Why “jumping ship” could be holding you back from the Next Big Thing

By Jay Bhandari

Running a startup can be like captaining a massive yacht in choppy waters. The startup is the yacht: sexy, cool, and trendy. But being the captain of that yacht, the founder of the startup, is often not so sexy. Long hours, lots of maintenance and operation management, accountability, risk management, forecasting, and damage control — the startup founder has to make sure the yacht sails smoothly despite the choppy waters ahead. And oh boy can the waters be choppy.

Just look at Elon Musk’s journey to startup stardom. After selling a program that gave step-by-step directions between locations for $22M in 1995 and selling PayPal to eBay for roughly $1.5B (of which his share was $180M) in 2002, Musk poured all his capital into SpaceX and Tesla. Today, SpaceX has a massive rocket-building contract worth billions of dollars with NASA, and Tesla has become the first seemingly successful car startup in history.

Elon Musk showing off a Tesla Motors Model S

Looking at Musk’s present industrial empire, it’s hard to imagine that there were a number of times when he was at the brink of bankruptcy and failure. Yet in 2008, Elon Musk had hit rock bottom. Three of his rockets had failed to reach orbit, early Tesla models had quality problems and were losing him money, the economy was tanking into a recession, and Musk divorced his wife. Musk had lost his entire fortune, and was actually in debt to his investors. All of a sudden, the investors and friends that had a pessimistic forecast for Musk’s risky ventures seemed to be right. In a 60 Minutes interview earlier this year, Musk admitted that at the time he thought Tesla “would most likely fail.”

So why did Musk continue to take risks and continue to pursue his dreams of reinventing the electric car with Tesla vehicles and sending an experimental greenhouse to Mars with SpaceX rockets? Why did he forge onward even when his own friends showed him video compilations of rockets blowing up during launch in order to dissuade him from pursuing his outer-space ambitions? In the interview, Musk simply stated: “If something is important enough, you should try even if the probable outcome is failure.”

SpaceX launch from Cape Canaveral Air Force Station in Florida

Although the waters were incredibly choppy towards the end of 2008, Musk didn’t jump ship and instead decided to push on. With the SpaceX and Tesla ships running on fumes at that point — and Musk on the verge of a nervous breakdown — SpaceX attempted a fourth rocket launch. Launch 4 was flawless. Soon after, during the week of Christmas, NASA offered Musk a $1.5B contract to build rockets for them. Two days later on Christmas Eve, Tesla investors decided to pour more money into Tesla with renewed confidence in Musk. SpaceX rockets haven’t failed since, and Tesla Motors stocks have skyrocketed since their IPO in 2010.

Here at Trendify, we actually decided to investigate whether there is a correlation between not jumping ship and startup success. We compiled a data set of 125 companies from various industries and looked at two different variables: whether the startup succeeded or failed and whether the founder(s) broke up or left the startup. Of the 68 startups in the data set that succeeded, only 1 of the startups had a founder jump ship — so, only 1.47% of successful startups had a founder jump ship. Of the 57 failed startups in the data set, 7 of the startups had a founder jump ship — so around 12.28% of failed startups had a founder jump ship.

One obvious reason that failed startups seem to have a higher percentage of founders jumping ship is that founders might jump ship because they realize that the venture will not be successful. While the data set does not allow us to definitively conclude that founders jumping ship directly causes a startup to fail, a founder jumping ship could be a sign of other factors that are directly causing the startup to fail, such as a lack of funding. In addition to potentially being a response to variables that are more directly leading to the failure of the startup, a founder’s jumping ship could also affect other variables, such as investor confidence, that eventually lead to the demise of the company.

Although definitive conclusions cannot be drawn from this simple data analysis due to the data set’s limited size and the confounding variables at play, it is nevertheless important to understand that startups will inevitably have bumps along the road, and perhaps riding out those bumps is the key to making it big. One thing is for certain: if Musk had caved in to his doubts about SpaceX and Tesla and had jumped ship in 2008, he would not be sitting at the top of the tech world today.

Credit for Images: SF Gate, TweakTown, SpaceX, Revenge of the Electric Car