Is Joining A Startup Company Worth The Risk?

The word “startup” is a whirlwind. It means so many things to so many different people that to go through all its possible iterations would max out a data warehouse. To the founder(s), it’s the challenge of building their own company. To investors, it’s a business opportunity. To the economy, startups are a key driver of job creation and economic growth. To startup employees, it’s the road less traveled – a risky perilous, but seductive, road with greater opportunities, accelerated professional development, and financial rewards that rhyme with “jackpot.”

Now the fine print. Startups are risky ventures and risky places to work. According to fortunly.com (The 21 Most Important Startup Statistics for 2023):

• 50% of startups with employees survive past the first five years.

• 38% of startups fail because they cannot secure the necessary funds.

• 77% of startups rely on personal savings for their initial funds.

• 0.05% of startups seek out venture capital.

• 81% of American small business owners work overtime.

• 305 million startups start operating worldwide annually.

• The United States is the world’s leading country [in startups], featuring 63.3% of startups worth at least a billion USD.

• A 50-year-old startup founder is three times more likely to succeed than a 30-or-20-year-old founder.

That last one is sobering. Building a start-up into a successful business is hard. Really hard. Most startups are small businesses whose owners work all the time for little more than the pleasure of being their own boss. Startups that go global and create mass fortunes (e.g., Facebook, Amazon, etc.) are rare and require outside investment in the form of venture capital, which means your vision is beholden to investors (and, sometimes, further down the road, shareholders).

So, here’s the set-up. You work at a great company, are well compensated, have meaningful relationships with your co-workers, and generally have no complaints. A professional acquaintance you admire pops out of nowhere and tries to convince you to jump ship and join “a great new startup!” The pitch probably won’t include the following, but you should expect they are part of the deal:

• A pay cut. But not just a reduction to your base pay – it’s a full compensation package cut. Startups tend to be starved for money, and that trickles down until they’re on firm footing.

• Company instability.

• Long-term anxiety and uncertainty.

• Terrible work/life balance. You shouldn’t expect any.

• The knowledge that the upsides are epic but elusive and certainly not guaranteed.

But yes, there are absolutely potential pros to joining a startup venture:

• You have the opportunity and challenge to build a business from the ground up. If you are a creative person who wants to have an impact, then you may be startup material. Prepare to change the world.

• Opportunities to play advanced roles that are readily transferable. If you’re part of a small team, expect to perform various roles, gain experience and skills in multiple areas, and learn how to lead a company. In a traditional corporate environment, there is a much longer ladder to climb.

•  In startup organizations, the payout is in the long term. You put in “sweat equity” (i.e., working hard and being rewarded with an ownership stake) and, down the road, you could earn a piece of the pie without being an original investor.

• In a high-risk startup environment, if you successfully help the business through its early stages and help set it up for future growth, you can position yourself for executive-level positions, within the startup or somewhere else. It’s possible to reach those upper echelons more rapidly if you’re part of a successful startup.

• Show me the money! There are various financial instruments startups use to attract top talent.

  • a.     An ownership stake.

  • b.     Stocks. Long-term incentive because they must “vest” before you can cash out.

  • c.     Stock options. Stock options are an opportunity to purchase stock at a reduced price.

  • d.     Opportunities to invest in the company, or buy into an ownership position, aren’t available to most people.

• Maybe you’re the one with the great idea! Starting and working at a startup you will be thrust into the world of venture capitalists who, down the road, may finance your $1 billion idea. And you could possibly someday cash out.

 Philip Roufail contributed to this article.

Scott Singer is the President and Founder of Insider Career Strategies Resume Writing & Career Coaching, a firm dedicated to guiding job seekers and companies through the job search and hiring process. Insider Career Strategies provides resume writing, LinkedIn profile development, career coaching services, and outplacement services. You can email Scott Singer at scott.singer@insidercs.com, or via the website, www.insidercs.com.