Feb 12, 2020

How to Choose the Right Startup: Hidden Signals

Mike Sienkowski
How to Choose the Right Startup: Hidden Signals

In my previous blog posts, I shared some of the more obvious signals – competitive advantages and company leaders – to look for in choosing the right startup. This is my final post on the subject and I’d like to share some of what we might call “hidden signals”. These are some of the not so obvious things I’ve learned to identify over the years that help me to avoid the duds and unearth the gems.

First on my “hidden signals” list is the quality of the early engineering team. When you look at most startups, it’s common to see a core of senior engineers – maybe 2 or 3 that have started or founded the company. In my experience, they tend to be pretty good, but not always. You can almost always draw a direct correlation between a startup’s success or failure based on the quality of the founding engineering team. The proverbial ‘canary in the coal mine on hidden signal #1 is this: if you are interviewing with this core team and find that you are the strongest engineer in the room, you might want to pass.

Second is the startup’s ability to attract what we can call the A-players after the core founding team has been established. This is critical for success. Look especially at the background of the early engineering teams, let’s say engineers 5 through 25. A great hidden signal is the startup’s ability to continue to attract A-players into series-B and even series-C rounds of funding. Look at the engineering teams’ profiles on LinkedIn. If you see a number of senior engineers coming from great companies, especially large companies, that is a good hidden signal. Ask yourself why? You can assume they’ve left a lot on the table to move to this startup. In a sense, they are doing some of your homework for you. They’ve gone through the same process of evaluating this startup and have decided to take the risk of leaving large company compensation behind to take this shot. If you see 5, 10 or even 15 senior engineers that meet these criteria then it’s definitely not the pass that you got from the canary above – instead, lean in.. Let me state this again, each of these people went through the same evaluation process as you and decided to join. There is a strong chance there is something there. Also, take note if the company has passed series-B or series-C in raising capital. We all know the equity percentage is smaller and that there has been dilution. Yet they still come.

Third, look outside of engineering at the startup’s ability to attract top executives in marketing, sales, product, and support. Has this startup attracted great people from great companies? Assume again that they have left a lot on the table to take this chance at greatness. Great examples are the teams at Snowflake, Confluent and my current interest, Clumio. Again, these people are doing your homework for you. If you are on the fence about joining or even interviewing, because you are “happy in your job”, consider this point – catching a great startup in its ascendancy is magic.

When you were a young student, sitting in your dorm, dreaming about your future, isn’t this what you wanted? Isn’t this why you moved across the country, or across the world, to change the world? This is what these startups are doing.

Let me step off my soapbox…

Another great hidden signal, especially when looking at enterprise B2B companies, is to look at the sales team. Salespeople like money. At least they are upfront about it. That is fine I like money too. The career of a great salesperson typically has two paths; go into management or continue carrying a bag and closing deals. I want to discuss the latter. A salesperson that joins a startup company begins with a big territory and, if the company executes, they sell lots of product and make a lot of money. Over time, as the company grows and the territory shrinks, it becomes harder to make money even when the company continues to execute. By about year 5, even if the company is “killing it”, great salespeople begin looking for the next great company. The best salespeople will display a career trajectory of moving from one great company to the next every 4-5 years. They move like a pack of hungry dogs. I love dogs, so I mean this as a compliment.

Sometimes you just need to follow the pack – if it’s the right pack.

To reiterate, look for startups that continue to attract top engineers post-series-B. Look for a startup that is able to attract top executive talent after series-B. Also, look at the salespeople’s profiles on LinkedIn. Has this startup been able to attract salespeople that have made great decisions? Identifying and quantifying these hidden signals will help you find the right startup.

As always, happy hunting!