Myth: Money showers for startup success

As part of the continuing series on startups myth, let me address the perception that everyone in a successful startup gets rich.

Getting rich

People outside the startup world put way too much focus on the financial rewards of startups in my view. Little attention is paid to how exciting it is to put a new product out, to how amazing it is to solve a problem that has never been solved before, to how incredible a feeling it is to bring something useful and meaningful to your customers.

The money view is probably one of the thing that pollutes most of the discussion about startups when it comes to chatting with people outside of the tech industry. Many of the best startups of today are companies that were founded during an economic downturn and where many people plugged away for a long time before becoming the proverbial overnight success. LinkedIn was founded in 2002, Facebook in 2004, Twitter in 2006: see a pattern? Most of the “overnight” successes are companies that have at least 5 years in the field.

Their founders worked hard and kept on plugging away for a while before making it. Where were you 5 years ago? Have you worked a brutally punishing schedule since? Paul Graham once pointed out that you could make a million dollars by working in the post office saving every penny but that in a startup, you combine all the stress of those 50 years into 3 years and get equally rewarded.

Dangerous investments

However, the reality is even more complicated. Some people do get the stress without getting as much of the reward. Sometimes, unscrupulous investors will destroy the chances startup founders can have at making it big when their startup succeeds. For people who are currently in the startup world, I’d encourage you to look at things like liquidation preferences. If it’s higher than 1x, run away as it’s a bad deal.

For people joining a startup, or looking at different forms of investments, be mindful of things like dilution, option pools, or protective provisions. They are all legal terms that can make huge differences in the compensation of individuals.

Fortunately, there is now a lot of great advice now available online. Read the likes of Fred Wilson, Brad Feld, or the excellent team behind venture hacks to get a sense as to what you need to succeed. Their posts providing visibility and increased transparency in the workings of the investment world have provided advice that would have been more than welcome in the first dotcom boom.

It’s not about the money

Yes, it’s true that joining a startup can be a path to riches. But it’s also true that most startups fail. So if money if your main goal, please do a favor to those of us that are and have been in the industry through both good and bad times: stay away.

Startups are about changing the world and turning it into a better place. The money is incidental. If you don’t believe those last two sentences to be true, your joining a startup could contribute to its failure and will fail to contribute to its success.

Note: this is part of a 5-parts series about startup myths. You may want to read all the parts: ideaspathrisk, money, capital.

Previous Post
Myth: Startups are risky
Next Post
Startup Myth: You need loads of money
%d bloggers like this: