In talking to hundreds of entrepreneurs over the years, I’ve had the opportunity to hear from people with a number of different backgrounds. One segment that is particularly interesting is executives from mid-to-large companies looking to make the entrepreneurial plunge. They have an idea, maybe a prototype, and they’re out raising money and often have low six figures ready to go from friends and family.
Now, as an executive at a mid-to-large company, they have $150,000 – $300,000/year compensation packages, so naturally, I like to ask the question: how are you going to reduce your lifestyle to handle a startup salary? A startup salary is often 1/4 to 1/2 what they were previously making, assuming they raise a sizable angel round. Too often, it hasn’t crossed their mind just how little salary they’ll get and how they will have to change their lifestyle.
Here are a few thoughts on lifestyle reduction to take the entrepreneurial plunge:
- At the simplest level, the compensation should be no more than the bare minimum to support the existing lifestyle (e.g. save no money each month and cut down on frivolous purchases)
- One approach is to do a flat, round salary like $50k or $100k and keep it simple, regardless of lifestyle
- Another approach is to maintain a salary similar to that from the large company, but to require that the entrepreneur invest 100% of his or her life savings into the company immediately, so that there’s significant skin in the game and alignment of interests
This is one of the most difficult topics for successful people that want to change things up and become an entrepreneur. Society glorifies the middle class lifestyle and many people get trapped by their mortgage, car payments, school loans, and more such that they don’t have the ability to make a career change without a significant lifestyle reduction.
What else? What are your thoughts on the appropriate reduction in lifestyle to take the entrepreneurial plunge?
Recently I was talking to an entrepreneur about a new B2C web-based product he was building. After digging into the idea and business model, he said he was trying to figure out if he should invest more in product development to accelerate the pace. I inquired as to why he wanted to burn more cash and he said that it would help find success or failure faster.
That’s right — it’s important to determine if something isn’t going to work as quickly as possible. Too often, all the focus is finding a successful opportunity, which is the right approach, but usually happens to the exclusion of determining if it’s more appropriate to hang it up. Most ideas will fail, and speed to failure is an important skill, such that there’s energy and stamina to try a new idea.
Hard work, passion, and being blissfully ignorant are great traits for entrepreneurs changing the world. At the same time, it’s important to move fast to find success or failure as quickly as possible.
What else? What are some other thoughts on moving fast to find success or failure?
There’s a debate in the startup community between the lifestyle and growth entrepreneur. Now, no one likes labels, but the idea is that a lifestyle entrepreneur optimizes for his or her lifestyle while the growth entrepreneur focuses on growth at any reasonable any cost.
Here are some ways the lifestyle entrepreneur differs from the growth entrepreneur:
- Lifestyle entrepreneurs look to company profitability for personal income, keeping in mind growth goals, while growth entrepreneurs put all the emphasis on growth
- Lifestyle entrepreneurs are averse to raising outside money while growth entrepreneurs always try to raise money
- Lifestyle entrepreneurs are more comfortable with the status quo while growth entrepreneurs are constantly looking to shake things up and reinvent their business to grow faster
Why distinguish between lifestyle and growth entrepreneurs at all? It’s important to understand ones motivations and ambitions, especially when developing a peer group and connecting with mentors.
What else? What are some other differences between lifestyle and growth entrepreneurs?
Recently I heard a new term called dripping cash into a startup. I was talking to an investor who was describing an investment that hadn’t gone as expected. The startup was running out of cash and it came down to the typical predicament: shut it down, put small amounts of money in the company until it turns a corner, or make a big bet and capitalize it for another 18 months.
Here are some challenges with dripping cash into a startup:
- It’s hard to invest for the future when the plug can be pulled at any time
- With each bridge round comes more disillusionment, especially if the valuation keeps getting lowered
- Desperation starts to set in if milestones aren’t being met, creating a more difficult environment
Now, in the ideal scenario, dripping cash into a startup works and things take off. This investor I was talking to prefers to either shut it down or make a big bet to sufficiently capitalize it — he doesn’t like dripping cash into a startup.
What else? What are some other thoughts around dripping cash into a startup?
Tonight the Atlanta Tech Village hosted the eight edition of the Atlanta Startup Village. Being the second ASV at ATV it was much smoother with more chairs, more TVs, more food, and, of course, more drinks. With 263 people signed up and well over 200 attending, it’s the largest monthly startup event in the Southeast.
Here were the five presenters:
- Deductmor - Expense management focused on independent contractors
- QGenda – Physician scheduling software
- Kevy – Cloud integration middleware
- PeachDish – Weekly meal ingredient delivery service
- BitPay – Bitcoin payment processing platform
The companies did a great job and I’m looking forward to tracking their success.
Way back in 1961 investors were working on buying the Empire State building and they didn’t enlist a bank to finance it. Instead, they sold approximately 3,300 units at $10,000 each to regular people in the community, especially people that took pride in owning a piece of the most iconic building in the world, so reports a recent NY Times article labelled A Nasty, Epic Battle With Stakes 102 Stories High.
Of course, we should all be so fortunate to make a $10,000 investment and have it be worth $332,000 52 years later (not even counting dividends!) — a great success story for crowdfunding. Now, investing in existing real estate is different than investing in an entrepreneur’s idea, but several core items are the same:
- People invest in people, especially people they already know
- People want businesses in their local community to succeed (not all crowdfunding is for local businesses but I bet the majority goes towards that)
- People are more likely to invest if they can already feel, touch, and experience the product or service (like real estate)
In retrospect, the Empire State building proved to be a great crowdfunding investment. I don’t know how crowdfunding will affect the startup world, but I’m looking forward to seeing it play out.
What else? What are your thoughts on crowdfunding?
One of the common questions I get from people in the commercial real estate field is “How do the Atlanta Tech Village per person per suite fees compare to traditional commercial real estate rates?” The short answer is that it’s complicated as it isn’t an apples to apples comparison. Here’s the long answer as to how a 10 person modular suite @ $3,250/month compares to traditional real estate:
- 900 rentable square feet @ $27/ft is $2,025/month
- $35 per person per month for furniture is $350/month
- $50 per person per month for food and drink is $500/month
- $25 per person per month for a managed firewall and fiber internet is $250/month
- 5 parking spots @ $60 per month is $300/month
- Total: $3,425/month
So, by commercial real estate standards, the number brokers are looking for is the $27 per rentable square foot amount. It still isn’t quite the same because a six month agreement for a space with high end finishes isn’t available in the regular world, let alone one that’s so small and furnished. Of course, the real value-add is in the community and camaraderie that comes with being in one of the largest tech entrepreneur centers in the country.
What else? What are some other thoughts about translating the per person Atlanta Tech Village costs to standard commercial real estate rates?