Thinking of Joining a Startup? Here’s a few things you should know…

So, you have an opportunity to interview for a startup! How exciting!

When interviewing for a startup you are often negotiating a partnership, rather than an company-to-employee relationship. Often, startups are not able to offer marketable salaries at first (especially if they have not yet achieved “Series A” funding). Yet there are many excellent reasons why you shouldn’t let the possible absence of a marketable salary hold you back from giving this interview all you’ve got. My job has provided me with multiple opportunities I wouldn’t otherwise have in a corporate desk job and many of these opportunities provide invaluable experience. But, ultimately, you need to decide for yourself–not only if you are a right fit for the company–but if the company is a right fit for you. Here, I share what I learned from my experience and hopefully some of what I have learned will help you navigate this exciting opportunity!

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Determining the Right Fit

I recently attended a sales training course for an excellent Durham company, Windsor Circle, that anyone outside of their company may wish to attend (if you enroll in time! It is popular!). One thing that they teach is that you must approach sales with the intention of deciding whether your company is the right fit for your customer and if the customer is the right fit for your company–the pendulum swings both ways. This applies to job negotiation as well, especially for those considering a position with a startup. Most startups are creating something innovative and unique. Many startups try hard and fail. Some startups work hard and reap excellent benefits! But all startups require each employee give their mission all they’ve got. You will be a foundational part of this company’s failure or success. So it is very important during the interview process to determine that you are a right match. Approach this interview with an open mind. If there are certain factors in your life that you are just not willing to negotiate (salary, time, travel, etc.) try to have those things in mind from the beginning, but don’t bring them up at first. Listen to the business plan and think about your talent.

One thing I recommend is that either you or the company suggest a “trial period” with an assignment based on a particular project. My CEO and I agreed on some initial research and a guest blog post as our trial project. It gave me an opportunity to do some independent research on our company’s market and process while showing I can communicate well and meet deadlines (two key components of my position). This project gave my CEO an opportunity to weigh the cost of bringing me on with the talent I could contribute and it also gave me time to assess the risk of leaving my part-time, but stable job for this rather unpredictable opportunity.

What to Expect

Expect anything. Startups are early businesses. Some startups conduct business out of garages or living rooms. Some are in accelerators or incubators where a multitude of young professionals gather and type away on their computers, pass out on couches, and are exchanging ideas or having passionate work-related conversations out in the open. The dress code is usually business-casual for these types of companies. Most likely the company is more interested in your intellect than your fashion sense, however… dress well. Be clean, polite, and most of all be punctual. In a startup everyone has to carry their own weight. If you can’t be trusted to show up on time they most likely won’t trust you with their business.

Most importantly, be prepared to be you. Be honest about your skills and abilities, your interests, and what you can bring to the company. Depending on how far along the company is in their business they are going to either have very specific needs or very broad ones… but there is rarely any money or time to waste.

With that in mind, also know that most startup companies are open to suggestions and if you are enthusiastic about their product or service there are probably multiple ways in which you can get involved. Enthusiasm is key.

Equity Options and Salary Negotiations

Once you and the company have decided you’ve made a good match the next important conversation will be regarding salary and/or equity. Some companies can not offer salary and can only negotiate equity. This can be extremely beneficial if the company does well, but if the company can only offer equity and you have bills to pay you may want to negotiate a part-time or project-based relationship in exchange for equity-pay. (Check out this great resource on Grasshopper.com regarding things to consider when being paid in equity).

Granted Equity vs. Equity Options:

When negotiating equity it is important to distinguish between granted equity and equity options. Granted equity is equity that is given to you without any monetary exchange between you and the company. Equity options are when a company provides you with the option to purchase equity (typically at very low cost). Both of these methods for obtaining equity may require a vesting period–a period of time you must be employed with the company before being granted or purchasing the equity provided. The typical vesting period is two years, but I have heard of situations in which the vesting period is anywhere from six months to three years. You will also need to know if the equity being offered will accelerate if the company is purchased or goes public before the vesting period is complete. Acceleration means that the equity options will be made available to you a few months before transfer, or once the signatures are exchanged.

Equity is complicated and can be difficult to understand for those of us who have never had to negotiate equity before. Many times the founders of a company know as much about equity as you might. It is important to have a well-rounded understanding of equity in order to make an informed decision, especially if you are accepting equity without salary–but, either way, it matters. I recommend the following for further research:

This simple, but informative, article on fairmark.com

Equity: Why Employee Ownership is Good for Business

The Decision-Maker’s Guide to Equity Compensation

Salary:

Most startup companies are not able to offer marketable salaries. The reason is (obviously) mostly related to funding. The startup I work for bootstrapped its beginnings (meaning the founder paid out-of-pocket without monetary assistance) and then won a grant–a particular amount of funds released in increments. Funding is tight. Even if a company already has paying customers (like we do, yay!), there is a lot of cost to consider in marketing, product development, team expansion, and administrative and filing fees. The other reason marketable salaries are not often offered in startups seeking funding is that many investors are particular regarding how their dollars contribute to the company. Maintaining marketable salaries is not top priority. If you are lucky (like I am) you will have a team that recognizes the need to pay bills and… well… eat every once in a while. However, a startup is a team effort and so it is good to have decent expectations regarding salary when interviewing with the company.

If you absolutely must have a salary I recommend determining your baseline living expenses ahead of time. How much money do you absolutely need to live (without all that extra fluff and shopping money). Have that number in mind. When negotiating, be honest. If there is a number you absolutely can not drop below, tell the company (but wait to see what they offer you first!) and let them decided if the match is worth their while or if they can afford your baseline. You don’t want to find yourself in a crunch, panicking about your bills, three months into your new job.

Some salaries are offered with a percentage of certainty. When I first started with the startup I work with I was offered a baseline salary at a percentage of certainty that decreased over time. That percentage is adjusted based on funding achieved. Fortunately, it has been consistent (so far!) but there is that mutual understanding between the company and me that the salary is based on business performance and on funding available. It is an uncertain position to be in, but rewarding when we do well.

There are other factors to take into consideration when negotiating equity and salary. Perhaps the company can not offer you marketable salary, but maybe they can pay for you to attend a particular PR conference, sales training, or fund a college course. Most companies can deduct these costs from their taxes and will be willing to negotiate these additional benefits that will contribute to their growth as well. Make sure you know if you will be provided with a computer, a work phone, and any other tools you think will be necessary for your work. You can negotiate for other things as well. Don’t forget the great benefit of being able to bring your dog to work or work from home a couple days a week. There are many other stipulations to consider in negotiation, so make sure to include anything that may be valuable to you apart from salary compensation.

Employee or Contractor Status

I will only touch on this briefly, but it is important to know if you will be hired on as a company employee or if you will be hired as a contractor. Having never been hired as a contractor before, I was surprised after hire to discover that I had to pay more in taxes than I would as an employee. This is because when a worker is an employee, employers must pay state and federal unemployment tax, social security tax and workers compensation/disability premiums to a State Insurance Fund. When a worker is an independent contractor, the hiring party is not required to make any of these payments. Rather, the contractor is required to make these payments.

The conservative estimated amount of salary a contractor must set aside for taxes is 30% of the monthly salary. This is a good chunk of change, so you will want to be prepared to discuss taxes with your family and the company. Don’t be side-swiped by the IRS!

Here is a great article on Legalzoom.com for more information

Workload: Discuss the Expectations

One last thing you will want to discuss with your partners/employers at your new company is the workload expected. Startups have room for full-time, overtime, part-time, and contractual positions. It is important that your company communicates clearly with you on their expectations. Do you work a 40-hour week Monday through Friday? Do you work weekends? Holidays? Are you on-call? How will these hours be tracked? When will you receive evaluations?

These are very important details to clarify before you begin. Startups require dedication and hard work, and they can be a lot of fun, but make sure you make time for you and family and movies and, well, sleep… at least every once in a while.