Starting a new business can be exciting. You finally get to be your own boss, follow your own hours and execute your ideas. Leaving your corporate job for a startup is like going on an uncharted adventure. But is it really as thrilling as it sounds? Startups, like any other business, have its own risks. Yes, it feels like an exciting adventure but entrepreneurs will tell you that it is not always rainbows and butterflies. If you’re seriously thinking about leaving your salaried job for a startup, here are things you need to think about.
You can Fail
Startups seem to be taking off left and right and many of them are successful. However, there are also startups that crash and burn. According to studies, the chance of failure for a startup is high; around 40-90%. What does this mean for you?
This means that you really need to do your research. If you’re joining a startup, you have to find out if the product is something you believe in and if there is a market for it. You also need to find out if there is room to scale the business. The same is true for those hoping to start a business. Your product has to resonate to a large number of people for it to be successful, and that’s just for starters.
If your startup has no benefit over its competitors or if you’re struggling to find customers, there is a large chance that you’re going to fail. There are also other factors that can cause a business to fail and you need to be ready for it.
Be Prepared for a Pay Cut
Most startups won’t pay you the same amount you make in a big company. In fact, if you’re the founder of the startup, you can expect to not get paid at all. Going into any business is risky and startups are among the riskiest. They are untried, new and just starting up, hence the name. There will be no customer base because it has to be built from the bottom up. For startups, the first few months of business mean more money going out than going in. during instances like this, startups need to conserve money so they won’t be able to pay you what you make at your old corporate job.
This is very important to many people because even if you decide you want to take the pay cut, bills will still keep rolling in. Your school loans, rent, utilities and other expenses are still going to be your responsibilities. Before leaving your corporate job, ask yourself if your savings can take the hit should you decide to join a start up.
How Equity Works
People who are thinking about joining a startup also need to know how equity works. Part of the allure of joining a startup is the prospect of owning a piece of the company.
But if you don’t know how equity works, it could end up costing you money in the end because there are risks involved in equity deals. For example, employees of Good Technology lost money on their stock option when the company was sold to BlackBerry at less than half of its private valuation.
If you’re serious about joining a startup you need to know about some of the basics like:
- The number of shares you’re offered, the buy price and their current valuation
- Type of shares offered
- Vesting period of the shares
- Estimated future valuation of the shares
- Tax and other cost implications of the shares
Expect Long Hours
Getting a company off the ground involves working long hours. Unlike a corporate job, startups usually have a few people working with limited resources. However, it is also a fast-paced environment where employees are responsible for its success. If you want to be successful, you need to put in extra hours to ensure that it gets off the ground. Why? Because the stakes are higher because you own part of the company. Expect less time with family and friends and more time at the office if you’re going to join a start up.
Startups are usually composed of small teams responsible for the company’s success. Generating results mean better opportunities for you and your colleagues. Some people will want to hide from the thought of not having enough time with friends or not getting a big salary. For other people, working for yourself is the greatest motivation there is.