Side Hustle vs. All-in

At the beginning of forming a startup, there is a phase where there is tension between doing the startup alongside whatever is paying the bills and committing to going all-in. Let’s reflect on the factors that play into this decision.

One entrepreneur is building his startup in his off-hours with an outsourced software engineering team and some part-time supporters. When does this startup CEO have to make the leap to leave their current executive role and go full-time on their side-hustle passion project that can impact the world for good?

Another entrepreneur has leveraged a spouse’s job to full-time bootstrap to a minimum viable product and the beginnings of sales, but now the strain on the family is starting to take its toll, savings have been used up, and fundraising must happen to continue. Was it the right choice to work full-time on building the startup as fast as possible?

Still, another entrepreneur and founding team all have full-time “day jobs” as they craft their project while leveraging the insights provided by being inside their future customer community. Keeping those networks fresh while guiding the software developer in creating something valuable makes sense from a commercial point of view, but potential investors are skeptical. Will this team ever leave their lucrative professions to put all their energy into the startup?

As I reflect on the choices above, which are a representative sample of the many conversations I have had over the years with startup leader-founders seeking to balance the tensions of choosing to go all-in versus continuing with the side hustle route, I know that when to leap is never an easy question. Startups are fragile, but if successful can be a sweet wealth-building opportunity. There are no guarantees. And startups can fail for many reasons. So the choice of when to switch from side hustle to all-in is multi-dimensional. There are pros and cons, implications and interpretations, and personal circumstances and risk tolerances that play into the choices. Here are some of the points that usually come up in these discussions:

• Personal resources and risk tolerance matter. Those who have some sources of wealth have advantages when starting a company. A supportive spouse whose job provides some income and health insurance is a huge advantage. An inheritance or substantial savings from years at a high-paying job helps (although be careful…spending only your own money on a startup, as I once saw an entrepreneur do, can result in falling off a catastrophic cliff when that money runs out and a path to either getting to customer or investor support for subsequent phases of progress is not available). A single person with minimal living expenses can make a little go a long way. Founders from disadvantaged backgrounds without networks of high-net-worth individuals and an understanding of money management have an extra hurdle to climb.
  
  The reality is that some founders will have no choice but to work to eat while building their startup, but it would be misleading not to recognize that this adds extra challenges and pressure to the already challenging life of building a startup. Sometimes it is prudent to take a good hard look at your personal circumstances, life stage, and responsibilities to determine if you can go for months or even years without generating income. For some, the answer is that being a startup founder is not practical or wise, given their circumstances and life choices, even if it seems appealing.
  
  On the other side, it is important for investors, who typically have access to significant funds, to remember that not all founders and potentially early team members have been blessed with the resources to work for free for substantial periods. There needs to be respect for other forms of demonstrating commitment and interest in the venture, especially when we want to promote non-traditional founders and broaden opportunities.
  
  
• There is work you can do “on the side” to develop and de-risk your startup idea. Doing deep thinking, customer discovery, market validation, technology investigation, and other activities is often wise before launching full-time into a startup. For high-potential startups, I think of this as the work of getting baked for fundraising, assuming you ultimately have to raise money to build the type of business you envision.
  
  This kind of “working on the idea” can often be done in the margins around a full-time job; just be careful that you are not using your employer’s resources to develop your “side hustle” and that you are very clear that you haven’t signed any documents that give your employer ownership of your ideas that are unrelated to their business. This type of provision, by the way, is more common than not, so do not assume. Verify!  
  
  
• Founder commitment to an idea is often perceived by how much demonstrable “skin” is in the game. Once upon a time, as I transitioned from my consulting career into startup land, I found that investors were deeply skeptical of my ability to be a startup CEO. Their skepticism was founded on the idea that I might not have the grit to do the job. Maybe I just wanted their money to give me a paycheck because I was not committed enough. The argument that I need investment to go all-in is not particularly persuasive (even if it feels 100% true!). That skeptical investor perspective changed completely after a co-founder and I invested a year of our lives and all of our savings into building our startup to the point of being investable. Part of becoming investable was demonstrating by putting our full-time, uncompensated effort into building the startup. Investors interpreted that effort as a sign of our commitment and willingness to do whatever it took to succeed. 

• Fundraising is often a catalyst. The skepticism on the part of sophisticated investors to put their money into a “side hustle” startup comes from bad experiences with founders who never could quite leap even with a small amount of investment as well as the desire of investors to have a founder and team who are putting their all into building value every day, not splitting their time with other responsibilities. Value building is hard work, and they want the founding team to do everything they can to make the company’s value grow as fast as possible. Bottom line, investors often demand a founder-CEO committed full-time before they will achieve their investment. Not being full-time when fundraising can make an arduous process virtually impossible – and investors who pass may not even tell you that doubts about your commitment are the reason why.

Final thoughts, timing for going all-in is a delicate balance. Building a startup from scratch takes a great deal of work if it is to be a real substantial business, so at some point, the amount of work that needs to be done is often greater than what can fit in the margins around another job. Going all in does force the question of how much you believe in your vision (and sometimes wisdom is choosing not to proceed).

As a fundraising founder, you must assess how much risk you can take financially and how much money you can invest personally. You won’t really get credit for what you invest before raising money when you do go to raise, but it may very well be table stakes for raising at all. Ultimately, if it is a high-potential business, then it is likely that there will come a point where you choose to make your startup adventure your full-time focus.