Should you even found?
Are you ready to take the jump?
Pitfalls to consider when looking to make the jump
As founders, we are all driven by extreme passion. An idea hits us like a ton of bricks, and all we want to do is start running. It is tempting to start down this path, but you should first take stock of career, personal, and market circumstances before making the dive. The more you understand your potential pitfalls, the better you can prepare for them when they inevitably come up.
We are going to derive most of our information from Professor Noam Wasserman, whom we consider to be the godfather of founder dilemmas. His book, Founder’s Dilemmas, is one that you need to read if you are considering founding. We will take his findings and expand upon them, building on his framework with personal anecdotes from our experiences as well as other founders.
Reasons to wait:
Building Human, Social, and Financial Capital
Human Capital refers to skills, knowledge, and expertise. For our purposes, we’ll be focusing on the skills necessary to create a startup. As you progress through your career, you obtain hard and soft skills. Hard skills relate to the ability to do something in a concrete matter such as knowing how to use a particular computer program or operate a piece of machinery; soft skills relate to things such as your communication, leadership, and problem-solving skills.
When working at a corporation, you are given much more leeway to make mistakes and learn these skills. Larger companies can also have great training programs, where they help assist you in developing your skillsets over time.
At an early-stage startup, it can be challenging to learn the required processes necessary to run and scale a company, especially when it’s your money and your mistakes are on your dime, not someone else’s.
The difference in my human capital between right after I completed undergrad and at three years into my career were night and day. It wasn’t until I started getting feedback and grooming for my next position that I understood how to develop my soft skills.
Developing soft skills can be an incredibly thought-intensive process to undergo. For myself, I had to take a 360-degree review within my region to get anonymous feedback on what I could improve upon and then start developing a plan of how to change.
The challenge with trying to develop these skills at a startup is that the business moves too fast and it is hard to have the discipline necessary to change your mentality when you’re exhausted.
As for social capital, this is another piece of the puzzle that can take some time to develop. Your network is the most important asset that doesn’t have a tangible value. Youth has a disadvantage here. You develop professional relationships the more you are exposed to new settings and different types of people. The longer you are on a career path, the more your network grows. You can try and combat it with extensive networking events and sitting down and meeting people for coffee, but trusted relationships take time to develop.
Financial capital is the final hurdle. It is tough to consider starting your venture if you are in debt or do not have a nest egg or someone you can rely on. Many founders will start hoarding cash and working on their startup on the side to compensate for the leap they are about to take. The longer you stay at your current job, the better prepared you can be for the next steps.
Only 18% of founders have managerial experience when starting their venture. You will inevitably make mistakes when you start managing people; it is simply part of the process. Learning patience and how to drive individuals with their goals is something you can read about and something you can theorize, but as humans, we are messy and emotional, making it tough to be disciplined enough to carry your theories into practice.
Creating a venture requires knowledge of how to intermingle and understand a variety of different aspects of a business. There is a good chance you know very little about the nuances of human resources, or you may be an incredible sales person but know nothing about finances.
The challenge here is that it can take many years of learning about how businesses operate to gain just a foothold of how to organize and have a well-oiled machine from an operational standpoint. There are a lot of pitfalls associated with running a business, and if I had not worked in small business consulting for so long and moved up in the organization while learning about those operations, I quickly could have fallen into one.
I remember a time during a consultation when one of my clients, being the busy micro-business owner he was, interviewed someone at the same time that he met with me. He jumped back and forth and eventually gave the person he was interviewing an offer, only to notice after the offer letter was signed and accepted that the candidate had noted a prior felony on the interviewing form.
The company had, unfortunately, just hired a convicted sex offender — not ideal for business!
Something as small as knowing to do a background check on candidates before hiring is not something that you would think to do unless you had been in that situation before.
Most entrepreneurs will wisely pivot their careers and new ventures around their current fields. If you do not have experience in a particular field, it also means you do not have a network or experience to lean on. That is a tall task, as you are blindly running into the dark and it will be difficult to anticipate the potential pitfalls ahead of you.
“Many founders like to believe that ignorance of the industry in which they are founding is a benefit because it leaves an opening for fresh thinking. This can be true, but the advantages of ignorance are often easily outweighed by the disadvantages of inexperience. Past research has suggested that founders who launch startups in industries in which they haven’t worked raise less capital, have lower employment growth, and have a higher rate of failure than founders with prior industry knowledge.” [Wasserman 2012]
Reasons not to wait:
Large corporations use a variety of tools to retain their top employees. It is only natural for employers to want to keep people they have trained and developed into all-star employees, as especially considering the amount of time and capital spent to do so.
Corporations now use tools such as 401k benefits, excellent health coverage, pension plans, and stock options to try and lock in their employees from leaving the company. The longer you spend at a company, the more difficult it is to leave.
When I worked at ADP, the company employed a number of incentives to retain their employees. If you made a certain threshold for sales in a given year, the company awarded you with stock options that matured and were redeemable in 18 months. Our 401k plan also accumulated throughout the entire year, but was only added to our contributions on December 31. Finally, employees had a pension plan that accumulated more and more the longer you stayed.
Say you were successful for three years, it meant that you would then start having a new windfall from your stock option plan every year in July while your 401k plan then matured in December. It made it extremely difficult to consider leaving when there was a significant guaranteed bonus constantly on the horizon.
This is the precise reason that I quit my career. I was at ADP’s President’s Club, and I remember looking around and thinking to myself, what am I doing here? What is the point? I’ve been here a bunch of times and it’s the same thing over and over again. We were killing ourselves for results but were we changing the world for the better?
I realized then and there that if I didn’t walk away from my career, I would be stuck there for the rest of my life. It would have been a good life, but I would have looked back at the end and regretted not taking the leap.
So, I jumped.
Lower “Fitness to Found”
The higher you rise in an organization the more skilled you become in a particular niche. There are diminishing returns of learning the longer you stay in specific roles. You also develop certain mindsets that are not easy to break.
And while a company executive generally isn’t the one making copies or doing administrative work, as a founder, all of that falls entirely on you.
It is a tough transition to start over. When you remain in a career for a long time, you continue to get better at navigating through office politics, and create more and more connections with higher levels the longer you stay. . The more you feel tied into the organization, the less likely you will be inclined to risk everything you have worked for in pursuit of some idea or passion that you have.
When you’re young and single, you have no one relying on you. You could sleep in your car if everything goes wrong or move back into your parents’ house (if that’s an option). If you decide to wait and found later after you have already established your life, the risk and possible fallout no longer falls just upon you. It will affect you and your partner, and possibly your children. If you have a family, you are going to be significantly more risk averse than if you were single.
What to do:
Now that we have given you significant anxiety and so much more to think about, we can dive into how to go about this.
Professor Wasserman gives us a helpful diagram to work with here.
When you look at the diagram, your goal is to be directly in the middle. Unfortunately, there is no perfect time to start a company. You will always have an excuse or a dilemma on your hands, as that is simply how life works.
If you are missing certain pieces of your career readiness, your personal life isn’t quite where it needs to be, or if the market is in a terrible position, set up guidelines for yourself on what to do going forward. If you feel like you are missing a certain set of skills, figure out a way to fill them. Take a class. Meet new people. Volunteer. Take stretch assignments at work or school. There are numerous ways to address your current gaps.
We want you to take it a step past what Professor Wasserman makes you think through. As a stretch thought, go through scenarios that you believe to be taken care of and think through what would happen if those scenarios fell apart.
You do not need to address them now, but keep in mind that starting and scaling a startup takes years. This isn’t an in-and-out scenario; as a mental game, we want you to think through what would happen if something in your life that was a sure thing suddenly changes.
The example I give, since it comes up often with founders, is regarding relationships. You could be in a stable and long-term relationship that all of a sudden falls apart for any number of reasons.
What would you do if you suddenly lost your significant other? It is a tough road and task to think about, but it is worth at least thinking through because of the nature of life. It can come at you fast, and having a contingency plan thought through is a valuable asset.
For myself, my missing gap concerned knowledge. I had done small business consulting for years by the time I left ADP, but I felt like I was missing a few tools to successfully initiate and scale a startup.
Despite my professional experiences, I didn’t have a firm grasp of the venture capital world. The way I addressed it? I Went back to school and earned a master’s degree in entrepreneurship. And while that route might not be the best for you, I implore you take steps to acknowledge and address the pitfalls that you can identify early on.
If you are hesitant about taking the leap because you fear failure — just jump. This hesitation has always been fascinating to me because if you truly think about it, what happens if you fail? Nothing. You are still alive, you most likely learned a lot, and while it probably cost you some money and potential earnings, who cares?
If you’re entering entrepreneurship, it better not be for the money, because you will be sorely disappointed. Entrepreneurship is a lifestyle choice. You need to be hungry and have a desire to learn and grow and change at an ever-expanding rate. You need to know that your life isn’t going to be like everyone else’s. It will most likely contain more heartache and much more trying times, but that is the point. Because when you do get a win, it will be a feeling that others can’t even imagine.
If you can fill in your perceived gaps, have the desire, and have planned for the future — take the leap.
Wasserman, N. 2012. Founder’s Dilemmas. Princeton University Press. 27–67
Lucas is the founder of Spark xyz, platform management software for incubators, accelerators, Angel groups, and VC’s.