If you’ve scrolled through TechCrunch’s list of most recent stories over the past few weeks, you’ve seen a wall of articles about layoffs. Even just our roundups (one, two, three, four) bring sobering reading to the mix. Alex and Natasha remind us that tech layoffs don’t happen to companies; they happen to people – and as someone who just hung up on a close friend who just got laid off, I feel that more intensely today.
And there is a flip side to all of this. Tech startups are, by nature, high risk. I myself have had to downsize companies – it’s excruciating – and I always advise that if you want to work in a startup, make sure you have 3 months salary in reserve, because you can lose your employment at any time.
Over the past 5 years, we’ve seen an unprecedented amount of venture capital cash flow into steadily growing startups where the fundamentals of the business weren’t yet working. We’ve seen companies rise to incredible valuations and wild ARR multiples. In our zest for life as industry-following journalists, we celebrate monster rounds and cheer on startups as they bungy on some rocket boosters, light the fuse and hope for the best. .
There’s a truth we don’t often talk about here: what goes up must come down. Many tech workers are so easily lured in by the promise of hugely valuable stock options, high salaries, and the frantic hunt for top talent that’s been going on for years now. Smart engineers get poached at established companies for wandering on the wild side, and too many people haven’t stopped to think about exactly why the salary chart is pointing sharply up and to the right.
Alex asks a great question:
In start-up businesses, you may not get a straight answer on exactly how much money is in the bank or how much the business is burning out. In later-stage businesses, you’ll probably never get a straight answer. But it’s not unreasonable to ask what the runway is – it’s how long (usually weeks or months) the business can go on without having problems in the current financial climate and financial parameters. You might not get an answer, but it can’t hurt to ask what happens if something changes in the dynamics of the business, if there is a recession, if the business loses its biggest customer, etc.
When I ran my own businesses, I was asked questions like this. They’re difficult because they highlight an aspect of startups that a lot of people don’t really want to consider: that a lot of startups fail. What people get wrong, however, is that it’s a bad thing. Startups are supposed to stop being startups, either because they haven’t found a repeatable and sustainable business model, or because they’ve turned into “real” businesses, where growth can be sustained by the cash flow and business operations.
As a startup employee, you take less risk than if you’re a founder, but you certainly take more risk than if you take a job at a more traditional, established company. Don’t let that deter you; startups can be fun, lucrative and challenging. But it’s also possible that you end up working for a billionaire who wants to spend $44 billion to buy a bird sanctuary while cutting 10% of the workforce from his other project.
Before you imagine how great it would be to work at a startup, be sure to also think about what the downsides might be. “High risk, high reward,” they say, but too often as humans we focus only on the latter, not the former. Especially against the backdrop of a rapidly changing economy and venture capitalists thinking just a little bit more about pouring wheelbarrows of cash into the next big hope and dream, do the math and make sure you know in what you’re getting into.