MBA students are increasingly falling into one of two categories—those hungry to rush into careers as private equity/venture capitalists, and those eager to found a venture-funded start-up. My advice to all of them: Please give due respect to a regular corporate job and please do consider spending a few years working for a large corporate player first.
These business school students and young venture capitalists frequently share common misconceptions about start-ups in this heavily publicized sector. Part of the myth is fuelled by the B schools themselves by feeding hunky dory stories about how quick bucks (ESOP value growing manifold) and careers (big responsibility and fancy designations very early in the career) can be made in start ups. People joining start ups are seen as star risk takers and a corporate job is seen as one of those ‘regular/methodical’ types. Nobody seems to talk about how badly people lives and careers get affected when start ups fail and sometimes the damage is permanent or the fact that even though the start up might be successful, making money at a personal level could be completely different.
Please don’t get me wrong; I am not a doomsayer. Rather, I am a big risk taker at a personal level and the intent of this blog is to help people take objective and well balanced decisions and not be swayed by bull talk. Following are the few pointers that young minds should definitely consider while thinking of joining start ups:
Truly understanding the business model of the start up: Please understand the primary business of a business is a product or a service and making money comes along with it. It’s not the other way round. Please please stay away from get rich quick companies. The get rich quick companies almost aren't worth discussion. I've often found anyone who contacts me with more passion and enthusiasm than actual information and conceptual facts about their business, doesn't have one. It usually goes hand in hand with them talking extensively about how much money everyone involved is going to make, and that alone should be why I should or anyone should be involved. This is first sign of warning.
Credibility of the person (including his personal nature): Please check on the credibility of the entrepreneur and specifically his experience of the business/or as an entrepreneur. Please go an extra mile and talk to people who have worked with him in various capacities. Also remember, sharing a personal rapport is very important in a start up. If your boss is not your personality type, you can still get away in a corporate job, but in a startup it becomes really difficult. Remember, most start ups are one man shows and if you cannot get along with that man, the going gets tough even though you may be very good at your work.
Get your ESOPs: Get your ESOPs allotted on day one. This is important. Get it documented. If you hear any of the following, “Oh! We will allot the ESOPs in due course, don’t you trust me? ”, or something like, “Oh, we are still working out the legal structure and have appointed one of the Big 4 firms for the same”, then it is a clear sign that you will most probably never get the shares. Remember it is easier to get the shares earlier rather than later. There are so many cases of promoters/entrepreneurs going back on their promise and the employee being helpless because of lack of any specific written document/agreement. Most of them are also not willing to create an issue about it lest it affects their careers and they be perceived as ‘troublemaker’ employees. Also remember that during this period salaries and bonuses are low because of the uncertainty of cash flows in a start up.
Team building capacity – willing to share wealth and grow: What is the senior management team that the entrepreneur has built? Does he have the ability to attract senior industry talent? This is a big sign of confidence and the proof of the fact that he is willing to share wealth and grow.
Circle of Influence: Check on the immediate circle of friends and business associates of the entrepreneur. This will also help you to get an idea on the both the business and entrepreneur himself.
Passion, spirit, dynamic, an actual business model, experience in the industry they are entering are just a few traits. They know how to command a team, have realistic ideas about what it takes to start a company, how long it takes to really ramp up revenues, and what expenses they'll incur.
Any thoughts? Agree, disagree, think I'm a startup snob?
