Engineer’s Guide to Picking an Early Stage Startup

What I wish I had known 10 years ago

One of the questions I often get from engineers I mentor is how do you decide on what early stage startup is worth working for? Often, this is long before you have paying customer logos or big name venture funds with substantial commitments as ‘signals’ of potential success.

I was a programmer once. And I had to wrestle with this question too. How do I decide?

More than a decade of experience building new products and businesses, here is what I wish I had known.

Complexity is your enemy

Most great companies are built on solving a big problem with an (after the fact) obvious new viewpoint. Let’s take a few:

• Uber: Solved an obvious problem — finding a cab during busy times. And they had a somewhat obvious viewpoint — why don’t we use these new iPhones to find out where the cars are at and get them here. Yes, it gets fairly intricate after that but the core premise was not that complicated to understand.
• Salesforce: When Marc Benioff met his technical co-founders (Parker Harris, Dave Moellenhoff and Frank Dominguez), he had a clear big problem — enterprise software should be more like Amazon.com — accessible as a website (yup) on the internet. And he was going to start by building a way for sales people to manage leads.

The world is full of complexity. The genius of these founders was to find a simple solution to complex problems.

Uber was slowly setting out to solve a transportation logistics problem by building a real-time marketplace of drivers and users leveraging cloud computing, mobile payments, phone-based GPS systems and more.

If you saw all this complexity but couldn’t reduce it down to a simple one line problem statemnt — you may make a great economist but not a startup founder.

Market is your friend

It’s hard to say it any better than Marc Andreessen (who gives Andy Rachleff credit for helping think this through). As always, he is right:

• When a great team meets a lousy market, market wins.
• When a lousy team meets a great market, market wins.
• When a great team meets a great market, something special happens.

Let’s apply this to a couple of examples.

• Uber: If you look at the negative press and all the mistakes they made along the way, billions of dollars poured by American and foreign companies determined to slow its growth — and the company has survived and done well as a business primarily because the market needed this. Lives of millions of consumers (and drivers) are better because we have a solution to a key problem where we spend billions.
• Nutanix: This is a great team that met a great market. I know because I was lucky to be there from day 1. CIOs spend over hundred billion dollars a year on storage and compute infrastructure. When you build something better, you get to go from zero to a billion in revenue in less than 7 years.

You cannot build a billion dollar company in a million dollar market. No matter how much machine learning, cloud computing and clever UX and design we throw at it.

Find your Benioff (source: FlickR)

CEO: Can she raise capital? Can she sell? Can she hire?

Startups are hard and you have to make difficult decisions with limited data. You have to raise money from investors who are friendly at cocktail parties but become real bankers when you have to raise money. You want a CEO who can help VCs see the vision.

All startups die when they run out of money.

Its the job of the CEO to find your first 10 customers. Can she do it? Will people listen to her because she has insights, charisma and credibility? If the answer is yes, you are on the right path.

All startups die when they run out of customers.

Now, you have a CEO who can raise capital and get first few customers, but can she hire? Can you imagine your friends wanting to work for her?

All startups die when they run out of engineers.

Vision & Mission

Almost every analysis of the startup journey shows that risk adjusted, you are better off keeping that BigCo job.

At the end of the day, you should do a startup only if it aligns better than your way of being.

While the above heuristics are how I have judged products and startups both as an investor and as an executive, nobody knows if a startup will succeed.

Embark on this journey if the team’s vision and mission aligns with you. If it passes the shower test. If you wake up thinking two days after meeting the founder(s) that you wish you were working with them. If your imagination allows you to see this early stage seedling of a startup could one day be truly a company that changed something big.

As my mentor and role model, Marc Benioff often says:

People overestimate what you can do in a year and they underestimate what you can do in a decade, unless you’re (Apple CEO) Steve Jobs.

When joining a startup, focus on seeing what this company could transform in 10 years. Does that excite you?

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We are hiring for our startup. If you are an engineer and want to come work with me — email me at anshu at prekari.com