The Startup Ego Bubble
The folly of making your personal identity = that of your business
“I became unethical, that’s it,” he said, tearfully. “I totally lost perspective.” … [his] financial fraud victims includes investors and retirees, his colleagues, associates, old college roommates, his nanny, and even his mother.”
Financial advisor sentenced to nine years in prison for fraud schemes, Boston Globe, 6/17/2016
I was shocked to learn a few months ago that someone with whom I’d played rugby back in university had been sent to prison for financial fraud involving a company he’d founded called Graduate Leverage, whose goal was provide loans and financial advice to graduate students. Instead it led this highly-educated man to $15 million in fraud, and nine years in prison.
It made me think: is it ego, overconfidence, pressure from investors, or something else entirely that makes startups and their founders go off the rails?
Is there an “ego bubble” in Startupland?
We’ve read about how startup companies and their founders have sometimes stretched the truth or behaved unethically. The ones who’ve made bold claims or whose technology has been shrouded in secrecy often induce the most schadenfreude when exposed. Example:
Penny Kim’s post, “I Got Scammed by a Silicon Valley Startup”, attracted a good deal of unwanted attention for the founders of a startup (inter alia) for the ultimate “fake it till you make it”: doctored PDFs of Wells Fargo wire transfer confirmations to catch their employees up on back pay.
Starting a new venture is exceedingly difficult. It doesn’t matter if it’s a tech startup or a restaurant. A former Silicon Valley founder and CEO (who is no longer running an operating business) said in an email to me a few weeks ago: “I feel so good not getting repeatedly punched in the head every day. Such a hard f’ing job.”
My aunt spent her life in the restaurant and catering business. When I was 13 years old, knowing I was interested in business, she sat me down and made me promise I would never open up a restaurant. Based on my experience, this article on reasons you should never open a restaurant might as well be about tech startups too:
- Your social life will be over
- You will do all the dirty work
- Your salary will start at $0
- You will be emotionally (and physically) drained
- You will go hungry
- You will be hassled. By everyone.
- You’re working against all odds
- You will have to marry a saint
- You will have to live without sympathy
- You will be expected to give and give and give
- You will maybe find it’s all worth it
Maybe it’s worth it… a big maybe, for both you and your investors: Shikhar Ghosh of Harvard Business School (HBS) found that three-quarters of venture-backed startups failed to return the capital invested in them. Another study in 2000 found that founders in fact earned 35% less over a ten-year period than those in paid jobs.
So it’s extremely difficult and unlikely to pay off — but people are still starting restaurants, and they’re still creating new companies. Entrepreneurial passion and the desire to create something new are a powerful force, but sometimes ego and overconfidence conspire to tell us that if we just persevere (and don’t tell anyone how hard it is) we will make it. Often, founders who are in over their heads and whose personal identities have basically become almost impossible to separate from those of their venture, don’t ask for help, stretch the truth or behave unethically. They’re afraid family, investors, peers, the press, won’t love them anymore if they admit they can’t make it.
There are no qualifications required to start a new venture (though my friend Jakub Kostecki recommends investors ensure founders can answer one question: “Do you know just how hard this will be?”); and often, founders are people with far more skills in sales than technology, and they are able to sell their ideas to a set of ‘investors’ who have even more at stake in a startup than venture capitalists do: startup employees. The opportunity cost for talented individuals who put more cash-lucrative careers on hold for (often all too small a piece of) on-the-come equity can be very high. Because too often these founders are stringing everyone along, and sadly this happens a lot and usually doesn’t show up in the press or on Medium: here’s what a woman now working for a big online company told me about their previous employer:
“I was working a very small stage startup. They stopped paying us. In a team meeting, I asked if we could expect money this month, having rent being due and needing to eat and whatnot (I’m so unreasonable!) and I was scolded for asking. Later the cofounder told me that he was humiliated that I asked that and that I need to think about them before I speak up. I was young and dumb and stayed on for four months. They still owe me $8k that I’ll never see.”
The Fatal Leadership Flaw
In my experience, the most damaging trait a startup CEO can have is when they are not up to the task of making decisions themselves and truly leading, but nor can they step out of the way to let their team do so. So they end up losing the best people (who wouldn’t tolerate being stifled) and replacing them with sycophantic “yes” men/women.
Perhaps all startups would work better if we admitted our vulnerabilities earlier, and avoided the false bravado and fakery. The truth almost always seems to come out in the end, and often it is far more damaging when it has been hidden for a long time. Buddhism teaches that it’s the nature of things to come together and fall apart, and that struggling against this impermanent nature of things is what causes us pain and suffering.
“We suffer because we are projecting the myth of permanence upon a situation that is actually conditioned, selfless, and constantly changing.”
The Myth of Permanence by Sakyong Mipham
We wrongly attribute success to skill and failure to bad luck, and even more damaging, that any of these things are permanent states that reflect on our true nature and self-worth. Nonsense: you are not defined by the value of your startup. Let’s truly accept how hard doing new things is. Let’s marvel at the wonder of things working out when they do, and accept that succeeding or failing has a huge component of luck to it and just be happy when it does work out.
And importantly, let’s tell each other the truth (the other 75% of the time) when it isn’t going to work out.
