The Hidden Costs of Founding

Creative problem-solvers with an appetite for taking risks to make an impact are often the sort of people who choose to found a high-potential startup. Such an adventure will give them the opportunity to make a difference, shape a value-creating path, and potentially result in life-changing wealth. But…  

First, I must confess that I am wired to be the sort of person I just described: drawn to the power of a startup to potentially make a big difference, like a moth to a flame. I have been “doing startups” since 2001 in various roles ranging from founding to leading as CEO to coaching other founder/CEOs to sometimes investing. The potential excites me!  And I resonate with the excitement felt by others. Seeing the chance to make a profound impact by solving one of those thorny customer problems that desperately cry out for a solution is intoxicating. Perhaps I am addicted to that feeling? Anyway, my point is that I do get it. I do understand the attractions that lead others down this road.

Now, let’s think about what it takes to found and lead a startup. At the most fundamental level, recruiting others – as team members, investors, partners, and customers – requires being able to articulate a positive vision and see the silver lining in every hurdle that comes your way. The pressure is enormous to always be able to solve your way out of every crisis and be eternally optimistic about the future of the company you are leading. For instance, you do not attend a networking event with potential investors and reveal all your big and small fears and worries. You do not focus your team on the tenuousness of the startup’s cash position. You should not tell potential customers that you are unsure how you will be able to serve them next year. In other words, you bury all those thoughts inside and share instead the positive vision you have and your conviction that the needed dominoes will fall in the direction you hope.

This brings us to why I titled this post the HIDDEN costs of founding. I have just shared some of the endless pressures that push startup founders and leaders into sharing in a way that is heavily weighted towards the positive. That means that they end up wrestling with the negatives alone. Some of those negatives are part of the company, and some of them are part of the personal sacrifices they end up making to support the company. As an experienced startup founder/CEO, I find that others on that journey sometimes seek me out to talk out loud about the “quiet stuff.” Looking for empathy and insight with someone who might be able to relate to the parts of what they are going through that they have few safe spaces to discuss. Here is some flavor of what kind of topics they want to unpack:

• I am so exhausted that I just don’t see how I can continue. Perhaps I’m not cut out for this? Maybe someone else should take over?
  
  
• My spouse and I never imagined that the personal financial costs of starting a company would be so relentlessly large. I thought that once we raised some money, things would improve, but the ability to earn enough to live on is so tenuous and variable. One more setback and we might lose our house!  
  
  
• Everything is taking longer and proving harder than I ever imagined!  Why is it so hard to get customers to buy? Will this ever get easier? Will we ever be able to reach cash-flow breakeven and escape the treadmill of endless fundraising? I don’t know. I don’t know. I don’t know.
  
  
• I can’t raise the money that we need to execute the plans I think are most likely to be successful. What now?
  
  
• Investors want me to do everything for “sweat equity,” but I didn’t come into this independently wealthy, so how am I supposed to do that? And I need to hire people who can’t afford to work for free either. Can’t they see the potential upside and just invest?
  
  

I could go on, but I think that captures the flavor of the stress the founders feel. Ultimately, the responsibility for turning their idea(s) into a success lands on the founder’s shoulders. The result is tremendous pressure to:

• Make personal financial sacrifices (also known as “bootstrapping” or “taking a compensation cut to extend the runway”) that increase personal financial risks by draining down savings, incurring personal credit card debt, and taking out personal loans
  
  
• Work relentlessly to build value, while sacrificing time with family and friends, personal hobbies, and sleep/recovery
  
  
• Endure tremendous stress when faced repeatedly with the complications, adversity, and setbacks that come with developing and commercializing something new

The passion and commitment that founders must feel to embark on a startup continues as they put all their strength into making that startup successful. The grind of the work, responsibility, and personal financial pressures can extend for years. That is when the entrepreneur starts having conversations with themselves and potentially their family about whether it is all worth it. Yet the very reasons they went down this road in the first place are some of the reasons that make it really difficult to do an orderly winddown. Most commonly, they will keep going until they hit an absolute wall, whether it is a company collapse, a health crisis, or something else.

I recognize that this post may not be particularly encouraging or uplifting. Yet I feel like there is not enough shared about how hard the road can become. Entrepreneurs frequently share with me how lonely they feel and that it seems like “everyone else” is not faced with these issues. The reality is that a relatively “easy” path is the rare exception rather than the rule, even if people avoid talking about it except in quiet whispers when they find a safe space. So, I want to bring these realities out into the light so we can see them, consider them, and not feel so alone in confronting them.

I am not recommending that everyone share their stresses with the world. To do so is quite risky given our entrepreneurial ecosystem culture. However, I do recommend the following survival strategies for your consideration:

• Be explicit with yourself (and your spouse, if applicable) about what risks you are willing to take. Where are the red lines that should prompt you to step back and reconsider whether you should continue? Then honor those and consider carefully the costs and benefits of starting or continuing. Be real with yourself. Revisit these lines regularly as they have a way of moving.
  
  
• Cultivate a close circle of experienced mentors and confidants who can serve as sounding boards for you. These could be therapists, family members who have been entrepreneurs, or veteran startup CEOs. Most likely, they are not your board members, investors, team members, or neighbors. The point is to have a safe space to discuss things when you are struggling in the crucible.
  
  
• Before making any final, dramatic decisions, ensure you have gotten enough sleep. Decision-making while profoundly exhausted and sleep-deprived is dangerous. You should get enough rest and then consider the big picture of what is going on and what is likely going forward before just pulling the plug. At the same time, your personal sacrifices are important, and you may have to decide that continuing to invest your time and money in the current path is unlikely to yield a good outcome, and it may be time to make hard choices. Remember that investors have an incentive for you to take on the risk, so do not look to them to wave you off.
  

The stimulus for this blog was a conversation I had with someone I am not in business with, who was saying how unfortunate it is that the actual costs of entrepreneurship are not more widely discussed. They wished they had realized what the cost was before they invested a decade into a startup, and were now in transition, looking for something that better fit their family’s needs for the next decade. They wished they had understood the costs upfront when they were dreaming of how their idea could solve real people’s problems. Too often, we downplay the risks, but the reality is that most startups fail for a multitude of reasons, so pausing to think and explicitly considering the risks before jumping off the deep end is wise. How much personal investment can you afford? How much risk can you tolerate when other aspects of your family’s life also go sideways? What are your personal priorities?

In the end, I am one who has been willing to take the risks repeatedly. Yet, as I support others in their own decision-making, I also understand how this path is not for everyone. Not even close!

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