The Complete Coward’s Guide to Starting a Company: Part 1

See Part 2 | Part 3

It’s the ultimate American success story: A boy grows up dirt poor and leaves home at 18 with nothing to his name. He can’t afford college, but he teaches himself to code and starts a business. Through perseverance and determination he builds it brick by brick before selling his company to Microsoft, cashing out as a multi-millionaire.

This is not my story. I grew up in an upper middle class family, got a degree in finance, an MBA, and a well-paying job. I wanted to take my own shot at building a company from the ground up, but I couldn’t justify throwing everything away for a shot at something that statistically would probably not succeed. I, quite proudly, am a startup coward, and my guess is that you are, too. Maybe you’ve thought about a startup, but don’t know where to start, and aren’t sure that the risk profile makes it a sensible career investment.

If so, this guide is for you. This post is part 1.


#1: Create a plan for failure

You will probably fail. If you’re like me, your first reaction is probably to disregard that statement, because your whole life you’ve been beating what people told you were the odds. Maybe you have a top 1% score on the SATs, or got into a school that is in the top 1% in worldwide rankings, or landed a job that less than 1% of nontargets have even gotten an interview for – so now you hear that only 1% of startups succeed, and you figure you’ll probably have no problem joining that elite crowd either.

Here’s why you’re wrong: the set of factors that cause success in those categories are not the same set of factors that cause success in a startup (at least not proportionately). A top SAT score is a factor of raw IQ, time spent studying specifically for the test, and the amount of your childhood spent reading, writing, and doing math problems. The school you got into is primarily a function of that SAT score, your GPA (i.e. time spent studying other subjects and ability to recall and process information), your extracurriculars (primarily a function of your “drive”), and your essays (primarily a function of your training and practice in the art of writing, as well as the content available for your to write about).

Your job, then, is a function of the school you got into, plus college GPA, extracurriculars, internships, and how well you networked. Essentially, success can be viewed as a chain, where you start with a solid foundation of performance in childhood, and are fairly assured of continued success, as long as you keep adding the right links, since you started with that solid foundation.

Startup success is not connected to this chain, which for some reason is a difficult concept for people to grasp. Success is based in a small way on raw intelligence, connections, sales skills, and other factors that are a result of this chain you’ve built, but if you’re going into the startup world, for the first time in your life dumb luck is going to go from the relatively small role it played in your other endeavors to the primary success factor.

The point: The rest of this guide is mostly about how to control the factors that are controllable. More importantly than controlling these factors, however, is recognizing the true extent of the factors you cannot control, and adjusting your risk exposure accordingly. To do so, have a clear exit plan for failure after six months, one year, two years, etc. As far as I can tell, you have three good options:

1) Straight to MBA. Give yourself a deadline for success as you define it, and apply for MBA programs to fit that timeline. (Your deadline is the first tuition payment or loan disbursement.)

2) Return to same or similar position to pre-startup. You are not going to go IB -> startup -> PE. Get the best position you can in your current industry, and if you can, build some relationships that will give you an open door to return. Frame it to your Trusted Advisor/supervisor as you wanting to take a year to explore/discover yourself/learn how to operate a business, and make the leap at a natural transition point – a time that doesn’t suggest you are unhappy with your job.

3) Leverage startup experience for another position in the startup world. VC, early stage consulting, accelerator management/executive in residence, government, project management, etc. You can’t build the relationships necessary to do this beforehand, but you can do some research about the positions others have taken who have walked the path you want to take, and decide if any of those positions are something you would want. Once you begin the startup journey, you can focus your networking efforts accordingly.

Line these options up before taking the leap, and maintain them throughout the process.


#2: Work for free as an advisor to an accelerator.

Startups are always willing to get free help, and you’ll be able to have as much flexibility as you want. I still do this, and typically spend only an hour or two a week. You can call it a charitable activity, and put it under the category of community development and economic empowerment, so your current employer shouldn’t have a problem with it.

There are several benefits to doing this, and they will be well worth the small time commitment. In no particular order:

Reality check. Startups are romanticized, and getting some actual work experience without committing much will give you a taste of what things are really like so you can determine if this is really something you might want to do. It’s possible that you might decide you’re happier just doing the whole startup thing as an advisor, not quitting your job and starting your own.

Experience. One of the biggest factors leading to a startup’s success is whether or not the founders have previous startup experience. This is a great way to get some of that experience without the cost that many others pay (a failed business).

Networking. Another key success factor will be your network in the startup community, which is different from the network you probably have in the finance community. It is also a law of networking that things are much easier when you’re not immediately asking someone for something, as you would be if you started networking while operating your startup and seeking funding. Working with another startup through an accelerator in a volunteer position gives you a much better position to build those relationships with potential investors and other power players in the startup world.

Identifying the best startups. It is extremely difficult to find a startup that you believe in and that has a solid chance at success. By volunteering for an accelerator, you’ll have a bird’s eye view on “top-tier” startups. Essentially, the accelerator does most of the work for you by giving you a first level of screening. This is useful both if you’re just looking to get some experience with a good company before making the jump, and if you’re looking to join a startup instead of founding one yourself.

Resume building. Once you’ve decided to make the leap, a key factor that potential cofounders, investors, and even customers will consider is your experience. If you can list the top few startups of the past couple years in your region on your resume, it will open up doors the same way a Harvard MBA opens up doors in finance. The accelerator’s name on your resume also won’t hurt.

Read Part 2 here:

//www.wallstreetoasis.com/blog/the-complete-coward%E2%80%99s-guide-to-sta…

 

great advice...I was a coward entrepreneur as well. People sometimes point to start-up founders as super risky, but many started their businesses as side projects while working full time to reduce the risk and make sure something was there before making the full time leap.

This is nice practical advice that you don't get from the media hype - "OMG, $19BN WHATSAPP, $40BN Twitter, $150BN FB!!!" all day...I've learned a lot running WSO, but I'm still learning every day and trying to improve. It's NOT easy :-)

 
WallStreetOasis.com:

This is nice practical advice that you don't get from the media hype - "OMG, $19BN WHATSAPP, $40BN Twitter, $150BN FB!!!" all day...I've learned a lot running WSO, but I'm still learning every day and trying to improve. It's NOT easy :-)

And we thank you for building this awesome site :) Even if it is sometimes lost in the middle of massive monkey shit, there is a lot of value to be found on this site.

 
WallStreetOasis.com:

great advice...I was a coward entrepreneur as well. People sometimes point to start-up founders as super risky, but many started their businesses as side projects while working full time to reduce the risk and make sure something was there before making the full time leap.

This is nice practical advice that you don't get from the media hype - "OMG, $19BN WHATSAPP, $40BN Twitter, $150BN FB!!!" all day...I've learned a lot running WSO, but I'm still learning every day and trying to improve. It's NOT easy :-)

Props on the great content WSO has had on the front page lately. I've actually been struggling to keep up with everything I want to read.

 

thanks man, means a lot. We have an awesome network here and each month that passes we are getting a bit better at engaging our best users.

Our new back end system now allows us to identify if a user is a professional much faster and try to get him/her involved to make the community much more active with quality Certified Users. Over the last year since we've had the system running, our traffic has been relatively flat (while user growth has exploded) but the quality of discussions and content has noticeably improved as the community matures (just a bit!) and more and more professionals sign up every day.

We have big plans to improve the products and services even more in 2014...

  • more webinars are coming soon,
  • more video content to be incorporated into the guides and possible paired with the video library since they would compliment each other nicely if bundled,
  • continued push to improve the Company Database and the insights that can be pulled from it, with more useful graphs that bring the data to life

plenty of work to do as always :-)

Thanks again for the kind words!

 

Can you comment on how 2 works? Can you really just approach an accelerator and ask to be an advisor? Did you have any prior experience when doing this? I had always assumed that accelerator advisors were a pretty exclusive group, tapped by the accelerator organizers, sort of an honor, etc. What kind of things do you do for the startups?

 

Yep, you can really just approach them. You wouldn't phrase it as, "I want to be an advisor." You'd phrase it as, "I'm looking to get some hands on experience in a startup, I have X, Y, and Z skills that would be valuable to your portfolio companies (stock options valuation, market research, etc.), and I'm willing to provide these services at no charge. Do you know if any of your companies might be able to use my skills?"

So far, most of my work has been financial modeling, cost accounting (to feed into the model and determine how much capital would be required for a next funding round), market research, and fundraising.

 

Thanks, I'm gonna try this out. Trouble is, all accelerators I currently know are almost as exclusive as PE shops. So I'm not sure what's in it for them to let a guy from a no-name fund get a peek at potential million dollar startups.

Move along, nothing to see here.
 
Best Response

As long as you phrase it similarly to how I suggested, I doubt you'll be rejected out of hand. To provide some more perspective, the first startup I worked with had over a dozen patents, and was developing a nanotechnology that no one else in the world is making. If I can get that gig, you can get one at a Y Combinator company that thinks they are the next Facebook. Another option is to approach your local university. Most good colleges have some kind of program or fund for student or alumni entrepreneurs, and there is no way startups in a university setting are going to turn you down. Once you're in that position, I would expect you would be even more attractive

Remember, you are offering to work for free. As long as you present it as "guy with X experience and Y abilities wants to provide free services" I think you'll be fine. If you want to PM me your background and experience I might be able to help you ID the skills you have that will be helpful to startups.

If you do try this out and it doesn't work, I'd be very interested to hear about it, as I haven't run into that data point before.

 

Although I haven't really had much luck as most people are clueless about what they're doing, a website called micromentor.com allows you to become an "advisor" to startups, at least theoretically. It seems there are a lot of people that either need general help, or specific legal/financial/tax help. Might be worth checking out.

Big 4 Accounting Recruiting Guide Interview Questions and Answers, Networking Guide and more - Complete 50 page guide.
 

You won't be starting a successful company by following a self-proclaimed "coward's guide." It takes courage to build a company. Anything short of that and you are destined to fail - which you should be prepared to doing - but by no means planning out an exit plan if failure does happen. Anything short of full commitment will not suffice.

Also, starting your own company requires an owner's mentality - the employer - in everything you do. This post is written from an employee's mentality. For example... calling you're non-paid work at an accelerator "charitable activity...so your current employer shouldn’t have a problem with it." The said, the advice for helping out at an accelerator is absolutely the way to go -and for the reasons listed (startup network, learning, reality check, etc.)

@Nivo0o0
 

This attitude is exactly what I'm trying to save people from having. Startup success is 99% risk management, and has almost nothing to do with courage despite how the media glamourizes it. I'm hoping that people will start the process from the very beginning with this knowledge, rather than some foolish notion of courage. Committing only partway until certain risk hurdles are met would have saved a world of hurt for thousands of people who have ruined their careers by following their hearts instead of scientifically checking their assumptions against the realities of the market.

I hope to win you over by the end of the series!

 

Agreed. The jump in head first and throw everything to the wind is a pretty naive and dangerous approach.

You don't have to recklessly jump head first in order to have conviction in your. The key to making the transition is -- like you said -- risk management. The older you get and the greater your opportunity costs get, the more you realize the importance of an asymmetric risk profile.

 

Great post. As a fellow entrepreneur, I'd like to add some perspective. First, failure is unavoidable. Sometime, somewhere, you are bound to miss a detail, not plan for every outcome, or just catch a stroke of bad luck. It will happen and you have to be prepared when it does. As the head honcho, the buck stops with you, and the success of your business is directly tied to your problem solving skills.

When I first started, I didn't pay attention to the toll my business was going to take on my sanity or my personal life. The stress is insane. I hate going to bed each night because there is always more work to be done. There are times of loneliness, bouts of depression and other times where I question my judgement and my saneness. I realize the insurmountable challenge I am facing and curse myself for the position I'm in. What the f--k am I going to do if this fails? As this happens, it's important to look forward. Improve what you can control and stop wasting energy focusing on what you cannot. Have faith that you have made the right decision, and put forth every ounce of effort until you have been proven wrong.

 

This is a great post. IMO, so many people think being an entrepreneur is about creating the next billion dollar company. Get a side hustle going on and nurture it while working. Real easy to find a niche or build a decent blog/etsy store/etc in your free time.

@"Rhys da Vinci" Can you give any tips on where you can find these start ups to offer your services to. I quickly read the article earlier so apologies if i glossed over it. Great write up.

 

Going through an accelerator or university startup program is typically the best way to do this. The accelerator method especially is a good way to avoid the work of sorting out the definite losers from the potential winners. More details are in the post and comments if you're interested.

 

I was a coward entrepreneur too. Until my previous employer made the choice for me (i.e. I got laid off). That's when I decided to try the entrepreneurship route - didn't have much to lose anyway. So my choice was easy compared to my other fellow MBA grads, who are leaving cushy finance and consulting gigs to try and become an entrepreneur.

I can only echo what Paddy and others said: I learned a lot, but it is NOT easy, it is stressful, but in a different way than banking (more on this below). The hours are better though (but not that much better).

I wanted to mention a couple of words on some of the difficulties I faced during this transition (please bear with my rambling); hopefully it will be useful for those of you who are thinking of switching.

The biggest change for me was not having a boss anymore. There were no more "you need to get this done by tomorrow or the world will stop" moments. So getting motivated to do stuff and work the extra hours was tough in the beginning, since I was so rooted in the employee mentality. I could take days off in a row and nobody would say anything to me - awesome! Only that at the end of the month there is no money coming in.

To anyone making the transition, be aware of this hurdle - it took me months to overcome it. This is probably one of the main factors that slowed down the evolution of my startup.

The second biggest difficulty was the lifestyle transition. In the beginning I continued blowing cash away like I still had a regular job. That stopped when my (small) cash pile started thinning out substantially. It REALLY sucked. I had to look at bills carefully, I stopped going to restaurants, fancy clubs were definitively out of the question. I had awesome buddies who paid me drinks when we went out, otherwise I was living on deli sandwiches and $0.99 pizza slices from 2 Bros (I will never be thankful enough for their existence). There were months where I literally had $5 to live off for 3 days till the next check cashed in.

So you either have a ton of cash on the side (kudos to you), or be prepared to suffer a serious downsizing in pretty much everything.

2013 was a tough year (especially if you include the Visa issues that lasted for 6 months), but I pulled through; 2014 is going substantially better, and now I am actually making decent money - objective is to make more than I was making as an associate on a monthly basis in the next couple of months, and the upside is pretty substantial.

Thirdly, I realized that to be an entrepreneur, you need to have some level of intelligence, but you don't need to be a rocket scientist. You "just" need to have a huge amount of grit and perseverance. I was not equipped for that. I pursued a career path where education and "intelligence" (for a lack of a better word) were key to success. Sure, I needed to work hard in banking, but I didn't have to have the kind of motivation it takes to start a company - nobody's there to threaten you for not finishing something, for not working harder.

So be aware of the energy and grit it takes to grind through every step of the company's life. There is no moment where you can truly breathe, as there is always the next hurdle to jump through, the next goal.

A final word about stress: as mentioned above there is stress in entrepreneurship, but it's different. There are very few hard deadlines (client-type deadlines), which is the major source of stress in banking. But on the other hand, you have a limited time frame in which you can make it - either because the company runs out of cash, or because you run out of cash. That is a source of immense stress, especially if you have investors on your back (fortunately or unfortunately I don't have any investors to report to). .

Anyhow, to conclude, getting laid off was a blessing in disguise (I hate saying that because it makes me sound bitter, which I'm not): I switched to something I really like doing, I go to work with a smile on my face, I manage a team (this is real management btw, not an associate telling an analyst to do something - that's not managing), and there is a bright future upside. And I'm truly proud of what I've accomplished so far. But it took a good year before I managed to live a normal life again.

 

Would any of you entrepreneurial posters that have given us the insight of your personal experiences with a new business start-up be willing to also lay out a punch list of some of the "forms and bullshit" you had to deal with?

I think most of us here are definitely of the right mind set to approach creating our own new start-up, but could get hamstrung by something trivial like a form with the county or similar.

Please keep the input flowing guys.

The poster formerly known as theAudiophile. Just turned up to 11, like the stereo.
 

Here are the only legal & government forms I've had to deal with so far:

1) Articles of organization and LLC operating agreement - I paid LegalZoom about $200 to file the articles of organization and LLC operating agreement.

2) Federal EIN: Google "apply for EIN", click on the first link, and you'll have your EIN within 5 minutes. Incredibly easy.

3) Convertible note: The convertible note we signed for our seed round was easy to understand.

The bottom line from my perspective is that this probably doesn't need to be a concern at all. Once you get to the point where you need to be applying for licenses, dealing with HR matters, and signing contracts you'll have already engaged a lawyer to do the complex stuff for you, and business advisers to warn you about other things that might pop up.

 

Thanks for chiming in. I'm glad to know it really is that simple. You hear all the anecdotal rhetoric running around about "all the red-tape and bullshit" and I'm glad to find out that is in fact, bulshit in itself.

The poster formerly known as theAudiophile. Just turned up to 11, like the stereo.
 

I have to admit it's tough from a time perspective. When I started doing it, I was in transaction advisory, so my hours weren't as heavy as IBD. The key is managing expectations and finding a startup that allows you to be flexible and work only a couple hours each week, if that's all you have to spare. Keep in mind that this should be a finite, short-term learning experience. Try to pick a time to do it that works is optimal for your schedule. It will be tough no matter what - I have to admit I've had a couple all-nighters working on startup stuff. If it was easy, everybody would be doing it.

But it's still a whole lot easier than quitting your job and struggling to succeed without knowing what you're doing or what you're up against.

 

Pure gold. Quality post, and the kind that I think is the most helpful. Positive and encouraging, but with the dose of reality that is rarely present in any discussion bout start-ups.

Quick question; what is your opinion regarding approaching local startups and offering services directly?

 

It's not necessarily a bad idea, but there are many advantages to going through the accelerator instead. Here are a few:

1) Accelerators may be slightly more honest with you about communicating when a startup is going down in flames that the startup itself will be. This will help prevent you from putting your time into something that is about to collapse.

2) Accelerators provide a layer of screening, making it much easier to find a quality startup. This works both ways - they have screened the startups, and will probably also provide another screening layer as they put you into a startup relationship that will be mutually beneficial (they need you, you are interested in them). The second half of this is that it is much easier for you to be screened by one accelerator than be screened by a new startup every time you want to do a project.

3) Going through the accelerator provides you with a better name on your resume.

4) Going through an accelerator provides you with a continuing relationship, which will hopefully give you the opportunity to work on other startups if a more interesting one comes up.

5) Going through an accelerator provides an easy way of matching your skills with startups who need them.

6) Going through an accelerator builds your network in a way that going to one startup will not.

7) Startups typically trust accelerators more than they trust a random guy emailing them wanting to help out.

I could keep going, but I think you get the point. If there is one startup in particular that you are interested in, figure out who their investor is first. I would only go straight to the startup if the investor wasn't replying to me for some reason.

 

I have an idea: how about actually have a fucking idea and the drive to actually start a company before getting caught up in this vague, trendy idea of "being an entreup.....wait, yeah, BUSINESS OWNER".

Grow a fucking sack and start something. That's all there is. Fuck, you people sicken me.

Get busy living
 

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