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Rewards vs Risks

Of working for a start-up company

By Molly Joss

If I were your mother, I'd probably tell you, in no uncertain terms, that you should never get a job at a start-up company. I'd tell you that you must play it safe and get a job with a well-established company. Since I'm not your mother, I can give you guidelines for conducting a balanced risk/reward assessment and let you decide for yourself. But, do me a favor? If you decide to work for a start-up, don't show this column to your mother and tell her I said it would be okay.

First, the Risks

These days, having a job at any company is risky business. There is no guarantee that any job will be there tomorrow, and many states allow employers to let employees go for any reason and don't require than any explanation be given. Companies that have been around for more than a few years, though, have a track record that you can investigate. Start-up companies, by definition, do not.

Photo credit: Dierken

Photo credit: Dierken

There is something you can check, if you're considering working for a start-up company, and I urge you to do this one thing even if you ignore everything else in this column. You can check the track record of the people who are starting the company. Search for news items about them on the Web. Ask people who work for competing companies if they've heard of the founders. If this is the founders' first start-up or nobody had heard of them, tread carefully. If they have tried and failed several times to create a profitable venture, be even more cautious. Maybe they don't have the knowledge, skills, or reputation to manage the difficult task of starting an IT company.

However, there are people I like to call "serial entrepreneurs" who live for the thrill of starting a company, getting it to the point where it's stable and profitable and then selling it. I worked for a tech start-up company created by just such a person. The first company he founded is still going strong even though he cashed out years ago, and if I told you the name you'd probably recognize it.

You can also ask your would-be employers, when job negotiations turn serious, how well funded the company is. They won't give you a profit and loss statement, but refusing to part with a few details or throwing out vague assurances that everything is okay are bad signs. Without sufficient funding, start-up companies run out of money overnight. They ramp up quickly, staff up as fast as they can hire people and then crash and burn.

Without enough money coming in, the company founders are forced to spend all their time trying to find more funds to keep the doors open and the lights on. They max out their credit cards, hit up family and friends for loans and make outrageous promises to outside investors. This is the kind of start-up company you do not want to get involved with—I've heard horror stories from people involved with such companies of bouncing pay checks or coming to work only to find the lights out and the doors locked.

Another risk that you run is that, even if everything goes smoothly for a few months or a year, sooner or later, most start-ups are sold to another company. You see, most of the people who start companies get the urge to start another one or have planned all along to cash out as soon as they could. A sale means big changes—new management, changes in spending and staffing levels. The new people usually want to make their mark on the company and, unfortunately, that can mean swapping out key people and reducing head count.

So, working for a start-up company means you can't relax, settle back and just do your job. You must remain alert for changes in company management or ownership that could eliminate your job entirely. The serial entrepreneur I mentioned earlier sold the company I worked for and within a year the new owners have managed to run the company into the ground. I saw it coming and got a new job elsewhere before they closed the doors for good.

Now, the Rewards

There can be substantial rewards for working for a start-up operation. One of the biggest—and the one potential employers tend to dangle most often in front of potential employees—is the promise of stock options. "You'll be a millionaire when the company goes public!" Yes, that has happened. It happened at Microsoft. It happened at Apple and many other IT companies. Honestly, though, your odds of becoming a millionaire are better if you play the lottery than if you work at a start-up. Stock options are worthless if the company goes under before it goes public.

The biggest and most realistic pay-off for a recent graduate is the chance to accumulate a lot of work experience a short period of time. Staffing at start-ups is always on the lean side. You are always asked to do the job of more than one person. That means more hours, but it can mean stacking up hours of experience that will be helpful landing your next job. Remember when you discuss salary that you'll have to put in all those hours, and don't let them try to tell you it's okay to take a low base salary because you'll get all those fabulous stock options.

You can also move up the promotion ladder very quickly as the start-up company grows. My boss at the start-up company I mentioned was promoted after a few months on the job—a job he got as a college student doing a summer internship. He was promoted two more times before the company was sold. Don't expect a lot of supervision on the job, either. A confident, independent spirit is a must-have if you want to be happy working at a start-up.

Take the Plunge, but Be Careful

When you talk to your mom about your decision to work for a start-up, you can honestly tell her you've considered the pros and cons and you figure the benefits outweigh the risks. You should also be able to tell her you've considered the reputations and track records of the people who have started the company. You know something about how the company is being financed and you should be prepared (have a little money set aside) if the company goes bust with no warning.

Working for a start-up company can be the ride of your life, but it can also be a serious crash and burn situation. Don't believe everything the recruiter or the human resources representative tells you. Do your own research, follow your instincts, and you'll be fine. If you like the idea of rapid promotion, racking up experience and no micro-management, working for a start-up firm could be your fast track to an impressive resume.

Molly Joss is an IT veteran who writes about career and job issues, among other topics of note.

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