Startups Are Not Romantic

Know how to spot someone who’s never done a startup? Look for the excitement.

In fact, they’re super excited. Not selling-you-because-they’re-selling-themselves excited, but genuinely, enthusiastically, and unequivocally excited about it.

National, international and local media sites gush about startups’ big new ideas and bright future. Some of these companies are pre-revenue with rookie founders that have raised little money.

How do they even get press? Must be a slow news day.

We need to stop romanticizing startups. It’s not just that they’re overexposed. That merely reflects where we are in the hype cycle. (Note I avoid the word “bubble.”)

The truth is startups are hard. Like end your marriage and your friendships and go broke hard. They have the odds stacked against them.

An old venture capital rule of thumb is that 30% of funded startups go broke, 40% earn back their investment, and only 30% make the target return of 5X to 10X+. So if there are ten companies in a fund’s portfolio, three make the return of the fund, and typically one of those three dominates all. See Peter Thiel’s description of the Power Law distribution in his book ZERO TO ONE for more detail on this. (See also my reflections on the book.)

VCs fund fewer than 0.5% of companies they see. So if you’re not VC-funded, your odds of success are typically lower. The upside is you might avoid the ignoble fate of burning through millions of dollars and leaving behind only a smoking crater.

Startups also take years of work to achieve a good outcome. Remember the success stats I cited above? That’s typically after a period of seven to 10 years. It takes a long time to create a company of real significance.

Also, the pressure of startups is intense. Markets constantly move, new and old competition arise, you lose key talent and friends, and your products often don’t work or don’t sell. All of these happen in the best of companies.

You have to be all-around excellent, but being good at everything isn’t enough. You must get some lucky breaks (while you work your tail off) to have a big success.

Startups are a lot like sex: The people who talk about them the most typically do them the least. Normal startup people are tired, cranky, stressed, and behind schedule. They don’t have time for you unless you can help them now.

Startup founders are a special breed. Typically, they’re smart, hardworking, interesting, creative, focused, and look at the world in unconventional ways. They’re also stubborn, impatient, arrogant, impossible, unsympathetic, mercurial, and dangerously unmedicated.

Founders often start as friends and become estranged, or worse, turn into enemies. They fall out over the thousands of decisions, some very tough, that have to be made over through a startup’s life. This takes a real toll on relationships.

Speaking of which, the divorce rate among startup founders is terrifying. Do you love your significant other? Consider whether you’ll trade them in for a company with a small chance of success.

Being a startup CEO is also about the loneliest job on the planet. Everything is depending on — and stacked against — you. You have to run your company, find funding, build a product or service, grow your customer list, and happen into some luck. You’ll often have to pivot away from your original vision and into something adjacent or even far afield, but which has a chance at becoming a real business. You might have to layoff or fire friends. You’ll get the blame for everything that goes wrong, no matter how unfair or beyond your control it might be. And you’ll have no one in the company in whom you can confide your darkest fears. After all, you’re the boss, and anything that would keep you up at night will probably make others run for the hills.

Startup winners garner headlines and the money they make is enviable. But most startup folks don’t have that success, even after several tries. Many people work for years, sell their company for a nice figure, but get nothing in the end because the investors only broke even on the deal and must deservedly be paid back first. Some founders go broke in the process, or worse, go into debt trying to make their dream happen. If their company fails, they carry that debt long afterward.

Lots of startup folks are not in it for the money. They’re in it for the mission. The call to solve a huge problem alongside excellent people is thrilling and addictive, even against steep odds. But it can also be debilitating and enervating.

Know these things before you join an early stage company or start your own. Remember it as you dream the big dream. And if you still want to do it, at least you know what you’re up against.

You’ll need that resolve for the long haul ahead.