Jan 20 2016
Today’s tech world is not unlike the prospecting days of the Wild West, and stories of people's behavior nearly 200 years ago still sound oddly familiar today:
“After the discovery of gold in California, which clearly showed how rich the strikes could be, more prospectors by the thousands headed west to explore every promising
regionstartup idea in their search for wealth. To these many adventurers, no mountain was too high to climb, no canyon to precarious to descend, and no river too difficult to cross. They were a determined lot.”
As a talented engineer, designer or product manager, you are in demand! I interview a handful of people every week for jobs at MojoTech, and many of those talented people are considering more than one job offer. Often, the decision comes down to working for us -- a product agency -- or a startup.
The two jobs are very different; both the roles and the environments. And both can be fantastic opportunities for the right people. I’ve worked on both sides, I have close friends on both sides, and I still spend a lot of my time working closely with startups.
I frequently see smart people being pulled toward startups for the wrong reasons.
“I want to work on a product I’m passionate about.”
Here’s the good news: with thousands of startups pursuing interesting ideas out there, there is a good chance you can find a product that you’re excited to work on.
Here’s the bad news: that product is likely to look very, very different in a year’s time.
Pivots happen often, and they’re not always small; it’s not uncommon for a startup to completely change direction at least once in its lifetime. Mike Tyson’s famous quip, “everyone has a plan until they get punched in the mouth,” applies especially well to startups. Many early-stage companies have grand plans for growth, but once they spend time in the marketplace, realize that those plans won’t turn a profit.
The plan has to change, and often, the product does, too. Startups will often see a drop in morale and a rise in attrition after a pivot, and one of the reasons is that these people are no longer working on something they’re passionate about. Consider that this is a very real possibility when you decide to take the plunge on a product you love.
“I want to improve my skills as a developer/designer/product manager.”
Perhaps the biggest distinction between the developer/designer/PM’s role at an agency versus a startup is this:
At a startup, the company needs to sell the product, and they’re focused on making the product the best it can be.
At an agency, you ARE the product; the company needs to sell you, and they’re focused on making YOU the best you can be.
Every business must focus on making their product better so that they can sell more of it.
The most common way for a single-product startup to make their product better fast (and they must do it fast or risk death) is to hire more great people to work on it.
The best way for an agency to make their product better is to invest in their people, because massive gains in the skills of a single employee can easily double or triple their value to the company.
Massive gains take time and money to accomplish, luxuries which most early-stage startups, in a state of perpetual urgency, don’t have.
It’s rare for a startup to give developers time off and thousands of dollars towards their skill development.
In the agency world, we make those investments without hesitation, because making our people better makes our business more successful.
“I want to get good enough to build my own successful product one day.”
There are a lot of valuable things working for a startup can teach you about building a product.
But these benefits are amplified many times over at a good agency.
For every product that you might build at a startup, at an agency, you’ll build ten. That means that you’ll be learning exponentially more about product development, customer behavior and trends, every single day. And the next day, you apply those learnings to different products across different industries, get feedback, and continue to learn and grow.
While it’s always sad when great people leave, I’m proud that we’ve had ex-employees who have gone to to do great things in part because of the lessons they learned at MojoTech.
The agency model is a rapid knowledge multiplier for learning how to envision, create and ship great products.
“I want equity so that I can get rich.”
I’ve always scratched my head at the “prospectors” who assume that startup equity is hugely valuable, especially at the early stage.
I’ve been there, and have thought the same thing myself earlier in my career. I’ve worked for a promising, celebrated and well-funded startup (two actually), where I got substantial equity for my role compared to market averages, and I was thrilled when we got acquired, eager to spend the next twelve months counting my money.
What I ended up with was worthless options (due to liquidity preferences), an offer to join a company I had no desire to join, and therefore... no job and no big pay day.
The problem is that my story isn’t the exception. Most of us who get offered equity in startup comp packages, frankly, aren’t qualified to determine its value. Between investor liquidity preference, dilution, vesting schedules and the actual probability of a successful exit, your equity is likely worth a lot less than you think.
I was tired of trying to make this argument on a theoretical level, plus I’m aware of my own anecdotal biases, so I hired a McKinsey business consultant to help me do the math.
We set out to understand the “average expected value” (what you can expect your shares to be worth) for seed-stage startup equity, and what we found was quite different than what the TechCrunch narrative leads many to believe.
You can find a detailed breakdown of our process and research here, but here’s the summary:
Junior engineer being offered a .3% stake? Seems generous to me but, let’s go with it.
Using our (optimistic) calculations, you can expect that .3% to be worth roughly $5,000 per year; rarely enough to cover the difference between what your skills would command outside of that startup gig.
I’m generally not too risk averse, but I believe risk should come with appropriate reward. A less sexy but more “guaranteed” path to wealth is constantly improving your value in the market by improving your craft and making consistent, long-term contributions to a savings plan that takes advantage of the amazing power of compound interest.
The experience that you get is very unique and if you do want to start your own startup you will likely learn a lot about the whole ecosystem.
You might get to work on some interesting and hard to solve problems that only a startup would dare to tackle (enterprises often have these types of problems too but with even more baggage than a startup).
You’ll likely build valuable relationships with future co-founders, investors, and others in the industry.
The work environment and energy (at a good one) are unlike anywhere else.
And ultimately, even being able to say “I did that”, is as valid a reason as any for spending a couple of years in the trenches. I’m glad I did.
When a candidate decides to work for a startup because of the reasons above, I can’t blame them. Indeed, there are some great reasons to work at a startup.
One of the main reasons the equity question becomes a focal point for candidate’s decisions is that we don’t offer equity. It would be disingenuous if we did because we don’t intend to sell the company, and we don’t want to give our employees a false hope that they could strike it rich here. We are not their lottery ticket.
Instead of providing equity of dubious value, we try to attract people with:
Working for a startup and working for an agency are completely different roles, and everyone considering the two needs to decide which is a better fit for them. If you do choose to go work for a startup, I hope that you succeed and are rewarded handsomely for it, becoming a vastly successful outlier. But, whatever you choose, don’t do it for the options, and know what you’re getting yourself into and whether it ultimately aligns with your goals.
Just remember, that working at an agency will likely accelerate your skills, knowledge and marketability far quicker than any startup environment - ultimately setting you up to conquer any challenge down the road.
I hope that this becomes a valuable resource for startup job candidates trying to figure out what their offers are really worth.