The Entrepreneurial Journey (Is Filled With Horrible Advice)
Pay NOTHING until you meet interested decision makers
A few months ago I saw a post by an entrepreneur who was celebrating the role of her team in the success of her business. She told us how loyal and grateful she was to her team because great people are hard to find. Then she explained how, during the early days of her company, she paid their salaries by tapping into her personal credit cards. But in the end the difficult times were worth it because the company is enjoying some success now.
Her post attracted lots of comments – mostly extolling her virtues as a great boss and as a bold entrepreneur. Some people commented how much they learned from her entrepreneurial journey.
It seemed kinda dumb to me. How many people going into credit card debt under similar circumstances would have a happy ending? Not many, I imagine.
Remember the stories we learned as young kids? They all had lessons or morals at the end. We learned how to function in society by internalizing these lessons. And then we passed them on to our own children. With the power of stories in mind, what are young entrepreneurs are learning about business? What if stories about successful entrepreneurship are teaching current and future entrepreneurs all the WRONG things?
If you are at all interested in entrepreneurship then you’ve already heard at least one ‘true’ entrepreneurial journey (story) featuring an influential company founder. Without exception things started out tough. But when push came to shove the young founder dug deep. Their unique combination of brains, guts and luck got them over the top. They developed a big sales lead and the rest was history.
The founder and company names change, but the entrepreneurial journey is pretty much the same. Plucky kid has an idea —> tries to get it off the ground and fails —> suffers a lot —> eventually succeeds through sheer grit. It’s the same model that Hollywood is built on. A predictable narrative where the hero suffers setbacks until almost miraculously they come out on top. All in under 120 minutes, no less.
Let’s face it, no one wants to hear a story where the entrepreneur is handed everything on a silver platter. Then with the help of nepotism and connections becomes successful. We want to see a story where the entrepreneur really suffers. The lower they go, the more we can enjoy their inevitable triumph. Those depths of despair make the lofty heights seem so much higher.
Will Smith’s well received movie The Pursuit of Happyness is based on a true story and fits this model perfectly. The main character, Chris Gardner, endures incredible hardship before becoming a multi-millionaire stock broker. In one memorable scene he and his son have no where to stay and spend the night on the subway bathroom floor.
But here’s the thing. What if we shouldn’t be celebrating stories about people who went low before finding eventual success? What if the listener is learning the wrong lessons?
Extraordinary Effort, or Spectacularly Bad Choices?
Every new entrepreneur starts their business knowing it will be tough. But they are (by definition) optimistic. They know from the outset they’ll need to work hard, be efficient, make bold decisions, and provide immense value.
You could even argue that many entrepreneurs are too optimistic. They almost always underestimate their ongoing costs, and overestimate their expected revenues. But this is normal; even expected. Over time the entrepreneur adjusts to the reality of their situation (or they exit the business). And the best entrepreneurs go to extraordinary lengths to ultimately succeed.
A popular entrepreneurial journey tale about the early days of Airbnb recounts how they dug themselves out of financial rock bottom. During the 2008 election cycle they sold “Obama O’s” and “Captain McCain” cereal to political supporters as swag. Their determination and ingenuity so impressed the folks at Y Combinator that they got a coveted spot in the popular accelerator. And in the years since going through Y Combinator they’ve raised billions in financing.
The Airbnb story is great isn’t it?! Hollywood couldn’t write a better tale if they tried.
Except for one thing.
The guys at Airbnb were dead broke when they came up with the idea of politician cereal. They had multiple credit cards and were tens of thousands of dollars in debt.
We love them for the win, but it begs the question. Is this sort of behavior determination, or stupidity? Should other entrepreneurs follow their path? I’d bet even the Airbnb founders would recommend against following in their footsteps.
Never Give Up – And Other Nonsense
We know that humans learn through stories. So what lessons are we learning from the story of the successful entrepreneur?
The biggest takeaway of these stories is that all you need to succeed is to persevere. If you try hard enough, for long enough then in the end you’ll come out on top. But is that really true?
The importance of sustained effort is obvious as it relates to long term success. But a million Facebook meme’s would have you believe that grit is the only ingredient required to get to where you want to be.
Sorry, it simply isn’t true.
Remember Liz Lemon’s sometimes boyfriend Dennis on 30 Rock? He was the self styled ‘Beeper King’ of New York. Sustained effort and unbridled enthusiasm didn’t do much for his beeper sales. Sometimes a viable business plan goes a lot further than perseverance and grit.
Self Belief or Self Delusion?
When we hear about a successful entrepreneur who overcame incredible odds to succeed there is a sense of vindication (by proxy). All the effort was worth it in the end! And it’s especially sweet when there were nay sayers doubting the entrepreneur, their vision, or their ability to execute.
But where is the line between a vision that is still in development, and self delusion? Not every idea will ultimately lead to success. Sometimes the doubters are right.
It’s not an easy line to define and it differs for every business. But we know that entrepreneurs tend to overestimate their odds of success. Most entrepreneurs would be better off giving up on their bad ideas earlier. They can then pursuit opportunities with a better chance of being winners.
From Science Direct –
Based upon previous research on factors associated with new business success, it was hypothesized that those who were “more likely to succeed” (based upon their personal backgrounds and the nature of their new firms) would be more optimistic. However, this was not the case. Those who were poorly prepared were just as optimistic as those who were well prepared.
Self belief is a good thing when it helps entrepreneurs advance along a tough path. But like perseverance, self belief is a double edged sword. Self belief without pragmatism eventually becomes lost capital, sleepless nights, and squandered opportunities.
Finally, what would a rags to riches story be without credit card debt. Virtually every entrepreneurial journey includes a crushing debt the founder eventually overcame. It took hard work, perseverance, luck, and a dash of genius. But in the end all the debt didn’t matter because they got the (funding / big client / distributor deal / etc).
Is this good advice? Or even realistic?
From Startup Genome Report:
Some 92 percent of start-ups fail within three years – most commonly because of premature scaling.
Premature scaling means growing expenses faster than revenues. For small businesses without access to 3rd party capital, premature scaling means DEBT. And small businesses typically borrow from family, friends or credit cards.
Here’s the real kicker. Credit card companies know your small business has bad odds. So even though they give credit to your incorporated entity (which is legally separate from yourself), they make YOU guarantee the loan. If the company doesn’t do well, YOU are on the hook for the company’s debt. And that debt can chase you for years. In some countries, you have to put your home up as collateral for larger loan amounts.
At its worst credit card debt becomes an expression of how ‘all in’ the entrepreneur is for their business. They justify poor financial decisions with rosy projections. They chase the entrepreneurial dream, with little idea of how they will dig themselves out of debt.
Whether you are a funded business or a one man show revenues need to factor into how much you spend. In other words, revenues drive expenses. Debt is the greatest thing in the world right up until conditions change. Then it bites you in the butt, hard.
Great Stories, HORRIBLE Lessons
We owe future entrepreneurs better stories than the ones they are hearing now. They won’t have ‘made for Hollywood’ levels of excitement. But small business owners will know more about business before they even start.
Right now the entrepreneurial journey is a variant of:
“One day a young, ambitious person started a business. It was a miserable failure at the start and the entrepreneur almost went broke. They borrowed lots of money they had no ability to repay, and kept working on their idea. Everyone told them they were being foolish, but they didn’t quit. In the end a big company loved their idea and paid them millions of dollars. And they lived happily ever after.”
Perhaps a better version of the entrepreneurial journey would be:
“Jack was a young man who always wanted to run his own business. Jack had a 9-5 job and on evenings and weekends he spent all his free time working on his business. The initial costs were $700 to start, but he was working full time so he could afford it. For market research Jack spoke with 140 prospective customers. When he was confident he could build a solution that people wanted he started production. He slowly developed a reputation for high quality and great service, which soon translated into a steady stream of new customers. 30 months after starting his company Jack was making enough money to quit his regular job. He gave his boss a generous 8 weeks notice because he didn’t want to burn any bridges. And that’s how Jack became an overnight success. The end.