The clock registered 4:46 AM in an isolated room, deprived of any noise but that of a courageous mom-to-be, the guidance of a noble doctor, and your humble writer cheering on the side. At that time, God blessed me with baby Aisha. May Allah bless her and bless you all. As an early-stage dad, I want to share my thoughts on working at early-stage startups to inform anyone considering doing so. As such, expect a bold take. Let’s go!
Published on 24-04-2024
I have worked at several startups and worked in startup-like environments within a giant company, so my resume is full of scars, chaos, hardships, and startup life-saving antibodies
I discovered startups in 2013 when I read the book “Delivering Happiness” which tells the story of Tony Hsieh and his company, Zappos. Ever since, my hands have been tangled in startups.
In 2014, I attempted to build with my friend Mohammed Momenah“Ask an Expert,” a platform for people to ask experts and get answers to their questions instantly. We burned nearly 70,000 SAR and had a mediocre product, but we shut it down (probably way earlier than we should have).
I joined Workhint as a cofounder with Mahmodd al Abbas. It was a roller coaster between building, iterating as we ran after devious PMF, pivoting, and learning a lot from the 500 Startups accelerator.
I joined Salasa as the first marketing employee under the leadership and guidance of Hassan Alhazmi and Abdulmajeed Alyemni. I learned a ton from them. I got a mini MBA in sales from Moustafa Sabry.I learned a ton about operation and optimization from Abdulmalik Alzuhairi. I learned how to handle accounts from Nabil and saw how things get done from the candid Soul Abdullah Koussa. I also learned persistence and collaboration from the wonderful Mahmoud Elfarram despite our brief time working together.
I joined Salla, and I want to do Salla justice by devoting an entire post to it. I’ve seen 4x growth in 2 years and got promoted thrice. I flexed my PMM muscles and, most importantly, met incredible comrades. ( You deserve an entire post, so hang on there.)
At the same time, I have advised coupla startups, invested in some, and kept in touch with great friends who founded their own. So, I am guilty as charged.
Yet, with all of that breadth and depth, I can confidently say:
Most people Shouldn’t work in earstartups, particularly early-stage startups. It is emotionally draining and financially overrated, and rapidly changing.
Me Again:P
Before you shoot me, You need to understand my context. And that begs the question: WHY do PEOPLE DECIDE to join a startup? While there are varying reasons with differing degrees, these themes would emerge:
Reason 1: I want to get Rich
It goes like this: Step one: Join an early-stage startup. Step two: Hope the founder is competent, ambitious, and crazy enough to make it work. Step three: Stick with it for a while. Eat a low-calorie salary, wait for that rainy day, exercise your options, and join the millionaire club.
To find how lucrative and solid that reasoning is, we need to find the probability of an exit happening ( acquisition or IPO) and the expected value of what you will potentially make. Note: This is not a meticulous exercise but rather a napkin math to illustrate my point and help you think from first principles. So, let’s skip the appetizer and get to the meat.
We need to do the following:
Lay down the different scenarios that are likely to happen.
Attach an outcome to each scenario.
Find the probability of each scenario to occur.
So our first formula is:
Ev = Σ (Valuation of a given outcome * Probability of that outcome) * (Your ownership)
But that’s not it yet. You still need to account for dilution. For that rainy day to happen, your early-stage startup is likely raising money to fuel that growth where the cake gets bigger, but your portion gets smaller. Yes, there are minorities like Zapier, but it is the exception rather than the role. ( on average, shares get diluted by an average of 10-30% each time you raise a round)
Surprise, that is only some of it. Depending on the type of equity you have, you need to account for:
The exercise option that you have to pay to earn your vested equity.
The exercise window.
If you leave early, you will lose some of your options.
Final surprises ( I promise): Depending on your country, you may have to pay taxes when you cash out.
Once you come out with this, the final expected EV in a very overly simplified formula is:
EV = ( Σ (Valuation of a given outcome * Probability of that outcome) ) * (Your ownership) *( 1- dilution %) * (1- tax%) - ( what you may have to pay to exercise that option)
Then, to find out if it’s worth it, you must find your net gain from joining a startup as an early employee instead of joining a well-established company with better pay. To do that, you simply subtract your opportunity cost ( Increase in wages from other potentially high-paying jobs that you rejected, i.e., Market salary for your skills—your current salary) from the expected value of your equity.
You can become a super nerd by factoring in salary ( cash + Bonus ) and indirect compensation, such as kids’ schooling, learning budget, etc. Also, factor in the number of years you have to stick before your options vest and the number of years it takes a startup to go to IPO or get acquired.
If you want to be a super duper nerd, you should account for the time value of money. One SAR you have today is worth more than one SAR in two years.
So, let’s math the heck out of it ( ignoring taxation, neglecting time value, and merely focusing on direct salary).
Scenarios:
Broadly speaking, a startup can:
Die and shut down.
Get acquired.
Sprint to the hairy, audacious IPO
Adjust those to your geography, industry, and business model and utilize a reliable data set. I will rely on this data set. So, let’s fill in the details:
Die and shut down
Outcome: Null. Zero. Nothing. Probability: 77% will die or become self-sustaining. While self-sustaining is something truly to celebrate, it will barely make the investor happy, let alone the employee who decided to potentially forego market salary to become a millionaire of that equity.
Acquired or IPO
Outcome: It is hard to ascertain, and you can plug in your numbers. Based on my selected data, roughly 22% exited or went to IPO. 1% would have an excellent IPO; I will assume 500 million dollars for simplicity. 2% would have a mediocre IPO, assuming 169 milliondollars. For the remaining 19%, let’s take an average of 100 million dollars.
Here is what we arrive to:
Please note that these are assumptions; you should enrich them with your own in this spreadsheet. I have laid out a simplified model and listed all my assumptions. Check the model, tinker with it, copy it, and make assumptions.
OK, Abdul, that’s thoughtful, but isn’t a napkin math. Cool, let us do a quick example. Anas is a senior marketing manager who joined a startup and was given .05% equity. He stuck for four years, and the startup was acquired for 1 billion SAR. Congratulations, Anas is cashing 10,000,000 million SAR. Not entirely, as you need to find the likelihood of that happening ( 1% – 2% change); Anas’s expected value is more like 100,000 SAR, not considering dilution and what you must pay to exercise your options.
Bottom Line: You are highly unlikely to get rich from joining a startup, especially since you don’t have multiple bets like an investor. So, you must be brilliant and lucky to find “The ONE.”
However, you can get rich indirectly via:
Condensed accelerated learning that separates you from peers.
Knowing the right people in the industry/ecosystem and getting introduced to rare opportunities ( investing + advising + Jobs)
Source your future confounders.
Save you $$$ from making humongous mistakes when starting your venture.
Join for the right reasons, but at least don’t join solely for the money.
Reason 2: I want to get FAT
Not fat from overeating, although it is likely to happen when you pour your soul with endless work and insane stress. Instead, I am talking about:
1. Fulfilment by working on a noble mission. 2. Autonomy to work on whatever you wish and escape company politics. 3. Transformation via the breadth of experiences within a startup.
So let’s see the merits of each:
Fulfillment by a noble mission
I get it and feel it, especially at earlier stages! I was surrounded by motivated builders working on a very ambitious vision. It is nostalgic, but you can still get fulfillment working for big companies. While true, it is not the only way.
Autonomy and less politics
You want to ditch the always-increasing number of approvers to bless a new, seemingly simple change. You want to escape the endless buy-in and alignment meetings. While you would likely trim a lot of that, you will likely find startup politics and have to deal with the founder & key stakeholders and keep up with numerous zig zagging. Startups have many problems/opportunities ready to grab and potentially shoot your career, but you still have to work around politics no matter how nimble the startup is.
More Experience.
It’s all about trade-offs.
Breath vs. depth:
At startups, you can work on many problems. At some points in Salasa, I handled marketing, BD, and upcoming products. You will also have to do a lot of stuff for the first time, from contracting to hiring to negotiation, etc.
While working for big, established companies, you will leverage depth to know the ins and outs of everything and leverage specialized functions to help you unlock new opportunities. This will give immense scale. At Aramco, for example, I was handling a 20 million dollar project less than a year into my first job, and I managed the communication building required to produce 300,000 barrels of oil a day.
Aramco and Sumitomo celebration of achieving 1,000,000 safe man-hours
Early-stage startups teach you a lot, but they are not for most people. D0 join them for the right reasons. Join it if:
You are a founder, lol.
It is the only and best way to get exposure to an industry, function, or problem you are excited about.
If you are thinking about starting a startup.
It is the only way to get a job or experience. Early-stage startups are very forgiving when it comes to hiring. So, early-stage startups make tons of sense if you lack the experience or background but can provide value.
Don’t join an early-stage startup:
To get rich.
Great compensation
Stability
Fun.
FOMO
Because your cousin’s best friend’s cousin became a millionaire working for a startup.
If you decide to join an early-stage startup, I highly encourage you to check my Linkedin post where I talked about 33 lessons I learned working for startups.
Take everything with a grain of salt. Check everything. Know your values and needs and optimize accordingly. You will make the decision, and you will live with the consequences. I intended to prevent you from making hasty decisions based on rosy claims and equip you to think from first principles.
Regardless of your meticulousness, you are unlikely to control what you will get out. Hence, optimize for the right reasons and recall the beautiful Aya in the holy Quran: “And in the heaven is your provision and whatever you are promised.”
Contentment is a blessing, and we overly compare ourselves against our peers, glamorize success stories, and neglect hard failures. I invite you to remember what prophet Mohammed, peace be upon him, said: “Messenger of Allah (ﷺ) said, “Whosoever begins the day feeling family security and good health; and possessing provision for his day is as though he possesed the whole world.”
If it resonated with you share it with people you know. I hope it will help them make smart decisions.
