By Peter Hinssen
Member Advisory Board – Center for Digital Transformation at UC Irvine The Paul Merage School of Business
Entrepreneurs are the new rock stars. Or so it appears. The newest role-model is David Karp, founder of Tumblr, a 26-year-old who just sold his company to Yahoo for $1.1 billion. David never finished high school, started working at the age of 15 and will pocket more than $200 million after the Yahoo acquisition. Not bad at all.
And then, you start all over again. Just like The Stones or U2, who will release a record-selling album just after they’ve finished touring with the last album, you must launch a new venture. Because being an entrepreneur is one thing, being a serial entrepreneur is something else.
And the absolute poster-boy for the rank of the serial entrepreneurs is Elon Musk. Musk, the wonderboy who co-founded Paypal and sold that to eBay for a fortune. And risked it all again. Musk has founded Tesla Motors, and turned this into the biggest buzz in the auto industry since Henry Ford introduced his Model T. And he’s the genius behind SpaceX, the commercial space-venture that can do what NASA can’t do, and he’s absolutely committed to put a man on Mars. Now that’s entrepreneurship.
Inspiring stories. The new generation of Silicon Valley digital entrepreneurs is playing a brilliant new role model for young people. And that is good. That is absolutely amazing. Lord knows it’s much better to have young kids aiming to be the next Mark Zuckerberg, David Karp, or Elon Musk, than hoping to be the next Kim Kardashian. Or Lindsay Lohan.
But the image portrayed with the likes of Tumblr is that it’s “easy”. That somehow it’s all fun and games, and “simple” to build a company into a billion-dollar valuation in a couple of years. And that you would have to be a complete dumb-ass fool to still work at a large corporation from 9 to 5, waiting for that belittling paycheck at the end of the month, instead of being out there with the hip crowd and strike gold in Silicon Valley.
The truth is, it isn’t. It’s damn hard. Today, San Francisco is attracting international aspiring talent by the busloads. All wanting to strike it big in the Valley, all wanting to be on the cover of Forbes magazine as the next David Karp. Just like Los Angeles has been the magnet for acting talent hoping to “make it in Hollywood” – only to employ a great deal of them as busboys, bellhops or waitresses.
Building the next Tumblr isn’t easy at all. The truth is radically different. The Tumblrs, Teslas and Paypals of this world are rare exceptions. In reality, there are more than 19,000 startups in San Francisco trying to compete in an ever more difficult landscape to become the next Google or Facebook. And it’s a tough life. The competition is cut throat.
Startups usually are. I’ve done three technology startups myself. The first startup was a success and was acquired by Alcatel-Lucent. The second was a failure and I had to sell the company for pennies on the dollar to a telecoms company. The third one was a big hit, a cloud-software based company that we managed to IPO in 2006, and sell to our Canadian competitors who were quoted on the NASDAQ.
All three of these startups were intoxicating, exhilarating and fascinating. But every single one was also an enormous risk, a huge effort, and a tremendous fight. None was easy.
When you build a startup, smiling on the cover of Forbes is the end of the line, and only for a very select few.
When you build a startup, you risk everything. Even as a serial entrepreneur, you will often put everything you’ve earned back on the line because you’re willing to take that next big risk, in the hope of the next big reward. I’ve poured everything I’ve earned into my startups, three times in a row. Those are big risks. That isn’t glamorous. It’s nights and nights lying awake thinking about what could go wrong, and what would happen to your life, your family and your reputation if your startup failed.
When you build a startup, it’s not glamorous at all. When you build a startup, you are in constant fear because you are per definition in a fragile situation, in an emerging market, and with very little security trying to do things that have never been done before. Fear is the engine of a startup.
There is the constant fear that your best developer will walk out the door and join the competition. The war for talent is so intense in a startup in Silicon Valley that you know you’re not getting the A-developers. They’re hired by Google and Facebook, or Twitter. You probably won’t even get the B-developers; in the beginning you have to gun for C-talent at best. And even then, you’re never sure when that precious developer is going to walk out the door and say “sayonara”. Fear.
There is the constant fear that some of the best people in your team will quit and start your biggest competitor, across the street. Ideas are not scarce in Silicon Valley. Everyone has an idea. Ideas percolate, circulate and gravitate. Everyone in your company wants to build their own company one day, and everyone in your startup wants to have their own startup. You live in constant fear of your company falling apart, by the very dynamic that made you start your own company. Fear.
There is the constant fear of running out of money. True, it’s cheaper to create a startup today than say 10 years ago, because you don’t have to buy hardware, invest in data-centers, or even software. You can use everything in the cloud. But people are expensive, offices are incredibly expensive, and marketing is bloody expensive. You’re in constant fear of lack of funding. You’re always looking for the next financing round, even when you’ve just closed one. Funding never rests, and the fear of money drying up is always on your mind. Fear.
There is the constant fear about your customers. When you’re out there pitching your product to the very first customer, you’re terrified they will find out that you have no references, and that you’d be willing to do anything just to sign them. When you’re out there with your first set of customers, you’re afraid they won’t like the product, will decide to take their business elsewhere. You know you’re doomed when you can’t show a growth curve to your investors. Fear.
And even when you’ve gotten your serious round of funding, with a couple of millions of dollars on the bank to finance the growth of your company, and some ace VCs on your board, you’re terrified that you won’t be able to live up to expectations. You live in fear that the business model you pitched to them won’t pan out. That the hockey-stick curve won’t bend in time, and that the customer and revenue growth that you’re projecting won’t materialize. Fear.
Building a startup isn’t glamorous at all. It’s bloody hard work, requires tremendous investments of time, energy and commitment. It consumes all of your emotional energy, and all of your attention. Building a startup means hardly having time for family, no time for a real social life, no time to take holidays, and every single minute of your waking life is devoted to thinking about your startup.
That’s the story that is hardly told. The missed birthdays of your children, or siblings, the family reunions where you’re constantly on the phone trying to close that deal, the romantic diner with your lover that is interrupted by investors who need an update, or by your CTO who is going through an emotional crisis.
Now, don’t get me wrong. Fear is not a bad thing. It’s what keeps you focused in a startup. I’ve always thrived on fear, because it can bring out the best in you. “Only the paranoid survive” was the motto of Andy Grove, the CEO of Intel who built his company into the world’s largest chipmaker. And I think he was absolutely right, and it applies 100% to startups as well. Paranoia is just another word for fear.
So if you can’t live with fear, don’t ever go into the startup business. If you can’t take the heat, get out of the kitchen. Just be content to read all those glamorous stories of the billionaire startups in Forbes magazine.
After the three startups I created myself, I decided to focus on coaching young entrepreneurs, instead of being one myself. Probably because age and fear don’t mix all that well. That’s why I would recommend creating a startup when you’re young. When you have no kids, no mortgage, no significant other, and when you can concentrate fully on your startup. The fear is probably a little easier to bear when you’re young.
After three startups, I decided it was time put that scene behind me. But let me tell you. There isn’t a day that goes by when I don’t fantasize about going back to the startup world. As Anthony Bourdain puts it, “It’s like a heroin addiction, where even after being clean for years, you can still long for that shot, even when you know it might kill you.” Same for startups. Once in your blood, it will never let you go.
It’s the most intoxicating experience in the world to be part of an adventure, to think you and your team are going to conquer the world, that you have a shot at greatness. I would highly recommend it. It’s a better business education than any business school would ever be able to provide you. It’s a better school of life than any other experience in the world. But don’t think for a minute that it’s glamorous. It’s not.