Should You Succumb to the Allure of Joining a High-Tech Startup?

Don Tennant
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You don’t have to read too many stories about young tech entrepreneurs striking it rich at startups in Silicon Valley and elsewhere before you start thinking about how cool it would be to become one of those people who are driving property values sky high, and enjoying the good life all over the world. So if the opportunity presents itself to join a high-tech startup, you may find it difficult not to be swayed by the dream. That’s when a dose of reality might come in handy.

It doesn’t hurt to keep in mind that 90 percent of startups fail, although that in and of itself certainly shouldn’t be the deciding factor as to whether or not you should join a startup. But it does mean that you need to be very level-headed in evaluating the risks vs. the rewards. I recently discussed the allure of high-tech startups with Kathy Harris, managing director of Harris Allied, an executive search firm in New York, and she was able to shed an informative light on the topic.

I asked Harris, for example, if she had any sense of how geography fits into the equation. Is a high-tech startup in one part of the country more likely to succeed than one in another part of the country? She said a lot depends on the business focus.

“If it’s a technology firm that’s a vendor to the financial services industry, then the logical location for that firm would be in Manhattan, or at least in the Wall Street area, since that’s the target market,” Harris said. “If the firm is a provider of, say, consumer products or content, it might not be as necessary to be located near your client. But I don’t have any real data behind that.”

I asked her to what extent she’s finding that IT professionals are leaving their jobs late in their careers to start or join a high-tech startup. She noted that especially within the financial services community, there’s an openness to looking at other things.

“Since the financial crisis began in 2008,” Harris said, “I think there are more senior executives who are willing to look at joining a firm that’s outside of the financial services industry.”

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I also asked Harris if there are any myths about high-tech startups that need to be debunked. She said the biggest one is that everyone works incredibly long hours, and that people sleep on the floor.

“It’s a myth that everybody is right out of college, and there are sleeping bags on the floor, and people on roller blades, and all that stuff,” she said. “That’s really not the case. I know people who are involved in high-tech startups that work normal hours.”

Finally, I asked Harris if she had any advice that’s specific to women considering joining a high-tech startup, or if this is a completely gender-neutral topic.

“I think it’s completely gender-neutral,” she said. “Any professional needs to ask the right questions if they’re considering an opportunity with a startup firm.”

Harris had, in fact, come up with the following list of questions that job seekers should ask when considering employment with a high-tech startup:

  • How much funding does the company really have? Is it funded with “friends and family” money, or is it VC-backed? If it is VC-backed, what state of fund raising is it at? How long can the company stay in business with its current cash supply?
  • How does the startup fit into the larger scope of the industry? Is there a real need for the product or service that the company offers? Where is the opportunity for it to thrive and succeed? Look at the firm’s competitors and ask how the firm fits into its market space. Does it offer a significant uptick within the industry, or does it offer something that’s innovative? What obstacles does the company face when breaking into the marketplace? What are the real opportunities to generate revenue, and what are the triggers that will make this company profitable?
  • Who are the principals, and what is their track record in starting and running companies? Has the management team made money in the past? Who is actually running the company day-to-day, and do they have hands-on experience in dealing with legal, compliance, cost containment and regulatory matters? In a startup, there are not many people to delegate those responsibilities to. Do all the members bring with them unique expertise that collectively makes for a strong executive team? What relevant industry experience do they have? Do the principals have experience with small companies, or have they bootstrapped a startup before? Have they had experience generating revenue and building a business that does not have a big brand name?
  • What is the growth plan for the business three, six, nine, and 12 months out? This is a fair question for a candidate to ask, but it needs to be asked in the correct manner. Private companies are not quick to disclose their revenue projections, but you can ask about the company’s plans for expansion and growing market share. How will the startup grow its customer base, and what kinds of customers will it target? Is the firm targeting a single vertical, or are there plans to diversify the business focus? What size client will the firm target? A key consideration when evaluating a job offer is whether the firm is limited to a small number of clients.
  • Is an IPO in its future? What is the exit strategy? Ask about equity participation—is it part of the compensation plan and, if so, what kind of liquidity event is planned? Most startups will offer equity to people that join the firm in its earliest stages, so a job seeker needs to inquire what that really means in terms of the growth of the company.

A contributing writer on IT management and career topics with IT Business Edge since 2009, Don Tennant began his technology journalism career in 1990 in Hong Kong, where he served as editor of the Hong Kong edition of Computerworld. After returning to the U.S. in 2000, he became Editor in Chief of the U.S. edition of Computerworld, and later assumed the editorial directorship of Computerworld and InfoWorld. Don was presented with the 2007 Timothy White Award for Editorial Integrity by American Business Media, and he is a recipient of the Jesse H. Neal National Business Journalism Award for editorial excellence in news coverage. Follow him on Twitter @dontennant.

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