The real life practicalities of entrepreneurship

Your business and personal life will forever be in conflict

Entrepreneurs are from all walks of life

Stories of entrepreneurship are akin to the hero’s journey you read in fairy-tales. The protagonist embarks on a bold quest, he goes through a series of trials and tribulations, then there’s a happy ending.

In entrepreneur land, It goes a little something like this:

Let’s take the story of AirBnB as an example.

Once upon a time, two 27 year old college friends struggled to pay rent in their apartment in downtown San Francisco. There was a design conference coming to town and all the city hotels were booked out. Jumping on this opportunity to earn a few extra dollars to make rent, they hacked together a website and turned their apartment into a bed and breakfast. They spent their waking hours building out the website and platform of AirBnB for several years. After a series of setbacks and wins, they got traction and are now the billion dollar unicorn we see today.

Consider Elon Musk and his brother Kimbal building their first startup Zip2 in the mid 90’s. Living off a loan provided by their uncle, the Musk brothers lived and slept in their office, surviving on takeaway for first two years. After a series of setbacks and struggles, they got funding. Years later it sold to Compaq Computers for $307M.

Tales of entrepreneurship are often about the ‘struggle’ of two single white guys in Silicon Valley, building a business out of their apartment or garage. They come up with this idea, work their asses off 15 hours a day, living off ramen noodles in the hope that they’ll ‘get funding’.

The problem I have with this narrative is that these stories are outliers. According to Forbes, 80% of businesses fail. We don’t often hear stories of that 80%. Out of sight, out of mind?

Indeed, we can aspire to be like our heros. We rely on these stories to give us this irrational optimism to believe that we can be just like Jobs and Wozniak, or the Musk brothers. But reality is that the odds are against us. And if we’re not grounded in facts, we can be caught in a fairytale, where success is fiction.

The truth is that most entrepreneurs don’t start businesses from their dorm room. They are professionals who have left employment to control their own destiny. They are ordinary people, just like you and me. We don’t fit one type of mould. We are all different. We are in different stages of our life. We have partners, children, mortgages, elderly parents. Simply put, we have varying degrees of priorities outside of business.

These priorities have a direct impact to our quality of life in and outside of our business. When it comes to creating a successful life for ourselves, our ‘whole of life’ well being needs to be considered.

Your business is your other partner

Starting a business is a selfish pursuit. You devote every waking hour into growing it. It’s your life’s work, literally. It can be easy for it to swallow you whole.

Entrepreneurs start companies to do their own thing. Marriage, on the other hand, is about doing things together. The truth is that these two loves of your life will forever be in conflict.

There is limited data on divorce statistics for entrepreneurs; but I’d wager that they are higher than the average. I’m grateful not to be in that bucket. Indeed the demands of my business has at times created periods of distance and pressure between me and Liz. It’s a balance of give and take. At times, there is tension as we work within that constraint of time and attention.

And of course, there’s the financial pressure. According to research by the University of Denver, financial problems are one of the leading causes of divorce.

Being a business owner requires a tolerance for financial risk that few can stomach. In a marriage or long term relationship with shared finances, it’s likely you’ll need to tap into that joint bank account. The new car you promised will likely be deferred. The annual holiday will be indefinite. The sacrifices are not just yours. You, your partner and entire family are all in it together.

This raises some awkward, yet practical questions to consider between you and your spouse, including:

• How are you going to pay your fair share of the living expenses?
• If you can’t, how long do you expect me pay for your fair share?
• How are we going save for the future?
• How long are your going to give this thing a go?
• What’s the back up plan?

Business and relationship breakdowns are a serious yet seldom talked about issue from the lense of entrepreneurship. I’ve seen marriages and homes destroyed because of business. Look at the personal lives of Musk or Jobs…they’re not ones I wish to emulate.

Equally, I’ve seen businesses destroyed by divorce. Divorce creates a great deal of psychological pressure on founders. From a financial perspective, I’ve seen founders having to liquidate their business to pay their share of the marital court proceedings. It’s a lose lose situation.

With financial pressures as a leading cause of relationship breakdowns for founders, I can’t help but offer a financial framework to help founders have an open discussion.

Before we start, let me be clear. I am not a therapist or marriage counsellor. But from experience, clearing up the financial elephant in the room is generally the hardest and most important conversation for early stage business owners.

Here’s how to approach it.

Step 1: Calculate your mutual Minimum Viable Lifestyle

You may be familiar with the silicon valley term Minimal Viable Product (MVP). This phrase was popularised by startup guru Eric Ries in his legendary book Lean Startup. The MVP thesis is designed around building the cheapest and smallest product possible, with just enough features to satisfy the early customers. The idea is to work within a cost constraint that achieves the most viable outcome.

The MVP principle can be adapted to disciplines outside of the product development and software world. As an accountant, I like to apply it your lifestyle and personal finances. Let’s call it the ‘Minimum Viable Lifestyle’ (MVL).

The idea behind the MVL is to design your lifestyle so that you are living on the lowest viable cost, which still yields the highest impact to satisfaction. The core principle is that you only spend money on things which have a high personal utility.

The process involves an audit of your personal monthly lifestyle expenses, and eliminating the unnecessary or impulse purchases. The monthly result is your MVL.

Sit down with your significant other and calculate your mutual MVL. When I say mutual, I mean the total lifestyle and living expenses for your whole family.

Step 2: Discuss your ‘fair share’

If your household is like mine, we split our living costs 50/50. We have a joint bank account for the mortgage, utilities, car etc. and top this account up every month to cover our ‘fair share’.

The challenge you may face in your early stage growth company is that your contribution will no longer be ‘fair’. It’s likely you will have to lean on your partner, financially (and emotionally!) to foot the bill to maintain your lifestyle. This raises an important question — how much can you lean on them?

There is no right or wrong answer. But it does need a real, honest discussion about how much each of you can contribute.

After calculating your MVL, sit down and calculate what each of you can afford to contribute to the business.

Example

Using an example from a fictitious character, Brendan, this family’s mutual Minimum Viable Lifestyle is $9,100 per month.

The discussion Brendan needs to have with his wife is, how do we fund that?

In this situation, Brendan is able to draw $5,000 per month as a salary from his company, so he’s able to cover 55% of this share to the household. This leaves his wife $4,100 to contribute.

Step 3: Calculate your personal runway

In Brendan’s example, we see that both Brendan and his wife can cover their MVL. But what if Brendan’s wife wasn’t working?

Herein lies the predicament — there is a shortfall. Brendan and his wife must dip into their personal savings to fund their lifestyle.

Your personal runway is the amount of time (in months) you have to fund the your MVL with the savings you have accumulated in your personal life.

This is different to the runway in your business. Remember, the business bank account is separate from your personal bank account.

Calculating your personal runway

You can calculate your personal runway by getting the shortfall to the monthly MVL and divide it by the current savings you have.

Let’s say Brendan and his wife have $23k of savings. Brendan accessed his 401k to fund the startup costs of his business and had some money set aside for ‘rainy days’.

Under the current circumstances, Brendan and his wife have just over 5 months until they deplete their savings.

Should Brendan and his wife be concerned? My personal recommendation is every household should have at least 6 months of personal runway in the bank.

Brendan’s scenario opens a basket case of more questions, being:

• Can Brendan and his wife cut their living expenses even more?
• Should Brendan’s wife go back to employment?
• When is the time Brendan should just quit the business and get a job?

How long do we keep this thing going?

The question for Brendan to consider is how long is he willing keep working at his company. How long should he pursue the dream and grow it, to the extent it has the cash flow to pay himself a higher salary? Again, there is no easy answer. It requires a open conversation with his wife about how long they continue to this path.

Couples fight about money all the time, and with added stresses of business, there will always be conflicting priorities. Too many times have I seen stories of founders falling in love with their business, to the extent it damages their personal relationships. Just be open and realistic about the life you want to live.

Glass and Rubber Balls

Bryan Dyson, the ex CEO of Coca-Cola discussed the difference between glass and rubber balls.

“Imagine life as a game in which you are juggling some five balls in the air. You name them — work, family, health, friends and spirit — and you’re keeping all of these in the air. You will soon understand that work is a rubber ball. If you drop it, it will bounce back. But the other four balls — family, health, friends and spirit — are made of glass. If you drop one of these, they will be irrevocably scuffed, marked, nicked, damaged or even shattered. They will never be the same. You must understand that and strive for balance in your life.”

Life is about trade-offs. If you say ‘yes’ to work and business, what are you saying ‘no’ to?

Business can be an all consuming pursuit and we need to devote our attention into growing. We need to be careful not to let it swallow us whole. Remember your business is simple a vehicle, a machine. This machine is designed to produce the outcomes you want.

You are in control.