Joining a startup? Look for these warning signs

If you subscribe to the view that Australia is a ‘lucky country’ whose wealth is built on resources and not much else, then the following figure may surprise you.

By 2033, the tech startup sector could account for four per cent of gross domestic product, or $109 billion.

It could also employ 540,000 people, more than twice as many as the mining sector currently employs.

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That projection was made by PwC in its Google-commissioned report The Startup Economy. If correct, then over the next 20 years there will be a flood of job vacancies for tech-savvy job hunters.

But the PwC report has another, more alarming figure up its sleeve: 73 per cent of tech startups fail.

If you accept a job with a tech startup, therefore, you could very well be climbing into a sinking ship. We asked professionals what warning signs to look out for.

What's your appetite for high-risk undertakings? Source: ShutterStock.

Tech startups are a high-risk game. Photo: ShutterStock

High stakes, high risk

Colin Kinner, director at Spike Innovation and author of the Crossroads report on startups, has seen a noticeable increase in the number of startups.

“The whole point of startups is they’re going after large opportunities and if they’re successful they will create a lot of value very quickly and grow,” he says.

“This will lead to opportunities for people to join. Media attention on some of the success stories such as Atlassian is also drawing interest in this sector.”

He says a key question to ask at an interview is the structure of your remuneration.

“Will you receive options or shares, or is it just salary? A good startup will offer this. Although the current tax regime makes this difficult, the federal government is making changes to tax laws to make it easier for startups to issue options to employees.”

Is the company well-funded?

Next is to ask whether the business is funded for a significant length of time.

“You don’t want to walk into a job that isn’t going to exist in a month’s time. Generally, not many startups have funding of more than 18 months.”

money windfall

Who is funding it, and how long does the funding last? Photo: Shutterstock

While first impressions or appearances are important, he says, make sure you do your due diligence on the founder of the company and the team. How are they regarded outside the company? Are they credible and reputable?

Does the culture fit?

Mr Kinner says the number one cause of failure with an employee joining a startup is the lack of cultural fit.

“Not everyone is cut out to work in a startup. They’re generally a very fluid environment. If you want a guaranteed 9-5 job, then a startup may not be a right fit.”

The stage is all-important

Scott Handsaker from Startup Victoria says the stage of the startup is one to watch out for.

“Startups go through a number of phases. The really early stages is where most of the risk is. If you’re looking to start then, it will simply be down to the people. You’ll want to meet all people involved,” he says.

“Cultural fit is super, super important. Don’t just meet the founding members, meet all involved; even socialise with them.

“If a startup has an investor or venture capital backing, ask them what’s their run-way, or as Colin Kinner put it, how much cash have they got? If they need to raise further funds; then ask in a polite way when this will happen.”

Another warning sign he adds is to look for signals of high staff turnover.

“There is no harm in asking how long staff have been there. If you do meet other staff ask what their experience is of working for the company. Working for a startup is very different to working in a corporate environment. Startups are very much about the people.”

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