Is Starting A Company A Terrible Decision?

Sometimes "fail fast" really just means failure. Here are three reasons we don't always realize that we might be setting ourselves up to be let down.

Not every entrepreneur's story is a bootstrapped fairytale. Recently, a HackerNews user going by "themanthatfell" made this lament in a post called "Started a stupid company. Failed.":

Ran out of money. Ran out of credit. Losing house in two months (already foreclosed). Wife pregnant. Three kids all under 6. Pretty sure I am the opposite of everyone here. I am no man. Just a statistic. Everything is gone. Selling spare parts to keep the lights on. It was a nice fantasy. To the rest of you: fight hard and good luck.

The resulting thread is a work of remarkable Internet magic, with strangers offering to revise his resume, make introductions to hiring companies, and other consultations. But as programmer extraordinaire Aaron Hillegass at the Big Nerd Ranch points out, this tale of woe isn't uncommon. Starting a company can be a terrible idea, though we (the tech press) don't readily admit it to ourselves. So let's make a few admissions.

Companies fail, but we don't hear about it

We don't realize how likely it is for companies to fail because we mostly read about the one's that have crazy amounts of success. This blindspot gives us the impression that if you start an app that the kids will love, then you'll be turning down billions from Facebook any day now. According to David McRaney, the brilliant curmudgeon behind You Are Not So Smart, this blind optimism is called survivorship bias. In this way, he says, dreams of Silicon Valley are similar to dreams of Hollywood:

We don't appreciate how much is left to chance

As we've noted before, lucky people are those who expose themselves to positive chance on a regular basis. As Hillegass's story shows, a gigantic change in industry is a major manifestation of positive chance:

I was a smart guy with a lot of real-world experience. I decided to start a professional services company for Apple technologies when Apple’s stock was below $10 per share. I had worked in the professional services team at NeXT and Apple, and I thought there was an opportunity doing training and consulting on Objective-C and its related technologies. I ran around explaining the beauty of these technologies to anyone who would listen, and Big Nerd Ranch managed to grow to seven employees.

And then, in 2008, Apple released the iPhone SDK and the seven of us were suddenly the best programmers in the hottest technology that had ever existed.

Intelligence and competence got him to seven employees. Then luck, in the form of a chance in the course of technological history, catapulted his career.

The quality of life is terrible

There's a reason that Paul Graham says schlepping is a key startup value: over the first few years of founding, you're going to have to spend all your time slogging through the work.

The weird thing about startup land is that long hours are glamorized, a symptom of what Jason James calls the "badge-of-honor-martyr-complex." But long hours can have stultifying effects: exhaustion, alienation, and a sense of treadmilling through your life. All of which adds up to burnout.

So when is starting a company a good idea? Let us know what you think in the comments.

Hat tip: Big Nerd Ranch

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  • Chris Selland

    There's so much 'just do it' cheerleading out there - it's nice to hear the counterpoint.

  • Ben Wilcox

    The core of this article points to risk assessment. Though I think giving a generic answer is not very useful, I want to comment on risk adjusted planning. I think it's important to assume failure, plan for it, and then behave in tactical execution as if it won't fail. This means planning before hand where the drop-dead markers will be. I'd argue that if this fellow reached this point ("Ran out of money. Ran out of credit. Losing house in two months") then he didn't give himself enough runway or just kept going past the markers of failure he should have set. You can try something crazy if you can afford it. If it really takes everything down to your last dime, you either have to have very little to lose or you may need to admit that your aspirations are beyond your limits. That is when it is time to get others involved who can bear the burden of additional risk. It's pretty easy to keep out of that problem: give up before you have nothing left. That lure of "If I can just hang on a few more months", can leave you empty handed and flat our wrong (I've been there). As for when to start a business: start when you have estimated to the best of your ability that your risk tolerance can provide enough to see you to success PLUS some kind of meaningful safety factor. Don't be prepared to fight to the death or you may die! It's better to live to fight another day.

  • Anthony Reardon

    Well I have said before not to quit your day job, but I have also said the best knowledge to gain comes from a position where you believe so much in the potential of your idea and you go all in. Business has so much to do with intelligent risk taking, and people with a propensity to try and fail are by all probability more likely to be making a good decision by starting a business...eventually.

    People that don't understand the kind of commitment required to put skin in the game and do what it takes to really capture the lifeblood of a business might be too averse to risk. So, while they may be more likely not to fail if/when they do move on starting a business, it is more probable for them to fail...eventually.

    It's a continuum. So, risk aversion is as important as risk taking in the ultimate formula, but you don't get the deep level insight into what this means until you have really experienced consequences. In other words, you might do everything "right" but some years down the line find yourself too cautious to seize opportunities in an increasingly complex, volatile, and competitive environment. Even worse, you might go all in when it is not a good idea, because you rate your judgment too highly, and haven't gained the wisdom that comes with the humility of failure.

    It depends on your risk tolerance. If you don't have family and responsibilities of that sort, I say going for it all is almost a universally good idea. Even though you are likely to fail, you're not likely to do irreversible damage. You can always go get yourself a job and start over, etc. If you do have a family, etc, then no matter how you rationalize the potential of your idea, you should cover your bases- probably means not quitting your day job and taking a very conservative approach.

    Best, Anthony

  • Ben Fruin

    my thoughts: starting a company is not a terrible decision. But do not quit your day job until your company is generating so much revenue that you are actually losing money by showing up to work.

  • Henry

    If you don't quit your day job, you will never generate enough revenue. There will come a point where you have to choose between your day job and the startup, and jump into the unknown (aka calculated risk).

  • Ben Fruin

    Henry. Agree to an extent. I am speaking from my own experience. I think you can find enough time working a standard 9-5 to determine revenue viability for your start-up. Assuming that person is not handling development, sales, marketing all alone which is a recipe for failure in its own right. Even if just doing sales, one should be able to work at least 40 hours a week on top of day job and that should be enough time to get there or at least learn if you have the chance to reach that mark.