Careers 113 - Should you work in a Startup? Pros and Cons

Many employees and students are often in a dilemma about whether they need to join a startup or a well-established Multi National Company (MNC) in their career. Employees typically look at the startup option mid-career, and students look at the option early in their careers. One doesn't always need to be a founder or co-founder in a startup and face enormous pressures. The risks can be minimized by joining a startup as an employee. This essay will delve into the pros and cons of being an employee.

Pros of working in startups:

1. Startups typically provide more compensation than traditional MNC jobs. The reason is that they are typically well-funded and need to use compensation to attract great talent for whom the risk of joining a startup is a deterrent. One should remember that 90% of funded startups do not make it to IPO and fail at some stage.
2. Nobody has a chance of becoming rich by working in an MNC company unless one becomes a Senior Director in a FAMG company or a VP in a non-FAMG company. Only at that level do the stock grants kick in. It takes a long time, and one is probably well into their late forties or early fifties by the time the promotion happens. Startups offer a risk-reward profile that is unmatched. A friend of mine joined as an entry-level employee in Doordash two years before the pandemic, and at one time, his 100k of stock had ballooned to 5 million dollars during the COVID business boom. Of course, the stock has come down in value recently, but this would have been an impossible story to hear in any MNC.
3. When I was working in Silicon Valley, everybody was griping about compensation. The traditional old MNC tech companies would pay at the 50th percentile. They would lose employees to companies paying at the 75th percentile, which would, in turn, lose employees to some FAMG employees paying at the 90-95th percentile. These FAMG employees were also unhappy that their friends in startup companies were making compensation 40-70% more by joining the top well-funded startup companies. Granted that most of these folks were software engineers, the fact remains that when the economy is booming, there is no better place to be than a startup. The caveat is that this data applies to Silicon Valley and Software startups.
4. Once, I was interviewed for an HR Director role at Coinbase, supporting the Product and Engineering organization. According to?Bloomberg , Coinbase paid the head of Product (and the person I was supposed to support) 668 million $ for his move to Coinbase. When Coinbase went IPO, I am sure he made a lot of money. Similarly, the first employee at Uber - Ryan Graves, was a random employee at GE bored with his first job and rose to head Uber operations, making more than a billion dollars by the age of 35. In no other MNC, can even a CEO make so much money. If you are lucky, joining a startup may be the greatest decision of your life, but only if you are lucky.
5. Traditional companies offer better work-life balance, work from home, and many additional perks and benefits. Health insurance coverage is typically much better. People caring for their families or young children will find it more sensible to work in MNCs. These companies also offer better work-life balance as others in the team could share your work.?

Cons of working in startups:

1. The value of ESOP and stock options given to startup employees depends on whether the company successfully clears series D, E, F, and ultimately the IPO stage. Uber is an infamous example of a company that kept employees locked in while they took their sweet time to go IPO. While big ESOP and stock options can lure candidates, ESOP cannot be sold in a secondary market while stock options could be sold.
2. Startups are like a bubble. They come and go out of existence all the time. Clubhouse is a classic example of a company that stormed the internet some time back and was all over the news. Nowadays, nobody talks about it as it is no longer the flavor of the month.?
3. When an economy tanks, startups are the first to fire employees. Because ESOPs can take four years to vest, laying off employees means that employees may not get the stock they were promised in the first place. Startups are brutal when it comes to firing compared to MNCs because MNCs can absorb shocks better as they are more invested in the long term. Startups are about promising investors fantastic returns, and cutting compensation (and thereby operating expenses) is the easiest way for startup founders to return to profitability. MNCs are more circumspect to lose their best employees unless there is no other option. They are built to last.
4. Research in?Denmark ?and?Chile ?has shown that startup employees make substantially less than their peers in more established companies - between 7 to 15%. Contrary to the impression that startups pay well, most startups always need more funds, irrespective of how much they raise. Investors are always looking for rapid expansion, and founders need to run faster and faster to stay in the same spot. A typical tactic startups use is to pay an employee a low base salary and give high stock grants to the employee. This tactic is a form of deferred compensation. All the stock can be worth a lot or zilch if a company goes bust.
5. Startup roles are intense and require continuous follow-up day and night. These jobs are not for the faint-hearted as these jobs require one's 100% commitment. One can leave the workplace only after the work is done, irrespective of how much time it takes. There is nobody else to share your work. Because of this intensity, it is common to find many young people in startups. Older employees sometimes prefer the stability and the work-life balance of large companies. When one has a family, you don't want to wonder how to make bill payments if you are out of a job.?

Advice for students:

1. If you are still determining where your interest lies after you graduate, joining a startup can be a wonderful opportunity to test and learn skills in various disciplines. Startups are always desperate and need skilled employees. Many great employees prefer to avoid the risk profile accompanying a startup role. Suppose you are a top performer in any function; it is easy for you as an early-in-career employee to switch roles into operations, sales, marketing, finance, strategy, HR, business development, etc.??
2. I recommend that students work for a couple of years in a startup before becoming a founder. The reason is that students have little real-life experience of working in a company. Without knowledge of operations, finance, recruiting, and other functions, it is easy to make a lot of monumental errors. Working in a company cannot be learned by reading books. It can also not be understood just by a formal academic program like an MBA. The media does an enormous disservice by blowing up the success stories of Bill Gates, Steve Jobs, Michael Dell, Mark Zuckerberg, and others. Most startup founders are not college dropouts or early-in-career.?Research ?shows that the average age of a successful startup founder is forty-two years.?Working for a couple of years not only helps students real real life skills but also ensures some savings which is crucial to getting the startup off the ground. Startups take time to discover the right product market fit. Rushing the process because you have zero savings and need investor money as soon as possible is a recipe for disaster.
3. No serious seed investor or angel investor will take any student seriously unless they bring a remarkably unique insight and a solution nobody else has thought of. Since hundreds of millions of people and companies are finding answers to every problem on earth, it is unlikely that a novice student can discover a solution that nobody else has thought of. Most students overrate their abilities. Only when a student has done a Master's program, worked for a couple of years in industry, or has done a Ph.D. in a specific topic; is there some assurance that the person knows what they are talking about.
4. Many startups in India and US pay less to student graduates. A fraction of startups pay market wages, but most pay well below market. Students are advised to look at startups as a place to pick up skills that make them employable in the marketplace. Most students have little to no value without work experience. The market value changes abruptly for every year of work experience.?
5. Students at IITs, NITs, and Ivy League universities are paid more than average students because of their college reputation and not due to the individual's brilliance. A good 20% of employees leave within 45 days as the work is beyond their ability. You can maybe last two months in a company if you do not meet their skill expectations. At that point, no pedigree can help you.
6. If you are a student in your first job, you should focus on salaries less and instead focus on skills. You want to be in a situation where your skills are ahead of your salary because you can always change jobs and get the compensation you deserve. It is dreadful if your salary is ahead of your skills as it signifies that you will lose your job shortly. Your career could even come to an abrupt end. In short, always choose skills over salary.

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