Startups vs. big companies: a classic “buy vs. rent” decision

At a recent get together of entrepreneurs hosted by Hunch, I was explaining to someone my feelings about the differences in working for a startup vs. a big company.  I think it essentially boils down to a classic trade-off of “buy vs. rent”.

I’ll preface this by saying I think the trade-offs vary greatly based on where you are in your career: to me, top-tier big companies can provide a great deal of value to employees who are early in their careers (I’ll cover this important topic at a later time).  But for most mid to senior professionals, the trade-offs about “startup vs. big company” are pretty clear.

When you work for a big company, you rent.  You pay the rent with your time and effort by doing solid work which at least “meets expectations” based on the company’s and industry’s demands.  In return, you receive a competitive, market-priced salary and lots of fancy perks and benefits.  Top tier big companies may offer Class A office space, a benefits package that comes in a 3 inch thick folder, fancy dinners whenever executives want some team building, and maybe even quarterly “global get togethers” to fun places with the goal of promoting information sharing within your functional group.

But consider how you probably treat an apartment or a car that you rent: you try to extract more value than you contribute.  You’re not going to park a rental car at the far end of the parking lot so that it doesn’t get dinged, and few people would consider spending their own money to put capital improvements into a rental property that they know they won’t be in forever.  And what do you have when you leave the car, apartment, or company?  Probably not much.

This is all well-understood by big companies (and by extension, their shareholders).  They are taking most of the potential downside risk of your employment, and conversely, they reap the vast majority of the rewards.  If you underperform, you may eventual be warned and lose your job.  If you knock it out of the park, you may get a nice bonus if you’re lucky, but the real benefit goes to the company.  If and when you leave, you may have some stock equity if you’re fortunate.  But the bottom line is that you’ve traded your time and efforts for an expectation of performance and rewards within a pretty narrow band.

When you work for a startup, you buy.  You pay with commitment: you do what it takes to get the job done, you put in sometimes crazy hours at work, and probably think about work for many, many hours when you’re not there.  When something needs to be done, even if it’s “below your level of responsibility” or in another functional area, you do it.  You probably also accept a total compensation and benefits package that’s well below what you’d get at a big company.

In return, you receive a sense of ownership and know you’re building your own equity as you do these things.  Everything you do that adds value to the company corresponds to your long-term rewards.  You’re sharing in the risk to invest in something you believe in, and you’ll benefit if that belief was right.  And importantly, everyone you work with shares this passion.

I’ve been at big companies I love, and I’m now in a startup I love.  But I’ve realized that deep down I’m more a startup kind of person.  Ownership is a great feeling, and for 95% of employee positions, that’s something that big companies can’t beat over startups.

Hunch’s CEO Chris Dixon has written some great blog entries on this subject.  I agree with most of his thoughts but do believe that big companies can play a very important role in helping some types of recent graduates to develop and broaden their skills in ways that are tough for startups to provide.  More on that later.