Taking the entrepreneurial plunge

January 28, 2011

— Jeff Bussgang is a partner at Flybridge Capital Partners and the author of “Mastering the VC Game” and the blog “Seeing Both Sides“. The views expressed are his own. —

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 Harvard Business School professor 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’s 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 the median age of founders is 39 – right at the midpoint of a typical professional career – and 69 percent 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 advisers, 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., advisers, 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 skill set 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 startups” (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 adjectives 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 startup 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 ponder 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?

Harvard business 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,” said Butler.

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?

Photo credit: A man does the Superman dive during the Red Bull Cliff Diving series in Sisikon, Switzerland September 5, 2009. REUTERS/Romina Amato

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In my opinion, the notion of a great business built around a great idea may be a fallacy.

How a company approaches the process of idea generation determines its ultimate success and can significantly reduce the odds of failure. A closed feedback loop converting capital to ideas to profits back to ideas is imperative to gain the insights necessary to launch revolutionary products.

You do not need a great idea to start with; you only need a sufficient margin of (financial) safety and the ability to learn quickly from mistakes to guide you to fundamental insights and great products.

Building this structured idea generation process from day one is also essential to adapt to changing market trends throughout the company’s life.

Microsoft for example did not start with Windows, they started with a single programming language called Basic which was much less likely to fail. Multiple subsequent product iterations funded the huge undertaking that was Windows with sufficient margin of safety.

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