Startups are Financial Suicide

In 2009 when I left Google, I had over $100,000 in my bank account. I don’t say that to boast. I worked hard to save that money, and did so because I wanted to create a startup.

Nine years later, my bank balance is a fraction of that. I also don’t expect to ever see a return from my startup.* It’s embarrassing to admit, but I’ve gone backwards. (No need to feel sorry for me — I’ll be fine! This article is actually about you.)

Today having a startup is all the rage. They’re basically fashion accessories. On one hand, that’s great! The world needs more innovation. There’s also a massive amount to learn when you run things yourself. But please, be smart. Don’t be like me.

The problem was my mentality. I felt certain, one way or another, the startup would succeed. That made me feel really safe! In fact I would often drift to sleep enjoying that beautiful (but irrational) thought. Consequently I didn’t take my immediate money situation seriously. It was temporary! Saving didn’t matter. 401K / superannuation didn’t matter. All I needed to focus on was “maximising shareholder value” and the rest would follow.

Over the next few months I want to publish more of what I’ve learned in the last 9 years. But, before I do, I wanted to make one thing clear: startups are extremely dangerous!

That should have been obvious to me, right? For some reason it wasn’t. I thought the rules didn’t apply.

Don’t get fooled thinking raising lots of money will save you, or having lots of customers will save you. We raised over $25m and sold millions of dollars of product to real customers. Over 90% of startups die. Statistically speaking, yours will too.

Things I wished I did:

• improve the financial fundamentals of our business sooner,
• raise less money,
• live even more frugally, saving at least 20% — ideally 40%,
• cut up my credit card (even though I always paid it in full),
• obtain a second or a third source of income — driving for Uber on Saturday night doesn’t sound so crazy now, and
• take my 401K / superannuation seriously.

A great book — particularly if you live in Australia — is The Barefoot Investor. You might think that advice only applies to people with real jobs. Ha. That’s what I thought! Turns out, I did have a “real” job — just a low paying one.

By all means, start a company. It’s one of the most rewarding things you can do — even if you fail. But if you’re a founder (or an early employee) please don’t rely on your shares to make you rich. That’s quite improbable. Instead, focus on getting rich today, slowly. One dollar at a time. Like everyone else.

If you enjoyed this article, please follow me here.

̶(̶*̶ ̶T̶o̶ ̶b̶e̶ ̶c̶l̶e̶a̶r̶,̶ ̶m̶y̶ ̶s̶t̶a̶r̶t̶u̶p̶ ̶i̶s̶ ̶s̶t̶i̶l̶l̶ ̶v̶e̶r̶y̶ ̶m̶u̶c̶h̶ ̶a̶l̶i̶v̶e̶ ̶a̶n̶d̶,̶ ̶a̶p̶p̶a̶r̶e̶n̶t̶l̶y̶,̶ ̶w̶e̶l̶l̶.̶ ̶I̶ ̶l̶e̶f̶t̶ ̶t̶h̶e̶ ̶c̶o̶m̶p̶a̶n̶y̶ ̶o̶v̶e̶r̶ ̶a̶ ̶y̶e̶a̶r̶ ̶a̶g̶o̶.̶ ̶A̶l̶t̶h̶o̶u̶g̶h̶ ̶I̶ ̶m̶i̶g̶h̶t̶ ̶g̶e̶t̶ ̶a̶ ̶r̶e̶t̶u̶r̶n̶ ̶i̶n̶ ̶t̶h̶e̶ ̶f̶u̶t̶u̶r̶e̶,̶ ̶I̶ ̶h̶a̶v̶e̶ ̶n̶o̶ ̶w̶a̶y̶ ̶o̶f̶ ̶k̶n̶o̶w̶i̶n̶g̶ ̶w̶h̶a̶t̶ ̶t̶h̶e̶ ̶p̶r̶o̶b̶a̶b̶i̶l̶i̶t̶y̶ ̶o̶f̶ ̶t̶h̶a̶t̶ ̶m̶i̶g̶h̶t̶ ̶b̶e̶.̶ ̶I̶’̶v̶e̶ ̶n̶o̶w̶ ̶m̶a̶d̶e̶ ̶p̶e̶a̶c̶e̶ ̶w̶i̶t̶h̶ ̶t̶h̶e̶ ̶f̶a̶c̶t̶ ̶i̶t̶ ̶m̶i̶g̶h̶t̶ ̶b̶e̶ ̶z̶e̶r̶o̶.̶)̶
Update: Oops, no, it did in fact fail.