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FAANG vs. Startups: Which Is Better for Software Engineers?

Posted on 
March 9, 2021
|
by 
Team Interview Kickstart

Whether fresh out of college, a few years into a job, or a seasoned professional — every software engineer thinks about how to advance their career. If you’re among them, this is one thought you would have stumbled upon — should I move to a FAANG company or a startup?

To help software engineers make this decision, we asked industry experts exactly this very question in one of our Clubhouse sessions. This article is based on the insights received in that session. Hosted by Ryan Valles and Soham Mehta, the co-founders of Interview Kickstart, the session featured a panel discussion comprising Interview Kickstart alumni and instructors working at FAANG and tier-1 companies as well as startups. 

The panel also fielded questions from the audience, most of whom were software engineers and developers from various companies, including those who wanted to work at FAANG.

In this article, we’ll cover:

  • Understanding Startups
  • FAANG vs. Startups — Innovation, Compensation, and Brand
  • FAANG vs. Startups — Career Development and Growth
  • FAANG vs. Startups — Recruitment Process
  • FAQs on FAANG vs. Startups

By the end of this article, you’ll be able to figure out the key differences between FAANG and startups and decide which one of them you’d like to work with in your career.

Understanding Startups

Facebook, Amazon, Apple, Netflix, and Google (FAANG) are mature organizations with clear and concrete frameworks, strategies, roadmaps, and visions. They work on a large scale, developing multiple products at a time. Established systems, structures, and renowned reputations characterize FAANG.  

Startups, however, are a different ballgame. 

So, before we compare the two, let’s start with understanding the nuances of working at a startup.

Reasons to Join a Startup

Ideally, the decision to join a startup should be based on an overarching preference for startups over other types of companies, including FAANG.

A strong personal connection with the company, belief in founders’ ability, and what it offers are the ideal motivators to join a startup. Staying invested in a startup requires strong commitment, which can only stem from a strong belief in the company’s vision and the possibility of success.

A big draw of startups is that they solve unique problems, offering the opportunity to work on ideas, products, processes, technologies that no other companies are working on.

Character Traits Required to Thrive in a Startup

Startups tend to have very challenging work environments, typically characterized by chaos, upheavals, fast-changing goals. Unlike FAANG companies, startups are largely driven by market forces. Following are the traits you need to be successful in such an environment.  

Deliberate Preference for Uncertainty Over Predictability

Startups are small, new ventures centered around unique technologies, products, or ideas, loosely organized with dynamic processes and structures to suit the ever-changing needs of a growing company. The ups and downs of being a part of a small setup can prove thrilling or stressful depending on one’s appetite for uncertainty.

Flexibility and Adaptability

While FAANG companies function through large teams with well-defined roles, startups often require employees to don many hats and juggle multiple responsibilities, especially in early-stage startups with limited funds and workforce.

Risk-Seeking Nature

One of the most prominent characteristics of a startup vs. a FAANG company is riskiness. A risk-seeking nature is imperative to succeeding at a startup.

FAANG companies offer stability and standardized rewards and are more suited for risk-averse personalities, while startups have the potential for disproportionately high rewards but at greater risk. Startups are very fast-paced organizations with a higher probability of failure.

The startup lifestyle demands commitment before success. Therefore, one has to consider a timeframe of 5-10 years, preferably at multiple companies, before determining whether startups are the right fit.

How to Select the Right Startup for You

Choosing to work at a startup is a very individual decision. You have to be sure of your reasons to go down this path, considering risk factors and financial considerations.  Once you’ve made a choice, finding the right startup to work for is the next step. While it might seem easy, there’s a lot to consider. Unlike large tech companies, including FAANG, where the choices are more obvious and information about the company is readily available and accessible, startups can be pretty obscure.

Here’s a step-by-step approach that can get you closer to determining the startup that’s best for you to work in.

1. Understand the 3 Pillars of a Startup

Form your opinion of a startup based on the following three key factors:

  1. Product: It’s important to be able to associate with the product and its domain. Use the product to get a proper understanding of its features, usefulness, and viability.
  2. People: Study the background of the investors, founders, and key employees of the organization to ensure they possess the right experience, qualifications, skills, and ability to inspire trust and drive the company to success.
  3. Investment: Understand the financial strength and potential of the company, i.e., funding, valuation, revenue, growth, and any other related information.

2. Check the Startup Stage

When deciding between FAANG and startups, understand which stage the startup is in —  startup risk diminishes as a company matures. Early-stage startups present the highest risk. Time commitments, compensation/equity, and role levels are all essential aspects to think about when joining a startup. They all vary based on the startup’s position.

3. Predict the Future

Startups are risky by nature. However, these risks diminish with time as the company’s size and operational experience increase. Knowing which company is headed for success or failure is hard to determine in the initial stages. However, if one stays committed to the idea of working with startups, you’ll get better at understanding the right startups to work for.

In some cases, it’s all about being in the right place, at the right time, working on the right product. While luck and intuition play a substantial part in joining the right startup, the experience of working at different ventures enhances the ability to recognize the future successful ones.

FAANG companies regularly release easily accessible information about their organizations, allowing engineers to assess and choose the companies/projects they want to join. It’s been observed that employees tend to enjoy long-term careers at a FAANG.

You cannot get it 100% right all the time when selecting the right startup. Even the best venture capitalists bet on multiple companies, of which only a few prove successful. This is because there are many factors operating beyond one’s skill set, determination, and drive that determine a company’s success.

Even so, it’s worth spending some time thinking about the possible risks associated with a startup, as it will help you make an informed decision.

4. Research on the Startup

Considering riskiness is the standout aspect of every startup, research is imperative in deciding the right companies to work with. For this, the Wealthfront Career Launching List is considered to be one of the most valuable resources available online to help assess startups.

Compiled and released by Wealthfront Inc., a California-based investment firm, this is an annual list of the fastest-growing startups or career-launching companies to work with, based on inputs from the top VC firms. 

Startups are assessed on the following three criteria:

  • Startups with revenues between $30mn-$300mn: Most startups either die or become stagnant before achieving the $30mn revenue mark, while compensations beyond the $300mn revenue mark become too attractive.
  • Positive unit economics: Startups with positive unit economics are more likely to be profitable. Some companies show growth but are unlikely to turn profitable without achieving positive unit economics.
  • Revenue growth of at least 50% year-on-year: The list ranks companies with better odds of succeeding. The interview processes of many of the companies on the list are similar to that of FAANG companies.

Getting information on startups can be quite a challenge. Most articles published online are either biased or offer little value in helping assess companies, especially financially. Information in the form of estimates compiled by third parties is generally unreliable. In addition, startups don’t usually publish information on their revenue or other financials.

However, startups do divulge pertinent information to interview candidates seeking to understand the company better. One way to learn about a company, its status, and potential is by asking for specific information during an interview.

FAANG vs. Startups — Innovation, Compensation, and Brand

There was a time when startups commanded the attention of large companies. Smaller, more nimble setups gave large corporations a run for their money and captured considerable market share. For example, Netflix taking over television.

However, over the last decade or so, big tech companies have figured out how to counter this. FAANG companies now offer engineers all the advantages and excitement of working in a startup along with the stability and compensation of a big tech company. 

So, how do we determine which is better — FAANG or startups? Let’s compare them on each of the critical factors below. 

Innovation and Inventiveness

Big tech and FAANG companies are trumping startups with their unique ability to support innovation at scale, leveraging their data, infrastructure, and funding capabilities. For example, Google making its AI language model, Switch Performer, having a trillion data points. This is the kind of capability startups can’t compete with. Other examples of innovation, such as self-driving cars and healthcare initiatives, were first incubated at Google before being spun out.

A lot of tools and systems introduced over the last decade have originated from large companies. Smaller companies with limited resources may innovate better in processes and fixing gaps, whereas deep tech innovations are likely to come out of big tech companies in the future.

Innovation and inventiveness have always been a big draw at startups. However, FAANG and other tech giants have adopted a very startup-oriented culture over the years and are now better poised to innovate and invent faster than startups.

For example: Innovation at Amazon

“Amazon is the best place in the world to fail…” — Jeff Bezos 

Kindle and Amazon Web Services (AWS), the most successful startups of the decade, are ideal representations of the kind of innovation and experimentation leading tech companies are capable of. Multiple groups within Amazon progress along the same lines as AWS, characterized by constant innovation, calculated risks, and the willingness to fail.

Amazon Live is one such example. Although a live shopping experience is not a novel idea, at Amazon, the project is run like a startup, where concepts are constantly iterated and innovated to provide the best possible shopping experience to customers.

Related read: If you’re looking to work at Amazon, check out our post on How Hard Is It to Get a Job at Amazon.

The distinct advantage FAANG have over startups is the financial capabilities to run multiple experimental projects and absorb losses to leverage learnings for greater success at innovation and invention. FAANG companies are also known to hire engineers who are driven rather than engineers who are domain experts, mimicking the preferences of startups.

FAANG prioritizes innovation and inventiveness just like startups, but they are more stable and less risky. 

Compensation and Wealth Creation

While startups are prone to failure, the chance to create disproportionate, multi-generational wealth has been one of the strongest lures of startups. This has gained more significance with the rising popularity of a culture that propagates early retirement among fresh engineering graduates.  

Switching companies often to be a part of an IPO is considered a worthy trade-off for the risks undertaken. It’s believed that startups, when successful, offer better opportunities than FAANG to generate life-changing wealth. However, in terms of compensation, startups can rarely compete with FAANG companies. Sure, earning a 100x-500x return is more of a possibility at a startup than at a FAANG company. Still, such success is not commonplace and is more likely experienced as a founder than an early member.

The risk and time involved to achieve this outcome, considering very few startups make it big in the short-run, doesn’t always compare to the surety of compensation and wealth creation at FAANG companies, at low risk, in the long run.

Lower compensation for a chance at higher equity returns is the norm at startups. However, FAANG companies can offer great starting compensation with the potential for high growth along with attractive equity. Over time, these compensation packages at FAANG amount to a higher return than one would get even at a successful startup.

Comparing equity components alone, back-of-the-envelope calculations reveal equity offered at FAANG companies actually delivers more returns than at startups. This can be attributed to very high growth rates (some with CAGRs @ 25%), high compounding values, ease of trading shares, and excellent performance in public markets.

Compensation and Calculations – FAANG vs. Startups

Let’s compare the compensation of a FAANG company and a startup with the help of an example.

Option 1

An engineer joins a Series A startup with a $50mn valuation (a typical Series A investment of $10mn at 5x) as the VP of Engineering with a generous 1% equity stake.

Let’s consider the company achieves unicorn status ($1bn valuation) in the typical timeframe of 6-10 years. It has diluted its stock by 80% during this period, and the engineer’s stake has diminished to 0.2%.

This means the engineer now has a holding, or made earnings, of $2mn at the end of 10 years.

Option 2

Instead of joining the startup, the engineer joined a FAANG company as a Senior Director or VP with a conservative compensation of $600k comprising a $300k cash component and a $300k equity component.

Based on past performance and returns typical of FAANG companies, which have the advantage of already being present and established in the market, the engineer stands to earn $3mn at the end of 10 years.

Refresher grants notwithstanding, FAANG companies prove to be a better bet even in terms of returns on equity.

Brand Signaling

FAANG companies, being globally renowned brands, carry a lot of weightage when featured on a CV. Startups cannot compete in terms of brand value and recognition. Companies are considered more important from a signaling perspective than universities. 

Being associated with a FAANG company is a better signaling device than any top university.

FAANG vs. Startups — Career Development and Growth

What makes for a better engineer depends on whether one values breadth or depth of skills. How does FAANG compare with startups in terms of career development and growth opportunities?

Becoming a Better Engineer

FAANG companies tend to impart more depth in the learning and development of engineering skills. 

A software engineer straight out of college may know how to code, but at a big tech company, one learns all about software fundamentals and the discipline of the entire software development life cycle. FAANG companies have the best environments to fine-tune engineering skills and attain mastery.

Increasingly, a lot of emphases is placed on engineers taking end-to-end ownership of projects. As a result, they are exposed to various areas of engineering and gain deep knowledge in a wide range of skills, even at large companies.

In the fast-paced, dynamic environments of startups with a limited workforce, software engineers are often required to work on different areas, allowing them to develop a breadth of skills, but that occurs mainly at a surface level. Startup environments are the most conducive to developing an engineer’s entrepreneurial skills. At startups, software engineers can jump from working on CSS and Java in UI to APIs to backend to infrastructure, turning them into generalists very quickly.

Startups offer more expansive growth, FAANG companies offer deeper and wider growth.

It is considered far easier to grow and move up career levels at startups. However, unlike many big tech companies, FAANG companies tend to place a lot of importance on growth within levels.

At Amazon, engineers are expected to meet a “bar”— a prescribed skill level at each engineering level. An effective way to keep stagnation at bay, this compels engineers to constantly develop and grow, not just to move up levels but to survive within the organization.

Security and Stability

Stability and security are important considerations in deciding which companies to work for. The risk of getting laid-off at FAANG companies is low, whereas the risk of getting laid-off or business failure is inherent in startups. This doesn’t apply when it comes to poor job performance — in such cases, continuity at both places would be questionable.

FAANG companies run multiple projects and initiatives at a time, of which some succeed, and others fail. In case of a failed initiative, engineers are easily absorbed into another team or unit within the organization. However, at a startup, there is little security, given their dynamic nature. Irrespective of how talented an engineer is or how well they perform, the chances of becoming redundant or being laid off are high if the business pivots or fails.

Moving on from a FAANG company is relatively easy. The experience of having worked at a FAANG company is more revered in the tech space. Exiting from a FAANG company on a failed project still carries a lot of weightage in landing a role at another company.

However, startups are not easily recognized in the industry, and experience at these companies does little in terms of sending the right signals to hiring managers.

Internal Mobility

Internal mobility is an important aspect of career development for engineers without having to switch organizations. Lateral movements provide employees the option to define their career paths. In addition, being a part of new and exciting initiatives within the company allows engineers to deepen or broaden their skill sets.

FAANG culture focuses on nurturing talent and fostering innovation. Given that they function at a large scale, FAANG companies are constantly working on multiple projects at the same time. Experimenting and innovating with new initiatives in various domains presents diverse opportunities for engineers to switch between teams.

While all companies, FAANG or startups,  provide flexibility in moving between teams, the way internal transfers are navigated can be very streamlined in the case of FAANG. Here are a few examples:

  • Amazon: At Amazon, which has a strong startup-oriented culture, interviews are not an uncommon requirement to join a new team. These interviews are not as rigorous as for a new hire, but you’re expected to meet the bar set by the team to ensure proper fitment.
  • Facebook: Lateral movements in Facebook are commonplace for top performers. One can either communicate directly with managers of other teams or use the internal job tool to find and apply for open positions. Facebook’s “Hackamonth” initiative is an internal mobility program that allows engineers to leave their current teams for a month, to work on new and unrelated projects.
  • Google: Google places a great deal of focus on learning, and engineers are encouraged to work on projects that interest them. One can find and apply to different teams via an internal job tool. Teams usually have an interview process for internal hires. Internal movements are relatively easy and encouraged.

FAANG vs. Startups — Recruitment Process

Reaching out and connecting with each type of company will be a different experience, requiring different approaches.

Recruitment Process at FAANG

The recruitment processes at big tech or FAANG companies are standardized and rigid. Candidates have to go through dedicated recruitment channels based on their experience and roles applied for. FAANG companies usually field huge hiring teams, servicing a continuous stream of applicants and interview candidates. With pipelines of candidates and hiring staff running into the thousands, the recruitment engines at FAANG are akin to small companies.

Referrals at FAANG also follow a defined process, with managers or other employees possessing limited or no influence on the recruitment process. Identification of potential candidates or applying to an opportunity at FAANG can happen through multiple portals such as the company website, LinkedIn, etc.

FAANG companies also have a pulse on the talent in the market. They have strong data mining capabilities and far-reaching abilities to find potential candidates for open positions. By creating a suitable CV and making it accessible, one can easily be found by FAANG companies.

To know more about how to crack coding and technical interviews at FAANG, register for our free webinar today! 

Recruitment Process at Startups

Recruitment in startups is generally flexible, with networking and informal referrals forming a part of the hiring process. It is easier to connect with startups via employees at varying levels who can set up interviews or move resumes to relevant managers or hiring authorities without following a predefined or time-bound process.

To work at a startup of your choice, you would have to reach out to the company vs. being hunted by the company. Startups are usually small-sized organizations with limited funds and resources. They don’t process a large number of applications and don’t have large hiring teams or the infrastructure or tools to browse the market for talent. As such, startups reach out to a limited number of engineers.  

Finding the right startups to apply to requires effort on the part of aspirants themselves. Sites like Crunchbase list startups by their field of operations, using which you can filter them. Once the right companies have been identified, you can reach out to them through available channels.

FAQs on FAANG vs. Startups

Question 1. What can be the challenge in selecting a startup or a FAANG company?

Some of the key challenges software engineers and developers face when deciding between these two divergent options revolve around the following:

  • Understanding what each type of company has to offer and how they differ
  • Making the right choice based on trade-offs, personal motivations, interests, and fitment
  • Determining when and how to join either of them

Question 2. Where do I get to learn the most – in a startup or a FAANG company?

That depends on what you want to learn and what your career goals are. If you’d like to take up an entrepreneurial path in the future and want to prepare for that, startups would be your best option. They train you to wear multiple hats and get skilled at a vast number of skills, most of which may not necessarily be technical.

If you’d like to upskill yourself as a software developer and take up technical specialization roles such as tech lead, then joining a FAANG company would give you plenty of options to learn and get super skilled in technologies of your choice. 

Question 3. How will my work-life balance differ when working for a FAANG company vs. a startup?

It essentially depends on the company culture and the SOPs. However, as startup environments are so dynamic and unstructured, employees tend to have longer weekdays and shorter weekends. This is not as common in big companies. 

When comparing work-life balance, you stand to get a better bargain working at a FAANG company than working in a startup.

It’s Decision Time!

With that analysis, you’d now be in a position to understand what suits your career goals and preferences — working at a startup or in a FAANG company. 

As personal priorities evolve, so does one’s career path. Given this, there can be no right answer to the FAANG vs. startup conundrum. The key to deciding the right fit lies entirely in weighing the pros and cons of both options for you and considering how they hold up against your professional life goals.

No matter what you choose, cracking tech interviews is no easy feat, be it at FAANG companies or coveted tech startups. So let Interview Kickstart guide your prep! We have trained over 5000 software engineers for the toughest tech interviews. 

Join our free webinar to learn more!

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