The factors of entrepreneurship
November 4, 2007
One of the ways I know that we’re in a bubble is the frequency with which I am now meeting intelligent young men who sincerely and with every appearance of unselfconsciousness tell me that they want to be founders of startups as an alternative to joining the workforce and learning their trade. I had forgotten how often people said that in 1999, given that those same people spent the next 5 years strenuously decrying the irrationality of entrepreneurship. Just as every young man in the Bay Area secretly imagined himself as the next Marc Andreessen back in the first bubble, now all of them apparently look upon Mark Zuckerberg with envy.
I dunno if it’s a gender thing or an age thing or what… but I find it almost impossible to understand this mindset. Like my friend Naval Ravikant — a man steeped in entrepreneurship and considerably in love with it — says: if you just want to make a lot of money, go be an i-banker or something. I would never have founded a startup if I hadn’t felt compelled to do so, and there are a lot of days I wish I were a team lead again.
I was going to subject you to a big rant called “Paul Graham wants to sell your sweet young ass”, about how most of the people who are telling you to go off on your own are also financially interested in the phenomenon of selling teams of young engineers to big companies… but then I decided it might be more helpful if I just spoke from my own personal experience about the many, many, many assets — the so-called factors of production — you require before you can legitimately found a startup with any statistically-meaningful chance of success.
I should first say that success means different things to different people. If you’re 20 years old, you might be pleased as punch to build something and get a few hundred grand for it a few months later. And hey, as long as you don’t get all kinds of wacky expectations from the experience — if it’s just a way to get a condo and a nice car and a good job — then more power to you. Go forth and build Facebook apps as fast as you can! But I’m sort of assuming that all these guys I’m meeting are not that realistic — that their aspiration is more YouTube than Reddit — and that in fact they’re pretty much interested in what we call the “venture-backable business”. So please keep in mind that my comments are mostly applicable to the latter case rather than the former.
With that caveat, this is what I’d say would be the bare minimum you need before you can found a venture-backable startup:
* EITHER a substantial work history (e.g. you were a key contributor to a very well known product) OR hundreds of thousands of users of your product OR a serious computer science background (think PhD) with major patentage in the relevant area. If you don’t fall into at least one of these three buckets, it will be exceedingly difficult to get initial meetings with any funder much less convince them to invest.
* A core team. These days the initial team must be almost entirely engineers, and they must be willing to work on your product for essentially no money until the demo stage at least. Among other things, this proves that you have sufficient powers of persuasion or management or hypnosis that you can serve as an executive for a little while.
* Some source of “enough to live on” money for you and your core team for about six months. Without this, you are fatally at the mercy of funders and will be unlikely to get a deal on terms that will make you happy for very long. Actually without 6 months of cash, you probably won’t even be able to get through the funding process even if things go spectacularly well.
* Excellent communication skills, both written and verbal. Pitching is no joke — you will need every scrap of ability to convince others (often extremely skeptical others) of your vision. This is one of the most mysterious factors, because you often can’t tell how charismatic a founder really is after they have already been successful — by that point they’re completely hemmed in by legal issues and PR bunnies who prevent them from speaking their minds — but you should assume they had the ability to communicate their ideas effectively.
* A billion-dollar idea. You better be able to say how your total addressable market is multiple billions of dollars, and how your share is going to be at least $100 million a year, and how you’re going to IPO or sell for at least $1b. This is another mysterious factor, because often startups have to change strategies or get bought for a lot less than this before they can really execute on the vision to that level… but believe me, they wouldn’t have gotten VC money if someone early in the process didn’t think that they could be worth a billion dollars someday.
* Friends. Along the way you are going to need dozens if not hundreds of small favors from other people in the community: introductions, blind reference checks, recruiting help, etc. Silicon Valley is a small town, and it’s hard to even buy the necessary goods and services without being introduced to vendors by someone. Hopefully your karma piggy-bank is good and full.
* Mental and emotional equilibrium. This has actually been one of the hardest factors for me, and I suspect is the biggest barrier for most women. It’s so easy to lose perspective — the most common way is by being overconfident and overoptimistic, but it’s also possible to go the other way and give up — that I would say it’s the #1 reason early-stage startups fail.
OK, so this is just my personal opinion after almost 8 years of the startup life including 2 years of the founder life. But don’t say Troutgirl didn’t try to break it down for you… do the research for yourself and see how many of your exemplar companies did or did not fall into these categories. If you can’t command all of these factors of production, I would humbly suggest that you save yourself a lot of pain and instead find another team that DOES have most of the factors, and then sign on to that team as an early member.