Learning to drive and learning to run a business are surprisingly similar endeavours.
When you learn to drive, you don't know what you need to pay attention to. There are, seemingly, a million things going on, and some of them might kill you if you fail to heed them. This can cause a sense of panic in the beginner. When you know how to drive, you rely your experience to know what to pay attention to and what you can simply ignore or deal with without thinking about it.
Learning to run a business is similar. There are a million things that you could do, and some of them will kill your business if you fail to heed them. This can cause a sense of panic in the beginner. When you know how to run a business, you rely on your experience to tell you what you need to pay attention to and what you can simply ignore, delegate or outsource.
When you learn to drive, there are a lot of new habits that you need to build into automatisms. Learning to use the clutch to change gears rapidly while accelerating onto the motorway, surrounded by speeding cars, seems very difficult at first. But the more you do those things, the more they become automatic and unconscious. When you know how to drive, you don't even really think about changing gears, you just do it.
Learning to run a business is similar. There are a lot of new habits that you need to build into automatisms. Learning to detect that the person in front of you is a lead, pitch them in the correct way, follow up, and close the sale, seems very difficult at first. But the more you do it, the more it becomes automatic and unconscious. When you know how to run a business, you don't really think about pitching and closing sales, you just do it.
To learn to drive, you have to actually sit in a car and drive yourself. No amount of reading or talking about it will enable you to drive. You could study driving for years, and even watch someone else driving for years (most of us watch our parents driving for our entire childhood), and still it won't replace the actual experience of driving. While it is possible to build car simulator, even that is a poor substitute for actual driving.
Learning to run a business is similar. You have to actually run a real business yourself. No amount of reading or talking about it will enable you to run a business. You can do all the MBAs you want, and study entrepreneurs and entrepreneurship for years, and still it won't replace the actual experience of running a business. While it is theoretically possible to build a simulation of a business, it's a poor substitute for actually running a business.
The best approach for learning to drive is to get an experienced driving instructor who will sit in the car with you and figure out what you know and what you need to learn, construct a teaching plan personalised to you, teach you those things, demonstrate them when it helps, and help you practice them over and over again in a safe environment, watching out for things that might kill you. Because this approach works, it is used throughout the world.
The best approach for learning to run a business is similar. You get an experienced mentor or coach or close advisor who will be lightly involved in the business, who will figure out what you really need to know next and point you in that direction, who helps you work through tricky business issues, and who watches out for things that might kill your business and that you haven't spotted. This is much less widely used in business than indriving, perhaps because good business coaches are much more rare than good driving instructors. But driving schools for business are getting more common every day.
There is a difference between learning to drive and learning to run a business. In business, there is no such thing as a safe environment. You're on the motorway from day one. And most people drive their first business without an instructor by their side.
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Entrepreneurs are generally perceived as insane risk-takers. One common metaphor for creating a startup is jumping out of a plane (the safe, corporate or academic world) without a parachute, and building some kind of viable flying device on the way down. Entrepreneurs often use this vivid image, because, well, it sure sounds pretty cool and brave and all that. It paints entrepreneurs as an amazing-sounding combination of Jack Bauer, Chuck Norris and MacGyver, insanely resourceful, persevering, brave, and so on.
There are several big and damaging fallacies in this view, however.
First and foremost, is the idea that if you fail to build a working startup in time, you will die a horrible and violent death. That's obviously not the literal meaning of this metaphor, but the images we use to interpret the world around us certainly influence our thinking, and picturing entrepreneurship as a head-first dive towards a violent death is a powerful subconscious image.
Another misleading element is the implicit perception that you only have one shot at it, so you better make it. "Startups are sink or swim!" - if you don't stay afloat, you're dead.
A third fallacy is proposing that the outcome is binary. Either you build the plane, or you're dead.
A fourth fallacy is the idea that starting a business is an incredibly scary ride, reserved for insane thrill-seekers. If you're not a Jack Bauer type of character, perhaps entrepreneurship is not for you?
But perhaps the most important fallacy in this image is the clear message that entrepreneurship is very risky.
Let's deconstruct these a bit and put this image to rest (or fix it, at least).
1. A horrible and violent death
Is startup failure comparable to a horrible and violent death in any way?
If you quit your corporate job and try to build a startup, and it fails utterly, you may well have thrown your savings into it. That's unpleasant, but it's hardly a violent death. You may or may not find that your previous career will not welcome you back, so that may mean a career change. Whether it does or not, this is once again not a tragic ending, just a change of direction.
If you played your cards very unwisely, and maximised risk instead of minimising it, you could find yourself in a very difficult financial situation (e.g. perhaps you've arranged things so that not only is your startup broke, but you are personally bankrupt and lose your house), but that can only be blamed on yourself, not on the fact that you "did a startup". It's a relatively easy outcome to protect against if you realise that failure is a likely possibility along your path, and don't put all your eggs in the first basket that comes along.
In any case, unless you took unreasonable risks while pursuing your startup, dealing with its failure will be an unpleasant affair, but very far from an "end". It's more like a step along the journey.
2. You only have one shot at it
This leads us into the second point, the idea that you have just one shot at entrepreneurship.
As I've said before, Entrepreneurship is a career. Bravado images like the one we're dissecting, and the high-octane "build a billion dollar company in a couple of years" Silicon Valley culture try to paint it differently, but the reality is that most successful entrepreneurs are in it for the long run, and stay in this game for all or most of their life.
Obviously, if you've built Facebook, you may not feel like starting another startup again after that. But that's valid for just a handful of entrepreneurs in the world, and there are many counter)-examples, even some big ones with bigger-than-Facebook-scale-successes behind them. All of them started multiple businesses, some more successful than others. Entrepreneurship is addictive, and even having a multi-billion dollar success under your belt won't stop you from yearning to try to do it again.
Bill Gates probably won't start another business. Mark Zuckerberg may or may not (only the future can tell), but most likely would if he was somehow ejected out of Facebook.
Entrepreneurship is a career. So long as you don't hit yourself in the face with the bat, you can keep taking swing after swing after swing. Painting entrepreneurship as a one-shot thing only serves the agenda of those trying to discourage you from starting your own company and those who want you to risk everything for the sake of a single business.
3. The outcome is binary
Chances are, you will not build the next Facebook and become a billionaire. Chances are, you will not end up on the street begging for food. Even if we look at the financial dimension alone (and we shouldn't, as there are many other dimensions to the way people measure their success in life) , the bulk of outcomes will be distributed all over the interval between those two extremes. Maybe you'll come out of your startup with a bit less money or a bit more. Maybe you'll increase your level of wealth substantially, but not enough to "retire at 30" (who wants to do that anyway?), or maybe you will make "fuck you money". Maybe you'll build a business that can sustain an ok lifestyle for yourself but isn't up to your level of ambition.
Which outcome you get depends on many factors, but what should be pretty obvious is that it's never an all-or-nothing deal.
There's one commonly cited exception to this, which comes into play if you raise money from a VC. Those deals typically come with serious strings attached, making it difficult for you to exit the business or run it as a lifestyle business. This can turn what would otherwise be a solid $10m business (no small achievement!) into what looks like a near-$0 outcome for the founder. However, no one will force you to restrict your options by entering into such deals, and even in this worst-case outcome, the founder typically ends up, at the very least, no worse off than he or she started (better off, if you count the awesome experience of having run a startup as a plus). However, this does make the outcome seem more binary.
4. Starting a business is incredibly scary
Are you kidding me? Starting a new business is incredibly exciting!
Starting a business is hard, no doubt, and there are times when you feel like there's no way it can work, like it's all about to come crashing down, and so on. But there are also times when you feel on top of the world. Starting a startup can be pretty tough on your emotions at time, and emotionally unstable people should probably stay away, but we shouldn't ignore all the incredible benefits that come with it.
While creating a business you are:
- learning extremely useful practical skills that will serve you throughout your career (in or out of entrepreneurship);
- in charge of your lifestyle in a way that's completely impossible in a large corporation;
- deciding things for yourself, able to structure things in the way that you think is best in terms of your own priorities;
- free of corporate politics (well, until you are lucky enough to be in a position to create that headache for yourself by hiring lots of people);
- doing a wide variety of things (if you don't enjoy that, you probably shouldn't be an entrepreneur);
- doing something valuable to the world around you (if they're paying you for it, it's probably worth something to others!);
Yes, entrepreneurship is a bit scary. But it's hardly the thrill-seeking death-ride that the "jump out of a plane" image puts across.
5. Entrepreneurship is very risky
Finally, this is perhaps the most pernicious implication of the "plane" metaphor, one that sometimes makes me think that the image was concocted by people who did not want others to become entrepreneurs.
People often bandy about failure statistics for startups. Yes, a lot of companies fail (for a given definition of failure), but that doesn't say much about what happens to their founders. My first two companies failed. My third one is succeeding (if it hadn't, I'd be on my fourth, fifth, sixth, etc). Am I a successful entrepreneur? I think so, and yet statistics would say that, oh horror, 2/3 of my companies have failed. And that's not even counting the handful of startup-like projects that I did which never even got to the stage of being incorporated as companies.
Being a startup is risky, but nobody is a startup. As an entrepreneur, you create and run a startup. Your career consists of doing this, repeatedly, until you decide you want to do something else. This is much like any other career, and so let's compare it fairly. Rather than comparing "a startup" to "a job", let's compare the entrepreneurship career to the typical corporate career, in terms of both risk (downside) and potential reward (upside).
As an entrepreneur, the only person who can fire you is yourself. Moreover, you have all the information you need to see it coming for a long, long way, and you have the control you need to avoid it, if it is avoidable. Finally, your job security is largely linked to your own abilities. You can't be fired from your startup because some other company had a bad quarterly report (unless you actively made yourself dependent on that other company exclusively).
Working in the supposedly safe corporate environment, you can be fired at a moment's notice, based on wide-ranging decisions like "Let's fire 2000 people to make the profit look better next quarter", or based on the poor performance of another department in your company, or any other number of completely opaque events that you have no information about. Job security in the corporate environment is an illusion. It works most of the time, but it's fake.
Entrepreneurship: 1. Corporate life: 0.
As an entrepreneur, if you generate a million dollars of profit, the money is yours (well, minus taxes, but that's another matter). If you generate ten million dollars, it's once again yours to do with as you see fit. If you generate a billion dollars of profit, it's yours. The upside is always all yours. Even better! Once you're employing other people, their financial upside is also yours. If they close a million dollar deal for your company, the million dollars is yours. You may (and should, if you want them to do it again) choose to share that with them, but fundamentally it's yours, and you'll often get a big share of it.
There are corporate jobs that pay significant variable bonuses. Salespeople, in particular, and highly specialised financial services workers (e.g. traders), can earn mouth-watering bonuses based on their year-to-year performance. However, those are certainly the exception. In most jobs, your financial upside is severely capped - to zero. You might get a pay raise if you do very well. That's about it. Even most jobs with performance bonuses typically have a cap on them. Generate a million dollars of business for the big corporate bank you work for, and you might get a few tens of thousands of pounds of bonus, in the absolute best case scenario. Typical sales commission might be about 10%. But in most cases, it won't even be percentage based. Did you create a million dollars of value? Well done, you've earned your entire $10k bonus allocation for the year.
Entrepreneurship: 2. Corporate life: 0.
What happens if your entire skill set becomes obsolete?
In the corporate world, especially nowadays, this can easily happen. As automation and outsourcing extend their octopus-like tentacles everywhere, tens of millions of people will find that no one needs their skills anymore. The smart ones will have shifted into new career paths before that happens, but many will find themselves unemployed, and desperately trying to retrain into a new career, starting from zero again, and so on. It used to be that once you'd learnt a trade, you could apply it for the rest of your life. The modern corporate worker can expect to change careers at least two or three times in their life, if not more.
This could in theory happen to entrepreneurs too. However, because of the way entrepreneurship works, it won't. See, the main activity of entrepreneurs is to discover and exploit business opportunities. As long as there are business opportunities, the career path of the entrepreneur goes on.
There are some regimes where the enterprising spirit is discouraged or even illegal. There may come a time when money is irrelevant and business opportunities are an obsolete concept. However, in such a situation, pretty much all "career paths" are obsolete.
Entrepreneurship: 3. Corporate life: 0.
In short, the entrepreneur career path is considerably safer and has better upsides than most corporate career paths.
The image of the entrepreneur as an insane risk-taker who is willing to leap out of a plane and risk death or destruction to launch a business needs to be put to rest.
Instead, it should be replaced by the reality: (successful) entrepreneurs are sane, pragmatic, risk-averse and cautious. They plan ahead as much as possible, come up with ways to mitigate the worst risks and make contingencies for failure of their business ventures. They are level-headed, in it for the long term, enjoying the ride as well as the destination, and determined to keep trying different businesses until they succeed (and even after they succeed).
A much better analogue for the entrepreneur is the applied scientist trying to discover new physical principles through repeated, persistent, careful experimentation. It may not seem as sexy as jumping off a plane, but perhaps it's time to stop pretending that entrepreneurship is only for the insane. The world could use more successful entrepreneurs.
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This article was posted last week, and spurred an interesting discussion on Hacker News. At key is the question of whether startups are really cheaper than they used to be.
This is, of course, relevant because the idea that startups are cheaper than ever to launch is often brandied about to support this or that argument, whether it's about the increased number of tech startups, or the investment climate, or the reasoning about why you should start a startup right away, or the disruption to the VC industry, and so on.
Thesis and antithesis
One side of the debate claims that actually, startups are no cheaper than they used to be. In the late 1990s, it was possible to launch a startup on the cheap, on a shared hosting package, for puny amounts of money, and wait until it picked up before investing in more expensive infrastructure (just like it is today).
Hiring has not gotten cheaper, and infrastructure costs on the low end are just as low as they used to be, and so, the argument goes, it isn't cheaper to start up today than it was ten years ago.
The other side of the debate points out that many startups in the late 90s spent a lot of money buying overpriced Oracle licences, hiring rare and expensive specialists to deal with all this pricy technology, and that this was part of the cost of doing business. Today, MySQL (free) has replaced Oracle, and there are a lot of free hosting packages, and there are hyper-productive technologies like Ruby on Rails which allow you to build an entire web business with a handful of people and dollars.
Hiring costs may not be cheaper, this side claims, but technologies are more productive and deliver better results.
To this, the first side replies that you didn't need to buy Oracle in the 90s any more than you do now, and that this was just an inflated cost caused by too much VC investment in unsound startups. And, ten years ago, a tiny team of hotshot programmer could build a business out of nothing just as well as they can today.
And so the endless Saṃsāra of arguments goes on. If you have a few hours to kill, you may wish to join in!
As with every unsolvable debate, the truth lies... on both sides.
It was indeed just as possible to start a startup on the cheap ten years ago as it is today. Many people did then, and many people do today. If you're scrappy, smart and determined, you can start a tech startup for pennies. That's as true now as it was then.
But not all startups are started at the very cheapest end. Some businesses do require investment of some sort before they're viable businesses, or even require it as growth money. And this amount of money has been going down, at least as far as the technical expenses is concerned, because both the technologies (Rails as well as others), the infrastructure (AWS, Heroku, but also the vast number of supporting apps that make it easier to do things like accounting, support, or user testing more efficiently), and even the available knowledge and mentoring (via movements like the Lean Startup, or even communities like Hacker News), have been getting better.
AWS may not be the cheapest, but as a "standard option" for the scale-minded startup, it's a damn sight cheaper than spending thousands of dollars a month for a bunch of dedicated Rackspace servers, or buying up colocation space, physical servers and sys-admin time for a similar amount, as you might have in 2001.
It is possible to get further with less money than it was ten years ago.
And that's the crux of the matter. As with Parkinson's Law and time budgets, startups will expand to take up the funding available. But they will get much further with the same amount of money than they typically did ten years ago. Of course it was possible to start up on the cheap ten years ago. But:
- today's cheap startup will get further than yesterday's cheap startup;
- today's mid-range startup will get further than yesterday's mid-range startup;
- today's expensive startup will get further than yesterday's expensive startup.
Perhaps more importantly, there's another factor at play: the opportunity-space.
Thanks to the blossoming of internet users, countless web technologies, open APIs, and other web companies, there are more opportunities to build startups today than there were ten years ago.
This seems counter-intuitive at first - surely, back then there were so many more things left to do. If you think about it, however, you will see that many opportunities depend on other things being in place. You couldn't have started Twitter or Groupon in 2001. Not enough people would have understood either of these platforms. You couldn't have started any of the companies, like Instagram, Foursquare, or Bump, that thrive on the iOS ecosystem - it didn't exist. You couldn't have started DropBox, Heroku or Mint back in 2001 - the infrastructure wasn't there to support them.
The fact that there are so many opportunities to build something useful and monetisable is, in my opinion, a bigger factor in the rise of web startups than how cheaply a scrappy founder can launch a product.
And as far as this particular trend is concerned, I'm pretty certain we are still at the beginning of the tsunami. Cheap or not, expect many more startups in the next ten years than in the last.
Update: Someone pointed out that I didn't answer the question in the title, which is clearly very bad form and I apologise for this faux-pas. The proper answer to that question is: you can't compare startups directly. What you can do with a certain amount of money depends directly on when you start doing it, and what you're trying to do.
What you can reasonably say is that the scope of what you could do 10 years ago with $X is about the same as what you can do today with $X/N, where N is larger than 1 (but perhaps not as big as 10), because of the improved opportunities, technologies, and supporting infrastructure.
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