Newsletter 63: Why work at a startup?
Mental models #4
Welcome to another edition of the Struggle.
The Struggle is a bi-weekly newsletter where I share my thoughts and learnings from running a startup in Southeast Asia.
Whenever I am catching up with friends who have corporate jobs, we inevitably touch on the topic of careers.
The lows of running a startup tend to stand out a lot more in such conversations, as people who have stable, corporate jobs rarely experience so many uncertainties and near-death moments. In turn, that often leads to the question - why work at a startup if it’s that hard?
During the past several years, I spent a lot of time thinking about the very same thing. Coming from a humble family, securing any decent-paying job would have made my parents more than happy.
Yet, again and again, I find myself embarking on hard and uncertain journeys instead of focusing my energy on securing a stable job.
Which led me to write today’s essay.
Reasons why working for a startup isn’t for everyone
As a point of departure, there is a high probability that a newly founded startup won’t make it. According to one study, 70% of all startups die; you can even read 378 reasons why that happens.
“Working at a startup is like building the jet engine while you're flying the plane. And likely there's also a fire on the plane.”
Laura Behrens Wu, co-founder and CEO of Shippo
Second, whether the startup is doing very well or struggles to find a product-market fit, the experience will be chaotic. Most probably, you will have very little mentorship and guidance. Many first-time founders are not the best managers, especially if they are young and that’s their first leadership experience.
Third, the road is full of challenges. As far as I can tell, there are two types of startups. On the one hand, you have companies where growth seems to come easily. The company grows despite all internal problems and burning fires.
On the other hand, you have companies where it feels like pushing a big rock uphill. In the second kind, you may follow industry best practices, hire great people, execute well against your targets and still struggle to grow. Both cases have their own challenges, but one thing will be consistent: there is a fire burning at any given time. It takes a special type of person to operate comfortably in such an environment.
“If you’re financially able, get a therapist immediately. There's a reason why the 🚀 emoji is commonly associated with all things startup, growth, VC and large rounds of funding. The journey of joining a recently-founded company is typically a season of concentrated growing pains, introspection and stress,”
“Don't get me wrong — this experience can be incredibly gratifying. With that said, the tested culture, best practices, regulations, and organizational structure that typically institutionalizes a healthy work-life balance is likely non-existent at a startup. To fill in these gaps, an objective, third-party source of support that encourages introspection, offers healthy coping mechanisms, and helps define boundaries can be instrumental in ensuring you're able to show up as your best self, confident and ready for whatever challenges come your way.”
Howard Ekundayo, Engineering Manager at Netflix.
Fourth, depending on when you will join the startup, chances are, you won’t make a lot of money. Assuming you are joining an early-stage startup, you will be offered equity as compensation for the lower salary, which is great if the startup becomes successful and you stay with them for 7 to 9 years. Given that 70% - 80% of startups die, the rest 20 to 30% reach some kind of exit, with most of them having small exits that are not generating great financial returns given the time and effort you have invested.
Add the uncertainty of how long you will vest your options as you may end up leaving the company earlier than initially planned, and the probability of decent financial return decreases further.
“Nowadays, people often equate startups with bell-ringing success, but seeing so many private companies go public at such high valuations is really a new phenomenon. It’s also not the typical experience, and certainly not what you should join a startup expecting. Even in the best of times, startups are hard. They’re designed specifically for growth — and this comes with a set of unique challenges, risks, and demands that you need to be ready for…”
Plaid’s Head of People McKenna Quint
So let me summarize, high probability of failure, poor management, uncertainty, and not much money. Not the most attractive value proposition compared to the security, high salaries, predictability, coaching, and guidance you can get at more established brands.
Yet, let’s take a look at the reasons why working at a startup is a good idea.
Principal-agent problem
To cover some of the benefits of working at a startup, I will use a mental model called the “principal-agent problem,” also known as “the agency dilemma.”
Given the context of startups, a principal is a founder—the owner. In contrast, the agent is someone who works for the founder—an employee.
While the agency dilemma exists in pretty much everything, we will keep it focused on the startup context for the sake of this essay.
As a point of departure, the founder’s incentives are different than the ones employees get. The success of the business is aligned quite well with the success of the founder. In turn, the founder wants what is best for the business. At the same time, any employee cares about what will look good to the principal, or what will make the most friends at the office, or in the case of sales employees, what will make them personally the most money even if it’s not good for the business.
“If you want it done, Go. If not, Send.”
A famous quote attributed to Napoleon or Julius Caesar
The whole concept of the principal-agent problem is about aligning incentives. Agents will always find ways to hack the system if your incentives are not well designed. As a result, the founder’s job is always to be dealing with the principal-agent problem. Some people refer to that as “founder mentality,” i.e., how can you make sure that all of your employees think like an owner? Especially when the business is young and incredibly vulnerable.
“Think like an owner. See the company as both a community and an asset, as your cause to fight for and your responsibility to protect — you will win the trust and respect of your colleagues. View working at a young company as an opportunity to create value across several different verticals. Be hungry to learn everything you can, and be brutally honest with yourself and your team about what skills you have, what skills you don't have, and what skills you're eager to learn.”
Kevin Caldwell, co-founder and CEO of Ossium Health
That’s why experienced founders spend a lot of time thinking about incentives. They make sure to reward their top lieutenants generously, even when no one sees the effort. That’s important because, over time, you want to create a strong alignment. Otherwise, sooner or later, your lieutenants will realize how they have not been treated fairly, and the partnership will fall apart.
On the other hand, if you are an agent, your number one priority is to develop founder mentality, aka think like a principal. The more you train yourself to think like a principal, the better off you will be.
Going back to the second drawback of working at a startup - managers suck. You will often get access to jobs that you are most likely quite unqualified for. But, as described before, whether the startup grows fast or struggles to find product-market fit, one thing is consistent - it’s messy. In turn, you have remarkable opportunities to take on projects where under normal circumstances, no one would have hired you. That’s how I got to become a Head of Marketing at a funded startup straight out of uni, followed by a position as a GM at 27. My learning rate was incredible; the more I thought as a principal, the more opportunities I got, which forced me to learn and grow. The wheel kept spinning until I reached a COO position at a startup with a pretty strong founding team.
Training yourself to think like a founder can serve as a lever in your career. Assuming that you are working for a good principal, you will be promoted, empowered, and given accountability way out of proportion to your experience.
“If you can hack your way through the principal-agent problem, you’ll probably solve half of what it takes to run a company.”
Naval
That’s especially pronounced in startups because everything moves fast, and there are countless burning fires. Under such circumstances, you will have a lot more opportunities to work on hard problems. As long as you prove capable of solving those problems, you will be rewarded with more responsibilities and growth.
In my career, I have worked with interns who have a stronger founder mentality than some managers. In turn, I have always done my best to reward people who think like principals a lot more than their peers with resources like my time, responsibilities, and even private coaching despite busy schedules. Thinking like a principal in the right environment is always generously rewarded.
A follow-up benefit of that is that you are getting prepared to run a business yourself. As you are taking on more and more challenges, you start developing cross-department skills and a deep understanding of how to coordinate different teams towards a common goal. I cannot imagine a situation where working at a startup would not be actually helpful to running one yourself. Being surrounded by people who are doing the things that are really important to you is an invaluable experience.
Given that you can develop a thought process that prioritizes what’s good for the business over what’s good for you, working at a startup will help you grow more than anything else.
Then the major challenge becomes to find a good principal. Someone who will reward you with more responsibilities despite lack of experience as long as you develop a founder mentality.
“The best role in startup land is being one of the very first hires for an experienced founding team for a product you deeply believe in that is pre-product/market fit. Having a front-row seat to see how an experienced founding team zigs and zags their way to the other side is something you have to see first hand.”
CEO and founder of RenoFi, Justin Goldman:
To summarize, 1) at a startup, you will have a lot more accountability and growth, 2) it prepares you to run your own business someday, and 3) you have the chance to work on solving a difficult problem that matters to you.
I will wrap it up with a quote by Justin Kan, a Co-founder of Twitch:
“You know, the way I've always thought about it is how do I...figuring out ways that I can put myself in the position to maximize my own personal rate of growth and rate of learning. And I suggest that you do the same regardless of whether that's at a startup or not. “