Today I want to talk about the very beginning phase of a startup.
I find that the initial decision to start a venture and the motivations around it are areas that are very rarely discussed. Perhaps it’s a boring topic, or perhaps the information or reasons are considered too self-evident to be worth a look. But my experience coaching a number of new and even repeat entrepreneurs I do run across these questions, so maybe I’m not the only one.
You’re starting a company? First off, congrats! – mazeltov! – ¡enhorabuena! – уra!
Starting a venture, whether full-time, part-time, small or large, is an act of courage and a commitment to effort, and I do believe everyone is a winner at this stage. Now, the next step that’s usually brought up at this point is analysing the startup’s chances of success. Team, product, market sizing, revenue model… and those are all great and topics covered often (tho I reserve the right to blog my spin on them
But I want to not skip over something important: the why.
Why are you starting a company? What do you hope to get out of it?
When I co-founded Going (originally HeyLetsGo), I did spend some time pondering this question, but knowing what I know now, there is a lot I missed. I think a typical example, and certainly part of my own motivation, is well expressed by Harj Taggar of Y Combinator: “My motivations for doing my first startup were simple and mercenary. I wanted to get never-have-to-work again rich and thought a startup represented the best chance of achieving that goal. I didn’t question that motive in any great depth.” When I think about it, though, there are all colours of the rainbow for potential benefits and motivations. In no particular order:
- Money, and lots of it: Perhaps the simplest and most common motivation. What’s interesting is that, depending on the funding path you choose, it can actually be easy to lose money, and if you cover that downside it can be hard to really strike it rich. Consider: If you’re un- or under-employed when you start the company, or are an “individual contributor”, then a founder-level role will probably eventually result in a higher salary. If you’re a director or VP, you may well remain flat or actually take a pay cut. However, any salary is predicated on you either achieving profits (the ideal) or getting funding. Getting to profitability, especially to a level where you can pay yourself a standard salary, typically takes several years at least. Many companies get to break-even but don’t become -or choose not to become- profitable. Getting funding certainly can help you get a salary, but while it can dampen the downside, it also will dampen the upside. So you may not lose out on a salary but if you do well you will lose out on some of the upside.
- If you’re un- or under-employed when you start the company, or are an “individual contributor”, then a founder-level role will probably eventually result in a higher salary. If you’re a director or VP, you may well remain flat or actually take a pay cut. However, any salary is predicated on you either achieving profits (the ideal) or getting funding.
- Getting to profitability, especially to a level where you can pay yourself a standard salary, typically takes several years at least. Many companies get to break-even but don’t become -or choose not to become- profitable.
- Getting funding certainly can help you get a salary, but while it can dampen the downside, it also will dampen the upside. So you may not lose out on a salary but if you do well you will lose out on some of the upside.
As many other wise bloggers have said, founders typically should not pay themselves market salaries, probably ever. Besides helping set a tone of frugality, it can simply be mathematically a bad idea as it shortens your runway, especially if you have several founders. Perhaps our board member Bob Davis, former Lycos CEO and now successful VC at Highland Capital, put it best: “Startups are about value creation, not salary accumulation.”
Bottom Line: When starting Going, I quit my job at IBM cold-turkey (they’d acquired the previous startup I was at) and walked away from a very substantial bonus. At Going we spent about 15 months bootstrapping, and paid ourselves $0. We then did a seed round and paid ourselves “rent + food,” $2-3k. Once we did a full A round, we moved to below-market-but-reasonable levels. And yes, there was a period where the founders chose to take a moderate pay cut to conserve some cash. 5 years later, once all was said and done, I calculated my weighted annual income taking all of those phases into account, and it was a much more informative picture. The point is, Money is a great motivator, but run some numbers so you’re not surprised down the road. It’s easy to end up in the hole if you have a small exit but had no income for 3 years.
Fame, or at least a name for yourself: Of course few startup founders become famous in the celebrity sense, and even fewer are considered cool -see Richard Branson vs. Michael Dell- so if you’re looking for groupies and sneaker endorsements, this may not be your golden ticket. Fame can take many forms, though: A name for yourself could mean that, if your startup does well, you could do consulting or speaking at Chris Brogan’s rates- and Chris more power to you and great explanation of the why It could mean that, next time around, you’ll have your pick of startup opportunities, and founders and VCs alike may seek you out Perhaps you’d like to write a book or three, like Guy Kawasaki, Ramit Sethi, or Jason Fried.Bottom Line: One of my theories with Going, and also with taking VC money, was that if I did well and built a good reputation, I would be light years ahead career-wise and networking-wise, and that finding a good job in the future would be much easier. In many ways I think these “network benefits” are some of the greatest and most likely outcomes of being an entrepreneur. One lesson for me here which I’ll share is to not be so heads-down focused on your startup that you miss some of this – maximise your startup’s value, but spend quality time with people who will be around long after the dust has settled.
Lifestyle, or being your own boss: Although less common, this is often a key motivator as well for starting a business. People have been turning their hobbies into careers forever, and exhortations about “Lifestyle Design” by Tim Ferriss and others certainly add fuel to that fire. Especially for people who are sick of feeling powerless of mismanaged by higher-ups, or not challenged by their work, this is a strong siren call to entrepreneurship. Here’s my take: You will absolutely have more freedom to manage your time and projects as an entrepreneur. This is not a myth (unless you’re doing a lot of direct sales and support internationally). However, how you respond to that freedom is what matters. Some people, given the option to work longer hours, will keep at it like rats pushing the sugar-water lever; the 37signals folks are outspokenly against this scenario, and Caterina Fake has written a concise and utterly civilised summary on working smarter which I agree with. Others may not be able to the freedom and may have real problems with distraction or procrastination. Fortunately, the majority of entrepreneurs seem to achieve a decent balance of both harder work and greater flexibility. But, in all but the smallest startups, you always have a boss. Maybe it’s a co-founder, a VP or the CEO. Maybe it’s investors or the board. If not, it’s your customers, and your conscience. And, you are now the boss. This is in fact often a much harder adjustment. What you do will impact many people, both through your own work and also through the tone and culture you set. This is a big new responsibility for many.
Bottom Line: I’ve always gotten by on little sleep. I like sleep (almost?) as much as the next person, but it’s sometimes… unproductive
Fine, call me a workaholic if you will. The bottom line for me was that I take my responsibilities, first and foremost to our employees, very seriously, perhaps too much so. So yes, I worked my butt off, but that wasn’t new for me, and I did enjoy the freedom to take an hour or three off or work remotely when visiting my family in Argentina (I also closed our A round from Paris but that’s a story for another day). I take pride in the fact that many of our employees were shocked by the degree of freedom and lack of checking up on them at Going, while maintaining high productivity.
Passion, or changing the world: Oh yes, love for an idea, a desire to make a change in the world, to contribute in some way, is a very powerful motivator as well. Of course the phrase “change the world” is cliche now in the startup world, and it’s arguable whether it’s truly applicable to some ventures. Whence this passion? There are many direct agendas that startups can advance: your ideas might save people time to spend with their friends, or might help them make money to support their family; you might be working directly in an environmentally-supportive area like the really inspiring RecycleBank; or you might reduce user frustration, entertain people or help them unleash their creativity Ultimately, what matters is that the entrepreneur feels they are making a positive impact. Whether you really are fighting cancer, or making people happier in various ways, following what you can’t stop thinking about, what you really feel you can make your mark on, will be satisfying to go after.Bottom Line: With Going, we absolutely set out to change the world. We wanted to make the cold and faceless city warmer, and more, uh, face-ful; to help people really enjoy everything their city had to offer, to get off the computer and have great experiences with friends and with new people; and to help great local venues and organisations reach the right audience for what they offer to their city’s cultural, culinary or entertainment buffet. While we haven’t changed the entire world yet, I absolutely feel like we made a difference- yes, marriages happened from connections on Going, artists made it big (ok Lady GaGa probably would have been a hit anyway…
) and millions of people have found something cool and exciting to do in their city. We also helped influence the Local + Social + Mobile space, generated millions in revenues, and -what stays with me the most- helped significantly advance the careers and finances of our employees and their families. So go on, put on those rose-coloured shades about your startup’s mission and change the world!
Now, what do you think are the motivations for starting a company? I can still think of several others but am interested in your thoughts. See also Jason Cohen’s famous Rich vs. King post about why he sold, and David Heinemeier Hansson compellingly present the opposite view to Jason Calacanis.
So what’s the point of all this dissection of motives? The point is that the choices you make -from funding, to choosing your co-founders, to hiring, to when to step on the gas with sales- will have a huge impact on which of the benefits you were after can be realised. Stay tuned.
Roy Rodenstein is a startup friend and advisor and a nascent angel investor. He Co-Founded Going.com, an early local+social events site, and has been a product and marketing executive at several companies. This post was originally published on his blog, how2startup, and was reprinted with permission.
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