Reasons to Start a Start-Up

There are a whole load of reasons why people might want to start a start-up.  It is important to know what reason yours is, because some of these reasons only make sense in certain contexts, and some of them will actually lead you astray.

Many people may have been mislead by the way that Hollywood or the press romanticize entrepreneurship in a similar way to how movies have perfect relationships and happy-ever-afters.  This has arguably been exacerbated by the recent boom in unicorns created by young entrepreneurs enabled by growing trends in the smartphone industries (Facebook, Twitter, Snapchat, Instagram, Airbnb, etc).  The purpose of this post is to try and illuminate some of those potential mistruths in order to allow you to make a clear decision and go in with your eyes wide open.

The 4 common reasons to start a start-up are:

  1. It’s glamorous
  2. You get to be the boss
  3. You have flexibility over most things, especially over your schedule
  4. You have the potential to have a bigger impact and make more money then you would by getting “a job”

It’s Glamourous – The Reality

When movies such as “The Social Network” came out, they painted this culture of going to cool parties, socialising, and coming up with brilliant idea after brilliant idea.  The reality is not so glamorous – you actually spend most of your time sat at your desk working hard, be it coding, solving problems, speaking to customers, firefighting, or whatever else.

mark zuckerberg working on facebook silicon valley
This is what Mark Zuckerberg’s life actually looked like when working on Facebook

It can be incredibly stressful.  This is because you have a massive amount of responsibility.  Many people are afraid of failure in their career, but it’s slightly different as an entrepreneur – people rely on you and have decided to follow your vision (both those who work for you and those who believe in what you do and champion you to others) so you would be letting down a bunch of people other than yourself.  As a worst case, they are devoting some of the best years of their life to your vision, so you are responsible for the opportunity cost of their time – that can be super stressful.

Another reality is that you’re always on call – if something important comes up, you pretty much have to deal with it.  Entrepreneurs really care about their product and what their users think of it, and it hurts if people are having trouble with it (as well as being potentially missed revenue) so you’re not really going to just leave the issue unresolved – even if you’re on holiday, if it’s the weekend, if you’re out at dinner or if it’s 2am (maybe not always, but this does happen with some start-ups), you need to be mentally available to deal with it.

You’re also committed, especially if you’ve taken on investment.  It’s not like a job where you can just leave – you have to see things out.  If things are going well, you’re probably committed for 10+ years and, if things aren’t going well, probably around 5 (a few years to build something respectable, then another couple at the company that acquired yours if you were lucky enough).  If you’re incredibly lucky, you’ll just have had a bad idea, fail quickly and can move on.

This also means that, if you ever want to go backpacking or travelling around Asia or hiking Machu-Picchu, *do not start a start-up* (yet)!  Wait until you’re in a better place.  In my experience, if you go travelling, the start-up kinda paralyzes itself – if a big decision needs to be made and you can’t make it either because you’re not in contact, or because your colleagues don’t want to disturb you (regardless of what you say to the tune of call/text/message/email/Slack me if it’s urgent), nothing happens in the business.  And even then, a holiday isn’t really a holiday if you’re even remotely thinking about your start-up, which you will be.

If things hit the fan at Google, you can bet that Larry and Sergey don’t continue sitting on the beach sipping their pina-coladas (if they can even get to a beach).  A start-up is a lifestyle commitment, and a massive sacrifice.

You Get to be the Boss – The Reality

Another reason people are attracted to running a start-up is the power of being your own boss.  This rings true more-so if you’ve worked at another company and you develop this belief that senior management are idiots and that you can do it better, so you start your own business to try.  Many people (myself included) have this idea that being the CEO of a company you start means being at the top of the food chain – being able to make the key decision, tell people what do do and generally being in charge.

While this is partly true, the reality is that, as a CEO, everyone else is your boss.  Your employees, your customers, your advisors and your investors.  I’ve heard these being phrased quite nicely as being “the TaskRabbit of the company” – as a CEO, it is your job to do whatever is takes to make sure that everyone is able to do their job, otherwise the gears stop running in the machine.  Helping to instill the vision in direction is an important part, yes, but so is trying to keep your employees motivated and resolving any conflict in the company.

If you want to exercise power and authority, join the army or run for PM.

You Have Flexibility, Especially Over Your Schedule – The Reality

This is kinda true, but not really.  You do have flexibility, but what you’ll find is that it comes at the detriment to your company’s performance.  As a founder, you are a role model, both to your employees but also to other founders.  If you decide to take a morning off, this sends a really bad signal to your employees (and even to your co-founder) that you’re taking your foot off the gas, and so they will too.

The reality is that, if you’re really passionate about an idea, you’ll always be working on it.  If you’re working with a driven co-founder or have investors, they’ll be working really hard and they’re going to want you to be working really hard.

I’ve been through the Tim Ferris advice on “The 4-Hour Work Week” (about how you can automate processes such that you barely need to work) and this is definitely plausible for a small business.  But the second you get past 3 (or maybe even 2) people, you’re going to have to step your game up and be fully committed.

You Will Make More Money & Have a Bigger Impact – The Reality

The overwhelming majority of start-ups fail, and that’s the harsh reality of entrepreneurship.  In an earlier post, I discussed how you could have a great idea, great product, great team and great execution and still fail.

Anyway, let’s consider a couple of routes that you could consider as an entrepreneurial person – working as an employee in a “Rocketship” (a start-up that has massive legs) or launching your own successful tech startup:

 Working in a “Rocketship”  Starting Your Own Startup
 Company  Valuation  Employee #100 Upside (0.1%) Company Valuation  Founder Upside (10%)
 Airbnb  $25B  $25M Successful Tech Startup  $250M  $25M

The left few columns of the table above consider the value of the equity you would have if you’d joined Airbnb has employee #100 as a senior-ish engineer (probably requiring a few years experience).  You’d have likely received around 0.1% of the company in equity which, at Airbnb’s latest valuation would give you stock worth a healthy $25 million.

The right few columns consider the scenario where you manage to launch your own successful tech company and exit for $250 million.  You’d most likely have at least one co-founder, and have given equity to angel/seed investors, to VCs during your Series A& B rounds and to employees via the employee share pool (this is a good thing to do, I’ll discuss why in a later post).  This leaves you with approximately 10% equity in your startup (some founders have more than this, some will have less after multiple rounds of dilution), giving you the same (but still incredibly healthy) $25 million as the Airbnb example.

Essentially then, if you’re extremely confident in launching and building a $250M+ company, then you should definitely go the DIY route.  But if you’re not and would have had more confidence in Airbnb succeeding in ~2012 , then perhaps you should aim to find the next rocket-ship.

But what about the impact?  It comes down to the kind of impact you want to have but I think that, in general, your financial reward scales with the impact that you have.  Justin Rosenstein (Facebook #250) created the “Like” button, Bret Taylor (Google #1000+) created Google Maps, etc, by taking advantage of the already huge numbers of users that their host companies already had.  If you want to have a social impact, then a fast-growing social enterprise could be the right ticket.

So…Why Start a Start-Up?

A lot of the entrepreneurs that I have spoken to all gave the same reason – they couldn’t not do it.  Essentially, a combination of having an idea that they were super-passionate about, the world really needing it (if you’re going to devote your time to something, it might as well be great, right?) and them being the right person to do it (having the skills/knowledge/vision/leadership).  In my experience, this holds true.

 

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