Entrepreneurs Are Mad…and That’s Perfect

I was recently asked why I am an entrepreneur.  The questions were good-natured but ran along the lines of;

  • “isn’t it really a lot of work?”
  • “you don’t get paid much do you?”
  • “isn’t it frightening to fight for success?”

Let me cut to the chase and tell you the answer to each is ‘yes.’  Unless someone is lying to you then these questions do enter the mind of an entrepreneur.  I would further argue that if that entrepreneur is worth his salt and/or really trying to move the needle then these questions enter their thinking every other hour.  Considering how negative these questions are, lets look at them and ask one of our own; “are entrepreneurs mad?”

Being an entrepreneur is a lot of work (done properly that is).  My father, an accomplished entrepreneur in his own right, is fond of saying that anything worth doing is necessarily hard so as to check your and the world’s commitment to that idea.  There are the challenges of building something new, changing people’s minds, nurturing and growing an organization, engaging the outside world in a productive way, and the list goes on.  That’s a lot to manage so sufficed to say that an hour of my day is precious.  That hour may live somewhere in the still-dark parts of the morning or smack dab in the middle of Saturday night—but it is my hour.  My hour can create product, produce revenue, empower my team.  Subsequently I find it difficult to justify how sleeping late, reading a magazine, sitting on my patio, etc are more valuable uses of time than the future we are trying to build and the team I have committed to in that pursuit.

Generally speaking, startup folks don’t make a lot of money…at first.  It is important to understand that entrepreneurs are no different from most people in wanting to be compensated for their work.  That said a founder is a unique beast.  We are willing to devote ourselves to an idea in hopes that the idea has extreme value later on.  I often see a follow-on to the question of money in “why not work a regular job—at the end of it all we will have the same money.”  I disagree completely.  I am working towards an outsized innovation and want an outsized return.  More to the point, the math here doesn’t hold up.  Lets say a successful entrepreneur is expecting after 3 years of hardcore founders work (see above) to personally make $10 million.  With the national average yearly wage hovering around $42,000 it would take 238 years to get there in a conventional sense.  What’s more, I hope to get there in just 3 years.  In order to accomplish this I need to find a way to create an organization that will allow me to squeeze 238 years of effort into 3.  This addresses the above point of hard work but also speaks to levering up the model of compensation.  So no, founders don’t make much money early on but rather trade that early hardship for the chance of outsized returns in short periods of time.  I personally think the tradeoff is worth it.

Finally, being frightened.  Launching a company is scary.  Scary to give up the security of a regular job, to be fully responsible for your destiny, to know that your decisions are the difference between success and failure, to be responsible for others, and to know that you will not have a break from all of this for some time.  I won’t pretend that these and others points aren’t very real.  But what else do I get from a healthy dose of fear as we start a company?  I get clarity of thought, prioritization, drive.  An entrepreneur is somewhat unique in that fear focuses our attention.  It empowers my resolve to break through to the truly important points quickly.  I not only understand the benefit of prioritizing everything around me but now believe in the utter necessity of such organization.  It drives me to take chances and make smart decisions, for every one that is missed hurts my team and me directly.  Yes, it is scary but fear creates an inhuman focus on results so key to any startup’s success.

So, is the entrepreneur crazy?  I suppose that is a matter of perspective and your own personality.  But allow me to posit that they in fact are…but not for the reason you think.  They are frantic and risk tolerant and aware of their fear and never slowing.  They are all these things and more.  That madness however in the hands of entrepreneur and applied to an idea that can change the world, is exactly what moves us all forward.

Policy’s Square Peg in Startup’s Round Hole

There is no shortage of unsung players in the startup world.  Some are there to support and enable the tremendous success of others.  Some are unsung because they are working on their own song and are waiting to step onto the entrepreneurship stage.  Others are enthusiastic supports and yet others are detractors.  Finally some seem to fall in all these buckets due to their size, influence, or lack of focus.  With an eye towards that last multi-headed group, I want to dive into the world of political policy and it’s impact on entrepreneurs.  It is my contention that policy makers need to more closely examine the needs of startups and provide incentives that are relevant for companies at that stage (i.e. not the incentives commonly offered now).

Based on conversations with local and national politicians, the following are incentives most frequently handed out by policy makers to early stage entrepreneurs:

  • Company income tax breaks
  • Faster business filing
  • Connection to economic development contacts

As an entrepreneur myself and after much discussion with others who are starting companies, there was clear alignment on our top three needs:

  • Dedicated startup hub or aggregating space
  • Investor tax credits for investment in fledgling companies
  • Employee tax breaks

The mismatches are clear.  Entrepreneurs have need of incentives that create physical growth of a startup community such as a dedicated hub and a ready flow of money from investors.  In startup hubs, marketers from several different companies can interact daily and challenge one another to improve the same way startups themselves create a competitive environment for growth.  Income tax breaks for young companies without any discernable revenue have little relevance whereas tax incentives to investors for putting money into early stage companies or employee tax breaks (as recently done in New York) provide tangible incentive by either removing barriers to investment or removing barriers to retaining quality employees.  Token incentives are just as misplaced, like faster document filing and access to economic development contacts.  Faster filing does little to create a sustainable advantage so desperately needed by early companies.  Access to economic development resources have undefined benefit and often are available without the need of the additional hurdle of declaring one an early stage startup.

There is a need for policy makers and entrepreneurs to come together to grow a startup community.  This however requires strong alignment and an understanding of the challenge points associated with very early stage companies.  Traditional incentives that benefit established companies have little place and do nothing to further success in these communities.  Policies that directly target ideation through proximity and make it easier to attract investors and employees alike are key to this equation.

How will it happen here?

I am interested in the idea of how entrepreneurial ecosystems gain momentum and reach self-sustaining rates or “escape velocity”. I know New Mexico and Albuquerque have much of the raw material required for successful ventures, the state has several decent exits a year from innovative private firms. I have had a hand in at least one. However, few ventures currently reach a magnitude that registers on the scale of critical economic impact on our state.

What is that impact I am seeking? — Significant sustained generation of good jobs — vital, high-skill private sector positions that give people in NM a reason to stay here (or move here, if need be). And all the positive knock-on effects from job-generation: rising spending, smart investments, and an expanding pie that everyone will benefit from.

I was with several friends recently and we took stock of the current climate for entrepreneurial activity. I think that a fair summary of the group’s assessment is that while we have made important strides over the past decade, these gains are still difficult to see in the context of a state economy that continues to be overly-reliant on government-based employment — particularly since we are working from a small base. Let’s be clear: no one wants to ‘solve’ the issue by pruning our governmental sector, what we are looking for is a large relative increase in private sector activity. Small innovative private firms are the ticket to quality growth and  positive outcomes.

All of which leads me to the question posed in the title: How will it happen here? I believe that its time for focused, results-based programs that can pull together the broad collection of human and technologically-based assets we have here (in good supply) into accessible, investible business opportunities. Without a focused effort, I think we risk losing the hard-won gains we’ve made to other regions that are making considerable competitive investments.

StartupVille

[youtube http://www.youtube.com/watch?v=zXD5vt0xhyI?rel=0]

This video is part of the Kauffman Foundation’s Sketchbook series. In it, Brad Feld quickly summarizes what’s required to create a startup community:

  • Led by entrepreneurs
  • Long term view: 20+ years
  • Inclusive: anyone and everyone interested in the startup ecosystem
  • Events that engage the entrepreneurial stack

That sums up why we’re here with ABQid.