Y Combinator Startup Podcast - Should You Quit Your Job At A Unicorn? | Dalton & Michael Podcast

Episode Date: November 6, 2023

If you’re an employee of a late stage company right now, how would you know when it’s time to move on vs. time to double down? The fact is there isn't an easy answer — it can really vary from person to person and situation to situation. In this video, YC Group Partners, Michael Seibel and Dalton Caldwell share some suggestions on what sort of things an employee of a late stage startup should be looking for — the good signs and the bad — to best make this decision. Apply to Y Combinator: https://yc.link/DandM-apply Work at a Startup: https://yc.link/DandM-jobs

As far as you can tell, the metrics are excellent. Yes. The founders are extremely focused. Yes. Your colleagues are very smart and you are very impressed continuing to work with them. You should probably stay a really long time. Yeah. I mean, that's rare.

That's kind of what Google looked like. Yeah. Welcome to Dalton and Michael. Today, we'd like to do a follow-up on a video that we recorded a year ago. That video was why you should leave your fang job. We all know these people that want to just tell you their dark. dark is secret, which is they wake up every day and they like dream of quitting. Like they have fantasies of quitting every day.

Those are people that probably should quit. This video is why maybe you should leave your failing unicorn startup. Oof. Tricky topic was. And let's say signals. We don't know. We don't have all the information. But there might be some hints.

There might be some signs you want to be looking for. that it might be time to reach greener pastures. And if you're an employee of one of these companies, you probably have the best perspective, a better perspective than investors, maybe sometimes even better perspective than founders. Yes. On what's really going on.

So maybe we should start this by saying there are 1,400 unicorns now. Is that right? Yeah. Wow. Well, I'll ask you. I don't know what you think. Do you think all 1,400 will go public successfully?

I think the odds are pretty slim that they're all doing amazing. Yeah. I think that's a fair statement. I think that's a fair statement. And so if you kind of divide this out, even if you're really optimistic, like what do you think an optimistic count, what percentage of what percentage of the 1400? We're being super optimistic. They do an IPO and everyone's really happy. Third?

I'm just making this up. A third. Yeah. Third. Great. So in that case, two thirds of that 1400. 1400, it's not going to work out. And I think what's unfortunate is that like when things don't work out,

employees usually don't. They are, yeah. Who takes one for the team? They're usually in the category here to take one for the team. Right. And again, like brass tax here, what this means is your equity, most likely if you joined a unicorn that is late stage. The strike price of your options is going to be tied to the valuation that the company

raised at. Yep. And so if the company is sold for less or if it's perhaps overvalued, your options are likely underwater. Right? This is just simple fact of life. And often the people running these companies don't love this line of questioning. And so we're just sort of telling you the truth, which is, you know, the later you joined a company, the higher your strike price will be on options. And so the folks that are most likely, most of the people weren't hired at the end of the, you know, when they became unicorns, a lot of people came in. So the strike prices are very high. Yes. And so, man, you need to be smart. Yes. Well, and the second thing is if they do end in acquisition, in many will and in acquisition, oftentimes you have to re-interview for your job. Like oftentimes they don't want to bring everyone over in the acquisition, and so that's tricky. And also, you might end up at the big tech company you're running away from. That's right, when you're doing a startup. So I think I'd love to put in a kind of a little bit of a note here.

I think that those 30% that will do well will probably do counterintuitively well. Like really well. Yeah, like very well. Extremely well. Yeah. Even going to work at those companies now is probably a good idea.

Absolutely. Yeah. And so I think that's what's so tricky about this is you have to be smart. You can't really be like following the bullshit press or stuff. Yeah, or like the memes on Twitter about what's doing well and not doing well. No, no, no, no. You got to attack this.

So Michael, what would you do if you were an employee, say you were a software engineer at a unicorn? Yes. What would be the signals you'd be looking for to know if this was like a smart move to stay? I think the first thing I'd be thinking about is revenue. I would say that in the end of the day, when a market, when a company goes public or when a company is acquired for a lot of money, the market is looking at how much revenue that company is making and is that revenue growing. And I would say that, you know, for example, if I'm at a company is acquired for a lot of money, you know, for example, if I'm at a a company right now that's making 50 to 100 million in revenue or more, that's a unicorn. Like, that's pretty good.

Yeah, it's reasonable that it's a unicorn. Yeah. If they have 100 million plus in revenue, okay, that's, that pencil's out, right? Yeah, that's pretty good. I think that if I'm working, if I'm looking at a company has like 50 million or less in revenue and is a unicorn, now I'm starting to ask myself the question, do users like the product? What's retention look like?

Are we charging as much as we could? Can we charge more? Do we actually have product market fit? Do we actually have product market fit? Again, not likely to be a popular question in management, if you ask management this, but worth considering. And I think a lot of these questions can really be answered by looking at what are the customers doing?

Right. I think what's so funny is that if you're an employee inside of a company, most like the information you need to tell whether the company's doing well or not is like literally available to you. Yeah. Well, and I can imagine there actually maybe some folks out there that work at companies where the information is not available to them. Is that okay?

Like, what do you think? Is that normal to not be told these numbers? I would say that, like, what's interesting is that maybe there are certain financials or certain, you know, cash on hand or something that it's important for the company or a founder might decide to keep private. But I would say in most companies, product analytics in somewhere or another is available. Yep. It's like widely available.

And so you can tell whether there. the users who are it paying for your product are actually engaging with them. And man, I think that's like hilariously the simple leading indicator of whether you have a good product is you sold somebody the product, they've successfully onboarded, and they're actively using it. And then they renew. And they depend on the business model of the company. Hey, they keep using it and they keep paying for it forever. What we also need to attack is this idea that because smart investor invested by company is doing well. Yep. Like I just don't, I think that, you know, when you're the press or when you're on the outside having a judge,

you have to use these kind of weird secondary non-primony sources. Your only signal as an outsider is fundraising rounds. Yeah. And there can be companies that are still struggling that aren't going to make it. It's still somehow raising money. One trick, by the way, friends out there that's very common, is a fundraising round may have happened a year ago. Yes. But they're choosing to announce it now.

Yes. And it looks like they just raised. And that is not true. Yes. So watch out for using the announcements of fundraising as a very reliable signal. Yes. So Michael, in terms of market timing, one thing that might be interesting to think about if you're currently working at a unicorn, a very late stage company, is now it might be a good

time to consider going to an earlier stage company as an employee. Yes. Because it's less likely their equity is super overvalued and there's lots of room for advancement. So how would you think about this if you were an employee in one of these companies? Well, one, I'd think that, you know, you've gathered a lot of experience, and so you might have an opportunity to have more responsibility to an early stage company, which would also probably get you more equity. I would say, too, you could use many of the hints that we gave you to judge that early stage company. And you can actually do a bit of a comparison to get a vibe for like, oh, like this early stage company seems like it's doing better than my late stage company. And I think the third thing is that

what's funny is I think it's a little counterintuitive, right? It's the moment where your friends are going to be like, that's stupid. Yeah, why would you go to a smaller company that's not a unicorn? Exactly, right? And it's so weird in my life how many times the dumb move at the moment was the smart move later and vice versa. Like it is just over and over again. Yeah, and so the dream setup is you go to an earlier stage company

that has the same revenue as the unicorn you are leaving, and one-tenth evaluation, thus your option strike price is much better. And you have more responsibility. Yeah, more responsibility. That's a pretty good trade. That's not a bad trade at all. That's not a bad trade at all.

And of course, you could always start a company as well, which is just the Uber version of the same trade. Exactly. So I think what I would say is this, is that, you know, this is tricky, right? I think that when we made the video about faying, fortunately or unfortunately, I think that, you know, Google is going to look very similar five years from now as it looks now. Yep. And I think that for those of you who are at unicorns, it can really go either way.

So you have to be careful, right? You could leave a unicorn and that company could do great. And you could look back five years from that and say, like, I made the exact wrong decision. On the flip side, you could be the person, you know, shutting the lights off. and five years from now being like, I'm not making the right decision. So make sure that you're actually doing your own analysis here, I think is the point I want to make. Like make sure you're doing first principles analysis. You're looking at data.

You're not believing any hype. I think another point to make is the concept of job hopping. Job hopping is not good either. So sometimes you'll see people that swap. They go to a new unicorn every 12 months or 18 months. It's very hard to ever build a good career. or to build expertise. We're even making a lot of money.

Or make a lot of money doing that kind of stuff. So again, I don't want folks to interpret what we're saying is, hey, you should be a job offer and just switch jobs. To the extent you are working at a place where, as far as you can tell, the metrics are excellent. Yes. The founders are extremely focused. Yes.

Your colleagues are very smart and you are very impressed continuing to work with them. Yes. You should probably stay a really long time. Yeah. I mean, that's rare. That's kind of what Google looked like, what Facebook looked like. And so again, just to go through a little bit of, things I would look at if I were someone in one of these companies trying to decide if my company

was doing well. All the stuff Michael said. But other signs I'd be looking for is, do the founders seem checked out? Are they in the office? Maybe you don't have an office. Maybe a remote company. But does it actually seem like senior management is like engaged? And in reality, sometimes when a unicorn is doing poorly, management will just completely be on

Mars. Yes. Like the numbers will all be bad, but they'll be like, oh, we're doing better than ever. Like that kind of crap. A we work is a classic example of this. And so you should actually be looking at senior management and the founders and make a judgment if you think they seem like they're competent. Yeah. And again, this is different. Sometimes the press lionizes people that aren't super competent. The press shouldn't be involved in this decision. So you should make your own decision. Yeah. It should be like, is the message in the all hands line up with the facts that you see? Yeah. Does it seem credible? Yeah. I also. would look at what the rest of the people that work at the company seem like. And do they all seem

busy? And do they have enough to work to do? And do you just feel like your colleagues are good? Yes. Because one signal of a company that's not going well is that everyone good is kind of left. And the people that are left are just doing make work to try to not get laid off. It's kind of a malaise. Yeah. And often the founders of these companies won't want to, you know, do layoffs or whatever, to keep the fiction going that the company's going well. And so again, I think you can make judgment, you know, hopefully you're correct, but of just how good do your colleague seem and how much do they have really important work to do that's serving customers versus going through the motions making pitch decks or

slide decks or whatever it is that people do. Companies aren't quite well, right? Yes. And so I think these are really, you have the information if you're inside of the company. You have all the information. Way better than anyone else does. Yes. And again, if this could all check out and you're like, you know what, this is.

is going great and I really like my colleagues and I'm learning a lot and I should double down. You should double. I should work harder. I should try to get more equity. So yeah, maybe that's the message that we want to leave is that unfortunately amongst these 1400 then I'm going to make it. Unfortunately, this unicorn label does not mean you're going to get in the money. Yep. And you've got to think critically. And like that's, isn't that life? Yeah. And a lot of life is you can be disappointed because other authority figures told you something is true. The authority figure said this company raised a lot of money. It's a very good bet.

It's the next whatever. Yeah. But ultimately, those authority figures aren't going to be around if it doesn't work out. And it's all new. And if there's 30 figures are investors, they're hedged. Yeah, they're hedged. So maybe do the math yourself. But what's good is every YC unicorn is going to make it.

Everyone. Every single one. You heard it here. Every single one. Dalton's personal guarantee. All right. Great chatting. Thanks.