When is it Time to Start a Startup?

I’m guessing people struggle with this question all the time. I think the five most important things to understand about yourself in answering this question are sunk costs, opportunity costs, experience/knowledge, the idea and inner drive.

This post focuses on product-based startups. Services-based startups are different because you can start making money in those right away and experience matters. That is, you can start charging on day one and it is pretty difficult to consult on something you don’t have a lot of experience doing yourself.

Before I dive into each of these five, the best advice I have ever heard on this topic comes from Paul Graham, the founder of Y-Combinator. If you have 50 minutes, check out his lecture to Stanford students as part of Startup Class.

One last word before my list… like most things in life, your perception is much more important than reality. How you “feel” about things like sunk costs are way more important than the actual costs. Only you can determine your own motivations and level of risk you are willing to accept.

Sunk Costs

Sunk costs are the the costs you have already incurred and can’t get back. It is both the time and money. It could be your education, the money you spent on your house, or the time you have spent at a company working on your career. If you obsess about sunk costs and cannot let them go, you probably aren’t ready to start a startup – regardless of your age and experience. If your philosophy is, “the past is the past there is nothing I can do about it now,” you are past step 1 and on your way.

Opportunity Costs

Opportunity costs are the difference in value between two choices. In the early stages of a startup, this is trading off making no money at all (and getting no recognition for a long time either) vs making money working for someone else. I think this is the primary reason why so many startup founders are so young. They started their companies before they had a chance to know what they are missing from a lifestyle perspective! If you start a company out of school, you are accustomed to having little money. If you wait until you are well into your career with a gig that pays well and you have a family (or are thinking about it), it is hard. To net this one out, if you are willing to have less cash flow for at least 2-5 years to get a long-term gain, you have step 2 covered too.

Experience and Knowledge

You might be surprised to find out that knowledge and experience don’t matter as much as you think. Where you need to be exceptional is in the area of self-awareness. You need to be humble yet confident. Why? You can’t possibly know everything so you need to know what you don’t know and either learn it quickly or be able to network and surround yourself with people who will help you in the areas where you don’t have the knowledge, experience, and skills you need. This is also the primary reason for having one or two co-founders to balance out your skills. Sound like you? Let’s keep going.

The Idea

To start a startup you need to have an idea which really drives you. It needs to keep you up at night. It should be associated with a big market opportunity (see: opportunity cost). You have to feel like this is something you need to do and no one else would be better at doing it. Only then would I consider leaving a job to chase the startup dream.

Inner Drive

This sums up the other four. Your inner drive has to be grounded in the need to execute on your great idea. You have to be driven by creation and constant learning. If you value material things over the sense of accomplishment of creating something, it isn’t time. (I am not being judgemental here, if buying a car or shoes or a painting makes you feel great, that is cool, you are just really going to miss that if you start a startup). If you are discouraged by failure more than you are driven by success, probably not the right time either. You are going to fail a lot. Although, you have the chance to really win big!

Before wrapping up, you might be surprised things like “be your own boss” or “life balance” are not on this list. Yeah, those don’t happen either. In a startup you answer to an incredible amount of people and can rarely turn it off.

If you are currently in a job and now scared shitless, don’t be. This doesn’t mean the time won’t come in the future or that you can’t take a startup mentality to your current role. You might even change your company’s culture from within and run a great Lean product launch without giving up a pay cheque. Hey, that sounds like an idea for another post.

’til next time… Kirk, out!

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