Recently, I wrote about why you should work for a startup in New Zealand. The right opportunity can be transformational for your career (just ask those who joined the early days of Trade Me or Xero!), but not all startups are created equal. The startup ecosystem is noisy, and it can be difficult to distinguish a bad startup from a great one. The main contributor to this noise? Getting over enthusiastic about the opportunity in front of you — in simple terms, drinking the startup kool aid.
Here’s what you should ask to help figure out if a startup is right for you.
Think like an investor
When I was weighing up joining Sharesies I tried to think like an investor — because in my mind, I was becoming one. Joining a startup doesn’t normally mean investing real dollars, but it definitely requires an investment of your own personal capital — your time, reputation, expertise and network. In my opinion, this is more valuable than money. An investor mindset helps you think beyond the obvious drawcards of a startup. Forget impressive offices, shiny branding and bold claims. You need to be convinced that a startup is the right one for you.
1. What secret is this company built on?
In his book Zero to One, Peter Thiel likes to ask, ‘What important company is nobody building?’. The idea behind this question is that startups are founded on a unique insight, usually into human behavior or the capability of technology. This allows startups to create new markets or dominate existing ones. Let’s take Rocket Lab as a New Zealand example. Founded by Peter Beck, Rocket Lab started when no private company had access to space — the only space explorers were large governments with billion dollar budgets. With technological innovation, an accommodating political environment and access to uncluttered airspace, Rocket Lab has become a global leader in the space industry. By believing in a secret (that a private company could build a rocket), the founders of Rocket Lab looked beyond the status quo to enormous opportunity hidden in plain sight. It’s also not as tricky as you’d think — most startup founders are shouting their secret from the rooftops, but no one takes any notice because of their obscurity.
Once you gain insight to a secret, you have a good platform to understand the market opportunity a startup is trying to exploit. An important thing to remember is that a secret doesn’t have to be guarded under lock and key, or even be intellectual property. Often the secret is just a new way of thinking that the market hasn’t quite cottoned on to yet, or needs a new company to demonstrate it will work before they’ll invest.
2. Does the start-up have momentum?
A big contributor to an investor writing a cheque is product momentum. Everyone has their own definitions of this; users, revenue, partnerships etc. While the metrics change, what you’re looking for is a demonstrable track record of rapid product progression. Why? As an investor, you have multiple data points to make your decision, rather than what is happening at a single point in time. As a startup, momentum means you can survive almost anything. When I first saw Sharesies pitch at the 2017 IceAngels Showcase, they were 3 months into a beta launch and already had 5,000 customers. 5 months post-launch, it was 8,000 customers. 7 months post-launch, the day I started at Sharesies, it was 11,000 customers. Some investors thought the company’s hype around that time wasn’t justified. What they were missing was that Sharesies had product momentum. A consumer startup in New Zealand has never found product-market-fit so fast and demonstrated >10% month on month customer growth like Sharesies. Yes, there were other important metrics, but the momentum was undeniable. Now, momentum doesn’t mean a startup is going to be a guaranteed success or any less hard work. But it’s a trait that any valuable company needs at the outset and also helps build your conviction that a startup has bright future opportunities.
3. Why this team?
A great way to begin evaluating a startup team is to ask yourself, ‘Is this the right team to execute and achieve success?’. In the early days of a startup, the team is everything and nothing will overcome fundamental flaws. In my experience, the best teams have deep industry knowledge, value learning fast over knowing everything, and can evangelise employees and customers with fantastic communication. Personally, I like figuring out whether the team has core competencies in the product and market they’re going after. You can delve into technical and commercial competency, but I believe the most valuable insight comes from understanding a team’s motivations. You should place particular attention on the experiences that led the team to this startup, and their philosophy behind value creation. For example, are you led to believe they’re being authentic? Do you think they will be relentlessly resourceful when the odds are stacked against them? One quick way to do this is to ask people who know or have worked with the team for a reference check. Before I’d even applied for my job at Sharesies, I had the opinion of half a dozen people that the founding team was highly competent and genuinely motivated to change the investing landscape in New Zealand. As an investor, having a clear understanding of a team’s competency in both product and market, alongside motivations, is a great indicator that these are the people you should be working with.
4. What is the competitive advantage?
Every great startup needs a competitive advantage. What does this mean exactly? Well, in a perfect world, a company will get better, more defensible and have higher leverage with each passing day. This translates to financial measures like greater cash flow and margins. Ideally, you want to join a company to build advantages which are strong and hard to dislodge. This isn’t to be confused with a startup’s secret; it focuses on execution. Let’s look at this in New Zealand — take Trade Me. The question I’ll pose is, ‘If every Trade Me employee stopped showing up for work and the product stopped improving, how long would it take for the world to notice?’. I’m betting we’d probably measure the timeframe in years or months. Trade Me has such a strong business that if no one showed up to work, it would take years for the power of their market place to erode. The reason? They have a competitive advantage that accumulates. The more users Trade Me has, the more it attracts. It’s a network effect that increases auction results, generates more data, drives down costs, increases financial measures and makes the company more competitive. This may seem obvious but it’s common for a startup to not understand their long term competitive advantage. Founders can be so consumed with the day-to-day that this aspect is overlooked. It’s difficult to see how a startup can grow to create new markets or dominate them without a competitive advantage, so it’s an important question to understand!
So, would you invest your personal capital?
The million dollar question! You shouldn’t make a decision purely from these discussion points — simply because you won’t have enough information. You’ll still have to figure out if there’s a suitable role available and navigate the hiring process. Risk will also remain, because that’s inherent to the startup world. However, if you can take a startup and begin to answer these questions yourself, you’ll quickly establish an excellent base to begin your journey. What’s even better, is if you take your learnings to the interview stage of a company — you’ll blow the hiring manager and wider team away, trust me. You can build on your initial answers by talking to customers, asking the startup directly and undertaking further research of your own. This deep, critical level of thinking is not often used and can be the perfect springboard into landing the role you are after. If we can encourage this, we’ll direct more talent towards startups, and help more people make a successful decision to enter the New Zealand startup ecosystem.
So what’s up next? How to interview at a New Zealand startup. Click here and I’ll make sure it lands in your inbox.
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