Guy Kawasaki’s 10 Questions to Ask Before You Join a Startup
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I realize that in this job market, maybe you can’t be choosy about a job offer, but you should still understand what you’re getting into. If you are considering working at a startup, you should ask these questions.
1. How much money do you have in the bank? This is a simple question. You just want a number. If you’re told that “investors are ready to put in more” or “we have a line of credit,” beware because a promise of money isn’t the same as money. Ask yourself this question: If I promised money to a company and it’s about to crash and burn, would I put the money in it anyway?
2. What is your net outflow per month? What you’d like to do is take the answer to question 1 and divide it by the answer to question 2. This will tell you how long before your company runs out of money and dies. If the answer to the question centers around “We will achieve revenue soon so our net will improve and give us more runway,” it means the company is in trouble because no product ever ships on time nor achieves the company’s “conservative forecast.”
3. What is the post-money valuation of your last round? “Post-money valuation” is the value of the company after the last round of money was put in (again, lines of credit and promises don’t count). If the company doesn’t have either seven digit annual revenue or tens of millions of page views per month and post-money valuation is greater than $10 million, it usually means that raising another round will be difficult because previous expectations were set too high. If it cannot raise another round, it will die.
4. What can you do that your competitors cannot? This is good to know because it speaks to the defensibility and value of the company. Life is challenging for a company that has undistinguished products and services. This doesn’t mean the company will fail, but it has to be “special” in some way soon.
5. What can your competitors do that you cannot? This is how you can determine if the company management is optimistic (good), delusional (sometimes good, often necessary), or just plain pathological liars (always bad). The actual capabilities are not as important as much as the moral character of the answerer, so listen carefully.
6. Who are your investors? Hopefully, there are one or two well-known venture capitalists. However, a perfectly acceptable—and perhaps even better—answer is that there are no investors other than the founders, and the plan is to bootstrap the company as long as possible. These days revenue is the best source of capital.
7. Who is on your board of directors? If there are outside investors, they are likely to be on the board. That’s cool. But you should beware of boards that are only the founders and their family and friends. You need at least one “adult” on board who can be the hardass bull shiitake detector.
8. Has anyone in the engineering team actually shipped a product? You may think I’m kidding. I’m not. Shipping a product is very different from being a programmer. A company only gets paid for products that ship—not for trying hard to ship.
9. Assume that you have $0 for marketing, how would you market the product? Any bozo can market a product with a million dollars. What you want is a team that can (a) make a great product that markets itself and (b) catalyze people to believe in the product enough to market it for you. If the answer you get is, “When we’re ready to ship, we’ll raise more money to market it,” you should run for the door.
10. What keeps you awake at night? This is an excellent question to figure out what the major challenges are for the company. If the answer is, “Nothing, we’re on the brink of worldwide domination,” look for the door again. If the answer is, “Scaling fast enough for our anticipated demand,” try not to laugh. The right answer is, “We’re a startup. I worry about everything: money, sales, engineering, support, and recruiting. I hope you will join the team and relieve me of some of this burden.”
Guy Kawasaki is the co-founder of Alltop.com, an “online magazine rack” of popular topics on the web. Check out the personal finance topic by clicking here.
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41 Comments so far
leave a commentI’m looking to become an Angel Investor in late 2010 and this helps in my research
Thanks
Get a copy of Guy’s latest book, Reality Check – lots more like this in there.
If any of these 10 questions are new to you, you will probably be losing every penny of your “angel investment”.
I think questions 1 and 2 are extremely difficult to ask in an interview. I’d love to hear people who have successfully gotten answers to that question… however I’d add that for questions 4 and 5, you’d do well to do your homework before showing up at the interview. You should be able to see what is, in fact, unique about the company. If it’s not visible to you, but there is a unique value proposition, then apply in Marketing
Seriously though, if you can research what is unique, who are the competitors, you’ll have better answers. You’ll be able to say “I saw that company X is offering this service. Are you going after the same customers? How do you plan on expanding business and/or expanding services to increase your value proposition?” Asking whether they are thinking about their competitors is good, but asking if they’re thinking about their customers is better. So also ask if they have a feedback program, or a referral program, and what they’ve heard back.
> but asking if they’re thinking about their customers is better
Very true. No customers no sales, no startup.
If you are joining a company especially a start-up, you need to do your own research and essentially know what to expect for most answers. You don’t want to be too pointed in your questions or the “salesman” from this venture will come up with something. Small vague questions are good because you want them to elaborate on everything that is important and judge there body language to see if they squirm at certain questions and why. You should probe deeper after you have received their pitch and if your are not impressed, I would tell them and the reasons why. They already are out you maybe your ideas or showing their downfalls and blindspots can save them or help them not lose as much.
Loving the new blog look, Mint!
sound advice- 1 have worked for 3 startups in the State of Utah.
another good question is “who are employees that have followed the ceo from his previous gig.”
if no one has followed the ceo, changes are, he’s a noob, and you don’t want to work for him.
plus, you’ll know a little more about the company politics.
Goes both ways, you should:
Prepare yourself for the more common ones, like ‘where would you like to be in 5 years’? (correct answer: on the beach, grinning wildly, looking at my bank account). To be honest there aren’t that many people with a 5,10 and 15 year plan. Most people try to get through the day, especially if you’re applying for some tech job at some poor startup. Also, what are your strengths: anything goes, it’s like your daily horoscope, you’re always right. Besides, it matters much more what you can deliver than how you feel about yourself.
Also be wary of questions asked. I had the question asked ‘what do you see as the future of our product, where should we head, etc.’. I think unless you’re applying as a CEO these are inappropriate questions. These questions should be asked by you, not by them.
If you think q1 is inappropriate you can always ask ‘how long before the company would dry up if there would be no cash in-flow)?’ or simply ‘how many months of cash reserve do you have?’ If the answer is less than 3, run for the door, no matter how solid the company may look.
In response to Caroline’s comment – I don’t believe it is difficult to ask the first two questions if the timing is right. Granted you don’t want to sound like you are interrogating them, but if there is sufficient interest on the company’s part in hiring you, they will expect you to ask those difficult questions. If you don’t ask the questions that you must ask, you risk going from one start up to another and looking as if you totally lack the proper business acumen to be a value add to any company. There are many folks whose resumes are littered with failed start ups because they were afraid to ask the key questions necessary to aid in making an informed decision.
Excellent article!
I think these questions are also perfectly applicable to startups as well. They should continually ask themselves these questions.
Thanks for the list.
We had a candidate that asked us a lot of these questions, and we had good, truthful answers for him. The result was us getting an employee we didn’t think would work for what we offered, which ended up benefiting our company in ways we couldn’t have imagined.
You rock Guy.
Took Guy’s direct advice and were patented and ready to go.
Mealer Companies is looking at funding by this summer.
JL Mealer
Mealer Companies LLC
America’s Next Major Automaker and Green Energy Source Provider!
http://mealercompanies.com
duh-er…
and what are this guys great business risks and achievments?
a “magazine rack” of web articles.
you big douche, no one cares.
Great questions to keep in mind.
I have been in all positions: look for a job from a start-up, entrepreneur in a start-up, and investor in a start-up. I like all these points, and some of them are quite clear, like money and revenue. But then there are some quite difficult to evaluate, especially investors and board. Unfortunately, I have seen it extremely hard to see, who are adults and which investors really make something good for a company. I have seen e.g. very experienced professional people in the board, but no earlier start-up experience and they behave like kids, when they think they know everything in a tiny entity. I have also seen investors that always prefer people they know, so if you are new for them, it can be tough time, or they have one model, how to make things, and if you don’t make like that, you are in trouble. So, if you look for a top position in a start-up, you should also meet investors and board, not only check if they have nice CV or track record.
i agree that these are questions that one should ask but in the end result one can do all the due diligence possible and still wind up in a bad situation or the opposite can happen. It really comes down to the management, answers, instinct, experience and execution.
If you are asking these kinds of questions, you are not start-up material. If you want easy money, consider opening up an FDIC-insured savings account.
I would really appreciate it if someone out there with more experience than I could answer this question for me:
Is there any legitimate reason that a startup CEO would want to keep the company’s financial statements a secret? Is it reasonable to ask for access to those?
Guy, are you freaking kidding me? Questions 1,2,3 & 6 as deal breakers? First of all most companies who try to get funding to DO NOT get any. Second, if people really followed these “rules” no one would work at a start-up and Silicon Valley would spiral into nothing.
Lots of people join start-ups for equity, minimal (if any) salaries, in the hopes that their dedication and hard work will propel the company forward into something great. This is how the innovation wheel keeps turning.
Methinks if you ask these questions: you do NOT belong in a start-up (unless you are like employee >25 – then they either have revenue or funding).
Please don’t discourage people.
Thanks for the awesome guidelines. The advice is well thought out and will definitely help red flags to be raised when needed for anyone reading it. Your last answer about what they worry about was excellent. There’s no way to do a startup without some reservations and if a person is then money is no object or they haven’t thought things through.
Folks…
I believe what Guy is suggesting for #1 is the basic questions as one jumps into the Start Up business NOT as he/she would jump into the investment world, but as an employee or the Founder. 99% of all Start-Ups are low on cash or dead broke with the current economy (we lost in in housing or other projects to self-fund, right?), but the emphasis is on we can’t be too choosy to accept a job… Besides, you were looking for a job before you found this one (the Start Up) which you might be pondering as per Guy’s suggestions here.
#2 Is the entreprenuer and the Start Up.. a no brainer especially if you have the next best thing since sliced bread (Like Mealer Companies.. pat my own back).
By no means are all Start Ups able to cover #1 & #2.. If we could do that, we’d not need investors as Start Ups but instead as growth or expansion companies.
The other questions are direct and to the point. I say if you have a great proforma and a direct line on quality people to work with or even a plan to recruit these players as you become funded… Go for it. Look for investors and outside money.
The banks will not help, so trash that idea… With the new rules and laws against the wealthy ie. your potential investors, with new taxes and other Obamanomics the Start Up that proves itself on paper and after a reality check, will prove to be the only way any American can make cash in this country. Especially after a 3 year build up of the Start Up – before the returns really start rolling in and the huge (hopefully) profits can be returned. After that, an IPO or FPO will decide who owns portions of your new USA based company.
Keep in mind, that the USA needs jobs and the cash you save by going overseas is not worth the jobs the US loses, nor the subsequent loss of US sales. People living off the government cannot always buy the cool new products we want to offer them.
Put people to work and go for it… Just think about how you would want to be approached before you drop a poorly worded business plan bomb on a group of Venture Capitalists, hedge fund group, trust and any friendly Angel Investor.
You may not get a second chance.
JL Mealer
Mealer Companies LLC
America’s Next Major Automaker and Green Energy Source Provider!
http://mealercompanies.com
Very good and honest insight Guy. Having worked in startup during recession, it’s a very practical question to check before getting into any ventures:
All these questions also extend naturally into seeing yourself as the business owner of the venture, if we think 2 step forwards:
http://www.wealthalchemist.com/Blog/2009/06/10-quitting-self-employed/
Above are more questions to ask yourself before starting /joing ventures
Not every startup is going to answer the above questions in the best possible way. However, these questions are a great process to run and will yield a powerful result.
At the end of the day you really need to go with your gut instinct. I mean listen to everybody’s advice, but in the end make sure you make this decision to go ahead or not go ahead based on your own decision.
Don’t let yourself be talked into anything. This way at the end of the day if you make a mistake it is much easier to take responsilibity for it and move on, if you do it because of somebody else’s advice, then all you will learn is to listen to your gut.
All excellent questions to ask — not just for startups, but for almost all business practices.
Kudos!
Interesting…
very very interesting
very very very interesting
very very very very interesting
First of all, I love the new theme. So easy on the eyes!
Definitely very important questions to ask oneself before joining a startup, or any business (as CarolAnnB said).
My deja vu alarm bells are ringing, I’ve read this stuff ages ago, years in fact. And from the same person. Why is mint.com rehasing this stuff?
Good common sense questions to ask, a bit too deep to get straight honest answers though, most founders (good ones anyways) won’t divulge those types of competitive data.
Great information to help process things to consider prior to making a decision. Thanks
All 10 questions are important, thank you for sharing.
Rodrigo Caetano has suggested an 11th question in his blog Invisible Balance, where he writes: 11. How would you explain your business to my 80 year old aunt Ruth?.
I agree with him also. When I worked as a journalist in a radio station, I was told to think of how I would’ve explained a story to my old grandmother. Or: “How would you explain it to mrs. Olga who lives in the valley”, we used to say.
However, it’s hard to explain the concept of a service on the internet to someone who has never used a computer, like my grandmother. But she is interested, and asks me questions about my new startup on the web. This forces me to rethink and explain it to her in plain Norwegian (English in your case).
This is a very good excercise, and will make it much easier for me to explain the idea to potential investors at a later stage.
I read a few topics. I respect your work and added blog to favorites.
Reading these excellent questions brings back the not-so-good memories I have of working for two failed startups. In one, the founder (and major investor) just walked away, and in the other, the founder was so obsessed on an IPO that she drove the company bankrupt.
Here’s my question…”Why should I go to work for a startup, because 90% of them fail?”
The list is excellent. I’d add that you should dig a bit into inbound marketing and “nepotistic retention”.
Ask how they went about finding out what customers will pay for and how much they’ll pay, and how that translated into product requirements for engineering. If you hear “everyone we’ve shown this to loves and wants it”, head for the door. You need inbound marketing to be based on more than hearsay and rose-colored glasses. I call this lack of rigor “brother-in-law marketing” — if my cool savvy brother-in-law loves the idea then everyone else will want to buy the product.
Nepotistic retention is my $200 term for the act of refusing to fire a consistent non-performer because that person is your college roommate, your best friend, or someone you’ve worked with at 3 previous companies. As one example of many, the last place I worked produced consistently excellent product with precisely the features that our VP of Sales said would make us a shoo-in with customers, and every time no sales resulted. He would publish a $5 million 6-month sales forecast and actually close $87,000. The CEO was his best friend, so refused to fire him, and the company died from lack of revenue. And I could recount dozens of stories of non-performing friend-of-the-founders engineers who poisoned entire engineering organizations by missing schedules, sloppy coding, spending time on already-rejected design ideas, and causing everyone else to spend extra time and effort to clean up their messes.
Had many of these questions been asked during the .com boom, it would have stopped short of implosion. Many did not, they simply tossed good money after bad and when the bottom fell out screamed at their own ineptness, but blamed it on everyone else. Sad, but true.
Michael Murdock
Nice blog you got here. It would be great to read a bit more about that theme.
I really enjoyed this article. Kudos! I posted it awhile back from my group on Linkedin, Ed Tech Start Ups and they loved it!
http://www.linkedin.com/groupRegistration?gid=1891552
Please feel free to check us out!