Why Not To Do A Startup
I’ve been doing a lot of thinking about startups lately, and I’ve come to realize that they’re really not for most people, probably even most people who attempt them. All of the guys who are and should be doing startups write about how great they are, but I feel like the opposing viewpoint is largely glossed over. So, always the contrarian, here is why you might not want to start a startup.
For one, the mainstream media focuses almost exclusively on the outlying startups that work out extremely well. Almost every startup-related article you read in Wired or The New York Times is about some guy who started a free dating service, worked 10 hours a week on it for a year, and now collects millions from Google ads, or some 14 year old trailer-dweller who grew her MySpace layouts website into a million page views a week.
Even in Y Combinator you have a few examples of companies that went from conception to acquisition in under a year. Those happen, and your odds of that are probably far better than winning the lottery, but it’s still highly unlikely. It’s on the order of a few percent, and that’s with the YC advantage. Without it’s clearly a longshot. And just like the lottery, everyone thinks their chances are better than they really are.
In reality, startups are a lot of work over a relatively long period of time. Your most likely experience starts with 6 months to a year of working with no salary, trying to simultaneously build a product and raise some funding. Eventually you get a small angel round, which means a paycheck and some breathing room, but you’re still getting paid less than guys who break rocks with other rocks while everyone you still talk to from your business or CS program is making a six figure salary with full health and dental.
If your startup does well, you have years more of this to look forward to. Your user base grows slowly but steadily, your product improves, the competition is always nipping at your heels but never quite catches up because you’re that much better than them. Google either doesn’t release a competitor or they do and it’s more like Orkut and less like Google Maps. The self-perpetuating cycle kicks in, and you keep getting better and better, and users love you more and more.
You go through a few more funding cycles, each of which is hair-raising and takes a few years off of your life due to the stress. And after 5-7 years, you get acquired for a bundle, or if you’re really hot, maybe you IPO instead, and the 5% of the company you still own is worth so much that you’re free to sun yourself on a beach for the rest of your life if you choose.
Of course by that time, you’re 30 years old, and you’re still single because you were working 80 hours per week for the last 7 years, making any meaningful relationship impossible. You probably lost contact with most of your friends, but even if you didn’t, making an obscene amount of money tends to put a strain on relationships between you and those who didn’t. You think going in that that won’t happen to you, but it always does.
So all of the friends you have left are startup people too, but now you even have to question your relationship with those who haven’t made it yet. You’re naÃ¯ve at first and think you don’t, but then the requests for funding or acquisitions or introductions start pouring in, to the point where you can’t just go grab a beer anymore without it turning into a business meeting. You’re in the club and they aren’t, and though it’s never spoken of, that dynamic is pervasive in every facet of life. From sports to poker to music to finance to acting to startups, you name the industry, and I’ll show you the bright red line separating those who’ve “made it” from those who haven’t.
So rather than buying a nice house in Hawaii and raising a family, or travelling the world with the friends you don’t have any more, what do you do? You dive right back into another startup. And if that one works out similarly well, maybe 5 years later you do it again, or maybe instead you decide to take it easy because your doctor told you that you won’t make it to 50 otherwise. So you move into angel investing or venture capital, but even that turns out to be more work and more stress than you thought going in. It doesn’t matter too much though, you’ve never bothered yourself with things like work-life balance before, so why start now? At least this time you’ve got the extra 10 hours a week needed to pick up a trophy wife and have two kids whose ballgames and ballet recitals you’ll miss until you finally retire, three years after they go off to college on your dime, only to be seen again around Christmas for the rest of their lives.
And all of that is more or less best case scenario. Meanwhile your friends from MIT went off to Google, worked 50 hours a week, got married, had kids whose ballgames and ballet recitals (well, they’re a Google employee, so maybe it’s more like chess matches and, well, chess matches, but you get the point) they had time to watch, vacationed every year on that same island in Hawaii where you would have bought a house if you weren’t too busy to, and saved up a pretty good amount of money while they were at it. They don’t have the tens or maybe even hundreds of millions of dollars that you do, but they’ve got one or two. Just enough that any more wouldn’t make them significantly happier anyway. They’ll get a summer home in Montana, or wherever else is fashionable at the time, and retire at 50 to spend their time with their grandkids.
And don’t forget, this is all if your startup succeeds. PG hopes that Y Combinator will provide enough value through guidance, connections, etc., that one day 50% of the companies they fund will succeed. That’s a lofty goal, but even if he succeeds at it, and I’ll be seriously impressed if he does, that means there’s a 50% chance your startup will fail, and you’ve burned two of the best years of your life. That’s if you were lucky enough to get selected by YC. And if you didn’t (which most startups don’t) your odds have to be significantly worse.
It wasn’t a total waste, of course, as it probably makes you more employable amongst other startups, but it’s not as valuable as just working for one for two years would have been, and you’re a hell of a lot poorer for it. And you’ve spent just enough time working for yourself that the thought of having a project manager telling you what to do with your time makes your stomach churn.
There are a number of people floating around the Valley whose lives are a pretty sad story. Every startup they joined tanked, every one they passed on went public. They went without salary for years, and even when they had one, it was pretty low. They’re 50, which in the startup world, where the saying “never fund anyone over 30″ is a practically a way of life, is ancient, and they’ve got nothing to show for it.
Even sadder are the people whose startups succeeded but still aren’t happy, because they never learned that there is more to life than making money. They’ve fallen too far into the “keeping up with the Joneses” mentality, which is extra tough because in their neighborhood the Joneses are really the Jobses. That’s easy to do in Silicon Valley, maybe easier than anywhere else in the entire world.
But I don’t think that’s the biggest problem with startups, because it’s easy enough to just opt out. There are certainly guys who run one startup, cash out, and then move on. Nobody’s putting a gun to your head and forcing you to do it again, though if you looked at the recidivism rates you wouldn’t think that. The problem is the variance. Startups tend to be fairly binary, with you making either a very large amount off of them or nothing at all. In terms of mathematical expectation, the successes are certainly large enough to make them worth it on average. But when you count in the diminishing marginal utility of money, especially as related to happiness (does $10 million in the bank make one significantly happier than $5 million? What about $100 million?) you come to realize that maybe your EV isn’t so high. In fact, if you count every success as the $2 or $3 million that is really all you need, even the ones where you make a billion, maybe it’s less than just working a job.
Don’t get me wrong there are a ton of benefits to startups other than the money, and they’re written about extensively. Working for yourself is, for many people, the only way to go. I’m one of those. And some people would never find a good work-life balance even if they worked at Taco Bell, and they might as well at least try to make a bundle. So I’m not trying to say that nobody should do a startup. Like all sweeping generalizations that wouldn’t be accurate. I’m just saying that you should think long and hard about what you really want beforehand, because it will save you (and maybe your cofounders) from a lot of heartache when you figure it out later, if you’re lucky enough to do so.