Hey everybody. A few days ago a friend of mine asked me for advice about joining or not joining a startup. After I answered him, I got excited to share my condensed thoughts with you in this blog post. He asked me since I was very enthusiastic about founding my own startup. Back in the days, I told him about my idea and my friends who’d be joining me in that adventure.
Boy, was I refreshingly naive! Not yet naive enough to actually start something just like that, but get informed and involved before. Yet, it was perfect to dig the whole start-up topic. Later, see a starter-pack of my personal recommendations to this topic. But first, let’s get to business…
What’s the situation?
Soon, he will finish his dissertation in medical engineering. A really smart, friendly and quick-witted guy. A friend of his asked him what he wants to do after he’s done with the diss. After they talked, he ended up with an offer. He can get involved in the startup his friend founded. He’d get paid way under his market value, but owns company shares. Wow! What a tricky situation. Tough call, I’d say. This led to him asking me how much such a startup can be worth, unfortunately without any further context.
Obviously, there is no clear number I could tell him, no yes-or-no, do-or-don’ts. Instead, I tried to convert my current state of mind into a dense checklist. He could use my thoughts for checking if it could be a proper invest.
I tried to roughly differentiate between four main criteria-categories. All can be crucial for taking this decision:
- The Problem
- Strategy and Methodology
Point 1 – The Problem
Meaning the problem the startup should be called to solve.
- Do you yourself believe that enough people have this problem AND want to solve it AND don’t want to solve it well enough in another way?
- How much work has been invested into the startup already?
- Is the founder already too much in love with his solution? This is like a pre-programmed deathblow for a startup. Founder and their team should be in love with the problem instead!
- Can a solution to the problem be sold/presented well and possibly monetized in the long run?
Point 2 – Strategy and Methodology
- Does the founder want to achieve a good exit, that is, sell the solution at a great value to a big fish?
- Are there plans to scale the company asap, or put in a HEALTHY growth?
- Is the Founder (or someone else in the team) a good salesman/ speaker? Because this is one of the most important activities of a founder: selling!
- How methodically does the startup proceed? It is important that the management team is really literate and enthusiastic about lean startup/ design thinking/ design sprint/ human-centered design! Like this, a startup increases the probability to alleviate the main problem of startups in the best possible way: too little time for much too much to do. Read about my info starter-pack recommendations below.
Point 3 – Figures
To come back to his exact question. Of course, there are these and such cases.
- How is the financial plan and current situation?
- It is quite possible that in the first 3 – 7 years business will not be in profit. Still, it can increase in value if it proves itself to be growing strongly (not necessarily by headcount).
- In Germany, startups with a hardware product are usually much more likely to go into
prepayment. This is followed by lower margin promises and scalability, as opposed to digital goods.
- German investors are not very fond of high investments (in comparison to other countries). That’s (also) why digital products (and especially platforms) are more of a trend. As a team of
fiveyou can already solve a huge problem at scale. Not necessarily the first solution has to be scalable, though. A pearl of start-up wisdom says: Do unscalable experiments first. Find out what you need to do without too much pre-investing.
Point 4 – You
- Is the vision suitable for you? Can you feel being a missionary for what the company wants to stand for? Does it catch you, and you feel the fire burning inside of you?
- Are you ready to join the company full-time? Maybe you don’t need to invest much more than 40/ 50 hours per week to be successful. Still, usually, the bottom line is that it’s more like two full-time jobs. Especially if you have shares in such a company. Your motivation might be pretty strong to get it profitable.
- Statistically, your chances are about 10% that you can make a profit with your shares. By the points above you can decide whether it is rather less or rather more than a 10% chance.
- Determine the possible effect on your CV. E.g. in my friends’ case working in a startup is actually doing good to his vitae. As a postgraduate, he’d prove his interest in the market and the creation of good products, as opposed to being brain-bound (as postgraduates are said to be).
- So your main investment would be your work performance and the opportunity costs (salary you could otherwise get).
Here is my personal list for getting informed. Listen to podcasts like Masters of Scale by Reid Hoffman and Wireframe from Gimlet Creative. Check out TEDxTalks, and start with the one that’s really sticking in my head Start With The Why by Simon Sinek. Figuratively eat books like Lean Startup by Eric Ries, Inspired by Marty Cagan, User Story Mapping by Jeff Patton, Sprint by Jake Knapp, John Zeratsky and Braden Kowitz, Actionable Gamification by Yu-Kai Chou, Even Ninja Monkeys Like To Play by Marczewski, Hit Refresh by Satya Nadella and the Autobiography of Goetz Werner. Don’t just read them, but work them through! Make notes, summarize chapters and make notes for your later self (even if you might never read them again). Go on Founding-enthusiasts-meetups, participate at Hackathons (like us), talk about your ideas and concepts and explore the unexplored.
Now, around 1.5 years after I started digging the topic, I ended up becoming a product owner in a solid startup called sofatutor, and this brought me to a realization. If you wanna make the world a better place, solve real problems of the people and create something special, you don’t necessarily have to be a founder of a startup yourself. Every (small) company can win by people like you. You can bring all your enthusiasm into place and make it to your project!
So what do you think? What would you tell him? What’re your favorite reads about Startups and how to create a product your customers love? Let me know in the comments below, write me a message, link this post in your own blog. I’m very eager to hear other and additive opinions.
Keep up the challenge!