The tech scene has evolved and changed a lot since I joined Next Level Communications back in 1995. It used to be that there had to be much more of a path to revenue to generate investment. Lately it takes a lot less for a firm to get investment and have more capital to work with. And it also is eye-opening that several very rich/successful firms right now spent a good part of their early history in the red but were able to repeatedly raise more money and eventually evolve (or pivot) to a model that can generate substantial revenue.

With this change in expectations around a business model comes factors that employees also need to take into account and recognize as they decide what company to “invest” long hours of sweat and tears into. I’ve gotten to see several that didn’t make it, and a few where their future ability to compete is questionable. And there are some where the work environment created doesn’t appear conducive to being effective or having true job satisfaction.

If you are looking to join a firm that has had a real round or two of investment it is a whole different game and there are different questions to ask and factors to look for. But if a firm is just past the Angel or Friends & Family round there are factors that you might not be able to ascertain until you are actively involved for a handful of months. Certain questions will help, but there is no surefire way to know.  Perhaps you can’t avoid joining one of those firms, but a better understanding of a questionable path can change either how you interact with leadership or make it easier to let go if you have to move on.

Years ago when I had an office in a small business incubator there was a firm that had gone from a very small office with three hardworking people to a very large one with at least a dozen folks pushing hard to get the product designed and working. Their solution from an economic standpoint made a lot of sense. And their design was remarkable from an engineering standpoint. Those of us in other offices admired what they had done and where they were going. The prototypes where impressive and seemed high quality as well as very dependable.

In order to get any very large orders they were going to need a large infusion of capital because of the manufacturing lead time. On paper the product seemed like a no-brainer, and anyone could see it worked and scale just like they promised. But it was highly unlikely that anyone was going to take a risk and put in an order when the lead time at scale was measured in (I’d heard) three to six months and the investment was hundreds of thousands of dollars.

Eventually the company faded away. I asked a few friends if they knew what had happened since to me the firm had done so much that was tangible and looked so solid. The rumors where that the founder had not been willing to give up enough of the company to get the investment he needed to ramp up production and be ready for taking that first order. Eventually they ran so low on capital that nothing could be done. Perhaps other firms and competing technology caught up, I don’t know. Again just rumors, but a cautionary tale either way.

When you are searching for an opportunity be wary of the following situation. A firm might brag about being cash-flow positive without having gone through Series A yet. They might try to offer compensation that is lower than normal and say it is because of the opportunity the stock options offer that compensate.  Is that the truth, or can they not afford to properly compensate and attract/retain top talent?  What you really need to fear is the situation where the founders (or founder) are holding on too long to try and be more cash-flow positive or “build it all” on their own. They will cut corners and not get the right people on the bus (“get right types of people in the door”). Or they don’t have the maturity and emotional IQ to properly communicate and help grow the “right people”. There might not be money available for proper advertising, product support, education or trade shows.

This low capital starvation mode can also create situations where rash decisions are made because so much is at stake. Try to search LinkedIn for past employees that are no longer there. Reach out to ones with low tenure time, find out why they left or made a switch. They often have no incentive to try and “sell” you on the firm. Obviously there will always be people that were incompetent or were not able to rise to the occasion. But if you happen to talk to someone who understands the concept of the mirror and the window (also from Jim Collins) you should take their opinions seriously.

Another area to look at is the state of the competition. A firm might be in a niche where they think the larger companies can’t compete. I’ve seen some where the quasi-competition has raised hundreds of millions of dollars and has a thousand employees. The smaller firm can boast all they want of how they are different from a technology or architecture standpoint. But if there are no patents that protect them it won’t take much for the other firm to take a few dozen people (less than 2% of their workforce) and basically apply something bigger than the entire smaller firm and direct them to solve the problem.  You must understand the barriers to entry for the competition to expand into that “niche” that the smaller firm claims to dominate.

In one case I saw the larger firm build a team of cherry-picked Artificial Intelligence specialists to solve a major issue plaguing the space in general.  A technical win here would lead to exponentially more dominance in the market.  How can you compete when that single well picked team charged with technical differentiation has more full time employees than your entire company? The truth is you likely can’t and your days are probably numbered. So be very wary of firms like this when you are looking for opportunities.

Lastly, and this goes for funded and non-funded firms, ask how much visibility the employees are given into the firms finances. This was an area Fastly excelled at. We were regularly told our monthly burn rate and how much was in the bank. Also given was projections for growth of revenue compared to costs.  Management was empowered to keep the bottom line in mind, not taking customers just for the same increasing a statistic.  Really kept people motivated while also reducing any thoughts of leaving. Some firms don’t want to trust this kind of information to the rank and file, others are more mature and forward thinking. Either way there is no risk in asking about visibility during the interview process.

In summary, some questions to ask:

1. How much visibility is given to the employees around growth and finances?
2. What is the plan for growing the team?  What metrics (investment round? sales growth) is it based on?
3. Where is the company currently investing, and what are the priorities there?
4. Research the space and competition.  Then ask:  What barriers to entry are that prevent Firm X from adding development effort and expanding into this space?

Then of course, research folks that no longer work for the firm.  They might offer a wealth of visibility into how experienced the leadership is.