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?