If you’ve been quick scrolling through gotechbusiness.com’s list of the most recent stories over the past few weeks, you’ve seen a series of articles about layoffs. Even just our roundups (one, two, three, four) bring some sobering reading into the mix. Alex and Natasha remind us that technical layoffs don’t happen in companies; they happen to people – and as someone who was just on the phone with a close friend who had just received a resignation notice, I feel that more acutely today.
And there is a downside to all of this. Tech startups are inherently risky. I’ve had to downsize companies myself – it’s excruciating – and I always recommend that if you want to work at a startup, make sure you have 3 months of pay saved as you could lose your job at any time.
Over the past 5 years, we’ve seen an unprecedented amount of VC cash flow to ever-expanding startups where the business fundamentals haven’t worked yet. We’ve seen companies soar with incredible valuations and completely wild ARR multiples. In our excitement, as reporters following the industry, we celebrate monster rounds and cheer on the startups as they bungee some rocket boosters, light the fuse and hope for the best.
There’s an infrequently discussed truth here: What goes up must come down. Many techies are so easily lured by the promise of extremely valuable stock options, high wages and the frothy hunt for top talent that has been going on for years. Smart engineers are plucked from established companies to take a walk on the wild side, and too many haven’t stopped to think about exactly why the salary chart is pointing sharply up and to the right.
Alex asks a great question:
With business startups, you may not get a clear answer as to exactly how much money is in the bank, or what the company’s burn rate is. With companies at a later stage you will probably never get a clear answer. But it’s not unreasonable to ask what the runway is — that’s the amount of time (usually weeks or months) that the business can go ahead without running into trouble in the current financial climate and parameters. You may not get an answer, but it doesn’t hurt to ask what happens if business dynamics change, if there is a recession, if the company loses its largest customer, and so on.
When I run my own businesses, I’ve been asked these kinds of questions. They’re difficult because they shed light on an aspect of startups that many people don’t really want to consider: that many startups fail. What people do wrong, though, is that that’s a bad thing. Startups are meant to stop being startups – either because they haven’t found a repeatable business model that was sustainable, or because they turned into “real” businesses, where growth can be supported by cash flow and business activity.
As a startup employee, you take less risk than if you were a founder, but you certainly take a greater risk than taking a job in a more traditional, more established company. Don’t let that put you off; startups can be fun, lucrative and challenging. But it’s also possible that you’ll end up working for a billionaire who wants to spend $44 billion to buy a bird sanctuary while cutting 10% of the workforce on his other project.
Before you fantasize about how great it would be to work at a startup, you should also think about what the downside could be. “High risk, high reward,” they say, but all too often we as humans focus only on the latter, not the former. Especially against the backdrop of a rapidly changing economy and the VC firms thinking that little bit harder about plowing wheelbarrows of cash into the next big heap and dream, do the math and make sure you know what you’re getting into.