How to know if you should work at a startup

A young, smart software developer graduated from college and went to work for an early-stage startup no one had heard of, which provided an online service no one thought was necessary. She worked hard, helping the startup with whatever needed to be done. Sometimes she did coding for the website, sometimes she did customer support. There were many months of working long hours and receiving small paychecks accompanied by stock options that were technically worthless. Then, despite the odds, the online service took off. Suddenly, it seemed like everyone had heard of the service and was signing up to use it. And eventually, the big payoff came! The firm was acquired, the liquidity event they had all hoped for actually happened, and the early employees received beaucoup bucks from their stock options.

This story is like the modern equivalent of Aladdin and the lamp. But is working for a startup right for you?

Inside insights

I had an opportunity to talk with a friend who has actually gone through such an experience, and I asked him some questions to help get a picture of what it’s really like to work for a startup. Here’s what I learned.

What path led you to a startup?

After my undergraduate education and a brief stint at a large tech company, I decided to take the plunge and join a small tech startup started out of Stanford University. I frankly had no clue what they were doing, but they had brilliant engineers, interesting technical challenges and a culture that demanded excellence — a great place to learn.

I worked as a software engineer for two years as we built the product from a pipe dream to an industry-leading production system. During this time, we grew from 30 to 100 employees and introduced sales, support, HR, engineering, management and other teams. We were eventually sold to a multinational software firm, where the project continues today.

What type of person does really well in a startup?

Independent thinkers.

Large companies have all sorts of structure in place to get high-quality work out of large numbers of average employees. Engineering managers, performance reviews, program management, HR and a corporate hierarchy are all designed to provide structure. The best companies give their people a great deal of freedom, but if you need to be micromanaged, they aren’t above doing it.

Very little of this structure exists at a startup. On your first day, they’ll assign you a desk and a laptop and say “go provide value.” No one will tell you what to work on, when or how — it’s all on you. Some people find this freedom exhilarating and thrive on the opportunity to have tangible, independent impact. Others flounder.

What would you say to someone who’s undecided about working for a startup?

“Why not?” You’ll hear people say “startups are risky,” and they are — mostly for the investors and executive team. For the average employee, there’s a lot of upside. You get to work with bright people on challenging problems. If it fails, you can always go work at the currently fashionable large company. If it’s successful, you’ll have an exciting experience riding the wave up, plus you’ll learn a lot and have plenty of doors open for your next chapter. Be aware, though, that you’ll be working long hours, and your work will typically roll over into the weekend. Your supervisor may not have the time or experience to provide professional mentorship. Also, you’ll have fewer company benefits, as the startup may not provide health insurance or a 401(k) savings plan.

What’s it like to work at a startup vs. a big company?

Many startups are small, agile and innovative. Big companies have scale. Practically, this means that at a startup you can have dramatic impact on the success or failure of the product and company. However, statistically speaking, your work is unlikely to touch many people, at least at first. At a large company, it’s extremely unlikely you’ll have a major effect on the direction of the firm, but the work you do can touch millions. Both are reasonable choices, it really comes down to what’s right for you.

Summing it up: Pros and cons

Pros of working for a startup:

• No one will tell you exactly what to do. You have to figure it out for yourself, which can be exhilarating — and a little scary!
• Your work will have a big impact on the success of the company.
• You’ll gain great experience from working on interesting problems with smart people.

Cons of working for a startup:

• There won’t be the kind of structure and direction that large companies have in place, which can frustrate some people.
• It’s risky; your job might disappear overnight if the company doesn’t succeed.
• It’s not as cushy as a big company: lower pay, fewer benefits, more hours and more stress.

Don’t just follow the money

Ultimately, money should not be the deciding factor either for or against working for a startup. For one thing, the big payoff may never happen. The real payoff is in the experience you will receive, which at first might seem pretty intangible, but can make a big difference in your financial success later on in your career.

Plan Proactively

For some people, the lower salaries that often come with working for a startup can seem like an obstacle. This is where good, proactive financial planning comes into play. If working for a startup is something you want to do, take some time now to make sure it can fit your finances. Also examine what effect a lower salary (and likely a lower savings rate) will have on your long-term goals like retirement. If you haven’t analyzed this, consider signing up for Mosaic’s Financial Fitness Challenge to get yourself into the financial shape needed to be able to jump when opportunity comes knocking.