This is a really good article. There's no exact path, though startup media likes to make you think there is. Raise tons of money? Raise no money? Ad supported? SaaS? Is this trend over? None of it really matters. Go for what you will commit yourself to, put a plan to it, and make sure that you're happy with what it can produce. That's the biggest issue. Many founders will start lifestyle businesses, want to turn them into VC backed ones, and start to mutate what they're working on. During that mutation things go very awry. Know who you are and embrace it.
Great post. This reminds me of Tim Ferriss' description of identifying good business ideas and / or approaches to learning new things (like languages). Three simple questions (which I've defined in terms of business, but they are broadly applicable):
1. Effective - will the business actually make money?
2. Adherence - is it a business you can stick with and commit to over the long haul?
3. Efficiency - will the business make you money in a way that uses time efficiently.
Listed in priority order. Great way of evaluating potential business ideas for me. #2 is particularly useful as a filter, as there are LOTS of ways to make money, but a much more limited set of ideas that you actually want to do long term.
Good article highlighting the equally valid modes of rationalising different options.
A useful book that can help one think through these (and many more) types of decisions is "The Founder's Dilemmas"[1]. In it, Wasserman (former professor of mine) explores the trade-offs one must make in founding, with examples. Very helpful.
I like this a lot. I'm really sick of the debates regarding appropriate motivations that are so common on this site. It's not that motivation doesn't matter, it's just that it's different for everybody. The one part of a start-up that gets to be personal that gets to be yours, no matter what, is why you're doing it. Everything else is icing on the cake.
I am going to be a part of a startup in the near future (really the "near" future.. 1-2 weeks to say) and the numbers although haven't deterred me, but I will admit, I am a bit scared. So, I am just going to finally ask this. What percentage of startups fail? I know that it is more likely I will fail rather than succeed, but I would really like to know the odds.
It's irrelevant to you. Even if 99.999% of risks fail, your chance of success is independent of the the failures of other people.
The question you really want to ask is: what's the expected risk/reward ratio? And if you're in any kind of demand for your professional skills, your risk is your opportunity cost (which you can reasonably well predict), plus the small chance of some horrible disaster that leaves you unable to finish (which you can't predict, but applies mostly independently of the amount of career risk you're taking). Then there's the the thing that people get hung up on: the risk that the project will tank, and you'll have an inexplicable gap on your resume. If you're in a place like the valley, this risk is largely imaginary -- as long as you comport yourself professionally, taking a chance on a startup isn't going to hurt your career.
Initially, assume your expected reward is near zero. You're walking on to the casino floor, and you're there to have a good time. You want to keep the game going as long as you can, but you're not prepared to gamble more than you can afford to lose, and you assume that the house has the odds. Your calculation is: how much am I willing to lose on this activity?
Later, if you achieve some success, you can modify your risk/reward calculation. Is your project growing? Bump the expected reward. Did you raise money, and can now afford to pay yourself? Reduce the risk. Decide where your personal loss threshold is for this particular bet, and when you cross that line, stop.
In my opinion, the thing you should worry about is not financial risk, but life risk: is this what you really want to do with your one-and-only youth? It's a much harder question to answer, but a good place to start is: do you really, honestly, truly give a shit about the thing you're planning to build? If not, stop now. No amount of "success" will make it worth the pain you're going to endure. So if what you really want is comfort and a peaceful life, get a job somewhere, and don't regret your decision. Otherwise, proceed forward with the knowledge that you're doing something you have to do, even if only for a little while.
Just assume the failure to get it over with and free yourself of the anxiety. Now, there's failing and there's failing gracefully. To fail gracefully, it helps if
* your start-up is acquihireable - you have a lean highly talented team with no visa issues concentrated in one geographic location
* you produce IP that will retain value after startup fails - patents, trade secrets, know-how, maybe stuff you can open source and put on your resume when the time comes to send one out
* the business you're working on can theoretically survive on customer revenue alone without a cash infusion from an investor
While looking at the numbers of how many startups failed as a business, look at how many relationships were formed and how much was learned in the process that contributed to individual successes.
I seperated from the military to work on a bootstrapped project that started with myself and expanded to include a few others, my relocation to LA, etc. It eventually failed. Statistically, it's just another failing number. To me it was a very enlightening and educational experience and I don't think my partners at the time and I would be where we are now without that experience. Best of luck to you!
Identify the key risks and opportunities for failure and develop strategies to reduce the likelihood, impact and vulnerability to the risk event(s).
I certainly do agree with finding the right strategy for you "Keep your head about you when others are losing their heads and blaming it on you." I decided to build while I have full time job. The builds, releases and pivots are slow but I am managing my time well and I am certainly not starving.
The rule of thumb that most VCs seem to follow is that within 7 years, 10% of your investments will be successful, 30% will become self-sustaining but never really go anywhere (think acquihires or small acquisitions) and 60% will either fail outright or barely survive. But keep in mind that this is among companies that actually made it to VC; success rates for angel funded companies are much lower.
It is also true that the majority of restaurants fail. But the time to study that statistic is when you are deciding when and where to start you restaurant and what kind of food/service to provide. It is not after you have already hired the staff and sent out flyers about the grand opening.
