6 Things to Know Before Taking a Job With a Startup

According to CB Insights, “Companies typically die around ~20 months after their last financing round and after having raised $1.3 million. Companies in the social industry saw the highest of number of startup failures…”

Maybe you’re out of work and have a line on a job at a startup. Or maybe you’re channeling your entrepreneurial spirit and considering a leap from corporate to startup.  Regardless of your transition scenario, there are some questions you need to explore before you take the plunge.  While you may not get answers to all these questions, it’s worth probing deeply so you can improve your odds of landing with a ‘winner.’

Ideally, you need to ask and answer these 6 questions:

1)     What are the company’s revenue drivers?

• Has revenue been growing?  Stagnating? Or, something in between?
• How successful has the company been at selling its services or products?
• What products or services are driving revenue?  Is it just one or two, or are there more?
• How concentrated is the customer base?  Are sales dependent on just one or two key customers?  If so, who are they?  How stable are their businesses/industries?  How much pricing leverage do they/can they exert? Is this a short term situation?  Or is it the long term norm?

2)     What is the company’s cost structure?

Are most of the costs fixed or variable?  How have they evolved over time?  Understanding the cost structure will help you understand how likely it is that the company will be profitable. It will help you better understand what the company needs to do to remain/become profitable.

3)     What is the company’s cash flow situation?

• How much cash does the company have?
• What is the company’s burn rate?  The burn rate looks at how quickly a company uses the cash in hand. Understanding the historical burn trend (is the company growing or shrinking) is important to understanding the overall direction of the company.  Cash flow is different from the income statement because for many companies, certain revenues are recognized sooner, and certain expenses are recognized later, than their cash impact. The burn rate strips out accounting anomalies and looks at actual cash-in versus cash-out. When more cash is used than is coming into a company, the company is burning cash. If that trend continues the company will need to raise money, or it will fail.

4)     How is the company financing itself?

Many startups raise their first funding from friends and family, or from angel investors.  At this stage, usually the products or services are unproven, and whether the company can raise institutional money is still an unknown.  For most growing companies, the ability to eventually raise institutional money is critical to a company’s long term growth prospects.

5)     What is the bench strength of the management team?

• How much experience does the team have in the company’s industry?
• How long has the team been in place?
• Where did the management team work previously?  What were their track records at their previous employers?
• How stable is the team?  Is it a committed team or a revolving door?  Why is the position you are interviewing open?

6)     What does management think the company’s future looks like?

• What is the long term view?  The long term potential?
• How realistic are the projections?

Overall, according Harvard Business School Senior Lecturer, Shikhar Ghosh, “non-venture-backed companies fail more often than venture-backed companies in the first four years of existence, typically because they don’t have the capital to keep going if the business model doesn’t work…Venture-backed companies tend to fail following their fourth years—after investors stop injecting more capital.”

You may have to pick your way carefully through these questions. You do not want to be overly intrusive in your interviews, so you will need to strike a balance between getting answers and trusting your instincts.  But…at the end of the day…these are things you need to know before you take the plunge.