Originally Published: Tuesday, 22 May 2001 Author: Kristina Pfaff-Harris
Published to: interact_articles_jobs_ask_staff/Ask the Jobs Staff Page: 1/1 - [Printable]

From the Jobs Desk: The Linux.com Startup FAQ

Linux.com jobs editor Kristina Pfaff-Harris takes on your startup employment questions.

   Page 1 of 1  

If I said I was going to go to Hollywood to be a star, everyone would look at me like I was crazy If I say I'm going to Silicon Valley to become a millionaire, they don't. And my odds are probably the same. -- Liz Rodgers </quote>

Recently, many questions have come in about whether or not the poster should take a job at a startup company. The questions asked for tips or advice, and I found I had a few. Here, they are reproduced for your reading enjoyment. If you have comments, or want to add something, please Email me! --Kristina

Question: I'll be making a lot more money at this startup company. What should I do with it?

Linux.com: I'll tell you this from experience: if you'll be making more money at a startup than with your current job, put all that extra money away in savings, or use it to pay off any bills you have, for at least two years. Don't be tempted to "live up" to your new higher salary by increasing your debt. Believe me, a startup can go at any time, or management can decide to just lay off half the staff for no apparent reason. You think it won't happen to you, and maybe it won't, but it can! (Of course, you can also wind up a millionaire -- it's just a bit of a gamble so it pays to be a bit conservative.)

Question: The salary is lower, but I get a lot of stock options. Should I still take it?

Linux.com: If there is a stock option plan with this company, and you think that the stock options are worth a lower salary, consider this: many stock option plans make you exercise your options within 60 days after termination, so if the company has not gone public, and you get laid off, you would have to shell out cash to get any of your stock options, and probably would only be able to get those you were vested in at the time of layoff. For a lot of people, this means that they get nothing, nada, zip as far as stock if they are laid off.

Question: Should I ask them how much money they have? It seems like a sensitive subject...

Linux.com: Even if a startup has money, you want to ask how much they have now, and what their "burn rate" is (e.g. $500,000 a month runs out quick if they only have two million in the bank). From what I hear, a lot of people are starting to get savvy about startups and do ask for financial information about the company before signing on. Most startups I've talked to have been very open with me about their current funding status, how much is in the bank, and how much goes out every month, as well as how soon money is projected to start coming in. If they didn't want to tell me, I'd be a little worried.

Question: I work for a startup company, and I've been there for a year. Am I safe now?

Linux.com: I worked for a startup for two years, often working 80 -90 hour weeks. The top management one day decided to lay off all technical personnel with no notice whatsoever, so none of us got any stock, no severance, not even a "thanks and good luck." I've found this happens a lot, especially in today's economic climate, but it was quite surprising after two whole years.

Question: But this company has a long-term, multi-million dollar contract to build/design/maintain something. Won't it be safe for the length of the contract?

Linux.com: Ah, I remember when I started working at that company; they had a five million dollar, three-year contract to do this enormous project. People warned me about risky startups, but I thought, heck, it's good for at least three years, right? As I found out, when whoever signs a contract just decides they don't want to play anymore, and you don't have the money to take them to court, that's it. Thus, I'd be wary of startups that tout their long-term big contracts. You would think a contract would protect you, but the fact is, most of the lawyers we talked to wanted a minimum of $25,000 to even start pursuing it, so when our contractor decided they didn't want to go ahead with the project, we were hosed: they even had us locked out of the office, since the two companies were sharing, but their name was on the lease.

You see, even if your company does have a contract, chances are that if the client decides to just blow it off, your company will not have the resources to pursue it in court. Sure, it's rare to have someone just blow off a contract, but it does happen.

Question: Well, at least if I get laid off, I'll get my 401K money, reimbursement for expenses, vacation pay, and be eligible for COBRA (health coverage) won't I?

Linux.com: Another pre-IPO horror story submitted by an anonymous visitor: (Company name deleted):

[Unnamed Company] was evicted from their office space in Durham, NC in late April 1999 (owed seven months back rent). [Unnamed Company] was founded in 1993, and seemed to be a successful business before they started trying to write shrink-wrapped software and cut off their web consulting revenue stream. On March 5, 1999 the company had started admitting to employees that no 401K contributions had been made since Oct 1 1998.

They had, of course, allowed new employees to enroll in the 401K.

The company was 'close' to getting more VC until the President sent ambiguously worded email to the remaining employees at their home email addresses on May 11, 1999 telling them they had been laid off. The North Carolina unemployment claims people really prefer a layoff letter on company letterhead, not a printout of email. It seems likely that VC people had better instincts than the employees, and that's why VC funds kept not making commitments of money.

The people who were laid off April 4th were lucky - they got a final paycheck that contained much of what they were owed in salary and vacation. It was scummy of the company to offer COBRA health insurance to these people, when they hadn't paid the premiums since February and suspected that the health insurance company would stop paying claims any day. The people who had six months of back travel claims were out of luck.

The company president filed for personal bankruptcy and claimed all the 401K stuff as personal debts. Did you know that being claimed as a bankruptcy creditor puts your name, home address, and SSN in public federal court records that are accessible via the web?

The intellectual property of [Unnamed Company] was sold to a new startup. About 20 ex-employees hired a lawyer together to force the company into bankruptcy. The President and the former director of HR were the two trustees of the 401K and they may indeed be personally liable. The Federal Department.of Labor has been investigating the 401K situation since late March 1999 and the investigation is still ongoing. They could file criminal charges. The 401K fund management company apparently had no obligation to inform account holders that they were not receiving new contributions. The company had chosen the cheapest fee-option, and quarterly statements were sent to the company, which should have given the December 31st 1998 and March 31st, 1999 statements to employees but did not.

Question: But the company president/leadership says that we'll be fine for the next six to eight months, and Series B funding is almost complete. So we're fine, aren't we?

Linux.com: We were told that the sales projections were just astronomical, Series B funding would be completed next week (and then the next week, and the next, and the next, or "real soon now") and that the company was doing great financially. Hmmm. If it was doing so well, I wonder why they had to get rid of over 75% of the staff?

I'm not saying you can't trust anyone, or to be suspicious. All I'm saying is, you can believe the company heads are your friends, and you can still get the shaft. The point is, put as much money away as you can, and enjoy the ride, but don't bet your life on the bazillion dollars that is just around the corner.

Question: But I've done something really valuable for the company / worked really hard / gotten a patent for them / brought them back from the brink of despair, etc. Aren't I safe from being laid off since I am a valuable employee?

Linux.com: After the aforementioned contract went away, our company was left with nothing: not even an office! But everyone pulled together, rebuilt all our databases, software, customer websites and so forth from bits and pieces of code that each of us had at home, put servers together with hardware we had at home, and built the company back up. (We only lost one customer through all that, and she was leaving anyway.) We all did whatever we could to bring in money to the company (on-site network stuff, programming, whatever) for several months, until we came up with a new project that interested investors. After all that, we were almost completely done and ready to sell this new product, when the top management got rid of all of us with no notice.

I only add this to point out that gratitude for hard work doesn't necessarily protect you either. The president talked to me not long before the layoff saying how great everything was, and how we were all in it together, etc.

The company just completed another round of layoffs, and is now down to about 20 employees, mostly management. Only one person is left from our original company. It makes you think.

Question: Where can I find other information about working for startups/Pre-IPO horror stories, etc?

Here are a few links:

Check out the Industry Standard's Flop Tracker and Layoff Tracker for a quick dose of reality.

Question: They have some kind of non-disclosure / proprietary information / non-compete agreement they want me to sign. I'm not a lawyer, but I'm sure it's okay since other people signed it, right?

Linux.com: Take a good hard look at anything you are asked to sign, and practice this phrase: "I'm sorry, but my attorney has asked me not to sign anything without running it by her (him) first." Practice it until you can say it with confidence, and a straight face even if you don't have an attorney. I know it's hard to read all the legal mumbo-jumbo, but if necessary, circle passages that your instinct tells you you're uncomfortable with, and run it by a real lawyer. If you feel like it's asking for your first-born, or that it says you can't work in your field for X-amount of time after you leave, it probably does. The agreement we were asked to sign said basically, "Anything you think while employed by the company becomes property of the company, and anything you create within three months after leaving the company is the property of the company. After running it by a lawyer, we were able to get ours rewritten into a form that was more acceptable and protected the company and us. MyCounsel.com will review any agreement for you for $100.00 last time I checked. I paid my lawyer $300.00 to look over mine, so I think this may be a good deal.

Question: But they want me to sign it now, and won't let me have time to run it by my lawyer. Shouldn't I just sign it?

Linux.com: No! Not unless you're really desperate, and probably not even then. At the very least, insist on the time to read it carefully a few times yourself. They will often say something like, "It's just standard boilerplate for the industry." Ignore them. And consider this: If they don't want you to run it by your lawyer, how good a contract (for you!) do you think it is?

Question: Should I insist on an employment contract? I hate to insist on things like that because I'm afraid I won't get the job if I'm too greedy.

Linux.com: From Barbara Chalef: "If you are an experienced technical manager, or tech. lead, demand a contract with a termination clause. The higher up in the organization you are, the longer your severance pay should be. If the contact between you and the company is "at will," you should still insist on a contract with severance pay. And, again, get a lawyer to look it over. It is worth the $500 or less to do so."

Be confident about your skills and your worth. Research comparable jobs in the area and, if possible, find out what sorts of compensation packages are being offered to others in your field. Then you can casually drop, "Well, Excite@Home is offering thus-and-such for a comparable position. Why should I work for you?" At any rate, if you have to sign any sort of Non-Compete agreement, push for severance pay that will cover the period of time you're not allowed to "compete." After all, if they don't want you to work in the field, they should pay you not to!

Question: What are some other things I should consider beforehand?

Linux.com: Liz Rodgers has these suggestions for items you should ask about but perhaps more importantly, research yourself from the outside as well. The company may not tell you all of the truth.

1.Do you think they have a sound business model?
2.Do they have customers?
3.How long have they been in business?
4.Who are their key people?
5.Where does their experience lie?
6.Is that experience valuable? (i.e., if it's an ASP does anyone have ASP/ISP background?)
7.Who are their competitors? (The answer had better not be "none.")
8.Does their guess at their competitor list match with yours?

Question: They're offering me a huge salary increase, but what if the job is in another city/state?

Linux.com: You'll at least want to do some research first on whether it's a good deal or not. For example, say you're living in Reno, Nevada and making $45,000.00 a year. This company is in Palo Alto, California, and they offer you $65,000.00 a year. "Wow," you think! "That's a $20,000.00 increase! I'm there!" However, if you own a home, and want to own a home there, you'll need to make about $106,000 to maintain the same standard of living as you have in Reno, and at least $70,000 if you rent. Suddenly, the $65,000 doesn't look like quite such a good deal, does it?

I've found Money magazine's online relocation wizard and cost of living comparison calculators (as well as some of their other stuff) a huge help:


Look under "Real Estate" for the relocation widgets, and try some of their other calculators. If nothing else, you'll have some data to go back to the company with for negotiation purposes.

Kristina has, over the years, worked as an Air Traffic Controller with the US Army, Casino lounge singer, freelance journalist, portrait photographer, English teacher, Resume writer and self-marketing consultant, systems administrator and Perl programmer, among other things. While employed as a resume writer, she gave intensive workshops to military and other organizations about transitioning from federal or government service to the civilian sector, and aided many people in changing job fields through appropriate self-marketing techniques. Her years of extensive on-the-job research in job searching, self-marketing, resume writing, and changing job fields herself led to her position as a staff writer for the Jobs section of Linux.com.

   Page 1 of 1