Recently, I spoke with a friend about job opportunities. I briefly shared with him my framework for deciding between companies, which I developed during my job search last summer. I want to expand on the questions and the thinking behind them — as far as I can tell, this isn’t common knowledge, and perhaps someone else will find it useful.
The framework centers around three dimensions, two which look at the upside (trajectory and potential), and one to cap the downside (sustained damage).
As a example, suppose it’s 2018, and you’re looking at a (entirely hypothetical) company called Basebook — a social network for baseball fans. After a few rocky years, they recently raised a bridge round, hired a “professional CEO”, and are starting to find some traction. MAUs have been growing 20% each month for the past six months.
This post assumes you’re evaluating work opportunities that provide meaningful ownership or profit interests (via stock options, RSUs, stock grants, etc), and that you could live adequately on any of the offered salaries. This post is intended to be a thought experiment — it is not financial advice, and I’m not a financial advisor.
This framework should be used in the final round of your decision-making, once you’ve made sure that all your opportunities address your table stakes. These might include:
- Team culture, and whether you’d enjoy working with the people there
- A path for the kind of growth you’re looking for
- Salary — enough to allow you to pay off debts and eliminate (or at least mitigate) existential anxiety
Trajectory looks at how well the company has been doing — it takes into account both the magnitude of the growth and how quickly it happens. Trajectory matters in both the growth of the business (customers/revenue/profit/cash flow), as well as growth of the product (shipping rate and value of what is shipping).
Interpreting these metrics will depend on the nature of the company. For example, strong growth in users may be a good thing if there is a clear path to monetizing users, or if there is a strong funding environment for user counts, but may be a neutral or negative signal if it comes with high CAC or a cautious funding environment. Similarly, a company might be generating little profit, but it’s collecting large amounts of cash up front (and presumably reinvesting its free cash flow). In the product dimension, a slow shipping cadence usually isn’t a good sign.
In Basebook’s case, the user growth trajectory appears promising. However, without other clear signals, it’s difficult to attribute clear value to that signal — MAUs on their own don’t necessarily lead to monetization. The rocky early years might be a negative sign for trajectory, if they were spent making bad decisions or pursuing misguided ideas.
If the trajectory on any dimension is flat or flattening, that’s a strong negative signal. Instead, look for accelerating progress. For smaller companies, it may be the case that many metrics are flat or humbly linear while one or two important metrics are accelerating. That may be a good thing — it’s a sign of focus.
How big is the company’s opportunity? This is different from asking how big the company’s market is — it should take into account the competitive nature of the market and the dynamics of customer acquisition. A market crowded with competitors, or one with difficult-to-reach customers, will likely cap the amount of the market any company could capture.
Alternatively, a company may be able to expand its market by rethinking the laws of economics and consumer behavior (example: Spotify) or the laws of physics (example: SpaceX). If the company can execute well enough to capture that growth, that can be massively valuable. A company may also be able to expand into other markets (usually adjacent, but not always) — Amazon is a classic example.
For Basebook, the market likely isn’t very large; the number of people who are baseball fans and want to use a dedicated social network is likely small. In addition, the fundraising market for social networks has cooled considerably, and user growth without profitability isn’t likely to be able to attract more funding.
I believe that companies sustain damage as they age. Most of it is self-inflicted; sometimes it’s external. Damage might come from specific decisions, faulty decision-making frameworks, or poorly handled events. Of these, faulty frameworks are the most insidious. It’s difficult to spot a systemic pattern of bad decision-making, except in hindsight (often when trajectory has already been impacted).
Signs of bad decision making include a lack of zeal or clarity, especially when asked about goals, direction, or the rationale behind goals or direction; a hesitation to make and commit to decisions; and problems that persist without apparent progress in resolving them. In fact, sustained damage, at first glance, usually looks more like systemic stagnation rather than outright negativity.
It’s possible Basebook sustained damage during the early years, especially if it wasn’t able to develop a strong culture and execution discipline (indicated by hiring a “professional CEO”). Furthermore, a bridge round usually leads to significant dilution, resulting in what you, as a potential common shareholder, would likely consider sustained damage as well.