3 things to check before joining an early-stage startup?
You are in your stable job but you feel you deserve more, and you heard your batchmate from college who joined an unknown early-stage startup is doing really well. And, you have got an offer from an early-stage startup with around 10–40 employees ( It’s either in bootstrapped/seed/series A stage), It’s your dream role and they are paying 2x-3x of what you're earning now.
It sounds too good to be true but, how should one analyze such an opportunity?
Here is a framework you can use. Following are the variables to consider:
- Market
- Team
- Product
#1 Is the market big enough?
Startups are designed for hyper-growth in a small amount of time, and the most important variable in that is the market that it is targeting. Here’s what Marc Andressen thinks about this,
Personally, I’ll take the third position — I’ll assert that market is the most important factor in a startup’s success or failure.
Why?
In a great market — a market with lots of real potential customers — the market pulls product out of the startup. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.
The market size of the opportunity or TAM (Total addressable market) is a key deciding factor of how much value can the startup create for itself and its shareholders.
To learn about the market, one can read research reports about the market/sector that it is targeting. Some of them are paid but worth the price. Read about the companies which they are planning to target. One way would be to check their annual reports where they declare yearly budget allocations. For eg: In my last job, we were targeting the Landscaping sector in the US, It’s fairly unknown. But the companies we were targeting, their annual reports were easily available and it was fairly obvious that there was huge potential for automation and software in general.
So after some research, if you find that the particular sector is ripe for disruption and has a lot of potential clients, then that’s one positive sign(+) for you.
No matter how good the team is if the market isn’t correct, even the best talent won't be able to achieve anything.
#2 Is the team right?
The founders and initial team are of primal importance to find their way to PMF, growth, and eventual success. During the initial days, the way the core team functions and ships out stuff becomes the culture of the organization. So trying to get information about them through a reference and verifying their credentials really helps.
If you’re joining an early-stage startup, the best-case scenario can be that the people you will be working with belong to the same college/school/ex—company/hostel but, that rarely happens. Mostly you will be able to find their Linkedin profile and you will have to judge on the basis of that.
Focus on the core team, The founders. In the initial days, no written doc named ‘culture doc’ would define the culture. Whatever the founder says and their way of working becomes the culture. And, there will be some differences as well depending on whether the startup is funded or bootstrapped.
a) If the startup was bootstrapped, It would make sense to check its YoY revenue since its inception. If the startup is registered in India, You can check its revenue from https://www.tofler.in/ or https://www.zaubacorp.com/ for a small price. So if there is consistent growth in the revenue, that is a positive sign. And if the company hasn't filed the revenue despite being in operations for a few years, that’s a negative sign.
b) If the startup is funded, then there is some assurance that they have a financial runway for the next few years. If their investors include some reputed names, that does help but long-term will not decide a startup’s success. And when it comes to the founding team, the best way would be to get a reference from ex-employees.
#3 Is the product’s vision, right for the market?
Once you know about the market and the team, Then you should try to list all the problems that the companies are facing and how software can help solve that. And most probably the product’s vision should completely make sense for the market and should help the companies either save cost or make a present process efficient.
For eg: From my own experience again, Landscaping companies maintain lawns, and to estimate the cost and the material required, They need to measure the lawn but used outdated software like Google earth which required one manual click for every corner and it was fairly obvious that a more efficient solution would be possible and it was AI-enabled map measurement using computer vision.
Conclusion
To analyze a job offer from an unknown early-stage startup, look at the Market, Core team, and product. The market should be either unexplored(or blue ocean) and should be growing at a good rate and the founder and their team should be uniquely placed and talented to explore that market. And, their product should make sense for the market.
Do share this article if you feel it can be helpful to someone.
And, Let me know our feedback if the article was helpful or not or if something else that can be improved. I have spent 3 yrs working with early-stage startups
