Introduction
If you’re thinking of creating a startup, you’re probably going to look for promising external factors like astrological signs to determine whether a gamble into entrepreneurialism is worth the trouble. And right now, the signs look good. VCs are startup friendly, hardware costs are low, and Google is buying companies for 1.65 billion dollars. The problem, however, is that first time entrepreneurs don’t necessarily succeed or fail because of outside socio-economic forces.
If you’re a first time business owner, a paper by the Social Science Research Network on skill vs. luck in entrepreneurship says you, my friend, are more likely to stumble than succeed:
“Our empirical model indicates that entrepreneurs who succeeded in a prior venture (i.e., started a company that went public) have a 30% chance of succeeding in their next venture. By contrast, first-time entrepreneurs have only an 18% chance of succeeding and entrepreneurs who previously failed have a 20% chance of succeeding.”
Now, don’t become too disheartened. Even though the odds say you’ll mess up on your first go (and even your second), just like walking, talking, or even snowboarding, business success comes through persistence and basically knowing more than you know now. This is why failures do better than newbies and also the reason why you (especially if you’re young and without attachments) need to get your feet wet as soon as you can. To help convince you of the values of getting one under your belt, we’ve gathered the following five reasons why your first startup, regardless of whether it’s a success or not, is more valuable than you think because of the lessons you’ll learn.
1) It Prepares You for How Much Work Is Involved
Many startups fail because the founders were not mentally prepared to work the ridiculous hours necessary to make a business succeed. Basically, founders who are unprepared for the rigors of a startup are less likely to make it. At the Startup Success 2006 panel discussion, one of the audience members asked if the founders were able to work from 8-5. Reid Hoffman, founder of LinkedIn, sort of sighed and had this to say:
“Before you get profitable and establish yourself, you’re basically walking dead and you have to realize it’s more of a marathon than a sprint.”
He then went on to say that you can expect to work over 70 hour work weeks to get the product out the door. If you’ve run any type of long distance race, then you’ll understand the importance of mental focus. For example, if you’re mentally ready to run five miles, and at the fifth mile you’re told to run five more, that’s much harder than mentally preparing for ten miles at the start. The only way to train for a marathon is by running, and the only way to train for a startup is by starting.
2) It’ll Teach You What to Look for in a Cofounder
In Paul Graham’s essay on why startups fail, he states that,
“Fights between founders are surprisingly common. About 20% of the startups we’ve funded have had a founder leave. It happens so often that we’ve reversed our attitude to vesting.”
If you and a potential cofounder are really serious about creating a business together, get started now. Even if you’re not working on your master idea, start doing something that is high stress, requires long hours, and tests your dedication. It’s not uncommon to hear of two friends who spend a lot of time on planning out the perfect idea, but break up soon after they actually start.
Particletree was the perfect testing ground for us because it was originally a low risk project that tested how well we worked with one another. Don’t get me wrong, we’ve always taken Particletree seriously, but the servers could have easily been turned off without affecting too many people if our personalities clashed. The three of us were all good friends before going into business, but friends don’t always make the best of business partners.
3) It’ll Show You How Flexible Your Ideas Need to Be
In Dharmesh Shah’s recent essay on How To Kill Your Startup, he believes that startups often fail due to “death by determination”, or stubbornness. To quote Dharmesh,
“Dogged determinedness will likely keep you from building the business that you could have built.”
Along similar lines, a venture capitalist once told us that a startup’s final product usually contains very little of the original idea. Considering that we first tried to create an ASP content management system instead of a form builder, Flickr started off as a game for girls and Craig Newmark just wanted to help people find cool events, he might be on to something. Not only is it important to start now because your idea needs time to mature, but because oftentimes one idea will lead to other non-related ideas. Who knows if we would have del.icio.us or Microsoft if Joshua Schachter and Bill Gates hadn’t first bombed on Loaf and Traf-O-Data.
4) It’ll Teach You the Importance of Passion
Founders often call it quits when they just aren’t passionate about an idea anymore. For example, Kiko, an online calendar application recently sold their business for a number of reasons including lack of passion. Richard White, cofounder of Kiko stated,
“I won’t get into all of the dynamics of the situation, but, in a nutshell, we had lost our spark and were letting our users down by not improving the product the way we should have.
He later also said,
“The team was burned out and we decided that it was time to find someone else to carry the torch.”
Starting a business and quickly realizing that it isn’t your passion is definitely better than waiting for the perfect moment to start a business that you may not be interested in anyways.
5) It’ll Show You How Little You Know About Money
To launch our web development magazine, Treehouse, we gave out the first issue for free in order to generate a little buzz. Even though thirty thousand people downloaded the free issue in its first week, only about 300 of them felt it was worth paying for. According to Ryan Carson, cofounder of Dropsend, that’s a lot closer to the norm than we previously believed.
“If you’re offering a free plan to your customers then expect to get around 98% or 99% of your customers on that plan. That means that you can only really bank on 1% or 2% of your total customers on the paying plan. In our experience this is true and other major players in the web app industry have agreed. This is about the industry average.”
Getting customers to pay for your product is hard work, and it’s no surprise that startups often fail due to poor budgeting and cash flow. According to SCORE’s, Top Reasons Why Businesses Fail, misguided financial expectations often explain why companies call it quits.
- 82% Poor cash flow management skills/poor understanding of cash flow
- 79% Starting out with too little money.
- 77% Not pricing properly - failure to include all necessary items when setting prices
- 73% Being overly optimistic about achievable sales, money required and about what needs to be done to be successful.
While Treehouse didn’t necessarily fail, the experience taught us an important lesson on estimating cash flows. That knowledge was pretty important in determining how much angel investment we decided take in order to ensure we could make it to break-even with Wufoo.
Conclusion
The moral of the story is that now is a great time to begin your first startup because there is usually a lot to learn before your first real success. The act of starting a business will help to solidify your ideas, weed out bad co-founders and give you a feel for the time commitment required. Marc Cuban, owner of the Dallas Mavericks, had this to say about his early business experiences,
“With every effort, I learned a lot. With every mistake and failure, not only mine, but of those around me, I learned what not to do. I also got to study the success of those I did business with as well. I had more than a healthy dose of fear, and an unlimited amount of hope, and more importantly, no limit on time and effort.
Even successful people often fail at first, so right now now is the perfect time to get those hiccups out of the way.
Nice writeup, and very interesting (and relevant) links! I sure do know what to read tonight, and it won’t be some book on some technology. Thanks!
I understand that all of these points are very important but I would think #3 is really really important. A lot of times, founders give up too easily and take the easy way out - Lets start something else. Sometimes, slight modifications can lead to dramatic results. Of course, if you have lost passion for what you do, its a different story. Even with passion, it may be hard to maintain a consistent level all the time, you need to stick with it and wait for the second wind and when it does, its an amazing feeling.
Does anybody believe it’s possible to launch a web startup in your spare time? Assuming not everybody can get vc and not everyone can just stop working for a year, there must be people trying to do this. Do any of them succeed?
Ian,
It’s definitely possible to start a business in your spare time. It might take a little longer, and it might require a little more determination, but it’s been done many times.
Nice post and for whom that like this post, I suggest the reading of Getting Real.
Great post. we started an e-commerce site in 1999 and have had many ups & downs but after alot of work and determination we are still here and growing all the time.
Good post. Keep hope alive. With all of the resources available nowadays, one can accomplish much more in much less time.
Working on my startup as I read…. great post.
Its good to see multiple perspectives on the Startup process-good post. A good article on the strategic implications of how you choose to finance your Startup check out: http://geraldjoseph.typepad.com/gerald_josephs_blog_on_st/2006/11/startups_must_f.html
This is good, but I think we underestimate how much some of those traps can be recurring, even for serial entrepreneurs. For example, depending on your personality type, you might build a great product, but ALWAYS mess up on choosing a good founder. Sure, you know that you should choose a good one, but how do you improve that on startup #2? Get therapy? I think that the real key to success is figuring out ways on how NOT to repeat the common mistakes because for each entrepreneur, correcting those errors will be a different, individual process. We should mention how to quickly identify the risk factors and fix em before they bug us down again!
Everyone needs a hug.
Everyone needs a bug.
Everyone needs a slug.
Everyone needs to be mugged.
neat comment section… oh and great article ;-)
Everyone needs ta chug, some beer, amiriiiight?
Very true :)
Everyone needs a bug.
So I should start now =)
Thank you SO MUCH for posting this. I was involved with my first startup this summer, which ended in a way that can only be called a disaster — broken friendships, thousands of dollars still owed to me, even a physical confrontation with one of the other founders in a bar months later. I’ve been depressed and angry about the whole thing ever since, and really feeling like I made a big mistake getting involved in the first place; your entry here reminds me that I actually did learn a whole lot about the startup process because of my experiences this summer, things that I can apply the next time to hopefully not have as bad an experience as before. For those who are curious, all five of the lessons mentioned here can be strongly applied to my situation; in my particular case, I absolutely cannot emphasize #2 enough (seriously, it might be the most important of all five). Thanks for making me feel better for the first time in months!
Very well done. I am in the thoes of a startup, while keeping my regular job, and the progress is incredibly slow. I think points 1 and 4 are especially dead on. In developing a software service product, you don’t initially realize all of the pieces involved: database development, web site development, accepting payments, legal business stuff, taxes. Oh yeah, and then you have develop the actual product you are selling! Great post!
This may be us. I have some good interviews coming up and some great ideas for us!!
This is all so very much true.Some things I learned from working on our startup: good partners are hard to find and bad ones shouldn’t be able to bring things to a halt; I really only NEED 3-4 hours of sleep a night (no… I’m totally cool with these constant swirly colours and airy sounds surrounding me); hope is so incredibly important — it’s the only thing that keeps us going some days; there’s never enough time in the day to get done all we need to do, so do what we can; there’s never enough money in my bank account to pay for all the things we need to pay for, which makes for an incredibly realistic budgeting scheme; the only way to survive is to adapt; you can’t please everyone, so please the 80% and just work on keeping the vocal 20% from driving you crazy. Dream big, so you always have a goal to reach for.
Everyone needs drugs.
Should I again repeat the same thing about nicety of the post! The thing I really liked is the feeling that there are so many others like me out there not content to work for others…I had one doubt…I don’t have any experience. Neither do I have a postgraduate degree…is it ok? or must one have a MS/PhD or thorough experience? Thanx in anticipation…
I have to say, neat comment layout :-), and great article by the way
We don’t have an MS or PhD. You just have to want it. The resources you need are not time, money, people, knowledge. It’s resourcefulness. If you’re creative enough, smart enough, determined enough, thinking enough…you can basically do whatever you want or need.
Everyone needs a hugely supportive friend.
Maybe not so much encouragement on the ‘astrological sign’ front, but this has been a definite gift of reassurance along the way. I wholly relate to nearly each and every perspective, starting up truly presents a diverse contrast to sanity! Sleep deprived miscellaneous madness has many benefits; if I’d known in my ‘saner’ (loosely) days, pre starting up, of the uncompromisingly incessant exertion of mental and physical energy necessary in order to engage in my continually escalating purpose, had I known even half of what I was signing up for, I would have ran a Mile (possibly I’d have made it to 5, but purely to further the distance between myself the severity of starting up; tell me to do another 5, I’d have told you where to go!), my current dream-like obsessed state keeps me going without any of the typical niggling questions (hell, no time for a chat, I’m busy, running a marathon here!). I have endured quite a few uphill ‘sprints’ with no reprieve, it seems never-ending. Only now do I actually comprehend “There aren’t enough hours in a dayâ€; a thought-provoking slap to face, saves splashing the cold water, again. I absolutely take my hat off to those of you capable of creating a business in your spare time while holding down a full time job. Personally; I could not perform, coordinate, preside over everything involved while also making available the rented mind space and valuable time concerned in holding down another position. If the logic supporting a decision to start up in ‘spare time’ is purely that of a frustrating financial nature, then there are routes to overcoming these obstacles, perhaps; once committed we find them or make them. Passion exposes mystifying depths of how emphatically resourceful we truly are, although I can completely grasp why many founders, unsuspecting for these ridiculous, yet crucial hours for the rigorousness of a start-up would be less likely to make it. Having a passion for your chosen venture definitely drives you; steering through the relentless obstacles you begin to realise stumbling blocks and dead ends (that drive us all a little crazy along the way) simply suggest, at times you need to back up and discover your own paths. Lack of funding or lacking in letters after your name; simple stumbling blocks should never hold you back from creating your vision, you’ll find your direction. Lack of sleep or lacking in identifiable ‘saner’ (loosely) moments; simple stumbling blocks should never cloud your vision and hold you back from being awake to needing to change your direction. Lack of know-how, short of help/advice, clueless about design layout, payment options, establishing links… setting up my company website has been a headache! Deficient funds necessitated attempting to build it by myself, definitely learning as I go and now finding it enjoyable; so much so, even though I now have my finances in place and could have it done professionally I’ve decided to continue and finish it myself. My beautiful babies were born very tiny and poorly at 30 weeks, a year (and 3 weeks) ago, a few months of intensive care ensued. As the twins began recovering from operations, off of their ventilators, critical list, growing and becoming stronger, I began noticing my surroundings. Witnessing, first hand, the piteous hygiene practices and scarce systems in this so called ‘sterile environment’ shocked me to my core. Not being allowed to touch or hold them as I watched medical staff, with their unsanitary uniforms, handle and spread germs between all of the little tiny beings in this intensive care unit, incensed me. As I sat there enduring it, helpless in my situation, I made a promise to myself; if there was a way to help another mother touch or hold her baby, even if only a day, sooner, I was going to find it. Its eight months on, I have been working on my start-up for the last seven months. With no knowledge, expertise or experience in the medical or hygiene field; armed solely with my laptop and a deep passion, I began my research. I am now approaching my first product launch; is it a medical hygiene device, um, yes; is it designed for aiding new mothers in intensive care units, um, no! It is an oral hygiene product that utilizes the power of UVC Light. Quite a few miles from where I intended to go or ever dreamed I’d be, however; I have a further 2 patents pending, my company have been awarded a substantial R&D grant from the EU, funding further research into, not only, my intended purpose, but also, airborne viruses, and with every day, every mistake I make, and each and every step I take in this ‘marathon’, I get closer to fulfilling my promise. Thank you for the reassurance; all is as it should be. So, 18% huh?! I like my odds!
Everyone needs a hug. I really it.
Yes!, completely agree with the concept understanding, money managment and blhaaaaa….
Good writing….keep it up.
The entrepreneurial spirit is alive in me. I want it and will be doing it. Txs for a great site and article.
I agree, get out there and start doing your own thing as soon as possible. I came out of college 3 years into my business with my business partner, and we were able to create our own jobs while all our friends spend 6 months to a year looking for work.
I think the first reason is the driving factor. This is hard work. I regularly work at least 10 hours per day 6 days a week, taking calls at any given time during the day and making meetings in my house, in my parent’s house, friend’s houses, starbucks, and anywhere else I could put down a laptop. I can tell you from personal experience that the grind can really burn you if you aren’t passionate about what you’re doing.
All in all, I would rather be working for myself and be broke than working for someone else and not making much (to start). Regardless of what you do, entrepreneurs get way more respect, especially if you start out young. I think that if you do anything long enough, eventually you’ll do well at it.
Amazing article and also amazing layout for the blog. Love it.
Catherine - I used to wonder what ‘drive’ was and how I could generate some.. now I understand.
Love the article, definitely one to read over every now and then.
I have to say, neat comment layout :-), and great http://anime.up.md article by the way
Everyone needs a plug (on techcrunch.com).
That 1-2% conversion rate is too generous in some situations… such as with open-source, gpl, solutions…
With open-source/gpl, its about providing services, such as support, and not the product, or feature-set.
In which case expect 1/10 of 1% of users to purchase support or services.
Great Article. I am attempting my first startup http://www.onista.com Let’s see how much I need to change my orginal idea in the entire lifetime of Onista.
excellent write up. keep them coming!
I’d really love to read this article now that it made it through “the queue”, but unfortunately, the print version is ____, even with style sheets disabled (Firefox 2.0.0.3 on Windows XP). However, while I certainly did not enjoy that, I hope that you probably want to fix that …
hi, chris. i translated this article to Chinese few days ago. take a look please. (blog.htmlor.com/2007/04/11/5_reasons_to_create_your_first_startup/) and there is a broken link to del.icio.us in Part 3), check it.
very valuable advice for the start-up wanna-bees out there, including myself. So many of us have these big ideas and grand expectations of quitting our jobs and making a ton of cash like that other guy did last month but are not in touch with the realities of what to expect and how to plan for the journey to success. You guys have given us the reality check, as well as the inspiration needed to approach it from a balanced perspective.
The article is great, but why everyone keeps talking about how to fell? Couldn’t it be great if you directly talk about what to do exactly in term of making you succeed? It’s so easy to say don’t do this or that. We probably all know about what to not to do, but the difficulties are really what to do. Yes in fact, we do the wrong thing only during the quest of a right thing.
Everyone needs a hug.
very valuable. thank you. i will be success!
Everyone needs a VC… ;-) (just kidding)
I read one of the comments saying “everybody looking forward making a ton of cash”… To me, and many others, that’s the wrong spirit. Spammers are looking to make a ton of cash, easily and quickly. Steve Jobs was looking to change the world of computing as it was known then.
Passion and, as Guy Kawasaki calls it, wanting to “make meaning”, are the true pushing factors towards changing the world, and eventually making a ton of cash. But if you don’t, you will at least have improved the life of some people out there, or tried.
Following the smell of money just brings you spammers, scammers, and other rubbish like Kevin Medina.
Amazingly great!
This article makes a whole lot of sense. Thanks for this Chris!
Everyone needs a hug.
i think u op
Great article!