As you continue along your path to a career in tech you’ll reach a point where you need to ask yourself: “Where do I want to work?”
There are a few factors to the decision: do you want to work in enterprise SaaS, consumer mobile or ecommerce? Would you prefer to work in-office or remotely? But there is one factor in particular that can have a huge impact on the direction of your future career: Should I work in an early-stage startup or a large, established technology company?
It may be tempting to think “who cares, I’ll be happy with any job I can get”. While I understand the sentiment, it’s short sighted. Startups and larger, more established technology companies (which from on I’ll refer to as tech companies) are not simply small and large versions of the same organization. There may be an optimal choice based on your goals, risk tolerance and chosen career path, and choosing the wrong option could have negative effects on your future finances and quality of life.
Startup Lifecycle: from Pre-Seed to IPO
To help explain the differences between startups and tech companies we are going to go through a startup company’s lifecycle from “birth” to exit. We’ll be describing each stage of the life cycle using terms from the world of venture capital, as this is how the stages are commonly described in tech.
Let’s start with some definitions.
A startup is defined as a “new business that intends to grow large beyond its initial founder(s)”. The stereotypical example of a startup is a couple of founders getting together to work on an idea after work or on the weekends, and self-funding the early work with their personal savings or money from friends or family. This would commonly be known as the pre-seed stage of the life cycle, where the company essentially exists as an idea – they don’t have a real product or prototype, let alone any customers or users.
Money and other resources are usually in limited supply for newly founded companies, so many growth-focused startups will try to raise some initial investment from Angels (private individuals who invest in startups) or Venture Capitalists (VC) to help fund early product development. This initial round of outside funding is commonly known as the seed round, based on the comparison of a new company to a growing plant – the angels and VCs are providing a relatively small amount of capital to help “water the seed” and see if it will grow.
If the startup takes a seed round and starts growing at an exciting rate then they’ll usually look to raise another larger round of funding called the Series A. This money will help pay for the added costs that come with growth, like hiring new staff and spending more in areas like marketing and sales.
Product/Market Fit
Product/market fit is a very important concept in the tech world. If a startup has product/market fit it basically means they have created a product that is meeting the needs of customers/users in a large market, and as a result they are seeing very strong growth for their product (in the early stages this could be 10%+ growth per week).
The product/market fit concept is often associated with the stages of the product funding life cycle that we’ve been describing: a startup is generally trying to find product/market fit during the pre-seed and seed stages, and is usually expected to have achieved product/market fit when they go to raise their Series A round. The Series A funding can then be used as additional fuel to help the startup grow and scale as quickly as possible.
When a startup is pre-product/market fit then their entire focus should be on achieving it as quickly as possible to avoid spending their limited time and money on ideas that don’t have any potential for future success. This is one of the reasons why it’s common to see early stage startups pivoting, or changing their products and business models, as they test different products in an attempt to find one that resonates with the market. There are hundreds of real-world examples of this, including Instagram, which started life as the location check-in app Burbn before changing focus to photo sharing, and Twitter, which grew out of the early podcast-focused company Odeo.
Back to our lifecycle example. If the company has achieved product/market fit and has continued to surpass its growth targets, it’s going to start to shift from startup to scale-up mode. Scaling can be a very expensive process and many startups will still not not be generating enough revenue to cover their costs so they may choose to raise additional rounds of capital, known as Series B, Series C, Series Dand so on.
As the company keeps growing the founders and investors will eventually want to make a return on their investment. This will ideally happen via an exit, the colloquial term for a liquidity event like an Initial Public Offering (IPO), where a company becomes listed on the stock exchange for the first time and the public are allowed to buy shares, or when the company is acquired or merges with another company. However it happens, when a company is dominating a market and valued in the billions we can safely say they are no longer a pure startup, or even a scale up – they are a large, established technology company.
Why does this matter?
From the view of a potential employee (you), each stage within a technology company’s life cycle comes with its own set of potential advantages and disadvantages. We can’t simply say that it is betterto work for a company in any specific stage – it will come down to your preferences, risk tolerance and career goals.
Before applying for a tech job you should be asking yourself questions like::
- What kind of job do I want?
- What is my risk tolerance?
- What kind of work/life balance am I looking for?
- How much money do I want to make?
- Is my chosen career available in a company of this size?
- Am I a specialist or a generalist?
- Am I prepared to take the risk for the low chance/high reward startup “lottery ticket”?
- Do I thrive in environments of frequent challenges and change, or do I prefer consistency and a well-established routine?
- Am I looking to maximize my experience, income, or some other area?
- Do I want to work for a well-known “brand”?
- Do I need a well defined path of career progression within the company?
Based on your answers to these questions you could find yourself drawn to anything from a scrappy, early-stage startup to a market-dominating, post-IPO giant.
To help you make a decision, I’m going to outline what you could expect to find if you were working at a company in each of the startup life cycle stages.
Quick note: The following descriptions are examples and they will not apply to every company that falls within that stage of the life cycle.
Pre-Seed
Risk: High
There is a very real chance that a pre-seed startup will run out of money and die before it manages to find product/market fit, or reaches a sustainable level of growth and/or revenue.
Work environment: Creative, fast-paced, energetic, high-stress
Time and money are in very limited supply and there is a strong need to come up with an idea that could reach product/market fit. Ideas can be challenged and changed on a day-to-day basis which can be exciting, but some people will not enjoy the frequent changes in direction and lack of stability.
Suited to: Generalists
The team will be very small so people will have to pick up any work that needs to be done, regardless of whether it falls strictly within their job description. Your day-to-day work can vary widely, which some people will enjoy.
Range of roles available: Low
A pre-seed startup will be focused on getting a product or prototype built so they will mainly need people in engineering and product-focused roles. It’s very unlikely they will have any business development, corporate development, support or operations positions.
Compensation: Low
The startup is probably pre-funding so will usually offer lower salaries backed by stock options and/or equity. It’s important to remember that equity and options are only valuable if a company eventually exits, and at the pre-seed stage the chances of this happening are very low.
Experience building opportunity: Medium
You’ll have the opportunity to tackle projects and tasks that would normally be above your formal job description or title, which can be a great way to build up experience. But the lack of organizational structure means it can be harder to get feedback or support, and you’ll generally be expected to try and resolve any issues yourself.
Career progression: Low/Medium
If you can move and adapt as quickly as your company then you may be able to “ride the wave” and grow with the company (assuming it makes it past the pre-seed stage!). But in many cases, as companies grow the early employees find that their generalist, do-it-all style falls out of favor as the organization starts to add processes and structure, and hire specialists for each role.
Conclusion
As a very early hire you are taking on a large amount of risk, but will usually have much less potential financial upside than founders or early investors.
You will be exposed to a wide range of tasks and responsibilities that might not normally be available to people with your experience level, so the roles can be a good stepping stone for people with some industry experience who are looking to level up quickly.
You will usually be expected to work independently and without direct management supervision so the roles are not ideal for people who are new to the industry and would benefit from guidance and mentorship.
Seed
Risk: High/Medium
Seed funding should help to decrease the startup’s immediate financial pressure, but seed stage companies are still looking for product market fit and there is a very real chance they will run out of cash before reaching their goal.
Work environment: Fast-paced, long hours
Now the startup has taken funding there will be huge pressure to reach product/market fit and raise their Series A round as quickly as possible. This often plays out in longer working hours and a fast-paced work environment, but it can also be an exciting and rewarding time to work within a company.
Suited to: Generalists
Team sizes are still small so people will be expected to help out wherever they can, making generalized skill sets valuable. If the product has some initial users or customers it may need support, sales and marketing staff, but these team-members will likely be expected to handle all elements of the role by themselves (for example, the first marketing hire could be defining the marketing strategy, writing blog posts, running paid ads, setting up SEO etc).
Range of roles available: Low/Medium
If the startup has a product or prototype they may be looking to hire initial customer support, marketing or sales positions. They are still unlikely to need roles like business development, corporate development, or operations.
Compensation: Low/Medium
With some funding secured the startup can afford to pay closer-to-market level salaries, with the shortfall made up in the form of equity or options.
Experience building opportunity: Medium
Seed-stage startups can offer good opportunities to quickly build experience, especially in roles where you are likely running the entire “department” by yourself, like support, marketing or sales.
Career progression: Medium
As with pre-seed startups, if you can ride the wave and adapt to the organization as it grows then you could see strong career progression opportunities. But if you prefer to work as a generalist you may eventually see yourself being pushed aside as specialists are hired.
Conclusion
Joining a seed-stage startup is still risky – while they have some funding it won’t last long, putting a real limit on how quickly they need to find product market fit. As an early team member your compensation will be more weighted towards stock or options, although the odds of this ever being worth anything are still low. You can learn a lot at a seed stage company, so it can be a good place to build knowledge and experience. Seed stage companies can also be very exciting and intellectually stimulating places to work.
Series A
Risk: Medium
A company that has raised Series A funding has ideally found (or is close to) product/market fit, which reduces some of the risk seen at the earlier seed stages. But the number one priority is still growth, and in highly competitive markets it’s not uncommon for startups who appear to be on the right path to encounter issues and blow up.
Work environment: Fast-paced, high-stress
Reaching product-market fit is not the time to slow down – most Series A companies will be pushing for maximum growth and looking to scale up as quickly as possible. You can expect longer working hours and frequent changes to your team as new members are hired and existing members are shifted to other roles or leave the company.
Suited to: Generalists and specialists
As team sizes grow they will start to hire more specialists and management layers will become more pronounced. As an example, while the sales team may have started as one person you may now have a VP of Sales leading the team, and multiple sales development representatives and account managers working underneath them.
Range of roles available: Medium
Existing departments like engineering, product, design, marketing, support and sales will be hiring more widely than in the early stages. Some additional support and operations roles may be added if they don’t already exist, like People Operations to help scale up hiring.
Compensation: Medium
Base salaries should be market rate and any options or equity you receive should have a small chance of being worth something in the future, although it’s definitely not guaranteed.
Experience building opportunity: Good
By this stage the company should have a decent product and a highly motivated, although still relatively small team. If you are willing to put in hard work then it’s often possible to take on additional responsibilities and grow with the company.
Career progression: Medium
If the company continues to grow and you can keep up with it then you can have good opportunities for career progression. Series A startups are often starting to gain some brand recognition within the wider tech community which can be useful for your resume if you eventually decide it’s time to look for a position elsewhere.
Conclusion
Joining a Series A company can be a good compromise between the excitement that comes with being part of the early team, while waiting long enough to remove some of the risk that is inherent with early stage startups. If you pick the right company and can rise alongside it then there is a good opportunity for career growth.
Series B/C/D…
Risk: Low/Med
When a startup has product/market fit, is scaling up and has taken in multiple rounds of investment then most of the early startup-killing risks should have been removed, although it’s certainly still possible for growth-related problems or changes in the market to cause issues that could result in layoffs (or worse).
Work environment: Mixed
The company is still scaling up and likely looking towards an exit so there will be tough growth goals to meet. That said, by this stage the company should hopefully have enough people to “share the load” which should remove some of the individual pressure.
Suited to: Specialists
Teams should be large enough to have specialists performing the majority of key roles, and there will be layers of management and organizational structures in place to prevent people from working outside their core areas of responsibility.
Range of roles available: High
Startups of this size will be hiring for most of the positions that make sense within their sector of the industry, so you will find all of the operations and service related roles (legal, finance etc) and may also find roles like business operations and corporate development.
Compensation: Mid/High
A company that has raised multiple large rounds of funding will generally pay market rates or higher. As the company gets closer to an exit the odds of any equity or options becoming valuable increases dramatically, although the number of shares/options you’ll receive will be much lower than in an earlier stage company (fewer stock options, but a higher chance they will actually be worth something).
Experience building opportunity: Medium
You should be working alongside a team of high performing professionals, and the company should have the management and organizational structures in place to help you develop and gain experience. Most roles will be fairly specialized by this point so there will not be much opportunity to take on projects or tasks that are outside of your standard job description.
Career progression: Medium
Companies that are scaling up and aiming for an exit event should have solid management and organizational structures in place, so if you can “play the game” then there can be opportunities to move up in the organization. These later stage startups have some of the best brand recognition in the industry and this can be very helpful when the time comes to change jobs – even if you weren’t actually there from the start, many potential employers will still be impressed when they see a “known brand” on your CV.
Conclusion
Working for a scale-up stage startup is a fairly low-risk option with the potential for good career progression, and the increasing possibility of a financial windfall from options and equity. People with more generalized skill sets, or who prefer the relative freedom and challenges associated with early stage startups may feel confined within the organizational structure of a larger scale-up.
Post-Acquisition/IPO
Risk: Low
It’s highly unlikely that the company will fall apart and dissolve within a short period of time, although there are always some factors that could cause issues or layoffs (major changes to the market, legal or regulatory changes, wider financial market problems etc).
Work environment: Relaxed
Established companies will generally have more relaxed working environments than early-stage and scale-up startups, as they tend to have some market power, and not to be in the “fight for survival” mode or working towards an upcoming exit event.
Suited to: Specialists
Companies at this scale will have teams of people performing specialized roles, so the opportunity to dabble across a range of tasks is going to be low.
Range of roles available: High
Large tech companies have the widest range of roles on offer, with all of the usual specialized and management positions, and teams like corporate development and business operations that are only found in larger companies.
Compensation: Mid/High
The company should be paying market rates or higher. As the company has already “exited” you will not be receiving options but may be offered other forms of compensation such as Restricted Stock Units (RSU). You aren’t going to get the “lottery ticket” style outcome that is possible (although unlikely) from an early stage startup, but you will be trading that potential jackpot for consistency.
Experience building opportunity: Medium
You should be working alongside a team of solid-performing professionals, but the roles will likely be very specialized and there will be little opportunity to gain additional experience by taking on tasks or responsibilities outside of your job description.
Career progression: Good
With established business units and structured layers of management there should be well outlined paths of progression if you choose to stay and perform above expectations.
Conclusion
Taking a position at a well established, post-exit technology company offers the lowest level of risk and should provide for a stable, consistent work environment and regular work hours. Many people will welcome these benefits, but the formal structure, work consistency and increased bureaucracy that is inherent in larger organizations is unlikely to appeal to people who are seeking the relative “excitement” of startup life.
The non-funded option: working at a bootstrapped startup
We’ve been looking through the lifecycle of venture-backed startups from pre-seed to post-IPO, but that does leave a gap that we need to cover – bootstrapped startups. A company is said to be bootstrapped if the founders are using their own money to cover the company’s expenses, rather than raising any additional outside capital.
Bootstrapping allows founders to retain full ownership of their company as they are not giving up equity in return for investment. By maintaining control they are not forced to go all-in and hit the high growth targets that venture-backed startups need to meet to receive additional funding. This gives bootstrapped startups some flexibility in how they choose to operate and where they focus their attention. Of course, this flexibility comes with a (literal) cost – until the bootstrapped company reaches a financial break-even point they will have to limit their expenses to what the founders can personally afford to cover.
The choice of whether to self-fund or raise capital will usually come down to the goals of the founders – if they are trying to be the next hyper-growth startup with a huge valuation then they will generally seek external funding, but if they are content with a slower pace of growth and a smaller company (often referred to somewhat derisively in tech as a “lifestyle business”) then they may choose the bootstrapped approach.
As a potential employee you would generally expect to find that a bootstrapped company would be a less stressful work environment with a better work/life balance than a venture-backed startup. But as bootstrapped companies tend to grow slower and have limited financial resources, if you are looking to maximize your income or experience riding the startup “growth rocket” then you may prefer to go down the venture-backed startup or established tech company routes.
By now you should already have a good idea of the tech job role you’re looking to move into, and what you are hoping to achieve in your move to a career in tech. If not, it’s worth taking some time to go through the questions from earlier in this lesson and the goal setting process that you can find in my guide on how to choose the best tech career.
If you’re early in your career, have few outside responsibilities like family or a mortgage, and are looking to maximize your range of experience then a startup could be a good option. On the other hand, if you’re currently working in a field like banking or management consulting and you’re looking for a role in corporate development or business operations then you’ll need to look at the larger, more established tech companies that have these business units. It really will come down to your individual situation and goals.
A note on startup risks
Our examples have focused on startups that grow from pre-seed right through to IPO, but reality shows that most startups will actually fail. If you do want to work in startups then you need to have a plan in place for this eventuality.
Imagine you take a job at a Series A startup. How long would you be willing to stay in the role if growth suddenly stalls? Slowing growth can take a heavy toll on a startup’s morale and will negatively impact their valuation, so any options you have will be worth less, and may never be worth anything at all. If you took a lower salary to have a shot at the startup lottery, how long will you allow before you cut your losses and move on?
Startup life is full of ups and downs and I’m certainly not suggesting you would need to quit as soon as things become tough – most successful startups will experience some growing pains. But there is a difference between temporary growing pains and permanent stagnation (or worse), so if you choose startup life then do yourself a favor and have an exit plan in place.
Researching potential companies
You may be asking how you are supposed to know where in the life cycle a particular startup currently happens to be. Good question!
A good place to start is by checking if the company has a profile on Crunchbase, which should list any recent funding news. Alternatively, most venture-backed startups will use funding rounds as an opportunity for some PR so you can Google the company’s name along with terms like “funding” or “series A” (or for more established companies, “IPO” or “acquisition”), and see what comes back.
Of course, if you get to the interview stage with a company you can simply ask them about any funding they’ve taken and their future growth plans. You can then use this information to try and see whether the company is on a positive growth trajectory, and decide whether it is a good fit with your goals and preferences.