2015 was a record year for new business formation in the UK, with 610,000 companies birthed.
This propensity for business creation is matched by a desire for employees seeking to work in new fast growing companies. Innovative technology companies like Facebook, Uber and AirBnB have captured the imagination of prospective job seekers who are motivated by opportunities at a newer breed of startup companies. They are lured by their desire for autonomy, engaging work, and potentially lucrative stock options over and above the more linear and safe route offered by corporates. Whilst the upside of working at startups is compelling, seeking out such a career is not for the faint hearted, and not all startup companies are created equal. Individuals may face the risk of working at companies which have an inexperienced leadership team, poor cash management, and may be prone to mass redundancies due to ineffectual HR policies.
In this post we assess the upsides, as well as the downsides, of working at startup companies.
Unlike working in a corporate, a startup job is likely to give you a huge amount of autonomy. Whilst corporate jobs are likely to have a high number of set processes and tasks, working at a startup can give you the freedom to make a tangible difference to an organisation by encouraging you to come up with new ideas to solve problems and create opportunities which are not necessarily directed related to your job title or role.
Every day is different:
New and fast growing companies need to be nimble in order to exploit changes in nascent and fast growing markets. Additionally, The Lean Startup, the methodology currently most commonly applied to startup businesses, dictates that companies should be able to change their business model often and quickly by pivoting. This unpredictable and fast paced environment is likely to suit individuals who relish the prospect of each day providing a set of fresh and new challenges.
Working at a startup can allow you to flesh out you CV by gaining a large amount of experience in a very short period of time. Early stage employees who show their mettle can be rewarded with unparalleled opportunities at companies that benefit from high growth.
Tom Coward, the group financial controller at Yieldify, a venture capital backed marketing technology company says:
“Rather than specialising in one subject you have exposure to so many parts of the business, especially so in the finance function. It was a sad day when I started realising that there were so many people joining the company that I couldn’t remember everyone’s names and faces.”
One potential perk of working of being an early stage employee at a startup company is stock and share options. These are designed to retain staff by vesting after a period of time, commonly three to five years. If you join a company when it has a relatively low valuation, these could be worth a significant amount of money should the company every go public. It is believed that around 1,000 employees at Facebook became millionaire when the company had their IPO in 2012.
By their nature, startups companies have limited resources. This can include labour, as well as cash restraints. Therefore, it is quite possible that you may have to become involved in rather mundane and adhoc tasks. This is commonly referred to as “startup life” and refers to having to do things such as moving desks and equipment in frequent office moves, alongside having to fix problems which you may consider as being beneath you if you have built up significant corporate experience previously.
Poor cash flow:
The business model of high growth startup businesses, particularly those in technology, is to build market share in the short term. This means that their main focus is not initially on generating revenue and profits but is instead on trying to acquire as many customers and users. Whilst such companies are able to raise significant venture capital funding, many high growth companies eventually fail due to running out of cash or spending it too quickly. A recent high profile example of this is Powa Technologies, a British company which raised $200 million and was declared bankrupt in February.
Not all startup founders have extensive experience. A relatively recent trend, in part due to the the advent of crowdfunding, is for well connected and well heeled individuals to be able to raise significant capital from friends and family. It is not uncommon for such individuals to have very limited work experience consisting of an internship and a couple of years of professional experience. As they are unlikely to have had senior management experience or deep sector exposure related to the industry their business is in, there is the risk that their company has weak leadership.
Few established processes:
Working at startups may not be for you if you like routine and certainty. Early stage companies have few established processes, which can mean that certain business functions are not properly managed or adhered to. Commonly this relates to HR, with companies not establishing formal policies. This can result in employees being unfairly dismissed when they are faced with cash constraints.
If you decide to take the plunge to work at a startup you should apply research as if you were going to invest in the company themselves. Diligently research the backgrounds and industry experience of the founders, and see if you can identify a clear route to profitability. Applying a calculated risk approach to your search will increase your chances of picking a winner.
Nick Levine is a chartered accountant and freelance journalist, with a background in fin-tech who has written for Accounting Technician magazine.