To dot-com or not to dot-com

While Internet start-ups have grabbed all the hiring attention lately, they can offer a very different work culture that isn't for everyone. There are many factors to consider when choosing between a dot-com or traditional employer. By Erik Sherman

You've certainly heard the stereotype of the fast-paced dot-com with stock-option riches around the corner. And then there's the traditional company, which you can leave at night and trust that your paycheck won't bounce in the morning.

The difference between a job at one or the other, though, is more complex. And it requires some work on your part to find your best match for a new career.

Getting beyond myth

Certain success and wealth are among the biggest dot-com myths. As with all start-up ventures, only a small percentage of dot-coms are notable successes, leaving plenty of room for disappointment and disaster. Many publicized dot-coms of last year are already running out of funding and going out of business.

"There are going to be some spectacular failures in this area," says Stan Tims, a professor of business at the University of Texas at Austin and managing director of venture investment firm TL Ventures, also in Austin. "In fact, we're seeing some companies dropping the dot-com part of their name," he adds.

As more firms either go out of business or sell themselves to other companies - a condition known as a shakeout - some information technology workers are seeking their next positions at more traditional and, hopefully, more stable firms.

"We had a lot of candidates that didn't even want to interview with us," says George Wallner, CEO of Hypercom Corp., a Phoenix-based, $350 million hardware manufacturer that's listed on the New York Stock Exchange. "Now they're calling back," he adds.

Not all dot-coms are in death throes; some are definitely thriving. Inc., the Alexandria, Va.-based online presence of well-known copying chain Kinko's Inc., had approximately 15 employees a year ago. Now the company has more than 100 employees and expects that number to reach 200 by the end of the year.

For IT workers fresh out of college, rapid growth means not only big salary opportunities but also the chance to work on major business projects and quickly gain responsibility in an exciting atmosphere.

That isn't to say that traditional companies - those in a range of industries, from manufacturing to retail, distribution and services, far broader than the high-tech sector - are dull and lacking challenges for recent graduates. In fact, many of these established companies are trying to reorganize in order to make their technical groups appear more like those of start-ups.

"[They] are trying to take their R&D groups, pump in a lot of money and make them 'cool' to college grads," says Alex Bacas, a principal at Pittsburgh-based recruiting firm Technical Search and Consulting Services.

IT's real world

So, what are these companies really like to work for? Individual businesses differ like night and day, but there are certain conditions you can expect.

A dot-com job is typically demanding, with long hours. "Your job becomes part of your life; it becomes part of who you are," says Susan Wilson, executive vice president of corporate development at

The company tries to create a welcoming atmosphere, with free food and soda, but the work is demanding. "The downside is that it becomes this big part of your life and you don't have the free time [that others may]," she adds, describing dot-coms in general and her company in particular.

At a dot-com, co-workers can form the bulk of an employee's friendships because work may leave little time to socialize outside the office.

An IT job at a traditional company can also require long hours, but that's at crunch time, not every week. There can be more bureaucracy but also more resources available for solving problems.

Because such a company operates at a more measured pace, it's easier for less-experienced employees to get help when they have questions. In the more hectic dot-com atmosphere, it can be difficult to find someone who isn't too busy to offer assistance.

"In the [traditional company], it's a little more paced, a little more steadied," says Paul Rostron, who is the senior vice president of human resources at Ventura, Calif.-based Kinko's.

Then there is the question of atmosphere. An established, traditional company usually has sufficient room for everyone, in cubicles or offices. Dot-coms, on the other hand, are in cramped quarters with no privacy, according to Mazda A. Marvasti, a veteran of large corporations and currently vice president of technology at Inc. in North Hollywood, Calif.

"The glory is in what you do. You see immediate results in building the company, in seeing your work used immediately. That's something you don't readily see in a very large corporation," Marvasti says.

With that kind of opportunity, though, comes responsibility.

Even entry-level employees may soon find themselves making public decisions that can affect a company, for good or bad.

"A wrong decision may not have nearly the negative broadcast effect [in an established corporation that] it would have in a smaller company," notes Patti Purcell, chief operating officer at Body Shop Digital Inc., the online branch of U.K.-based personal care products company The Body Shop International PLC. Just as achievements stand out, so do screwups.

At one time, a major difference between dot-com and traditional companies was the pay. Traditional companies spent cash on salaries and benefits, while dot-coms counted on the power of stock options to attract employees. Interestingly, dot-coms and traditional companies have influenced each other's compensation packages, bringing the two camps close together.

Comparable salaries

"There's not that much disparity in pay when it comes to professional-level or nonexecutive jobs," says Erisa Ojimba, a compensation consultant at Inc. in Wellesley, Mass., which tracks salaries for different types of work.

The differences come in how the compensation is paid. Entry-level workers will find compensation based on their skills roughly equal at either type of company.

"On the corporate side, it's much more likely to be base-driven and benefits-driven, whereas with a dot-com, it's going to be more incentive-driven [with bonuses and stock options]," says Steve Kakos, a recruiter at a Dallas-based placement firm, People Solutions Inc.

The term "stock options" is probably familiar to anyone who has followed the news about Internet companies. Stock options give an employee the right to purchase stock at some predefined cost. They are typically granted by a company over a number of years, typically three to five, called the vesting period.

Companies offer them to employees for two reasons. One is that they give employees an incentive to work hard, because the better the company performs, the more the options are worth. The other is that they help the company attract quality workers while conserving its cash. Stock options are more widely available among dot-coms than traditional companies, which offer less reward in the future because there is less risk of the company going out of business in the present.

Stock options can be valuable, but it's important to understand how they work. Leaving a company before the end of the vesting period, for example, means giving up some portion of the options.

Even when options are in hand, employees can't sell their stock unless the company has started selling stock to the public at large through an initial public offering. A recent Ernst & Young study showed that half of Web start-ups have no immediate plans to go public. In other words, there's no guarantee that stock options will ever be worth anything, because it may be impossible to sell them on the stock market.

Whereas traditional companies may not offer options, they typically have 401(k) retirement plans that offer impressive returns through the power of compound interest.

Consider a new employee receiving a salary of $45,000 per year. "Let's say the employee saves 10% of that," says Bill Bartin, a vice president at Boston investment planning firm Tucker Anthony Inc. "That $4,500 dollars . . . translates into over $90,000 in 20 years," he points out.

Because many employers match at least part of the employee's contribution, the sums can be even higher. A younger company like a dot-com may not have the 401(k) plan or corporate matching, which means less money in the future.

What to ask

With so many variables, it's important to ask the right questions to determine the best employer. Internet research can provide many clues, from the stock performance of a publicly held company to the venture capital backing of a particular dot-com.

And it's important to use interviews with companies to find out more.

When you're at a dot-com, ask about their burn rate, or the amount of money they need per month to keep operating, suggests Jan Horsfall, president and CEO of in New York. The answer should give an indication of how long the business can last should profits be slower to come than expected.

Also inquire about the business model.

When you're interviewing at a traditional company, ask about its plans to compete with new online challengers and inquire about its commitment to training and new systems. And when you're at a dot-com, find out whether the company really has a way of eventually making money. Is it dependent on future venture capital investments that may never come?

Horsfall also stresses the need to interview with a variety of people.

"Talk to the guy in sales, to the woman running the commerce side of business, to the CFO," he suggests. "If you get five different answers from five different people as far as company strategy goes, it may mean that the strategy isn't a good strategy."

Sherman is a freelance writer in Marshfield, MAss.

Copyright © 2000 IDG Communications, Inc.

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