Startups are financial suicide

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By Mike Knapp

In 2009 when I left Google, I had over $100,000 in my bank account. I don’t say that to boast. I worked hard to save that money and did so because I wanted to create a startup.

Nine years later, my bank balance is a fraction of that. I also don’t expect to ever see a return from my startup. It’s embarrassing to admit, but I’ve gone backward. (No need to feel sorry for me — I’ll be fine! This article is actually about you.)

Today having a startup is all the rage. They’re basically fashion accessories. On the one hand, that’s great! The world needs more innovation. There’s also a massive amount to learn when you run things yourself. But please, be smart. Don’t be like me.

The problem was my mentality. I felt certain, one way or another, the startup would succeed. That made me feel really safe! In fact, I would often drift to sleep enjoying that beautiful (but irrational) thought. Consequently, I didn’t take my immediate money situation seriously. It was temporary! Saving didn’t matter. 401K / superannuation didn’t matter.

All I needed to focus on was “maximizing shareholder value” and the rest would follow.

Over the next few months, I want to publish more of what I’ve learned in the last 9 years. But, before I do, I wanted to make one thing clear: startups are extremely dangerous!

That should have been obvious to me, right? For some reason, it wasn’t. I thought the rules didn’t apply.

Don’t get fooled thinking raising lots of money will save you, or having lots of customers will save you. We raised over $25m and sold millions of dollars of product to real customers. Over 90% of startups die. Statistically speaking, yours will too.

Things I wished I did:

– improve the financial fundamentals of our business sooner,

– raise less money,

– live even more frugally, saving at least 20% — ideally 40%,

– cut up my credit card (even though I always paid it in full),

– obtain a second or a third source of income — driving for Uber on Saturday night doesn’t sound so crazy now, and take my 401K / superannuation seriously.

A great book — particularly if you live in Australia — is The Barefoot Investor. You might think that advice only applies to people with real jobs. Ha. That’s what I thought! Turns out, I did have a “real” job — just a low paying one.

By all means, start a company. It’s one of the most rewarding things you can do — even if you fail. But if you’re a founder (or an early employee) please don’t rely on your shares to make you rich.

That’s quite improbable. Instead, focus on getting rich today, slowly. One dollar at a time. Like everyone else.

To follow up on the next series of articles follow the writer on Medium


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