Engineers, joining an early-stage startup isn’t financially worth it!
And why you should join one anyway...
Heard of someone hitting a jackpot by joining an early-stage startup and earning millions? Do you also get FOMO to work in an early-stage startup? Hold that thought for a bit.
I was once a founding engineer for a startup in healthcare space. I have worked in an early-stage finance startup. And I have helped founders during early-stages by organizing events, connecting them to the right people and helping them improve their products?
Today I am going to tell you why working in an early stage startup is not a fairy tale.
I will uncover the financial implications as well as the opportunity cost for an engineer in an early-stage startup. And how only the top 0.1% of the people win this game!
What’s an early-stage startup anyway?
An early-stage startup is an idea trying to prove itself. These companies are high-stake experiments.
At this stage, the company doesn’t know:
How to solve the problem,
If the problem they are focusing on is worth solving,
Who are their true customers
Building the right product which is a real pain-point in a market is hard. Really hard. It is also called product-market fit.
At this stage, sometimes founders have invested their own money in bootstrapping it, or found some initial funding from angel investors, family, friends or fools.
An early stage startup is an idea trying to prove itself.
Opportunity cost and startup statistics
Do you know that more than 50% of the startups get shut within 5 years of the operation? (Source: Startup Genome Report)
Typically, in a startup you are given a fixed salary and some equity. But equity is just a paper-money until a startup exits - either it goes public or another company buys it.
By owning 0.5% of the equity in a startup, you would make $1 million when a startup exits at $200 million valuation. How many such companies have exited at that valuation in 2023? Out of 50k startups only a tiny number of startups were able to do that (source).
So, if money is your objective then working in a big tech company is guaranteed to make you rich(er) than working in an early-stage startup. The financial opportunity cost is just too much to ignore.
Life while working for a startup
There are other things you should know about while working in an early-stage startup
Job uncertainty: A startup can fold at any time
Long working hours: There is no work-life balance. Only work-work balance.
Lower Salary: Because of low resources, the salaries are generally lower.
Lower benefits: Benefits like health insurance, amenities might not be great.
But, why you should still work for a startup at least once
Personal Growth 101: There are no manuals to refer to obviously. But once you get things done by yourself, there is no going back. You’ll build a confidence that there is nothing you can’t do. It will test your character and core beliefs.
Diverse Skillsets aka Transferable skills : Early stage startups kick you out of your comfort zone. You get to develop skills apart from your core software development skills. You might get an opportunity to pitch to a client and develop sales skills in the process. You can develop your marketing skills as well by creating assets as well as run ads. You can also wear a product manager hat at times while evaluating features.
Low risk, high reward: A few years in your early life are just a blip. However, if you do believe in unicorns (I do), then upside is enormous. I am not just talking about financial gains. I am talking about you becoming a well-rounded person who can build successful startup of your own.
However, not all startups are equal. How do you know which startups to join?
What you should check before joining the startup
Research the Company and Leadership: Look into the startup's future prospects and how well you fit with their vision. Ask yourself if you'd personally invest in what they're building? Seek out sectors with big markets and growth potential.
Understand the Startup's Direction: Is the startup growing at healthy rate? What is the business model they have adopted? And identify how you can enhance the team.
Prepare for a Startup Environment: Recognize that skills in larger organizations might not directly translate in startup world. Test the waters first. Consider volunteering or doing it on a part-time basis before you commit fully.
Think Like an Investor: Is the start-up supported by a successful angle investor? What is the total market size? Who are the competitors? What is the startup’s moat? Treat your job search and interview process as if you're conducting thorough research before making an investment of your time and life.
Talk to the Founder: Ask the questions - what are startup's funding sources? What does a cash flow look like? What is the burn rate? How much runway is left without any funding in the future?
Conclusion
The real gold isn't in the rare jackpot of startup exits but in the growth, skills, and grit you gain. So, think about it - are you after quick cash, or are you looking for an adventure that'll make you stronger and smarter?
Don’t keep money as the only parameter. Think hard and find your reasons for joining an early-stage startup!
This week’s must reads :
How I almost quit because of $75 by
He digs into various nuances of switching a company vs working in the same company for a long time.
Introduction to the role of Staff Engineer by
He maps the out the staff engineer’s role and responsibilities within the matrix of a company.
Keep Weekly Highlights of your work to succeed by
Hemant describes how keeping a record of his accomplishments weekly helped him grow in his career.
I worked at two early stage startups at my first two jobs. That was a very bad financial decision on my part. The benefits were bad (e.g. no 401k); the pay was low. I didn't know what I was doing in terms of negotiating salary or how to value options. Even 11 years later, my net worth is maybe 40% lower than it would be if I'd gone to Google when I had the chance.
There are multiple levels of opportunity cost, and the ability to build a financial cushion and retirement savings is very important early in your career. The points about gaining valuable experience can be valid, but they make more sense if you have some personal or familial "cushion" to fall back on. Fresh out of school, if you're coming from a poor family and/or have significant student loans, you're not in a good position to take advantage of those learning opportunities. College was your learning opportunity, and it's time to cash in on it. Maybe an early stage startup makes sense as a second or third job for you. The money in your 401(k) from your boring job at some random bigco will continue to grow while you're working at Unicorn Rocketship, Inc., and you'll be in a much better position when you discover that your startup equity was literally worthless.
I agree with the other commenters that Series C companies may be a good option compared to early stage companies. They still have some "startup" vibes while also offering somewhat competitive benefits packages. Their stock is also less likely to be totally worthless, though it won't make you super rich either. My third job was at a series C company, and the exit after 6 years of working there paid for the down payment on my house. (That said, competitive salaries at series C companies may have been a zero interest rate phenomenon. I'm not sure what the current job market is like in that regard.)
I think if the goal is financial then it'll lead to burn out and potential disappointment. However if it's to learn and hone one's skill as a PM/engineer/designer than startups are a must at least once in a career. I find this to be especially true in the physical product space where one needs to see the effort required to fabricate and test something tangible.