Late in 1999, Time magazine named Jeff Bezos Person of the Year for revolutionizing global commerce. Ironically, Bezos led his commercial revolution from atop Amazon.com, a global company that has yet to turn a profit. Since that December publication, the dotcom world has suffered some growing pains. Gone are the days when “going public” was a surefire route to billion-dollar valuations and big-money buyouts. Speculative investors fueled the dotcom mania; now they’re making room for new, more conservative technology investors who meticulously study business plans and ask hard questions about the revenue model.
And perhaps you should as well.
Curtis Smolar is an attorney specializing in licensing and intellectual-property issues with Britton Silberman & Cervantez LLP. Located in San Francisco, his 12-attorney firm advises about 300 technology companies and individuals on issues such as venture funding, corporate licensing, and intellectual-property matters.
“When you’re looking at a startup company as a potential employee, you need to think of yourself as an asset to that company,” Smolar says. “You need to conduct some due diligence on the company. Just like any other investor, you’ve got a stake in this company — not with money, but with time.”
Team, Idea, and Timing
“The three issues that make or break a company are very basic: team, idea, and timing,” Smolar says. “You need to do a little legwork and ask yourself a few basic questions: Who is the team? Are they experienced? Are they cohesive? Where have they been? Have they done this sort of thing before?”
When the company is a first-generation startup, you may need to study the business plan in order to identify the key players and decipher the game plan. You should request a copy of the company’s business plan before even considering a job offer. Companies may require applicants to sign a nondisclosure agreement (NDA) prior to reading the business plan. But if a company won’t let you read its plan at all, tread cautiously. After all, you’re being asked to devote your time, energy, and skills to an unproven entity. The business plan may help you visualize how you and your talents fit into the big picture. More importantly, it will show you what the company is capable of.
“It’s important to point out that some companies have valid reasons for limiting access to their business plans,” says Dox Coxe, chief technical officer for Tradesafe.com, an online payment corporation in Providence, Rhode Island. “If a potential employee without experience in the Internet economy asks to read the business plan, I might have reservations about his or her ability to judge and analyze the document effectively. Generally speaking, I allow potential employees to read the plan on-site, and then I ask them to review the highlights of our strategy. If they get it, it’s a plus for them. But if they don’t understand the marketplace, they’re taking a huge risk.”
When a business plan is unavailable, you may want to dig up a company’s S-1 or 10-K records — two hype-free government reports that reflect a company’s plans and financial health. A company must file an S-1 with the U.S. Securities Exchange Commission (SEC) when announcing that it intends to issue an IPO. If the company is already publicly traded, you may request a copy of the company’s 10-K report from the SEC. The 10-K report is a document filed annually with the SEC that provides a comprehensive overview of a company’s business and financial condition. Both documents are available on the EDGAR Database.
Timing is the trickiest issue. Many companies meet any early demise because they are ahead of their time or are unable to keep up with the pace of change in the Internet economy. These days, deflated companies such as boo.com, APBNews, and the Digital Entertainment Network testify that even the best intentions and most in-depth analysis can’t guarantee success in the new economy. Perhaps the best advice for the uninitiated is to aim for a job that fits your interests and values, and that will allow you to develop your skills, regardless of the company’s economic future.
“A job search is an emotional process,” Smolar says. “Whether or not your company hits big, you’re going to be there for two to four years, so you should believe in its mission before you join.”
I. Finding the Right Company for You: Team, Idea, Timing