I can't speak for all entrepreneurs, but I know that when I dive into a business, I have a few factors that I'm evaluating:
- The medium-term risk of failure: At this point in my career, I don't really bother with looking at the near-term risk of failure, which always hovers around 90% and which you can get yourself over by getting a few clients / sales / whatever metric you need that actually generates money. What I care much more about is the likelihood that what I'm building will be useful to those clients in a year, and will be so amazing that those clients will help me get other clients. If I don't believe that, I don't go all-in.
- The near-term risk to my career: I've been lucky in that I've been able to jump between start-ups, corporate America and finance throughout my career with only a few droughts in terms of bringing in money for myself. Now that I support my family and I'm a more senior executive (and, therefore, have scarcer job prospects if a start-up fails), this problem is much more acute than it was when I was in my mid-20s and was willing to take a flyer on almost anything. Now, when I look at start-ups, I think about what that failure would look like to people who might hire me after the start-up fails (which I've learned from previous start-up failures). What matters here is that the thought process in diving in -- if I go for a job interview and my answer to why I did this start-up is, "I thought it was the next Facebook," then I'm an idiot and am unlikely to get hired. If I go for a job interview and my answer is, "I saw [x] opening in the market and we executed on [y] and [z], but ultimately failed to gain enough market share to build a viable business in the timeframe we gave ourselves," that's more acceptable. It's not great, but it's acceptable.
- The long-term risk of not doing the start-up: I do a fairly complicated (you might say convoluted) risk analysis that looks at how much money I can make as well as quality of life -- time I get to spend with my family, time I get to spend doing sports I love, and time likely to be spent at work doing the things that I really like to do with my working hours (for me, solving problems and selling), and I compare that to where I'd be if I was in my current job for that same amount of time (and did reasonably well in that job). If I think I can end up financially equal but otherwise happier, I'll go the start-up route. If I think I'm going to be financially worse off, I don't. If I think I'll make a lot of money but have poor quality of life, I'll skip it. For me, life's too short to think that, in five year's time, my life would suck and it would be entirely of my own making. I don't have illusions about start-ups -- I know that there are lots of really sucky days and much longer hours than a regular job -- but if there isn't that light at the end of the tunnel, then I don't really need to start going down that tunnel.
- Finally, the business factors: I probably should have started with these, but if there isn't someone willing to pay me for whatever the start-up does, I don't really bother going through the rest of the motions. And, if those payments aren't significantly in excess of my cost at minor scale, again, I'm not doing it. And, finally, if it's not testable at small scale (e.g., it's a business that only works if lots of people use it), it's not for me. I know that's how many people made their money; it's just not a ride I'm willing to take (again, since I've already made that mistake).
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