Your career: Start-up fever

Friday Oct 1st 1999 by Valle Dwight
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As high-tech start-ups explode with growth, so have the opportunities for people in those fields--from top management to junior programmers. But is everyone striking it rich?

Your career: Start-up fever
As high-tech start-ups explode with growth, so have the opportunities for people in those fields--from top management to junior programmers. But is everyone striking it rich?
By Valle Dwight

October 1999

In this article:
Profile of a promising start-up employee
Lessons learned
Small business by the numbers

Last September, Doug McCollough, 32, was finishing his undergraduate degree at the University of Toledo in Ohio and needed tuition money. He quickly found a job as lead developer on a project to build an online auction site. Though the money wasn't fantastic, he was lured by the idea that as the first employee of this start-up, he'd share in the company's revenues when the site took off, and he'd soon lead a group of programmers following his vision. Seven months later, still the only employee, he came to work and was told that the Web site was history. "They pulled the plug," McCollough says. "Just like that, in a weekend."

We've all heard the mind-boggling success stories: America Online Inc. employees retire as multimillionaires after five years; Jeff Bezos, head of Amazon.com Inc., is worth $12 billion; Frank Batten Jr., the largest investor in Red Hat Software Inc., whose main product is a version of the Linux operating system, is worth more than $1 billion; and Microsoft Corp. employees, from programmers to secretaries, buy million dollar homes.

Profile of a promising start-up employee

Is this you? If not, you might want to think twice before leaving the security of an established corporation to join a start-up.

Young, single, no commitments
Or, young married couple, with the spouse at a steady job with benefits
Can do many tasks at once
Doesn't mind taking on many roles
Able to work long hours
Works well in a potentially chaotic office
Rolls with the punches
Creative, entrepreneurial spirit
Illo
Illustration by Daniel Guidera
High-tech start-ups promise to be the gold rush of the new millenium. Anyone with an idea and a Web site can make millions in a few years, or even months. With potential like that, few can resist the lure of the start-up, and many IT professionals are leaving comfortable jobs at established corporations for the promise of IPO stock options and untold riches.

That's the illusion--what about the reality? Unfortunately, for every newfound millionaire, hundreds of disillusioned IT professionals find themselves out of a job when a promising start-up collapses with huge debts or is bought by a bigger company. Others are finding the fast-paced world of the start-up too chaotic and grueling for their taste or lifestyle, and many end up missing the corporate structure that guided them in their more traditional jobs.

Check it out

According to "Business Starts and Stops," a study from the Wells Fargo Bank in San Francisco and The National Federation of Independent Business in Washington, D.C., 2,897,000 businesses started from scratch in 1997. Most of those companies are small (78% of the start-ups had only the owners as employees), and were launched with modest investments. Of those start-ups, only about half survive the first five years. Some are bought by larger companies; others go under from lack of capital.

Lack of leadership and business savvy are common stumbling blocks at start-ups, according to several high-tech recruiters who have watched new companies come and go. If the founder is a visionary with lots of ideas, but little business background or leadership experience, the start-up could be headed for trouble.

Small business by the numbers
* Small businesses constitute 98% of all businesses in America.
* Small business has created about two-thirds of the net new jobs in the American economy since the early 1970s.
* Small businesses employ almost 60% of the workforce.
* More than half of the businesses with employees employ fewer than five people, and nearly 90% employ fewer than 20 workers.
* 47% of small businesses have access to the Internet, while 35% maintain a Web site.
* Of the 35% of small businesses who maintain a Web site, one-third of them report conducting business transactions.

Source: The National Federation of Independent Business, Washington, D.C.

Prospective employees can avoid joining a doomed start-up by doing their homework. According to Peter Lehrman, president of Emerging Technology Search Inc., in Roswell, Ga., the first place to start is by carefully checking out the company and its management team. Lehrman recommends that candidates have three or four interviews with the company, going there at different times to see how things are run.

Bob Otis, vice president at IT industry executive search firm Atlantic Research Technologies in Stamford, Conn., agrees: "We also encourage candidates to do what we do when we determine the viability and risk level of a start-up: analyze the management team. We want to know if the executive team is capable of making the company a success and if there is evidence in their employment histories to suggest that they might work well in a start-up environment."

You need to go beyond checking the leadership. Chuck Barrett, director of consulting services at Stanley, Barber and Associates, in Cupertino, Calif., a recruiting firm for high-tech professionals, recommends that prospective employees carefully examine the company's business plan and ask for references of the key management people "This is two-way interviewing," he says. "Get rid of those rose-colored glasses. You need to be very critical."

Lehrman cautions that especially cautious people might want to avoid a company just starting out, advising they wait until the company has a track record and at least 20 to 40 employees.




McCollough wasn't surprised that his project didn't make it. Just a few months after he started developing the auction site, eBay went public, and as everyone watched the stock price go through the roof, his boss put the pressure on to get the site up and running. "They thought if they just made an auction site, millions of people would come," he says. "But I always thought ours was a failed venture--we had three guys, and we were too far behind." McCollough says that the founder failed to make critical business decisions on precisely what type of site he wanted. "They weren't even nailing down what they wanted to sell, so I couldn't even develop a database," he says.

Lessons learned
Before you leave the security of a job with benefits for the potential riches of a start-up, Chuck Barrett, director of consulting services at Stanley, Barber and Associates, in Cupertino, Calif., suggests you consider the following about your prospective new employer:
Does the technology the company is developing have a reasonable opportunity to succeed?
How big is the market for the product?
How long will it take to get to market? Usually whoever gets there first, wins.
Is the company adequately funded? Lack of capital is the kiss of death.
Does the company have a proven management team?

The frenzied frontier

Even beyond the promise of multimillion dollar stock options, the no-holds-barred, frontier-like atmosphere at start-ups holds a lot of appeal to many IT professionals. "Start-ups give people a chance to use their skills in a versatile way. You can be a big fish in a small pond, and it's not nearly so structured," according to Barrett. But that lack of structure may turn the job into a nightmare for some people.

One programmer left her job at a large satellite services company to join a new online site specializing in police and crime news. Roberta (who wishes to remain anonymous) was lured by the thought of being "set for life" after working at the online site for two or three years--but she quit in disgust six weeks later. "We had plans, it was exciting," says Roberta. "I worked 12-hour days, but I liked it. I had freedom and I felt needed." It wasn't the long hours that soured Roberta-everyone in the company worked around the clock to get the site up and running. The lack of structure ultimately became the main impediment to her success. Roberta ran into problems with the company CEO, who she said acted very inappropriately--yelling and threatening her. "I never felt so personally attacked," she says. "And there was no real internal structure to deal with it. There was no HR to go to."

Like a lot of start-ups, salary wasn't the main allure of this new venture. The company offered Roberta stock options based on a percentage of her salary. Her contract also called for reviews every six months that allowed for more options. The options would come due after two years, with the first half vesting six months after the IPO. This option package wouldn't have made her a millionaire, but the options along with her salary and bonuses boosted her income to three times what she had been making.

Stock options, which allow employees to buy company stock at a preset price, are becoming an increasingly popular way to attract talented IT professionals to a start-up. According to the National Center for Employee Ownership, in Oakland, Calif., an estimated 8 million Americans have stock options, which is up from one million in 1992.

After walking off the job, Roberta spent three months carefully examining her career opportunities, before she took a job at a traditional publishing company. "This time I looked for someone I could work with," she says. "I found out I definitely like a more corporate structure. I know who I report to, and I like the 9-to-5 job. The behavior I experienced at the start-up wouldn't be tolerated here for one minute."

Personality counts

So, is it possible to predict who will thrive at a start-up, and who will be better off in a more traditional setting?

"It's pretty basic. The type of person who will succeed is high-energy, prefers hands-off management, can hit the ground running and figure stuff out for themselves," says Melissa Doster, a recruiter at Meridian Technology Partners, Inc., in Castle Rock, Colo. "You have to wear many hats. You have to be able to handle chaos." She recommends that IT professionals contract with a company for a few months to see if they like the pace and style. "Within three months most people know if it's a good fit," Doster says.

"I've never found a good way to predict who would work out," says Ted Baker, a professor at the University of Wisconsin business school, in Madison, Wis., and the former general manager at a start-up. "We'd describe the job in detail, even telling them why other people hadn't worked out, and we still frequently made bad decisions," he says. During his company's rapid growth (it grew from three employees to several hundred in under two years) less than half of the new hires worked out. "It was usually because of the lack of structure," Baker says. "Employees coming from a more traditional company had expectations that weren't being met at the start-up. They're used to having resources. They're used to having promises being kept."

According to Bob Otis, of Atlantic Research Technologies, people who might not do well at start-ups are those who have spent their lives working in large companies and who require many people and departments to support them in doing a good job. "Over the years, we've gotten many calls from people like this at start-up companies who want out because 'there's no support,'" Otis says. "If the candidate is unfamiliar with start-ups and the potential risks, we'll describe potential scenarios: long hours, weekend work, doing work that four people at your present company might do separately. In short, we deliberately scare the daylights out of them."

Start-ups are geared to younger people with lots of energy, according to several recruiters. The people Doster knows who chose not to go to a start-up didn't like the chaotic atmosphere and the grueling hours. "Doing development at 3 A.M. gets old fast," she says.

"If you're single it might be OK. But if you have a family you might not want to leave a secure $100,000-a-year job for some stock options," says Lehrman. "It's hard to know which products will succeed."

"If you're a person who likes security, you probably won't be happy," Barrett agrees. "You need to have an entrepreneurial spirit."

McCollough was not out of work long, but he didn't go to another start-up. With a wife and children to support, he said he couldn't take chances. In a few years, after picking up more experience at his new job as a project manager at Lucent Technologies, in Toledo, Ohio, he hopes to start his own company.

If he were to ever consider working for another start-up, McCollough says he would take a hard look at the capabilities of the people running the show. "A start-up is more about people than process," he says. "If you're going to hitch your wagon to their star, you can't have any doubts about them whatsoever." //

Valle Dwight is a freelance writer and editor based in Northhampton, Mass. She can be reached at vdwight@aol.com.




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