Why do people join start-ups?

I've been mulling over the comments on my previous post on Long term greed and the argument that employees joining start-ups don't value stock options too highly anymore. The assertion — which I do generally agree with — is that post-2000 bubble no one joins a start-up expecting to get rich off stock options. I don't have any stats in front of me to support this, but having worked in start-ups on and off since 1991, it's certainly my experience that start-up salaries have moved a lot closer to bigger company levels and the portion of compensation ascribed to stock options has gone down materially. Needless to say, the current economic environment and complete lack of exits for start-ups will do nothing to bring back the allure of option riches any time soon.

Why do people work for start-ups? It's not because start-ups provide the allure of riches, it's actually because bigger companies have lost any semblence of longer term stability themselves. Every company is risky, so you might as well work on something interesting. Sarah Lacy has a great column in BusinessWeek discussing this newly discovered lack of trade-off:

"Already in Silicon Valley much of the risk associated with working for a startup compared with a listed behemoth has dissipated. For one thing, there's so much VC money sloshing around that most companies can afford to pay engineers every bit as much as Google (GOOG) or Yahoo! (YHOO). Then, of course, there are the thousands of jobs being eliminated from the publicly traded companies, including Hewlett-Packard (HPQ), Yahoo, and even Google. So if I can get the same money, comparable security, and the prospect of stock options from a startup, where do I sign up?"

My sense is that this recession has so far been much worse on the big corporate America than on technology start-ups, whereas the 2000-2003 period was the opposite. There's ever more money coming into VC funds while start-ups are much more capital efficient than they used to be. Given the complete lack of liquidity on Wall Street, Sand Hill Road is a lot safer place to hang out these days. Maybe the start-ups those VCs back are actually the safer bet too.

Quick update: right after I wrote this post, I saw this story on the NY Times talking about the flight to safety among job seekers. Also worth a read.

Comments

[Jeffrey McManus]

Your assumption is that small companies work on interesting stuff and big companies do not, which is not always true.

[Andrew Anker]

Jeffrey... sorry, didn't mean to imply that all small companies are interesting to all people. But without the feeling of safety in a big company, people can go work on something interesting, wherever that may be. Check out the New York Times story I added in a quick update to the post http://www.nytimes.com/2009/01/25/business/25safe.html. I think it makes the point more broadly.

[Caswell Brownby IV]

Here's a guess:

Wanna get rich - 15% (times have changed)
Love an adrenaline filled environment - 20%
Prefer an environment where they have more of an impact - 30%
Same salary, more risk; no biggie, the labor market is good - 20%
Happenstance and inertia - 15%

Ultimately, it's novelty that drives fulfillment. At a startup, things are dynamic - the constant change tests people.

I wonder what the best startups to work at are? Did you see that Optisolar laid off 75% of their workforce? Ugh.