Startups are high risk: as an employee, plan accordingly

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If you quickly scrolled through a list of the most recent TechCrunch stories from the past few weeks, you saw a wall articles about layoffs. Even just our summaries (one, two, three, four) add some sobering reading. Alex and Natasha remind us that tech layoffs don’t happen to companies; they happen to people — and as someone who just got on the phone with a close friend who just received a termination notice, I feel it more acutely today.

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And all this has a downside. Tech startups are inherently high-risk. I myself have had to downsize companies – it’s excruciating – and I always advise if you want to work in a startup, make sure you have 3 months of accumulated wages, because you can lose your job at any moment.

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Over the past 5 years, we have witnessed an unprecedented flow of venture capital cash into ever-growing startups whose business fundamentals were not yet up and running. We have seen companies grow with incredible value and wild ARR multiples. In our delight, as reporters following the industry, we celebrate monster rounds and cheer for startups as they tie the rope to rocket boosters, light the fuse, and hope for the best.

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There is a truth here that is not often spoken of: that which rises must fall. Many tech workers are so easily lured by the promise of hugely valuable stock options, high wages, and years of intense talent hunting. Smart engineers are poached from reputable companies to walk on the wild side, and too many have given no thought to why the salary chart is pointing sharply up and to the right.

Alex asks a great question:

In early stage companies, you may not get a direct answer about exactly how much money is in the bank or what the company’s burnout rate is. In later stage companies, you will probably never get a straight answer. But it’s perfectly reasonable to ask what a runway is – the amount of time (usually weeks or months) that a company can continue to operate without experiencing problems in the current financial climate and current financial parameters. You may not get an answer, but it doesn’t hurt to ask what happens if something changes in business dynamics, if a recession hits, if the company loses its biggest customer, and so on.

When I ran my own companies, I was asked similar questions. They are difficult because they shed light on an aspect of startups that many people don’t really want to consider: Many startups fail. However, people are mistaken that this is bad. Startups need to stop being startups, either because they haven’t found a replicable business model that’s sustainable, or because they’ve become “real” companies where growth can be fueled by cash flow and business operations.

As a startup employee, you risk less than if you were the founder, but you definitely risk more than if you took a job at a more traditional, more established company. Don’t let this discourage you; Startups can be fun, profitable, and challenging. But it’s also possible that you end up working for a billionaire who wants to spend $44 billion to buy a bird sanctuary bye 10% reduction in workforce in another project.

Before you fantasize about how great it would be to work in a startup, be sure to think about what the disadvantages might be. “High risk, high reward,” they say, but all too often we humans only focus on the latter and not the former. Especially against the backdrop of a rapidly changing economy and venture capital firms thinking a little harder about investing wheelbarrows of cash in the next big hope and dream, do the math and make sure you know what you’re getting into.




Credit: techcrunch.com /

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