In this episode of Startups For The Rest Of Us, Rob and Mike talk about getting funding or acquisition offers, when to fire someone, and more listener questions.
Items mentioned in this episode:
Rob [00:00]: In this episode of ‘Startups for the Rest of Us,’ Mike and I talk about options for finding funding or an acquisition offer, setting up a U.S. company as a non-U.S. citizen, and when to think about letting someone go. This is ‘Startups for the Rest of Us’ episode 323.
Welcome to ‘Startups for the Rest of Us,’ the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:31]: And I’m Mike.
Rob [00:32]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike [00:36]: Well, I wanted to say congratulations to Sherry Walling for ZenFounder being selected for Entrepreneur.com’s list of 24 Exceptional Women-hosted Podcasts for Entrepreneurs in 2017. Obviously, you are the co-host of that show but definitely wanted to send congratulations to her for being mentioned on that list. I think that’s quite an accomplishment.
Rob [00:54]: Yeah. It was a big deal. It seemed to get a bit of notice. People were taking notice and I know we got a big bump in ZenFounder email subscribers as well as some more podcast downloads. It’s always fun to be recognized for something like that.
Mike [01:09]: Yeah and after a short period too. The podcast hasn’t been around for very long so it’s nice to see that kind of attraction.
Rob [01:15]: I’m kind of mellow this morning. I’m still getting back onto time zone because I was in California for eight or nine days. In Santa Cruz hanging out with family, friends, reconnecting with people. It was a really nice time. It’s a lot warmer there so I still was wearing sweatshirts and stuff but a 50 or 60-degree difference depending on the day. I’m still, like I said, an hour or two off time zones so I’m getting going this morning.
It was good and it just reminded me how important it is to take some time off and recharge now and again. And depending on your level of exhaustion or burn-out, maybe you need to take a little time off every month. At other times you can take a little time off every quarter or every six months. It’s really important to come back, and I just feel a lot more motivated and like I have clarity of thought because I had this time to step away from work and stop thinking about it.
Mike [02:07]: Cool. On my end, I added another paying customer for Bluetick in advance of my public launch. I also integrated Zapier into the equation so –
Rob [02:17]: You got Zapier done, huh? That’s cool.
Mike [02:18]: Yeah. There’s a couple of things left with triggers to be able to send data outside of it and allow Zapier to kind of natively subscribe to different events that happen inside of Bluetick. I would say all but one piece of being able to trigger different things inside of Bluetick is done in Zapier. Then there’s this last piece of being able to allow them to subscribe to events. Once those are done I should be able to start rolling that out a little bit more.
I’ve got a couple of people using those Zaps right now. Most of them are actually going into my Zapier account, and I’m just piping them through Zapier back into Bluetick because when you create that Zapier integration obviously it’s create a personal, private one first and then you can share it. So I’m slowly going in that direction just because I don’t fully understand all of the implications of the decisions I’m making in Zapier. So I’m trying to be a little cautious about putting that out there in a way that makes it difficult for me to modify it later.
Rob [03:09]: Right. Yeah, for sure. That’s the nice part when you have that private Zap then you can, like you said, share it with other people. I think they want you to have like ten active users before they will move it to production. That’s kind of their rule of thumb. They want to make sure that it’s tested because once it’s out there it’s really kind of a pain. You have to version if you want to fix bugs.
Mike [03:30]: Yeah, and that’s the issue. The whole versioning thing is like, “Okay, well how do we do this and not screw things up?” I actually started going down the road of building a custom API end point specifically for Zapier so that if we need to make changes to our API for things that happen inside of our interface, we can do that and it won’t affect the things that are going on through Zapier. That’s kind of a work-around that is pretty helpful just because our API is still in flux and there’s lots of other stuff going on.
And in terms of the public launch that I’m working towards, one thing – I’ll get your feedback on this – but I’m considering going more down the route of having multiple small launches as opposed to one large one. The idea would be that I’ll gear up more towards a launch where I have a set number of people that I want to put into the system and I’m thinking in my head about twenty right now. Then go for the launch and basically tell people up front, “Hey, I’m only letting twenty people in the door at the moment.” And I could lay out my reasons why. Some of them are just to make sure that everybody’s getting the attention they need but also to make sure that if anything happens or if any bugs come up or if anyone has any specific needs as they come into it, then we have the time available to be able to address those. Whereas if I let in 100 or however many additional people, it would be difficult to do that. It’s hard to give everybody the attention that they need.
What are your thoughts on that?
Rob [04:51]: I think that’s a good idea. That’s why I did the slow launch with Drip was exactly this reason. We just didn’t have the staff to let hundreds of people in and I knew that we would bleed out trials that we couldn’t respond to quickly enough in terms of developing features or even fixing bugs. It can get really complicated and be a big rush of people. I think that’s a good way to go.
I don’t know if they need to be monthly. I think they could be every two weeks or three weeks depending on how long your trial is. Do you know how long your trial should be yet? Or do you still have to figure that out? Are you going to take a guess and then see how it goes?
Mike [05:22]: I’m not actually at the point where I’m at the point where I’m even considering offering a trial. What I’m doing now – and this is kind of hybrid pricing model where instead of offering an annual plan and a monthly plan, what I’m doing is I’m offering a quarterly plan. Because the value from the product does not surface itself for at least a couple of months. It could be several weeks or a month or even two or three months before you start to see the value just because of the pipeline of emails that you are sending through it and how long it can take people to respond. You might get responses immediately, but you might not get them for several weeks after a couple of emails.
I have a hard time believing that people would get value on day one or day five or something like that.
Rob [06:01]: No trial? Do they pay upfront for a quarter?
Mike [06:03]: Yes.
Rob [06:04]: They pay upfront for a quarter at a time? Got it. And you haven’t had any issues so far. I don’t think charging upfront is a bad way to go at all. If you realize that you get a bunch of pushback on that then maybe it’s something, you’ll want to change. It’s a judgement call at this point because you just don’t have any data so you have to make a call one way or another.
Mike [06:20]: I haven’t gotten any pushback so far. The people I’ve been putting on this past month or so where I’ve just said, “It’s charged quarterly and we charge upfront.” Not one person has said, “Are you sure? Or can we do this or that?” Nobody’s had any questions or pushback on it.
Rob [06:34]: You’ll have to see if you’re able to sell it enough upfront for someone to enter their card without talking to you. Because these people have all talked to you. And that’ll just be an experiment. You’ll have to do that first round and figure out what you think you’re going to get from it. And then since you are charging upfront, you need to prove that there’s going to be a lot of value to someone upfront so your marketing has to be really on point. And your pitch of what the product does and how it’s going to do it for them needs to be on point because if you fumble that at all there’s friction. There’s friction of that quarterly payment that you’re going to have to overcome. And that’s not impossible to overcome. I don’t think it’s a bad call. You just don’t have enough data at this point to know if it’s going to work.
The only thing I’ve heard people do quarterly with is membership sites. I’ve never heard a SaaS app do it. I think it was Andrew Culver who was saying that quarterly is the worst of both worlds in terms of accidental credit card churn. I forget what it is. If it’s that not monthly so that banks are suspicious of it so it will get blocked more often or something like that. There’s something about quarterly and how it’s not a great way to bill in terms of involuntary churn. I think you’ll want to keep your eye on that and if you switch to monthly later – you could always make it a quarterly payment and then let people switch to monthly down the line.
Mike [07:45]: That was probably what I was going to do longer term. The idea with the quarterly is one: it puts people in a position where they don’t get to the end of the first 30-days and they say, “I haven’t used this yet.” And they just want to cancel because they’re not using it. And it gives me an opportunity to reach out to them. I can see their usage and say, “You’re not using this. Let me help you get started with it. Or let me help do things because I am so early.”
The other thing that it does is that it gives me the revenue for that upfront. So if I do a monthly launch then I need a third of the number of people signing up to get the same amount of revenue that I would get three months down the road.
It helps from a cash flow perspective and it also helps from the perspective of being able to put people on it and be confident that the system is not going to fall apart. And then also making sure that they’re getting the value. I don’t anticipate doing quarterly long term. Maybe the data will prove me wrong, but as a starting point I think that it has a lot of benefits.
Rob [08:39]: I think if you do it and it works, I would not stop doing it. The cash flow is just too good. If you can pull this off without a trial, get the money upfront, obviously, offer a 30-day money back guarantee or whatever you want to offer because that’s going to be a sticking point for people as well. The question is, “What if I get it and I don’t like it?” And you want to be able to answer that. I think if you can make this work and the numbers work, it’s not a bad way to go.
Mike [09:04]: I definitely hear what Andrew Culver was saying about it’s the worst of both worlds. I hadn’t thought about it in those terms but I think that right now the benefits of it outweigh the negatives especially since it’s so early on. I just don’t have any data to work with and I may as well just try something.
Rob [09:19]: That’s right. The other thing I like about doing smaller launches and having “X” spots is you can justify it. You can say, “Look, I just can’t onboard more than twenty people. I don’t think we can support more than twenty people in terms of answering all of your questions.” It’s easy enough to justify because you are a small shop. But it also adds a little bit of that scarcity so that if you email the list, then you can build that up and say, “Look, there’s only twenty spots and if you really want to get in then you have to do it now” type thing. I think there’s a benefit on both sides in terms of making it more manageable for you and also being a nice little bit of marketing help.
Mike [09:55]: I’ll keep you guys posted on how that goes and we’ll see how it shakes out.
Rob [09:59]: Do you have a date for the initial launch?
Mike [10:01]: Right now I’m targeting January 31st. I’ve got some emails that I plan on sending out tomorrow and I’ll prime the launch queue so to speak. We’ll see how that goes.
So what are we talking about today?
Rob [10:11]: We have a few listener questions I wanted to run through. The first is from Matt Visk and he says, “Hey guys. Love the show. I’ve created a SaaS company myself and would love your input on it. It’s called PortfolioLounge.com. It helps people create their online portfolio. It has quite a few members with a handful of paid subscribers. I was wondering if you had any advice as to finding funding or interesting acquisition offers. I’m a developer at a large company but I’d love to go fulltime on Portfolio Lounge if I could.” Do you have thoughts on this?
Mike [10:39]: Not really. I’m not really in a position to figure out what an acquisition offer would look like for something like that. And I’m not real familiar with portfolio websites to be honest. You’d have more insight on this one.
Rob [10:51]: Matt, acquisition offers at this point, if you have a handful of paid subscribers, they’re going to be nonexistent. There’s just no – unless you have some unique technology patent that somebody wants or you have some Google algorithm or something like that. Just having a handful of paid subscribers, even if you’ve spent years working on the code launching and everything, it’s all about revenue. It’s actually all about net profit or it’s about strategic value. Net profit would be used in acquisitions that FEInternational would handle. If you were doing 20K or 30K a year, which is not a tremendous amount, but if you’re in that range then you can approach someone like FEInternational or Quiet Light, Latonas – there’s several brokers out there and they can get you acquisition offers. But if you want the maximum purchase price where it’s not three and a half or four times net profit but you might get five times annual revenue typically between three to seven “X” annual revenue – then that’s where you’re getting a strategic acquisition. That’s the kind of thing where you would really need to have a place in the market where a big strategic would want to acquire you. It doesn’t sound like you have that so I don’t think an acquisition offer is something you want to entertain. I just don’t think you’re going to find any.
In terms of finding funding, that’s the kind of thing where you’re going to go on AngelList. You may want to consider talking to someone like Bryce over at Indie.vc – he was on the show eight episodes ago – he funds smaller apps like this. Or if you live in the Bay area – my guess is you don’t – but if you lived in the Bay area there’s going to be a bunch of options for you. There are accelerators, there’s a lot of options. If you go to Google and talk about how to find startup funding, there’s going to be options. The question is: do you want to do that? Funding is not necessarily going to be the answer to what you’re looking for. I think it’s figuring out what your goals are and then finding the right options to line up with that.
Thanks for the question, Matt. I hope that’s helpful. Our next question is about setting up a U.S. company as a non-U.S. citizen. It’s from Justin and he says, “Long time listener from Taiwan. We’re experiencing some tremendous growth on Amazon and we’ll be building some ecommerce-related SaaS apps in the near future. Our team members are scattered around the world but our main market is in the U.S. We’d like to hear your opinion of where to set up a company in the U.S. as a noncitizen and a nonresident.” What do you think, Mike?
Mike [13:06]: I think that there’s kind of an underlying assumption here that you have to set up a company in the U.S. The situation is he’s a noncitizen and nonresident, and I would question whether or not he has to set up a company inside the U.S. in order to do business. My thought here is that if your growth is coming from Amazon, then maybe that’s a requirement, but I don’t know for sure if it is. And if it’s not, there’s obviously a lot of different options for you to create a company whether it’s in Taiwan or it is based in some other country. I was listening to The Tropical MBA podcast a couple of days ago and one of the episodes they had on was about an e-residency program in Estonia which I think was $100 to get into, and then you could base your company out of Estonia. That gives you essentially a European address that allows you to use a lot of your SaaS services. I’m not positive of this. I think that Stripe would also be an option there as well. But you have to figure out where you’re going to be able to get your services from, where your bank accounts are going to be, what the different tax implications are based on where your company is. Some of that comes back to how your taxed in your home country versus how your business would be taxed in a foreign country.
Something else you need to consider is that once you start crossing international borders, it can get much more complicated. If you’re a U.S. citizen, you’re going to get taxed no matter where you are and no matter where you’re making your money because the United States government wants their money. There’s a – I forget how much it is – but there’s a cut off number where above that amount I think that they do not charge you taxes on anything below that certain amount.
Rob [14:37]: That’s right: 90K.
Mike [14:37]: Yeah.
Rob [14:38]: I’m pretty sure it’s 90K or 180K for a couple.
Mike [14:40]: Right. But that only applies if you’re paying tax to a foreign government. They’ll basically give you credit for it. But anything above that they say, “You owe us taxes.”
Rob [14:49]: It’s pretty crazy. It’s the only country in the world that does that. Where if you live outside their borders they still collect tax which is – there have been people who basically get residency somewhere else and then they give up their U.S. passport purely because of that.
Mike [15:01]: Yeah. I guess I would just question the underlying assumption that you absolutely have to set up your business in the United States but because it’s Amazon, you may need to. But I would look into that. I think you have a lot of other options if you don’t have to do that.
Rob, I know that we talked offline a little bit about other options. You had some thoughts as well.
Rob [15:19]: Yeah. And this is purely from hanging out with folks in the D.C. and they are digital nomads and they have the option of setting up anywhere in the world. Most of them are U.S. citizens and none of them have their companies in the U.S. Almost none of them. They tend to go to New Zealand and Hong Kong. There’s a bunch of reasons for that. If you want, I’m sure The Tropical MBA or the D.C. would be a better place to go find out why.
You can even Google the Five Flags theory and I think it’s Simon Black from Sovereign Man. He talks a lot about this stuff. He talks specifically about which countries are set up to be which flag and such. All that to say, unless you need to have a U.S. company, I wouldn’t do it. If you do, it’s typical to do it in Delaware. A Delaware corp is one of the most common setups here in the states. Even companies that aren’t located in Delaware tend to do that, and it’s because they have very favorable business laws and a bunch of other stuff. That would be the most common. You’ll want to either talk to LegalZoom or talk to a lawyer and have then set that up for you.
Mike [16:14]: The other option for setting it up in the United States would be using Stripe’s Atlas program where it’s $500 to get set up and they will create a business account for you, you’ll get incorporated, you can start accepting payments through Stripe. There’s also options for getting tax and legal advice. I don’t know the details of that. Patrick McKenzie would probably be a good person to reach out to about that because he does work for Stripe now under their Atlas program. That’s another option if you had to do it in the United States.
Rob [16:43]: I’m glad you brought that up. I would probably do that over the recommendation I just said of LegalZoom or finding a lawyer because I bet Stripe has this dialed in and you’re going to probably want a Stripe account anyways, I would guess. And if it sets up a bank account and all that stuff, that’s a big win and for $500 kind of a no-brainer.
Mike [16:58]: Yeah. I think that they also have this set up when you do that they have this partnership with Amazon to get you $15,000 in AWS credits. If you need a hosted infrastructure of any kind they can certainly help out there as well.
Rob [17:11]: Awesome. Thanks for the question. I hope that’s helpful. Our next question is from Steven Lieberman at SkillsDBPro.com. He says, “Love the podcast. I have a fast growing business. I’ve made about 1,000 mistakes so far. But without your podcast and one or two others, I’m pretty sure that number would be 3,000. I’m a developer and I just had to fire a developer. He’s a contractor who knows his stuff, started out great. His first piece of work with me was outstanding. Though as the assignments progressed he got slower and was billing more time for less work. I’m working on similar items and getting them done in half the time. There may have been a combination of issues. One big thing is that he started working in two-hour spurts which, obviously, makes it hard to really get up to speed. I tried to address this with him and he kept ignoring those parts of the text. After he finished his last assignment I let him go. Letting someone go is hard to do because on-boarding someone else is a lot of work and a lot of my time, as you know. So here’s my question: what are the breaking points when you choose to let someone go? I really struggle on how much time I should spend to fix the situation or just cut my losses and move on. So, other than the obvious (i.e. they’re stealing from you) what are your thoughts? Not only for developers but for all positions.”
Mike [18:18]: I think for this it comes down to your personal feelings on what the future looks like. If you are feeling like whenever they do work you have to go in and double check it to make sure that it’s right or the directions and stuff, the course corrections that you try to put in place and you tell them, for example in this case, you sent them texts and said, “This is what I need to happen,” and those pieces of the texts where ignored, the next step may be to send them a single standalone message that says, “This is incorrect or this is a problem and we need to resolve it.” And if as a standalone message, it’s still ignored or not corrected then, at that point, you need to pull the plug.
For me, it’s more of a personal feeling that I get to a certain point and there’s this nagging sense in the back of my mind that says, “You have to go double check this. Or you have to keep following up.” And it’s almost like there’s this weight hanging over you that you have to stay on top of whoever that person is and make sure that they’re doing their job right. And essentially you’re becoming a micromanager. As soon as that happens, they’re no longer helping you in the business. It’s actually hurting you because then it’s distracting you. It’s taking time away from doing other things. It’s taking your mental energy away from other things. And it’s just a nightmare to deal with at that point. It’s more hassle than it’s worth. And that’s really the breaking point.
But there’s not, I wouldn’t say, a set thing that if “X” happens or “X” or “Y” happens. Obviously, if they’re stealing from you – those obvious things, sure, pull the plug immediately. I feel like it’s more of a general sense of being aware of how you feel about moving forward with a person. If it’s not something that is able to be corrected, then you have to pull the plug.
Rob [19:53]: Yeah. I feel like Steve handled this pretty well. If he was trying to address it and was bringing it up and the guy was ignoring it, that’s a big red flag. I think the question is different if they’re a contractor or W-2 employee. I would definitely spend more time if someone were W-2. I’d also do a lot more vetting upfront. But if their performance went down – let’s say you hired someone who was good, easy to work with and then their performance is going down over time – I would definitely bring it up and try to help them and find out what’s going on and how you can turn it around. Do they need to take some time off? Are they burned out? Are they trying to do another job? You’ve got to try to figure out are they screwing your and overbilling you and not actually working the hours? Or are they running into personal issues or something?
That’s for an employee. With a contractor, I would tend to – I’ll say give them warnings – but it wouldn’t be things like, “I’m going to fire you if you don’t do this.” It would be more like Steve did where you reach out and be like, “Look, your performance at this point – you’re not delivering nearly what you used to and we really need to talk about this. It’s an issue.” If I brought that up a couple times and they ignored me, then they’d be done because there’s no excuse for that. If you can’t communicate with me then there is no relationship that’s going to come out of that. It’s just too hard to try to manage someone who’s going to not be able to communicate or have a conversation with you.
All of that to say, I think I have a little bit less tolerance for contractors because you don’t have as much of a relationship with them. You’re not as invested in them. They’re never as invested in you or your company, so if it’s not working out it is a bummer to have to onboard someone new but it sounds to me like you made the right choice. Thanks for the question, Steve. I hope that was helpful.
Our next one is from Michael. He says, “I love your podcast. It’s my favorite by far so please keep up the good work. I’m what you might call a “wantapreneur.” I dream about getting out of the rat race, being my own boss, etcetera. I have a few average ideas but don’t think any of them are worth pursuing. My desired entrepreneurial destination is a B2B biz with $10,000 a month in revenue. I have the will to work hard but I already make decent money at my job, which I think is part of what’s keeping me from ideating more. I also have a wife and kid so my time is not limitless, but I make time when I really want to. I get up a couple of hours early most mornings to read and study. Perhaps I’m too much of a learner and analyzer and not enough of a doer. Recently, I’ve split my time tracking into three parts. Part one is family and fun, part two is the day job, and part three is the side business which is currently only imaginary plus learning. I’ve been consistently filling up one and two but I feel hopeless with number three except for learning. I beat myself up constantly for not making more progress there and that affects my mood which in turn hurts my family’s wellbeing too. What would advise as I continue to strive towards entrepreneurship?”
I think the first question you want to ask yourself is: do you really want this? Do you really, really want it? Because if you haven’t pushed forward on it yet and you have a comfy job, it’s not for everybody and, in fact, it’s a long road where you’re going to be making a lot less than your current job for years. I remember Harry Hollander’s talk – or maybe it was Ted Pitts from Moraware Software – at MicroConf a couple of years ago and they looked back at what they would have been making at their jobs had they stayed. And they were like seven or eight years into their business and it was doing multiple seven figures, and they had just broken even at that point in terms of what they would have made. If it’s purely a monetary decision, then stick with the job. It’s an easier path, it’s less distracting, and it’s more straight-forward.
But if you really do want to get out of it, then you have to take some strides towards doing and really cut out the learning at this point. I would guess that you know enough that you need to take the plunge and actually start putting code to paper, as they say, and really get something out there. Just launching something at this point and whether you give yourself a challenge of launching something small every month for six months – not a bad way to go. Force yourself to do it. Or whether you want to launch a blog or launch a little WordPress plugin – pick something small and get it out into the wild. Because without experience, you have no idea how to put the learnings into action.
I would pick a small project that is not a SaaS app. Like I’ve often said with the stair step approach here, pick an ebook or a video course or a WP plugin or an add-on to Photoshop or an add-on to Shopify. Something small that you can charge a bit of money for and see what that feels like to do it and ship something. It’s probably a lot harder than you think, and it’s also probably going to give you more experience in that one month of doing it than you can learn in two years of listening to podcasts and reading blogs.
Mike [24:27]: I think Rob’s on the right track with asking if it’s something that you really want to do. I’d had a conversation – it was either last year or the year before – with somebody. We were actually discussing my sleep habits, to be honest, which is kind of slight tangent. The question that we were trying to discuss was: why can’t I get up earlier? I’ll be honest, I’ve always had a hard time getting up early. It’s never been something that is wired in my DNA. I do not like mornings. If I were president of the United States, I would abolish mornings and there would be nothing before noon. That said, the question that was posed to me was: what are the punitive damages of you not getting up early? What are the downsides of you not getting up early? I’m like, “I own my own business so I can get up at any time I want.” And he’s like, “Exactly. That’s the problem. Your issue is that there’s no downside, there’s no negative consequences to not getting up early so you just don’t have to.” You really have to have this external force of some kind in certain situations to push you in that direction. It sounds to me like there’s no external force that’s really pushing you to the point that says, “Hey, you have to build this business.” And it doesn’t sound to me like it’s something that you want hard enough. There’s no driving passion for it. You’ve got a job, you don’t find it exciting, but it’s not like you’re going to get fired or let go in three months and you know that that’s coming. So there’s no drive behind that to say you have to buckle down, you have to put this time aside.
You see that with various studies about people in college, for example, where they are given six weeks to do a project and then there’s another group of people that are given one week to do the project. The people who are given one week, they get it done. The people who are given six weeks, they wait until week four or five and then start it. It goes back to Parkinson’s law which basically says that work expands so as to fill the time available for its completion. This is a prime example of that where you’ve got this side business that you want to work long term but there’s nothing really forcing your hand to make it work. If it’s fun to you and it’s interesting and you enjoy doing it then it’s much easier to spend the time on it. But if you like doing it and you have this longer term vision where you want to do it at some point in the future but there’s nothing really pushing you hard towards it, then you’re probably just not going to. I think that that’s probably the fundamental problem here. It’s not so much that you can’t do it, it’s that you don’t need to. You have to ask yourself, is that something that you really want or is it just something that you would like to have at some point but isn’t really a passion of yours.
Rob [26:54]: And our last question for the day is from Adam Kelso. He says, “Hey guys. Thanks so much for the tons of great advice and experience you give in each episode. I know you target the show ‘Startup Founders’ but I was wondering if you had any thoughts on evaluating startups as an employee? I live in Austin which has a huge tech community and there are a lot of startups to choose from. Some have good reputations; most are too new for anyone to know much about. If you were considering working at a startup as an employee knowing what you know now, what would you look for and what would you avoid?” Interesting question.
Mike [27:23]: Yeah, I think that’s an interesting question. I think that I’d probably look for an environment where you could be very collaborative with people. If it’s a small company, if it’s a startup then your expectation is probably going to be that you’re going to be working closely with the founder or founders of the company so you want to make sure that you’re able to work well with them, and rather than jumping in and trying to provide value and skip from one job to another, I might offer them, for example, the opportunity to do some contractor consulting work for them. That does a couple of different things. One is it makes sure that they have money available. You’ll kind of get the inside scoop on how things are really going. Because the last thing that the last thing you want to do is quit your job to go work for one of these companies and then find out that they don’t have revenue to support you and they have to let you go in a month or three months or something like that. I think that that’s one side of it.
Being able to offer that is going to be attractive to them as well because you are going to be able to show your value and your worth to the company. If you are able to put in the time outside of your current working hours, then it gives them an opportunity to understand who you are and how your work. If you decide at the end of a couple of weeks or a month or two of working for them part time that you don’t like what they’re working on or you don’t see a future in it or you just don’t like the people that you’re working with then you can move on and go to something else. That’s really just hedging your bets more than anything else.
In terms of specific things to watch out for or red flags, I’m not sure because most of these companies, as you said, they’re going to be too new and you’re not going to really have anything to go on. There’s not going to be a whole lot of public information about them. You could ask people who you know about them but chances are good that, unless those people have been active in the community, you’re not going to get any information out of it and you’re not going to know people who know them. That would just be a difficult situation to be in.
Rob [29:12]: I think I would step back and ask yourself the question: why do you want to work for a startup? Because working for startups, you’re going to do it for, most likely, less pay than you would if you went to work at a larger company. And you’re going to get this promise of some eventual payout in the form of stock options. That’s the traditional way it’s done.
You’re putting a lot of risk there. You’re basically not making as much money as you otherwise could in order to perhaps have a more exciting job. Maybe that’s what you’re looking for. Could be less boring. Or maybe you are looking for the payout. I probably wouldn’t do it for that unless you’re joining as employee number one, two, or three. If you’re joining later it’s probably going to be trivial amounts of options.
I think with that stuff in mind, something I would look out for or really vet is “A”: how much funding have they raised? When did they raise it? How viable are they financially? Do I believe in the business idea? Do I think it’s kind of a dumb idea? Because there’s a lot of ideas that I think are stupid. I would not enjoy working on them. I would sit down, and if you have this list of startups and there’s some that sound really interesting, see what you can find out about their financial situation in terms of burn rate, in terms of getting their next round of funding. Because stuff can go sideways really quickly, and if a company has only raised an angel round or whatever, if you have no problem finding a job then maybe you do take a fly around one of these. But if you’re concerned about them going under and you being unemployed for a few months or something if there is an economic downturn, then you’ll just want to be more mindful of that.
I think that’s the thought process I would go through. I know that working at a startup – I worked for a credit card startup, and I think I was developer number three or four that was hired there. When I left we were at twenty-five or thirty developers. It was a lot of fun in the early days. Then, as we got bigger, it became less fun as companies do. One reason that I went to work for them is they did have buckets of funding and I needed stability at the time. This is ten, twelve years ago so I had the mortgage, was married and that kind of stuff. I was much more risk adverse than I am today in terms of being willing to risk employment and all that. It turned out to be a good decision. I did make a little bit of money off the options and things can work out. But the vast majority of time, it doesn’t. The vast majority of time they do go under. The vast majority of startups fail. Keep that in mind. Think to yourself, “If I come to work for these guys for six months, my options are worth nothing at the end of that and I don’t have a job, am I still okay with it?” If you are then cool do it because it will probably be a fun ride.
I’ve also heard of folks who go and work and they grind out these seventy-hour weeks for two years then everything goes south and then they really regret it because they’re now burned out and they have no job, their options aren’t worth anything and the opportunity costs of all the money that they could have made doing another job is a bummer. I guess that’s the last factor I would think of is: how many hours are these folks going to expect you to work? Because some startups really are a forty-hour week startups. That’s how we were at Drip. We didn’t expect everybody to work fifty, sixty hours. I think that’s definitely a more sustainable way to do it. Some are sixty, seventy-hour startups. That’s probably something to think about asking about upfront.
Mike [32:20]: I didn’t even think to mention it but my question was geared more towards working for a self-funded startup, not necessarily –
Rob [32:26]: Oh, got it.
Mike [32:27]: I don’t think that that strategy would work at all for a funded startup because they’re probably hiring because they need somebody and they need a body, to be honest. I’ve seen a lot of companies where they’re a startup company and they’ve got funding and they’re just like, “We need somebody to handle this.” They will take whoever they can get. And they’re not willing to wait six months to find the right person. They need somebody in the next three to four weeks. I don’t think that working for a company like that part-time is even going to be an option. It depends on who you’re talking to but – I had it more in mind of doing that for a self-funded startup as opposed to a funded startup.
Rob [33:04]: Cool. So there’s two perspectives. Hope that was helpful.
Mike [33:07]: I think that about wraps us up for the day. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at email@example.com. Our theme music is an excerpt for ‘We’re Outta Control’ by MoOt used under creative comments. Subscribe to us in iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening. We’ll see you next time.