At the beginning of every new year, so many of us come off a couple of weeks of well deserved rest and begin toying with the idea of finding a new job or even venturing out on our own uncharted path of launching an amazing world-smashing startup.
It seems like the ideas just flow better when you finally have time to breathe.
In that vein, people often ask me how I knew it was time to exit the relative safety of the corporate world and fully dedicate my time and resources to inventing a new biotech product and launching a startup venture.
I learned a lot while transitioning from employee to entrepreneur, and I’m happy to share experiences of what worked well and what flat out failed. During that time, I often benefited from some truly great business advice from others.
However, here is some advice that I have received numerous times over my 30 years of business development and ownership.
My hope is that you will hear it and then, ignore it.
It goes something like this:
“If it sounds too good to be true, it probably is.”
Let me start by saying, I’m sure that the suppliers of this sage advice are coming from a good place when they offer it up. Kind of like when your mom told you to “be careful” whenever you left the house, or to make sure that you put on a hat, “so that you don’t catch a cold”.
It’s not the motive behind offering the advice that makes it horrible. On the contrary, I would like to thank my mother once again for caring that much for my sorry butt. (Thanks mom!)
Then why is it such bad advice for a business leader or entrepreneur?
Some of my successful serial entrepreneur friends say “the advice” often betrays a defeatist attitude and soothes the conscience of those who are too anxious to try, or even consider, anything new and outside of their comfort zone.
I don’t view it that harshly. Maintaining a “healthy” dose of skepticism can be beneficial. Cynicism, however, can be downright deadly.
What if Einstein, Edison, Salk, the Wright Brothers or, heaven forbid, Howard Schultz had heeded that safe yet misguided advice? (I declare, while emitting obnoxious slurping sounds, sipping on a piping hot grande Americano)
Skepticism keeps us alert to potential pitfalls, but cynicism blocks our natural curiosity and prevents us from even imagining the opportunity.
How will groundbreaking ideas ever develop, if we never start down the path of discovery?
How do you know when to go “all in”?
Here are a few things I like to keep in mind when considering a new venture:
1) Critical Analysis is Important
Don’t be a sucker. Have a critical eye. Share your plan with other critical thinkers. (friends, accountants, lawyers, other entrepreneurs) Most will not be overly optimistic, but they are often the best people to see the obvious flaws and weak points for you to address.
2) Don’t be overexposed
Figure out what your optimal risk/reward ratio is. How much can you afford to lose, and what reward are you genuinely seeking? A multi-billion dollar buyout or sustainable income with more freedom?
3) If successful, what would be your ROI?
If your best case ROI is not at least 5x-10x your initial investment, then your probable ROI would likely be much lower. (1.5 to 2x?) Ask yourself if all the increased stress, pain and sleepless nights, that are tightly coupled with entrepreneurial life, is really worth it.
4) Threshold for pain
Some of us have an abnormally high pain threshold. This is a great marker for a successful entrepreneur. However, what is your family’s threshold for pain? Who is depending on your income? Spouse, kids, aging parents?
Taking advantage of market timing is very important for a successful venture, but so is your personal timing.
This goes back to point 4. Are you a new parent? Do you have any savings to lean on or a large debt load? Is this the right time to try something risky? Is your family ready for the roller coaster ride that you are all about to take?
6) Set progressive goals and timeline
Assess progress. Re-evaluate. Pivot…and yes, overcome roadblocks. But I highly recommend you also do this:
7) Set a “stop-loss” point
The #1 reason for startup failure is the lack of a market need for the product.
That should be self-evident. If no one wants your product, your company isn’t going to succeed. But many startups build things people don’t want with the irrational hope that they’ll convince them otherwise.
Unbridled optimism can be blinding.
Just like successful stock investors, remove emotion from the equation by setting absolute end criteria. If your business and/or personal finances ever hit a predetermined loss point, you will put everything on hold and go pursue another source of income.
For those of us with grit, persistence and a high threshold for pain, setting a “stop-loss” point will save you from disaster and enable you to take on suitable levels of risk with less stress.
Over the years, I’ve done this poorly and I’ve done it well. The sting of doing it poorly can last for years. You only want to do it well, believe me.
To sum it all up:
- Be cautious, but be optimistic.
- Count the cost, but explore new ways of doing things.
- Measure risk, but be bold.
- Watch your step, but by all means, start down the path.
You can always adjust your course IF you venture wisely.