How to Reduce the Risk of Joining a Bad Startup

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Read our other article: what are the risks of joining a start-up.

Let’s look at the biggest risk associated with start-ups: the risk of it failing. 

First, figure out where you think it sits on the start-up lifecycle. That should give you an initial sense of risk. Then, you can follow the tips and tricks below to fine-tune your risk assessment. Finally, ensure that your assessment fits within your risk appetite.

Questions to ask during an interview to reduce risk

• Who is on the cap table (i.e. who are the shareholders)? - Lee Lubner
• Tell me about the company vision?  - Lee Lubner
• What keeps them up at night?  - Lee Lubner
• What’s the company’s runway and capital raising strategy?  - Lee Lubner,  Darryn Rabec (Venture GM at BCG Digital Ventures), Matt Thurin (Growth, AirWallex)
• How many employees? - Darryn Rabec (Venture GM at BCG Digital Ventures)
• Is the product built? - Darryn Rabec (Venture GM at BCG Digital Ventures)
• Who is your most engaged customer? - Chris Quirk (Investment Manager, rampersand)
• How many customers have you retained for 6 months, 12 months? - Chris Quirk (Investment Manager, rampersand)
• Ensure you believe in the business you join. Do they have product market fit? How big is their target market? Who is it? Who are the competitors? - Emer McCann (Manager, Talent & People Operations, Simply Wall St)
• Don’t be afraid to be more specific when it comes to your wants and needs for a business, and ask the questions you really want answered to dig a little deeper. You might ask: - What is your gender split? - Can you tell me about a time you dealt with a sensitive issue related to one of your team? - What types of people work at X? - How do you like to give feedback? - What does your company do to look after their team? (Rebecca Evans, Marketing Manager at Sonder)

Stacy Goh (Growth Marketing, Outwrite)

• Some contributors have done an excellent job outlining what questions you should ask when interviewing at a startup. However, here are a few things you should look out for before you actually apply.
• Look at a startup's current employees and founders. Does their team include women, people of colour and other marginalised groups? How diverse is their leadership team? Good startups will actively work on improving the inclusivity of their work culture and hiring processes. Bad startups will blame the lack of female engineering talent for their all-male team.
• On a similar note, assess how you'll fit on the team in terms of your role. Will you be the only (designer/marketer/data analyst) at the startup, or will you be working with people with similar roles? When I applied for my role at Outwrite, I was excited about the prospect of being the sole marketer because I enjoy getting to own big projects. However, I know plenty of juniors who'd prefer to work with mentors in their field.
• Do people enjoy working there? Check sites like Glassdoor to see if a startup's employees genuinely enjoy their work, or are being overworked. You can also use LinkedIn to track headcount growth and employee retention.
• Look for the perks that matter. My old boss Nathan wrote an excellent article about this. Basically, while startups love to boast about their Foosball tables and beer on tap, a truly great startup will offer things like flexible working conditions, employee assistance programs, and generous parental leave policies.
• Look at their job descriptions. Avoid startups that list ridiculous requirements (like 3+ years experience for an entry level job), too many responsibilities for one person, or imply the position is unpaid. I like job descriptions that clearly outline what my role will involve, and how it fits in with the startup's journey.
• Read customer reviews. I find this provides valuable insight into a company. Does their product solve actual customer problems? Does their customer support team respond to issues with empathy and urgency?
• Look at recent media coverage. Is it mostly positive or negative? I once interviewed at a company that was fined for misleading advertising later that day.
• Most importantly, does the startup's mission align with your own? I often look for articles, videos, or podcasts that feature the founder/s of a startup I'm interested in. It provides deeper insight into the startup's "why", and their roadmap.
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Tim Rossanis (GM, Head of Growth - Retail & New Verticals A/NZ, Uber)

• Ask for proof points, ask to see the last 3 investor updates
• Ask to chat to your manager’s manager, will help you understand the hierarchy. You can say something like “This is a big step for me, I’m sacrificing X and Y, I really want to do it and am passionate about the opportunity. But I want to speak to some more people, the last thing I would want to do is for you to waste time on the wrong person.” This shows maturity.
• Ask about their runway - if they don’t want to answer it, that’s a signal you can use in your decision making. 
• Or, ask about some other metrics, like customer acquisition growth rates, or for sales roles understand what the metrics or targets going to be
• Ask to meet more people in the team
• It’s always a good sign when you see talented people from established companies taking the risk to join a no-name start-up, good signal that there’s something there to be followed
• Are they growing in headcount? If it’s up and down, that’s a bit of a signal. Constant headcount growth is a good signal.
• If you can befriend recruiters, you can get the lowdown goss about ‘why is this role being hired, did someone leave?’. You might find out they just had a funding round or have growth plans. If people are leaving, try and ascertain why - and in their response see whether they are being transparent or trying to sell the dream.

What if I'm risk averse? How can I reduce the risks associated with joining a startup?

Tom Bass (Cofounder of Flirtey / Growth PM Atlassian)

Don’t. Go join a post product market fit scale up instead. My general advice is for people to NOT join a startup but join a scale up unless you want to be a founder in the short to medium term. Far better risk/reward profile to join a scale up, ideally around Series B. 

Lee Lubner

• Join a later stage startup that is scaling
• However will be more likely needing a specialist skill set 

Chris Quirk (Investment Manager, rampersand)

• The further a startup is down the ‘stages’ the less risk is involved with the startup
• Those with a product are riskier than those with customers are riskier than those with revenue
• Although, those with customer engagement (repeat usage) are the least risky of all IMO
• To reduce your risk, join a later stage startup or a startup that has just raised a large round

What have we missed? Please hit 'Contribute to the Guide' to give your perspective and help others into their first role.