Point Blank: The Darlings And The Damned
The most risky phase for a startup is the ‘hyper growth’ stage. This is when they have just raised $25 million and have to grow 10x in revenues in one year. They throw ‘warm bodies’ into the battle in the hope much more people mean much more revenues
Right now I’m involved with a group that’s helping hundreds of jobless professionals get jobs. These are all people who have been laid off by a dotcom. The story is the same, beginning with incorrect growth models, then trouble with the VCs, drying up of funds, salaries not being paid and finally management and founders throwing up their hands and sometimes vanishing!
In stark contrast to this, a few weeks back I went to a party thrown by a husband-wife couple. They worked for seven years, sometimes up to 14 hours a day and it all finally paid off. They both cashed their esops and now at the age of 40 never have to work a day again!
So when is the choice to join a startup right? When do you emerge as a darling of your family because of the correct choice?
And when are you damned to walk the pavements looking for a job?
There’s a ‘lifespan line’ that has been researched for startups. In the first year the rate of failure is 88 per cent, the second year is 72 per cent...and so on. After crossing the fourth year it falls to 37 per cent!
The point being that even when you join a startup at a late stage it could have one in five chances of failure.
Now, how to decide?
The first and really important thing is which stage of life you are at. If you are just starting out in your career then a startup is a great option. The energy and adrenaline of a startup is infectious. You literally have nothing to lose and a lot to gain. Not to mention that most startups are merit based and you can climb up the ranks very fast!
But what if you are newly married, or have young children, and have EMIs to pay. Things are more complicated.
So here are a few markers to look out for. Look closely at the behaviour of the founders. They have raised $25 million but what are they doing with it. Have they bought themselves Jaguars and BMWs, or rented fancy houses or made really plush offices. These are not good signs for an early stage startup. It means they don’t spend their money carefully. I’ve done three funding rounds and still drive a six-year-old Honda City that is bashed up from all sides.
Next, get all the financials you can — they are accessible because they have to be filed at the RTO. Take them to a financial expert and let them tell you how sound the growth of the company is and what is the likelihood they will get their next funding. In tandem with this take a close look at who has funded the company. If there is Sequoia, SAIF, Tiger Global Lightbox — or any well-known funder that means that the business model could be sound.
Study all the competition that the company has. If there are too many people in the same space then that’s usually bad news.
If you are married and both of you work then it’s a good idea for the spouse to avoid working in a dotcom also.
The most risky phase for a startup is the ‘hyper growth’ stage. This is when they have just raised $25 million and have to grow 10x in revenues in one year. They throw ‘warm bodies’ into the battle in the hope much more people mean much more revenues.
The Allies threw huge amounts of soldiers into the battle of Normandy. They took the beach but 300,000 soldiers died.
Finally, look for early warning signs. Salaries coming late. Or a month’s salary not coming. Move and move fast. As far as possible try and keep a job up our sleeve.
This way you’ll be the Daring, not the Damned!
This article was published in BW Businessworld issue dated 'Nov. 14, 2016' with cover story titled 'India’s Best B-Schools Survey 2016'
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