“Many have changed so much that they have lost the magic of the dream that carried them on their own bootstraps.”
31% of entrepreneurs should never have started their companies.
Impatience, misinformation, and delusion overcame these founders and convinced them to run full steam ahead with a bad idea.
What was this bad decision?
Read on to find out more.
For those of you who are new readers, before I became a financial planner, I co-founded, built, and sold a software development company.
Yes, the sale is glamorous. Heck, being a business owner and having people actually recognize who you are in your small(ish) town is pretty cool. Being able to finish the phrase “hey, you’re the guy who…” with something other than “was on TV last night getting arrested for singing to that tree while drunk as a skunk” (never happened to me, I swear) is neat, gratifying, and fairly self-fulfilling.
However, there is also a lot of work that goes into it. There’s sacrifice. There’s stress. There’s concern. There’s waking up in the middle of the night because you’re worried about how you’re going to make payroll next week.
When we started, each of the co-founders pitched in $400. That was to cover 3 months of rent for the postage stamp office we had.
Everything else came as a result of hustle, networking, and lots and lots of conversations.
I also didn’t draw a salary for the first 18 months the company was in existence. Even then, the salary I drew was over a 50% pay cut from the salary I’d received at Capital One.
My wife and I had saved up religiously during my two years at Capital One so that we could pay off my business school loans and have enough money in the bank to give me the time to make a true run at entrepreneurship.
Why were we so diligent about saving?
I knew that I wanted to try entrepreneurship. It was something that I’d spoken with classmates at business school about. I took classes on the subject. A friend and I had actually won an entry into our business school’s startup incubator, but we both wanted to get paid internships instead. The entrepreneurship bug had bitten me, and, in a fit of what was likely self-fulfilling prophecy, I wasn’t particularly happy at Capital One because it wasn’t entrepreneurial, despite what the CEO had said during the recruiting talks.
I also knew that I didn’t want to make the mistake that 31% of startups make.
I didn’t want to finance the startup using credit cards.
I’d been in credit card debt before. It stunk. It was embarrassing. It was soul-sucking. Not to mention, it was a financially poor choice. I had nothing to show for all of that spending but a few good stories.
Experiences are great, but they’re even better when they don’t come with a debt hangover.
Also, as a part of my job at Capital One, I listened to collections calls where Capital One call center representatives called people who were overdue in their credit card payments. Blech.
Since I’m a risk-averse person – I’d argue that most smart entrepreneurs are – all I could think about when I envisioned trying to fund a startup on credit cards was:
What happens if I don’t succeed?
The image in my mind was of enormous credit card bills that I’d have to pay off. Well, more specifically, my wife and I would have to pay off. OK…even more specifically, my wife would have to pay off. She was the one working and earning the income while I was trying this entrepreneurial venture. If it didn’t succeed, I’d have to find a job, which would take goodness knows how long. I imagined as a failed entrepreneur, it would be more difficult than usual. I figured, realistically, it’d take another 3-6 months before I could even find another job. That would have been 3-6 months that she’d be bringing in income and helping pay off that credit card debt.
Did I mention blech? I hated that vision.
But all of those entrepreneurship gurus tell you that you should only picture success in your mind, and if you think of success, it will come to you.
To quote Colonel Sherman T. Potter in M*A*S*H*, “Horse hockey.”
The realistic entrepreneur knows that 50% of startups fail within 5 years. I’ve spoken with enough accountants and attorneys to know that many of the businesses that are ongoing are actually zombies. They’re not earning money. At least, they’re not earning enough money so that the founder(s) don’t have to put in more money. So, the doors may be open and the license valid, but as businesses whose purpose is to make profit, they’re dead.
A smart person, before he or she starts a company, will ask the question: “What happens if this doesn’t succeed?”
Let’s play out that question if the venture is funded by credit cards.
Here are the things which I see happening: