Technology

Understanding the High-Risk Nature of Startups and Planning Accordingly as an Employee

Table of Contents

A Harsh Reality

If you’ve scrolled through TechCrunch’s recent stories, you may have noticed a wall of articles about layoffs. Our roundups have been filled with sobering reading, and as someone who just got off the phone with a close friend who received a layoff notice, I’m feeling it more acutely today.

The People Behind the Numbers

Layoffs don’t happen to companies; they happen to people. When we talk about tech layoffs, we tend to focus on the numbers and statistics, but it’s essential to remember that every layoff has a human face attached to it.

A Reality Check

Tech startups are inherently high-risk ventures. As someone who’s had to downsize companies in the past, I can attest that it’s an excruciating experience. When you work at a startup, you need to be aware of the risks involved and have a plan for managing them. If you want to join a startup, make sure you have 3 months’ worth of wages saved up, because you can lose your job at any time.

The VC Bubble

Over the past 5 years, we’ve seen an unprecedented amount of venture capital (VC) flowing into ever-growing startups with questionable business fundamentals. Companies have risen to incredible valuations and ARR multiples that defy logic. As reporters following the industry, we celebrate monster rounds and cheer on startups as they bungee-cord on rocket boosters, hoping for the best.

What Goes Up Must Come Down

When raising at a 40x multiple makes sense is a question that few ask, but it’s essential to consider. Smart engineers get poached from established companies to join startups, often without thinking through why the salary graph has been pointing sharply up and to the right.

Asking the Right Questions

At early-stage companies, you may not get straight answers about how much money is in the bank or what the company’s burn rate is. At later-stage companies, you’ll probably never get a straight answer. However, it’s reasonable to ask about the runway – the amount of time (typically weeks or months) that the company can keep going without getting into trouble.

Considering the Downside

Before joining a startup, think about what could go wrong. Startups are meant to stop being startups; either they’ll succeed and become established companies or they’ll fail and shut down. When you join a startup, you’re taking on significant risks, including the possibility of losing your job.

The Rewards of Startup Life

While there are risks involved in working at a startup, there are also significant rewards. Startups offer the opportunity to innovate, take calculated risks, and make a real impact on the world. If you’re willing to put in the hard work and dedication required, startups can be incredibly rewarding.

Conclusion

Working at a startup is not for everyone. It’s essential to understand the risks involved and be prepared for them. However, if you’re passionate about innovation and taking calculated risks, then startup life may be right for you. Just remember to always consider the flip side of tech layoffs and be aware of the potential downsides.

About the Author

Haje Jan Kamps is a journalist and writer who has been covering the technology industry for over two decades. He’s written extensively on topics including startups, AI, and space exploration. Follow him on Twitter @haje or visit his website at Haje.me for more information.

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