A Field Guide to Picking a Startup

The questions you should ask when evaluating a new opportunity.

So you’ve decided to join a startup. The question is now: which one?

Some people recommend thinking about joining a startup like investing as a VC. Whereas VCs invest their money to get a good financial return, you are investing your time. In exchange, your return could be financial, though your outsized return will be in the skills, experience, and stories you can tell throughout your career about your time at a startup.

While I’ve gotten tremendous theoretical insight from entrepreneurship classes in business school as well as practical experience working at startups, it is not easy to decide if an opportunity is right. Which is why I decided to put together this field guide to evaluating a startup opportunity. It is the framework I wish existed when I was first starting my career.

This post is not about how to make sure you’re choosing the right startup to work for, or what kind of startup to run, or whether or not to invest in a startup.

It is about asking the right questions.

Whether you’re a founder, and investor, or a potential employee, I hope this field guide will help you ask the right questions to uncover the insights you need about a startup. Let’s dive in.

Understand Your Career

Before diving into questions about the company, the founders, funding, etc., ask yourself what you want your next role to look like, and how you want it to help you grow in your career.

Think about the day-to-day job. What do you want the work to look like? Do you love certainty in the work or do you enjoy the challenge of figuring it out?

Think about your colleagues. What kinds of people do you want to work with? What do you want those relationships to look like?

Think about your growth. What do you want to learn from your next role? What types of mentors are you looking for?

And lastly, ask yourself: why do you want to go work at a startup? If your goal is to ride the wave of a company to get rich, you may want to go read my article from last week about the reality of startup compensation. If money is your primary motivation, you’re probably better off working for a big company with large salaries and bonuses, as investing your earnings wisely will almost surely have a higher expected value than a successful startup exit. However, if your goal is to learn, grow, and make an impact at a company, I could not recommend startup life enough.

Understand The Company

With all of these thoughts and answers about your own career swirling in your mind, you have a good frame to understand the company. And more importantly, if it’s a good fit for you.

How can you determine if it’s a good fit? I like to think about the following categories to make this decision: the product, customers, founders, finances, and employees. While not an exhaustive list, I think these are the building blocks to understanding what it’s like to work at a company.

The Product + Customers

When evaluating a company, where better to start than the product and customers? Without customers, the business does not exist. And without a good product, the customers do not exist.

What is the product? Do you like it? Is it useful? Is it cool? Can you try the product or get a demo?

How have they positioned the product on the website? What are they trying to make you feel? What do you know about the company after browsing the site for a few minutes? Understanding the product’s positioning will help you understand the company; you can get a sense of the company values just from the marketing page.

Who are the customers? Do they love the product? Put yourself in the shoes of a potential customer. Would you buy the product? Look into the competitors. What other viable products would solve the same need?

This next piece of advice may sound crazy for a prospective employee, but you should try it anyways. Ask to speak to a customer about the company. Ask them how their problems are solved by the company. Could they live without it? Are they thinking about churning? What is one part of the product they could not live without? VCs have normalized asks like this before investing their capital, why would you not want to do the same before investing your time?

The Founders

The classic investor question: “are you betting on the horse or the jockey?”

In other words, do you believe in the company because of their product, the industry, and the market (the horse)? Or do you believe in their charismatic, experienced, irreplaceable founder (the jockey)?

The founders are the most important people at the company, because they were the ones crazy enough to think “the world needs this, and I will be the one to build it.” And after inception, the role of founder changes so drastically throughout the various stages of the company. They must not only have the drive to start the company, but the aptitude to continuously learn what it takes to lead through the exit. Do you want to follow these founders on their journey?

What is their motivation for starting the startup? Do they like the status of being founders or do they actually love operating the company?

What’s their energy like? Are they intense or are they relaxed? Are they passionate about the work or are they doing it as a job? Can they grow into good leaders or did they just have a good idea?

Are they focused? Are they running at the next shiny object or do they have a vision for what problem they are solving?

None of these answers are necessarily dealbreakers, but I think these questions will surface some gut feelings about the founders as well as the direction of the company. The founders shape the culture of the organization, so understanding them better will help you better understand the company mission and values.

The Company’s Financial Situation

Financing a company is complicated. And messy. This is something I wish I knew better earlier in my career. Sure raising money is great to keep the business and idea going, but it does not come without a cost (more on that in the next section).

Think like a VC: if you had a fund to invest in startups, would you invest in this company? What would have to change in order to get you to invest? Is it the right company with the wrong market conditions? Or do you not believe in the founders’ ability to execute?

What stage of a company is it?¹ How many rounds of funding have their raised? Why did they raise each round? What have been the goals of how to allocate that money?

Is the company profitable? What is the burn rate? When will they need to raise money again?

How does your equity stack up pre- and post-funding, and what is the dilution plan? It’s important to learn as much as you can about the cap table and the implications of past investment rounds. If your founder is not being transparent about the cap table and still trying to incentivize you with equity, be very cautious. Your equity may not be worth much.

As I mentioned last week, my rule of thumb is to treat all equity like Monopoly money. In other words, assume all equity will go to zero, until it doesn’t. Make sure you are content with the salary, can afford to live off of it, and treat anything else as a bonus.

Lastly, do your due diligence on platforms like CrunchBase or Pitchbook. These tools are invaluable to understanding the company’s financial situation and how it will affect you.

The Founder’s Exit Goals

While this category was not clear to me early in my career, it has become blatantly obvious as I have gained some years and a few grey hairs. A company is a malleable organism. And the founders have a lot of control over how they want it to change.

This is why it’s important to ask what the founders are looking to do with the company. Do they want an exit or do they want to continue to operate the company forever? You should ask this up front so you understand their motivations, goals, and how they will optimize the company.

Are they chasing a multi-billion dollar exit? Or are they content running a $10M ARR company forever? What about their investors? Who has ultimate decision-making ability?

In other words, do they want to get to profitability or are they looking for hyper-growth? It’s often the people who write the checks that get to decide this answer, which is why it’s so important to understand the implications of prior investment rounds.

Hyper-growth takes a lot more money and is a much riskier endeavor, because the money well can dry up if not managed carefully. Not only that, but by raising VC money, founders usually give up a fair share of control, and become beholden to the investors.

On the flip side, there are paths like bootstrapping (or seedstrapping), where the company raises no money (or a small amount of money) and maintains control of the company, growing slower but trying to get to profitability.

Neither of these paths are right, they are just different ways to found, run, and scale a company. The only thing that matters is that you are aligned with the founders on their definition of success.

The Employees

While you may be blown away by the company, the product, and the founders, you also should be asking yourself: “what does the day-to-day look like?”

While the founders may have sold you on the company, a much larger part of the job is your relationship with your future co-workers.

What are they like? Do they love the product they are working on? Do they go above and beyond to do more than their role or do they like to just do their job and nothing more? What does teamwork look like to them? How do they like to collaborate?

As you are interviewing, you will pick up on many of these themes if you’re looking for them. What do you notice?

Are the conversations friendly and productive or are they competitive? Are they excited to work with you? To learn from you? And maybe more importantly, are you excited to work with them and learn from them?

I’ve found that the best startup employees are among the most curious. The ones that do not want to see problems as a road block, but rather an opportunity to solve the puzzle. These types of people have motivated me to do my best work, figure out the hardest problems, and find a scrappy solution to the issue of the week. I’m sure you will find that at the best startups, these same types of people show up.

Lastly, since learning should be one of your top priorities at a startup, do the employees and founders foster a culture of constant learning and growth? If the answer is yes, then the rest all seems to fall into place.

Have an Exit Plan

Startups are risky.

They may run out of money at any point. So you should be prepared. If this company fails, what will you do? Immediately look for a new job? Pivot industries? Sometimes, the best exit plan is no exit plan. If you are doing great work with great people, then who cares what you’re doing next.

But with that said, know that whatever startup you join, it won’t be your last job. While you’re at the startup, continue to keep your network warm. If the doors close on your time at the startup, you will be thankful have advocates to help you find your next gig.

More importantly, be able to tell your story. You may not have shiny metrics or KPIs to put on your resume, but you will have stories. Document your time heavily throughout your job. Talk through the tradeoffs you made while building new features with your team. Understand what you could have done differently. Be able to talk about the financials of the business. Take an interest in departments that are not your own.

And through it all, be comfortable with failure. Failure is just an opportunity to do better in the future. And that is one of the best lessons you can learn by working for a startup.

Belief

All of the above categories are important. But if you need to speed up the process, just answer this one question:

Do you believe in the company?

Belief can come in many forms, but trust your gut. Does the mission resonate with you? Does the product spark joy? Does the team excite you? Do you believe in the founders? Would working at this company be fun, even when it’s a slog through the day-to-day weeds and the overall direction is unclear?

Ask Great Questions

At the end of the day, a startup is just a business that is searching for structure. The founders should have a great story, the employees should love showing up to work, and the financials have to work. But at the end of the day, it’s like any other job.

This role will not be your last role. My ultimate advice: learn as much as you can from the job, be excited about the work, gain some experience, and be able to tell a cohesive story of your career.

I wrote this article because I think a framework for employees to better evaluate startups should exist. I wish I could have read it as I started my career.

Asking these questions and pondering these ideas would have helped me better understand businesses, made me a better employee, and helped me continue to learn extensively outside of my immediate tech niche.

I hope this two-part series has convinced you not only to consider working for startups, but realize that there is tremendous learning opportunity if you get out of the corporate world, and go smaller.

At the very least, I hope this article helps you ask good questions. By asking the right questions, you will be able to not only understand the company, but also understand the people involved. And through this understanding, you will gain a better vision of what the role will be.

The world is your oyster, you are just trying to find your pearl. I wish you all the best in your search.

Until next week,
Cory

1. If you want to know more about what each stage means, check out my overview of different fundraising rounds, and what they mean for the company and you, the aspiring employee.