I have participated in several start-ups during my career. Some were successful and some…not so much, and like many people, I have had to consider what criteria to apply if I were making the decision again.
When you consider joining a start-up, there are three basic factors to consider: Timing, Team and Product.
Timing is a crucial issue that leaves you with much to think about. Where is the company as far as financing? How large is the company? Who is supporting it at this stage in its life cycle?
For me, the most succinct answer is, if you are not going to be a founder in a company and will not be there on the ground floor, it is best to join a company that is post series B (or after the company’s second round of funding), and when the company has around 20 employees.
Consider this…when a company has had its second round of funding, it has satisfied several investment criteria for the venture community. They have proven the business model. They have satisfied the need to drive certain milestones. And most important…the team has performed and is being recognized for having done so. There are exceptions to this of course, but in the most general sense, VCs express their recognition of performance through additional capital. Funding is the lifeblood of any company and knowing that you are joining a sustainable enterprise should always be desired.
Around 20 employees are also important. 20 people mean that several key roles for most growing companies have not been filled. If you consider that the employee equity pool for most companies is around 10-15%, this means that there is a still a substantial amount of equity for people joining the company in a senior role. As equity is your upside, this is a critical factor for joining a company.
Time is also a qualifier for considering risk. As the business model is proven and rounds of funding have been achieved, the risk of failure goes down.
Team is an important factor to consider in any organization. Is this the right team for success? If you were trapped on a desert island with these people, would you need to make rope out of plants to hang yourself (thank you Tom Hanks in Castaway)? Is the company full of people with unbelievable titles?
Most of our day is spent at work. Sitting in an office with people you cannot work with is a difficult proposition to bear. This is even the case when you are in a company that is doing well. In 2001, Openwave was at the height of its market relevance. We dominated the browser market, WAP, FOTA and a half dozen other mobile product categories. Openwave had also accumulated one of the largest brain trusts in the mobile space. If you were to ask alumni what they remember as the greatest asset of the company, many will say, “We collected the greatest minds in the business.”
The problem was that there was a culture of descent, and those minds all had opinions and those opinions pushed the executive team in dramatically different directions. The device product group (DPG) changed hands several times over a relatively short period of time (2002 – 2006). My takeaway from this is that it is not enough to have a team made up of bright people. They have to be capable of understanding that they have to get along and occasionally take one for the team. This is an important part of any organization’s success, and failure to understand that can be costly, as many companies have learned.
Finally, there is product. Does the company have a product that can succeed in the market? Does it follow the right market trends? Or does it establish new ones? Twitter came at a time when the fast pace of people’s lives was recognized, and everyone was using a cell phone. Facebook success is driven by a need for intimate communities. IPhone came to signify simple, customizable, portable entertainment. Tivo was about control and separating oneself from a TV schedule. This is a hard thing to quantify, but consider looking at what is happening in the space and writing down the key qualities that drive that change. In mobile, applications are king and VCs are funding companies that have business models that avoid working with mobile operators. In entertainment, consumers are shifting to digital goods, and companies that play well into optimizing that model are succeeding. Any way you look at it, trends in the market bring us full circle to “timing.” Successful products must arrive at a time when the market can bear them.
Timing might not be everything, but it does count for a great deal…particularly with start-ups.