
Avoiding Zombie Startups - zerogvt
https://salon.thefamily.co/avoiding-zombie-startups-9bcd4a79ccc0
======
dullroar
Disclosure: I worked for various "startup" companies starting in 1991 through
2005. One got bought by a large company and made me some money, but not a
life-changing amount. Some others variously went into "zombie" mode. One got
bought by a company that simply milks the existing customer base for support
revenue. One failed outright.

That said, when the first company was bought, there was a product that the
buying company didn't want to continue to support. Some friends of mine made
an agreement to take over that product, and started a company to do so. They
never grew the customer base that much - it was a niche product. However, they
were able to continue to work together as friends, have decent paychecks with
100% company-paid insurance, and after about 15 years, sold out to a company
for enough to allow for comfortable (not rich) retirements. This was all on
purpose and was discussed frequently by them - "Do we want to grow, or do we
want to enjoy what we're doing, have some free time, less stress, and remain
friends?"

I've always thought that was a FINE model for a company, if you can pull it
off. I always wanted to work there (did some consulting for them), but they
could never grow quite enough to hire me. Ah, well. :)

~~~
sombremesa
Those aren't really startups though, at least according to Paul Graham. Those
are more akin to small businesses. A startup is born to scale exponentially.

~~~
GreeniFi
PG’s definition is only one, very VC-oriented definition. I think a layman’s
definition would be a new for-profit organization started to solve problems,
likely but not exclusively, using technology to do so.

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tenpoundhammer
Reading the comments on this an post and many others about compensation and
payouts makes me feel like I'm losing my mind.

I grew up in a lower-middle-class house where both my parents worked for the
postal service. Both parents worked strange and/or long hours and they
performed very physically demanding work. I can remember several cases of them
being out of work because of injuries. We were never poor but we never had
extra. Meaning we always had food and cable television but rarely went out to
eat or went on vacations.

I took a major liking to computer programming and pursued that as a career
since high school. I find it unbelievable that I make a good living off of
doing a job that I find really enjoyable and plus I make great money doing it.

My first job out of college I started working for a major manufacturer of PC's
and printers and I started off with a higher salary than what my dad was
making at the time, $65,000. I thought I was rich and set for life.

Working in the software industry makes me feel like I'm on another planet, I'm
just excited to keep getting a paycheck every two weeks and then I read
discussions about people chasing lotteries or trying to pull in 250k with
bonuses.

I don't think it's bad to maximize your earning potential but the figures and
mentality around feel so foreign to me. All that to say it's just a weird
experience going from rural Oregon to the software industry and see the
massive difference in lifestyle and the relationship people have with work.

~~~
throwaway5752
You're not losing your mind, same here. I think a lot - particularly on the
younger side - have done almost nothing besides software in a serious way. A
lot of people have no perspective on how hard life is for a really large chunk
of this country. The "go away to southeast asia and live on a beach for 6
months to reset yourself" is the one that makes me feel most out of touch.
If/when we have another crunch some people will have very rude wake up calls.

~~~
s73v3r_
Just because other people may have it worse is absolutely no reason to stop
striving for better.

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ttul
#6 Have a crystal ball that can predict the future. Since the success of a
startup is often based on unpredictable changes in markets, technology, or
world events, even if you follow all of the other steps here to avoid a zombie
startup, you may end up in one. And you may avoid a startup that was really
onto something.

Okay, so I am being a little satirical. But honestly, if it was so easy to
pick winners, VCs would invest in far fewer companies. As an individual trying
to pick the winner, you have close to zero probability of being right.

~~~
__exit__
Agreed. Until you do not enter a startup, it's hard to know how it actually
works.

During interviews and preliminary hiring-talks they may sell the pitch as if
everything were wonderful, but potentially, the unfortunate reality could be
that things are not that nice.

~~~
ummonk
And then you lose what, a few months of your time? Certainly a significant
investment but hardly the end of the world.

~~~
wsy
It hurts your CV, too. You can do this once, but if you stay for only a few
months at 3 startups in a row, I probably wouldn't hire you anymore. The risk
is too high that you would leave the 4th startup as well.

~~~
DBCerigo
I haven't found that this has hurt my CV, or more specifically my ability to
get hired by subsequent startups, at all, in fact the larger amount and larger
variety of my proven expertise from working at multiple startups for
relatively short periods seems to have only increased my ability to land jobs.
And further, the varied experience I got at them has very quickly removed the
ross-tinted view of the startup world and taught me hugely on what to look for
and what to watch out for.

Disclaimer being that in each instance I joined in good faith, worked hard and
added value to the company quickly (at least in the companies eyes), did my
best to pragmatically resolve any major issue that happen to arise, and left
once those resolutions reached a roadblock and that I felt I had made all
reasonable attempts to fix things. On reflection it was always just a case of
losing faith in the leadership of the company.

My advice to anyone starting out would be to do your best due diligence (read
about it) before joining, but knowing that you'll only get the real workings
of place from actually working in it, and especially if you are inexperienced
you will have likely overlooked some subsequently obvious warning signs (I
sure know I did in the past!). Throw yourself into it 100%, get established,
then assess the situation. Always do your best to give everything the benefit
of the doubt, and be open to being wrong, until you really just have to admit
that you're right (or in reality you _think_ you're right), then move on if
you have to in the most considerate way possible.

Future founders/leadership that I would want work with would (hopefully)
understand my decision-making at those times, and would be confident enough
that they could instil the motivation in me to continue to follow them long
term.

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jiveturkey
Rather thin and worthless article, not really deserving of what looks to be on
its way to a 100 comment article.

Very first sentence:

> People tend to underestimate the financial opportunity that startups
> represent for early employees.

um, no, absolutely, emphatically not. This article is written by a person
whose job is headhunting for startups. So off the bat, the bias is off the
charts.

It's exactly the opposite. People (employee candidates) tend to _overestimate_
the financial opportunity, both in value and likelihood.

> But being good at picking which startup to join as an employee means, in
> part, being as diligent as an investor.

Diligent sure, but nowhere does the article explain such diligence, and anyway
investor diligence is not anything like employee diligence.

All the points have flaws, but one general theme stood out, that they are
pushing equity vs salary.

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michaelbuckbee
This seems well intentioned, but it strains credulity on a couple fronts:

1\. This article is referring to VC backed startups, which generally speaking
9 of 10 die. Are you going to statistically better at picking a winner than a
VC (consider also that you aren't diversifying your investment as you only
work at 1 startup at a time).

2\. While transparency is indeed key, there are levels. It's unlikely any
company is going to be so radically transparent as to tell you the details
you'd need to actually determine their financial fitness going forward.

Consider that Telltale Games last week managed to both hire a new developer,
move them across the country and then call them into a meeting to let them
know that they'd be let go along with most of the rest of the company in a
massive layoff. That's a lack of transparency as to what is happening _within_
the company.

3\. VC backed startups are just inherently volatile. I worked for a YC company
that raised between $75-$100 mil (keeping it vague) and they were more or less
insane: just weird unforced errors and oddness and Steve Jobs complex. They
recently closed as their round failed due to a combination of IP theft, "Trump
trade issues" and inability to execute in the face of more advanced
competitors. It's often not just one thing that pushes a startup from "rocket
ship" to "zombie", it's everything.

4\. Being an early stage employee (non-founder) is a rough spot. Typically
you're taking less on salary because of "generous" equity. However, you're
also expected to work founder hours. As liquidity events have diminished, so
have opportunities to actually cash out.

All that being said, I'd still encourage people to work for a startup, but to
do it on their own terms: to learn, to get a new experience, to try and set
yourself up to do your own creation. Please just don't rely on picking a
rocketship.

~~~
lmm
> Consider that Telltale Games last week managed to both hire a new developer,
> move them across the country and then call them into a meeting to let them
> know that they'd be let go along with most of the rest of the company in a
> massive layoff. That's a lack of transparency as to what is happening
> _within_ the company.

Does that mean there are no companies that do better than that, though?

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scarface74
But here in the real world outside of the HN Silicon Valley bubble, most would
be statistically better off working for a company with a mostly guaranteed
combination of salary+guaranteed stock over a known vesting period that is
competitive with the market.

If the company is private, negotiate for a salary that’s competitive with the
market.

“Competitive” doesn’t mean that everyone is going to move to SV and work for a
FAANG.

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balls187
Here is my opinion on why you should join a startup (or any company for that
matter) in order of descending importance.

1\. You like the people, and they like you.

2\. You like what the company is doing.

3\. You need a job.

~~~
gwbas1c
I like to add: Won't go out of business tomorrow

Of course, what "tomorrow" is, is highly dependent on your personal situation.

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mrnobody_67
Best risk adjusted returns come from late stage startups - Series C or D
typically - for VP level roles that get 1% grants ($4-$10m value over 4
years). Highly de-risked.

At year two or three the company will also likely top up the equity if they
want you to stay... just negotiate a 10 year exercise window, so you're not
writing a check on your way out the door.

For whatever reason, why individual contributor equity grants fall off a cliff
after Seed or Series A, the VPs remain relatively constant even as the value
of the company goes up 20-50x while risk plummets.

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commandlinefan
Now that I've got quite a bit of experience behind me, I've started to become
very attuned to "savior-seeking": somebody (or a group of people) who
underestimated how difficult building a business was going to be and is now
underwater, desperate for a lifeline. Although I (sort of) sympathize with the
position they're in, I also know that I don't have the magic that they expect,
or the 24/7 availability they're going to need, to dig them out of the hole
they've put themselves in.

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mlthoughts2018
The first sentence...

> “People tend to underestimate the financial opportunity that startups
> represent for early employees.”

I would laugh if it wasn’t so sad.

~~~
rocky1138
I had to read it twice because I thought i must have missed a "not" or
something to match my expectations of where I thought the sentence was going.

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SZJX
Late comment though I'm not sure if point 2 about awards and press coverage is
true. Surely you can't spend all your time on marketing but you still need to
gain traction somehow? I would like to see some opinions on this.

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mooreds
It might be more interesting to write a post about how to exit a zombie
startup once you've joined one, or how to determine the zombie status from the
inside.

~~~
kristopolous
You're usually valued and crucial at one. So try to fix it and give them the
option of firing you if they don't like it.

Identifying it is when they say things are going to happen but they either
don't get done or some shadow of that thing gets halfway done 6 months too
late.

Also you may be in because it's a hot idea. If you see other companies pop up
with the same idea and they are actually moving and yours isn't, then leave.

First to market is irrelevant if the first people are bozos who can't scale.
Everyone will steal their idea and the original innovator will trip over their
shoelaces.

~~~
mooreds
> Identifying it is when they say things are going to happen but they either
> don't get done or some shadow of that thing gets halfway done 6 months too
> late.

This is it! You just saved me from writing the blog post. I haven't been part
of any rocketship startups, but have been part of successful bootstrapped
ones, and unsuccessful zombie ones. The difference was the ability to:

* state a goal

* execute to achieve said goal

My guess is that the chosen goals are the difference between mildly and wildly
successful startups, but if you can't state a goal and execute, you're in a
zombie startup. It may pretend to be alive, but it's not.

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mygo
They make joining a startup seem like it's supposed to be a get rich quick
scheme.

Focusing on how someone can buy shares at low price and sell high kind of only
selects for one kind of company -- the VC funded company whose entire goal is
either an IPO or an acquisition.

What about the startup that has no plans for acquisitions nor IPO's, and is
not in the business of giving out shares to employees, yet can pay their
employees great competitive wages with benefits?

Most startups fail. Opting for equity that might be worth more tomorrow at the
expense of liquid cash today doesn't sound much different than buying a
lottery ticket and hoping you picked the right numbers.

Why not look at the offer at face-value instead? Is there decent pay? How much
BS will I have to deal with? Is there opportunity for career advancement (if I
care about that)? If I have to leave, will I be more competitive in the
marketplace? Will I have a life outside of work?

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gdhbcc
What are the big drawbacks of joining a zombie startup? What should I look out
for?

I'm currently considering an offer from one that basically ticks every
checkmark on the list, so I'd love to know what is bad about it

~~~
blihp
All of the downside of a startup (long hours, fire fighting, stress... all of
which never ends) without the upside (an exit which is the pot of gold at the
end of the rainbow that you put up with the rest of it for.) The way to make a
zombie startup work for you is in a role where you're getting paid by the hour
or deliverable that you can control (i.e. contracting or consulting) and
absolutely do not go in as an employee if you have a choice.

~~~
bogomipz
Yeah I think the downside elements you mentioned are important and it's a
significant factor.

Add to this the one year cliff plus one quarter before any options vest and
even then there's a good possibility you will leave them on the table b/c you
don't have the money to buy them when you leave.

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rocky1138
These are all great points but they assume you have the financial freedom and
the understanding that you'll actually get offers which gives you the freedom
to pick the perfect startup for you.

Most of the time, in reality, I've had to pick from one or two while my
savings are quickly dwindling.

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poulsbohemian
While it's true that you are unlikely to hit it big as a startup employee, I
think the article misses some of the real reasons to not join a zombie
startup. I worked at one many years ago and the problem was there was no place
to take your career. The stock wasn't going anywhere, compensation was
lackluster, the company wasn't going to expand, and thus the only way to get a
promotion was to sit there and build personal connections, IE: not based on
merit, rather on drinking buddies / nepotism / etc. The career challenges -
responsibility, technology, etc were not great. So, it was a good place to be
an alumni in terms of connections, but there was no other benefit.

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bogomipz
The article makes a couple of references to "public actors":

>"Business angels investing with strong tax incentives, universities or
companies filling up their marketing brochures and public actors who aren’t
betting their own money at all are a couple examples. So don’t settle for
“We’ve raised a Series A”: Ask with whom and look them up.

If you see that the money raised just comes from public actors, ..."

Could someone say what is a "public actor"? I am not familiar with this term.

~~~
prablenha
The government.

~~~
bogomipz
Could you elaborate? Where does the government do angel investing?

~~~
sulam
I don't think anyone limited it to angels. And governments do investing all
the time, they just don't always call it that. Solyndra and 38 Studios are two
notable failures, for instance.

~~~
bogomipz
Indeed, I misinterpreted that passage. Thank you.

------
codingdave
Let us cut off an underlying assumption of the article - that only rocket ship
startups with massive exits are worthwhile places to work. That simply isn't
true. A long, slow, stable growth of a bootstrapped company can still give a
lucrative exit because there is no dilution. You also can be a multi-
millionaire with simple saving and investments, no "exit" needed. Non-funded
startups also can produce less stress as you get profitable and nobody is
pushing you for a billion dollar exit. You can decide as a group if you want
to push for something larger or just enjoy the ride and have more time with
your family.

These are not bad things. As was mentioned in a few threads over the past few
weeks, nobody lies on their deathbed wishing they had done more work and spent
less time with friends and family.

While VC-driven startups can give you a large exit, so can playing the
lottery. Don't fool yourself into thinking this is a guaranteed get rich plan.
By all means, try it if you have the time and energy and enjoy the work. But
if you don't have the passion and energy for VC-funded startups, then admit
that to yourself and do something else.

~~~
intellectronica
Working for a VC-backed startup is definitely not a guaranteed get-rich-quick
scheme, but working for a low wage at a no/slow-growth "startup" is a
guaranteed stay-poor scheme.

~~~
EpicEng
>stay-poor scheme

Poor? Really? We make a great living, none of us are poor. We are very well
off and you don't need a winning lotto ticket to grow your wealth outside of
your salary.

~~~
chii
Poor is where you must work to maintain your lifestyle.

Rich is where your money makes you enough money to a point where you need not
work to maintain your lifestyle (but can choose to).

~~~
travem
That's not a common definition of poor. This is one that would be more in line
with typical use:

> Lacking sufficient money to live at a standard considered comfortable or
> normal in a society.

From
[https://en.oxforddictionaries.com/definition/poor](https://en.oxforddictionaries.com/definition/poor)

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jgh
is it just me or does the link to their website not work? Is a non-functional
website a good or a bad indicator?

Edit: www works, [https://thefamily.co](https://thefamily.co) doesn't...but
the link in the post points to the second one.

~~~
mygo
it means they didn't set up their DNS records properly.

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megamindbrian2
Woohoo, immigration!!

------
MaintenanceMode
Zombie startups can hurt people in more ways than just a lack of a big payday.

I joined a zombie startup. I wasn't there for the quick money or the get rich
quick scheme or anything like that. Yes, the potential of a payday was part of
the equation, but I joined because I hadn't been at a startup in 15 years and
I was in a place in life where I had alignment on motivation, financial
stability, ability, and desire to contribute. I went in wanting to work hard,
do great things and have a lot of fun in the process. If there were great
financial rewards that would've been great.

So, it's not all about the money. I lost a year of my career working at this
dump that turned out to be a zombie. And it's a facepalm now, but all the
warning signs were there: great coverage in the press, awards, prizes and so
forth, a continuous source of funding through VCs and private investors, lots
of customers, etc. I didn't see the warts until it was too late.

It wasn't until a few months in that I realized that it was operating like a
comfortable place to just put in 8 hours a day for most people. The
bureaucracy was worse at this 200 person company than it was at the large
company I'd left.

