Dan Morrell: At age 29, Gus Bessalel (MBA 1988) decided to leave consulting for a decidedly less glamorous life as an entrepreneur, working out of a storage room in the bowels of an underground hotel garage.

But that first venture, a regional franchise of a fast-growing restaurant promotion company, was ultimately successful, named to the Inc 500 list of fastest growing private US companies, and launching Bessalel's 30-year career as an entrepreneur and investor.

Bessalel leans on those decades of experience in his new book, The Startup Lottery: Your Guide to Navigating Risk and Reward. It's a guidebook for people considering a career in the world of startups—or in the midst of navigating its complexities. And in this conversation, Bessalel tells us why job seekers really need to look before they leap, what questions they need to ask of themselves and the companies they are targeting, and why they need to think of themselves as hunters.

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DM: I want to talk about this book, The Startup Lottery. Throughout it, you apply this analogy of the theater. You suggest to those who are considering working at a startup, just like going into a play, you want to read the playbill, right? You want to know the creators, you want to know a little bit about the plot. You want to know a little bit about the cast of characters. Why is that foundation so important?

Gus Bessalel: A fundamental premise of why I wrote this book is that I view people going into startups as essentially making an investment with their careers. And, if you look at the other side of the coin of who invests in startups—venture capitalists, angel investors—they do a lot of due diligence before they jump into a company. In fact, even before looking at an individual company, they will screen dozens if not hundreds of companies. And if you are going to make an investment with what I consider the most precious resource you have, which is your time and your career, you really need to know what you're getting yourself into.

Some people go to the theater and don't open the playbill and just let the action happen and take it in as it comes. And I think most people who go to work for startups actually do that. They do very little due diligence on the company, the founders, the investors, the market.

I don't think the individual who goes to work for a startup has anywhere near the resources that a venture capital firm is going to have to do that kind of due diligence, nor do they actually have the time to do it, because usually you get an offer and you might have to give a response in a few days or a week or maybe two weeks.

But that doesn't mean you shouldn't try.

DM: You also talk about some sort of internal due diligence. What kind of questions do people need to ask themselves before they think about joining a startup?

GB: If you think about your career from the inside out, some of the questions that you need to ask yourself are, what are you good at? What are you interested in? What are your passions? Where do you think you can add value to an organization? And I touch on the general topic of, are you a startup person and what does it mean to work in a startup? And is that something that is suited to you?

When I came out of college, I went to work for Bain, obviously a big, brand-name company.

And, there's a shorthand that happens when you go to work for a well-known company. And we all grow up with expectations from our parents, our friends, our peers, that you're going to, finish college or grad school and go on to a successful career.

And so you say, Hey, I'm working for XYZ, big, well-known company. That's great. When you go to work for a startup, most of the time, nobody's ever heard of it. So as you look at kind of your own personal inventory, you have to say, well, am I willing to set my ego aside? Number one. Number two is, am I willing to live with the uncertainty that startup may not work? Am I willing to go into a company that doesn't provide me training? Doesn't provide me a really structured path, necessarily, for my career going forward? The thing about startups is a lot of times you're making it up as you go along when you're working in an early stage company. The focus is on building the product and trying to get customers, and a lot of times the HR aspects of the company get set aside.

I also talk about in startups this concept of the athlete versus the position player. And one of the things I've found, particularly with really early stage startups is that you never quite know what you're going to be working on from day to day. And so if you need a lot of structure and you know, let's say you have a particular sort of narrow skill set. Sometimes working in a startup may be uncomfortable because, your job may not be that well defined.

DM: Gus, so many of the things that you recommend due diligence, being really intentional about how you think about your career trajectory. It seems like such a counter to what can be a very hyped up and excitable world of startups, right?

GB: I talk about the idea of hunting. Because I think the hunter is patient. They have a specific prey in mind. They seek out that opportunity and then they wait for the right moment. And I think so much of what happens in people's careers is that something crosses their path and it looks interesting.

And there's a bit of the grass is greener syndrome where you get excited about something that you hear about. It's like a stock tip, somebody tells you about a hot stock and you want to go buy it immediately. And I think there's an emotional response. I'm trying to get people to temper that response, take a step back and be more reflective.

And that doesn't mean move slowly. It just means go through the process of really thinking through why is it that you're interested in this opportunity and does it merit you making this important investment. We had a situation at my last company where someone who actually worked for me ended up switching jobs, found out that the opportunity wasn't what it seemed to be on the surface and ended up coming back.

That's not a common occurrence. You know, once you jump, sometimes it's hard to go back. But I do talk about the idea that, if you had a portfolio of one stock, which in effect is what working for a company is, right? If you're working full time for a company, you're holding a portfolio of one stock. And if someone calls you up and says, Hey, why don't you sell that stock and buy another stock? It may sound tempting, but you really need to think about well, is the stock that they're asking me to buy better than the one that I currently hold, or is it better than others that may be out there that I don't even know about yet?

So the idea of hunting is really looking for what is the best opportunity out there. If you are going to leave your job, don't you owe it to yourself to open the aperture and look at more opportunities than just the one that happened to land in your lap.

DM: Gus, a lot of those opportunities are involved with the financial aspects of a startup, right? And that includes, stock options, vesting schedules, things of that nature. There's a lot of this book on the details of that, and I'm wondering, when you put this book together, did you realize that there's a significant information gap out there in the market? Did you see a need to really address that?

GB: It's funny that you say that, because that information gap was probably the most important reason I wrote the book. In my last company, I was the CFO and as CFO, I spent an inordinate amount of time trying to explain options and the option pricing and exercising to my colleagues at the firm.

And even after I left the firm, I would get calls pretty regularly from folks saying, you know, I'm thinking about taking a job at a startup and, or I'm leaving my company. And do you think I should exercise these options? I Literally would spend an hour and a half on the phone with people explaining the stuff to them.

DM: What is it about this industry, in this field that requires this kind of detailed explanation, is it inherent to the complexity of the organizations? Why is it, what is it about startup life?

I think the fundamental issue there is that there's just a very high degree of risk. Startups fail. There's different statistics out there, but only one to two percent of startups end up getting funded by venture capital. There was a 2012 study done by a Harvard professor who pointed out that 75 percent of venture backed startups fail or fail to return capital to their investors, right?

So they may not fail. They may bump along. But the thing you have to understand is, and I said this, in various ways in the book, the rules of startups, particularly from the financial side, are written to benefit investors, right? When investors put money into a company, they put guardrails in that give them the ability to get their money out first and give them control over governance and decision making over major decisions in the company.

That confers advantages on investors that really come into play primarily when the company is not doing that well, right? From an employee's perspective, that's 75 percent of companies that fail to return investor capital. If you think about the way that the capitalization table is structured, right?

That the priorities of the way that cash comes out of a business, if they're not returning capital to the investors, that means the common shareholders, the employees, the founders, are not getting any return on their equity, right? And just to put a finer point on that, investors who invest in the company receive preferred shares.

So that means they get paid out first. Employees, founders have common shares. So they sit at the back of the bus and they have to hope that when the company sells, There's enough left over after the preferred shareholders get paid out that the common shareholders get paid out.

There's so many risks that startups have to go through in order to reach success, right? There's technology risk, there's market risk, operational risk, financial risk, they might run out of money. There are so many risks associated with working in a startup that don't really exist in larger companies. I mean, survival risk being the main one.

DM: How do you think your career would have been different if you had this book when you started out?

GB: One of the things that I was concerned about when I wrote this book is I'm going to scare people away from working in startups. That was not really my objective, right? My objective is I want people to go in with their eyes open. You know, If you think you're going to go to a startup and it's going to go public and you're going to become an instant millionaire, chances are that's not going to happen. And that's really why I called it The Startup Lottery, right? Because there's a high degree of risk and the chances of it paying off may be low, but that doesn't mean it's not worth going through the experience of working with startups.

I had more of a random walk than what I recommend people do in their career. My wife and I are counterexamples because she's been very focused and lockstep and staying within a given sector and has established a name for herself, was just named to the Forbes 50 over 50 innovators list. So that path of kind of staying the course and continually building on your experiences, and building your reputation within a given space, I think is really valuable.

I read a McKinsey study a long time ago that talked about winners and losers in the startup space. And when you have a hot new sector—pick a sector, blockchain, AI, robotics, you know, automation, whatever it is—you have a flood of investors who come in. And then there's a winnowing that happens. And you end up with a few companies that sort of emerge as the leaders.

But what was interesting about the study was that the employees who worked in the companies that failed but gained experience in that sector were often picked up by the winners because there are not a lot of people out there who have that experience, right? Even if you're in a company that failed, if you're working on AI, And there's a fast-growing AI company, they may hire you to work in that company. Ironically, it's the one area where I think employees may have an advantage over some of the investors, right? Because you can move to other companies that are showing positive trajectory even if your own company fails. So I probably would have been more disciplined and focused in my career, but I don't think I would have shied away from being in the startup world. I've had too much fun over the last 30 years doing this.

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