have at least three years of operating cash to be called “well backed”. The reason being there are always hidden costs and usually this money is spent in half the time. Which means 18 months before you have to become profitable.
Check out the track record of the investors too – have they readily shown the willingness to write further checks in subsequent rounds of funding or do they look to cut their losses as soon as possible?
Be diligent. Often the investors are even more important than the management team.
2) How balanced is the leadership team?
Companies and investors usually emphasize the experience and credentials of the management team. He’s built two companies in this space. This is going to be her third $500m company. He used to run technology for Google.
There’s no doubt about it that experience can be a massive advantage. Yet, I’ve seen many “experienced” teams fail and also seen entrepreneur rookies be highly successful on their first attempt.
Sometimes a better angle is to assess how balanced the leadership team is. Business – especially for a newly formed company – is a complex world with lots of moving parts, each essential to success. Finance. IT. Sales. Product Development. Marketing. Strategy.
A common theme I have noticed in companies that toil and fail is that the management teams are too biased towards one discipline. Perhaps they were all developers. Or have all come from investment banking. Or worked together for 10 years at the same company before deciding to go out on their own.
Many of the start-up companies I have worked with that have been truly successful in an outstanding way have a highly balanced and if necessary diverse make-up. In the early days of the life of the business they understand the need to be efficient and adapt quickly in order to survive. They use multiple perspectives to ensure the business runs smoothly.
The company needs to be in safe hands.
3) What is the end goal…and when?
One of the biggest reasons candidates leave start-ups is because the lack of a clearly defined exit strategy. After years of hard work, they’ve no idea what the plans for the end goal are. It’s amazing how many companies still do this today. A ship without a destination ends up on the rocks, and the same is very true for a business without a definite exit plan.
Many companies and entrepreneurs set out simply to make as much money as quickly as possible for as long as possible. Sounds fair enough in principle. But the problem with this approach is that you never really know where you are, or how well progress is going.
Humans are motivated by goals. Whether it be winning the football game, gaining entry to the University of your dreams or gaining that hard earned promotion. Simply playing football without keeping score eventually becomes uninspiring. We play to win.
The same is true of business. No end goal results in dwindling motivation.
And besides, you need to know if the start-up’s goals and timelines fit in with those of your career and life.
4) How clear is the vision?
The best thing about working for a start-up is often the prospect of building something new – from total scratch.
But often herein also lies the problem. With a blank sheet of paper, which way is the best way to turn?
Entrepreneurs by nature are often highly creative. They usually have a dearth of ideas. Sometimes, everything can become an opportunity, and the possibilities are endless. Strategy can change overnight. All of a sudden China is this year’s focus. You’re now going to build a new prototype for a customer – even though you can’t afford the resources.
In the increasingly specialized world we live in, focus is more important than ever. No-one can work for a leader that is constantly moving the target. And few businesses can survive unless they focus their resources in the most effective manner.
The best entrepreneurs have a crystal clear vision. They can describe exactly what the end goal will look like and the challenges that lie in the way. Unless essential, they stick to their goals and inspire others with their dedication to make the dream a reality.
Working for a start-up can be one of the most exciting, fulfilling and rewarding experiences in life.
Yet not all start-ups are equal and care needs to taken to select the right ones.
Hiring managers need to ensure they cover all the essential factors to select candidates who will truly perform.
Who would you hire for your start-up?
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