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January 21, 2011

Should I Become An Entrepreneur?

When to become an entrepreneur is a common quandary for many.  For whatever reason, this issue has come up a great deal recently (recession-driven workforce dislocation?), so I thought I'd share a few thoughts that might help frame this critical decision.

I have concluded that being an entrepreneur is an irrational state of being.  If human beings were purely rational, evaluative, value maximizing individuals (see HBS Prof Michael Jensen's paper on self-interest and human behavior), they would not start companies.  If they sat down and did the expected value calculation by laying out the probability-weighted outcomes of being an entrepreneur as compared to taking a safe job, it would not pencil out.  

Yet, entrepreneurship is not simply a rational journey.  It is one that is defined by passion and personal satisfaction that transcends purely financial analysis.  And, of course, there is always the hope for the big payout, no matter how long the odds.

Despite popular wisdom to the contrary, age is not a major factor in the decision to start a company.  The Kauffman Foundation reports that the median age of founders is 39 - right at the midpoint of a typical professional career - and 69% are 35 or older.   Another study by Washington University professors of 86,000 science and engineering graduates showed that age was not a significant predictor of becoming an entrepreneur.

So when should you become an entrepreneur.  Here are the kinds of questions you should ask yourself:

  1. Do you have an idea that no one can talk you out of?  When you bounce your start-up idea off your spouse, friends and trusted advisors, are they able to raise enough objections that you begin to doubt whether the idea has merit.  Getting honest, objective advice can be hard because the people you are likely to go to care about you and may be afraid to tell you what they really think for fear of offending you.  Thus, you need to get feedback from objective parties (e.g., advisors, experts, prospective angel or VC investors with whom you don't have a deep personal relationship).
  2. Do you have a partner you trust with complimentary skills?  Starting a company is a lonely adventure.  Having a partner that you can trust and whose skillset and experience is complementary to yours can be a huge functional and emotional benefit.
  3. Are you prepared to endure with modest or no salary for a few years?  Founding a company often means making personal sacrifices and below-market cash compensation.  All the talk about "lean start-ups" (which I'm a big fan of) sometimes obscures the practical reality of what it means to eat through your personal savings. 
  4. Are you bored with your current work environment/life situation?  There is nothing boring about being an entrepreneur.  More apt adjectves might include stimulating, engrossing, obsessive, exhilarating, nerve-racking - but not boring.  If you are tired of viewing your work as a chore and if every day is a bit of a grind, then entrepreneurship is for you.  I find that the intrinsic motivation behind an aspiring entrepreneur is sometimes the simplest - because it's fun.  Seeking fun can transcend all other factors. 
  5. Do you perform best in the absence of structure?  In my book, Mastering the VC Game, I describe a metaphor for the three stages of a start-up:  the jungle, the dirt road and the highway.  In the earliest stages of a venture - the jungle - there are no clear paths available and the skills required are to thrive in the midst of the chaos.  For those who possess that makeup, being a start-up executive is an excellent fit.  But for those that like clear paths with little uncertainty and a great deal of structure - the highway - an early-stage venture will feel like a very uncomfortable environment.

Reflecting on these questions, I find it intriguing to reflect on what kind of environment - either from the perspective of parents raising their children or policy makers thinking about encouraging entrepreneurial ecosystems - can be created to foster more entrepreneurship?  HBS Professor Noam Wasserman is writing a book called Founding Dilemmas which is coming out later this year (I've read early drafts and believe it will be a must-read for entrepreneurs).  In it, he quotes career guru Dr. Tim Butler who points out that signals from parents, mentors and local leaders have a large influence on whether people chose to become entrepreneurs.   “We receive very powerful messages [from those around us] about what’s important, what success is, what failure is, what counts for achievement and what doesn’t. "

Celebrating entrepreneurial success stories in our culture and putting folks like Steve Jobs, Bill Gates, Larry Page (the new Google CEO!) and even more accessible, local heroes on magazine covers and in front of audiences is obviously a huge factor.  Every college kid in America looks at Mark Zuckerburg and thinks, "Why not me?"  Why not, indeed?

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"...being an entrepreneur is an irrational state of being." As a Financial Analyst and entrepreneur I couldn't agree more... maybe I am bipolar?

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Some entrepreneur some day will find a
cure for entrepreneurship…
 

So funny, so spot on. I'm 37. A two-time entrepreneur. I've got another idea that no one can talk me out of. I did a Costa Rica *jungle* trip with my 15yr old son a couple of months ago...and loved it. And I'm an ex McK/HBS nerd, so I have actually done the expected value xls, complete with chart. Great post!

Thanks for this Jeff, great read. I struggle with having trusted partner who compliments my skills. Any recommendations on the best way to meet new potential partners without spreading your idea to too many people?

Jeff

Sorry, there is no cure. As a lifelong entrepreneur, I tried to think of any cure, but always came up short. Just enjoy the ride.

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Entrepreneur-focused networking events are great venues. Also, local business schools and PhD programs are full of aspiring entrepreneurs.

Great article but suggest you check the use of 'complimentary' & 'complementary'..easily confused I agree but with very different meaning...unless you mean someone who will say nice things about you! (probably not want an entrepreneur needs at certain times).

For when you should become enterprenuer also add another situation

When you stop or dont care about Immigration anymore because you have green card or citizenship.Else you end up figuring if you are not allowed to start a company on your own in America until a VC sponsors your H1B you. I think this is one of the worst reasons for not being able to start a company and many ideas die because of the frustrations with H1B no no rules.

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Thanks for the grammatical correction. Crowd-sourced editing!

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I agree with you. Our immigration policy is broken and hindering entrepreneurship. We need to encourage the world's best and brightest to stay here productivelyn not chase them away.

Thanks Jeff. It was like reading a checklist for me! Agree with you very much on #2. A couple years ago I choose the wrong partner & failed to achieve success. I learned from that & currently starting a new venture with a different partner. So far, its been a *much* different experience!

Now if I could just convince my wife on #3! LOL

btw - Currently reading your book & love it. I'm finding your insights very helpful!

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Thanks, John. Appreciate the kind feedback on all fronts. If inspired with respect to the book, write a review on Amazon – I’m told that’s important! http://amzn.to/90BPpm.

Great post! Can you speak a little bit more to the lack of structure? I have been working for about 6 months on a startup we spun out of the lab I did my PhD in. I'm starting to question whether I am productive without structure.

A couple thoughts I keep returning to are: (1) Even though we are a very young company, we should be operating under clear but flexible goals. (2) Lack of structure may be losing the few sales we have. For example, a customer canceled an order, but that news never was passed on. Product was sent, and now they are angry. Any chance of sales or feedback from this customer on future iterations of the product is slipping away. I'm starting to crave structure: a point person to interact with the customer and a protocol to communicate any changes in the order, billing, etc.

I'm not asking for personal advice, but it would be nice if you could speak more towards the lacking structure in a young startup. It seems to me that there is a difference between lack of structure (employees constantly take on different roles, goals change quickly), and disorganization.

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Meghan – this is such a great question
that I’m going to see if I can write a post on this topic alone, but I’ll just
throw out there that your last sentence is dead on.  Flexibility is ok. 
Dynamism is ok.  Chaos and disorder isn’t.
 
 

Done. My review should be up once Amazon approves it (up to 48hrs).

5 stars!

Thx for your post. I had create a start-up in mobile software development. I find a partner that I can trust and have complementary skills, and now a trying to find a venture or angel, but here in Brazil, despite the good economic moment, this aspect still is in a embrionary stage. We need to use public funding line, that is very burocractic and don't meet the timing of startups.

BUT, as you say in your post, that do not make me chill or discouraged, otherwise make think in new possibilities that a lack of this market create.

And you are so right about the age and the spirit. It's exactly that, I'm 35 years old, and had a good job in public sector, but this don't make me feel happy and complete as individual. I want create something, and with my experience, I know that it's only possible if created from scratch.

As Schumpeters says, I need to "spur innovation". I want the profit too, but not only that. And, that's what I think that make me a "entrepreneuter".

PS.: Sorry for my bad english. I'm trying to improve that.

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Thanks, Fernando!  Love the passion.  I’m
bullish on Brazil
and your English is better than my Portuguese.  Sorry that my book Mastering
the VC Game (www.jeffbussgang.com) isn’t
translated yet into Portuguese.  They’re doing Japanese right now…
 

In most cases, if you're asking the question then the answer is probably no because when it's yes, you already know it beyond doubt..

Entrepreneurship is irrational. It really doesn't "makes sense". You work like a dog, have to put up with more #$%, adversity, risk, and challenges than a "normal" person would consider reasonable - and take it all in stride.

But if you relish it all, have a vision that excites you, and mostly a burning passion to build and create - you will do it no matter what the score card will tell you. And you know it is the only thing worth doing..

A related note:

I believe social norms and culture, as mostly the values that come from home and role models, play a big role. How we grow up, what we learn to admire and aspire to, and how we shape our ambitions, perceptions of self, and define our own fulfillment has a lot to do with those factors. Investing in entrepreneurial education and mentorship, formal and informal, is one of the key things that as a society we can do more of to foster innovation and help the right people discover their entrepreneurial bents.

Wow !! really nice blog. It will be very useful for me. So, thanks for sharing this post.

Thanks for this Jeff, great read. I struggle with having trusted partner who compliments my skills.
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I agree that the H-1B restrictions are a big dampener. If you surveyed H-1B visa holders, you would find a large % of them have entrepreneurial ambitions. And, I feel given the fact that someone has left a native country, in search of better opportunities, are those willing to be risk takers and adaptive.

That being said, the entrepreneur always has the option of going back to the native country, though may miss out on the silicon valley ecosystem plus building for American markets sitting remotely is harder.

am in situation that , to go for job or entrepreneur journey. i have great idea , need to work on it.. but my parents kicking me to go for a job

Many people today want to be entrepreneurs but they just don't know what to do, or they are afraid to venture into this kind of enterprise. Let's just say that entrepreneurship is a big gamble, especially if you invested a large capital. Most entrepreneurs start from the bottom and work hard to reach the top. You just have to believe in yourself and your abilities.

This is a really great post! I particularly like point four; I'm wondering if you happen to know if entrepreneurs have a larger than GP percentage of ADD or ADHD? Seems like it could make sense or be a somewhat-driver of strong productivity...?

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