Big-tech vs. Start-ups
One of the only constants in Silicon Valley is change. That includes changing jobs. A recent study by LinkedIn estimated the average tenure at large tech companies at about three years. Where to take the next role – particularly if you are deciding between a large company and a start-up – is a frequent question faced by tech professionals, including many of our clients. There are several dimensions to the decision, including:
Your span of control and responsibility at the company
The prospects for career progression or advancement
Work-life balance issues
And of course, compensation
Facing such a multi-dimensional decision can be daunting, and a simple pros-cons list may not get you to a satisfactory answer. Having helped clients through this decision many times, here are some questions we encourage you to explore …
The really big questions
We strongly believe that important decisions need to be made in the context of holistic plan that factors in two of the most critical questions we all face:
1) Where do you want to go in life?
2) What is most important to you?
Knowing – or at least having an idea – of the answers to those questions will oftentimes give you all the information you need to make a career decision. The plans we help clients build consider money not as a goal in and of itself, but as a means get where they want to go and/or do what is most important to them. In some cases, that means making as much as possible today to retire early and travel the world. In others, it means buying a less expensive house then a simple calculator says they could afford to retain the flexibility to earn less down the road.
You don’t have to be sure of all your goals in life for a long-term plan to have value. Some people have a very clear idea of where they’re headed and others like to keep their options open. The key is to have a baseline from which to evaluate the impacts of something as consequential as changing jobs.
The fact you’re reading this probably means you’re open to the idea of getting help from a professional to build your plan. It also shouldn’t be a surprise that we think there’s value in that. However, taking the time to answer those two key questions will help inform any decision you’re facing now and make for a better financial plan when you build one.
What’s my “shot clock”?
From a financial planning perspective, it’s usually the case that the transition from an established tech firm to a start-up is more consequential. The reasons for this are: 1) base compensation is usually lower; and 2) equity compensation is illiquid, with a more uncertain future value. If you’re considering joining a start-up, hopefully that means you are a believer in the company’s long-term prospects and the potential for value creation from your equity compensation.
However, while optimism is an essential ingredient in any successful start-up, when evaluating a jump to a start-up, we encourage clients to not only hope for the best, but also to plan for the worst. If the start-up works out and the equity compensation ends up having significant value, then we know the decision to take the start-up role will have been a good one, at least financially. But since we don’t have the luxury of that foresight, the question we ask is, “How does a lower base salary and a less successful equity exit, if any at all, impact your plan?” To get to this answer, we determine how long you can go with reduced compensation before you start having to make additional adjustments to your plan for it to be successful. That time frame varies a lot depending on a client’s current circumstances and future goals.
To be clear, needing to make other adjustments does not mean you should avoid the move to a start-up. But knowing what your shot clock is, and what kind of compromises or adjustments you’re likely to face if you remain there after it runs out, will allow you to make a better decision at the outset.
Have I tested the waters enough?
Good outcomes come from having good choices. If you’ve been in your current role and/or company for a while, it’s quite possible that your compensation or title is not reflective of current “market” rates. We’ve seen situations where a client was offered a compensation package by a start-up that was fairly comparable to his current compensation. But as he started to entertain the possibility of leaving the large tech firm he’d been with for years, he reached out to a similarly sized firm and was offered significantly more than either his current pay or the start-up role. If you’re considering leaving a big tech firm for a start-up or vise versa, even if you think you have a strong preference for one or the other, we suggest testing the market for both. At a minimum, you’ll be in a better position to evaluate any offers you receive and engage in negotiations with the benefit of concrete data.
If you are interested in getting our help to answer these questions grounded in a data-driven approach complemented by our years of experience advising Silicon Valley professionals, contact us to schedule an appointment.