It’s become very trendy to start a company in the past decade. People who would have gone to Wall Street or law school are now flocking to apply to Y Combinator instead. With the pandemic and everyone working remotely, the virus isn’t the only thing that’s spreading; the entrepreneurial DNA is also leaving Silicon Valley. Even though I will encourage almost anyone to start their own business, I will be the first to say that it’s not for everyone. As many have learned, the highs are very high but the lows are very low. Nothing is more exhilarating than when you get your first customer or see your company logo on CNBC or company name in the Journal, because you created it. But when things go bad, that also is on you and you feel the weight of all of that on your shoulders. It also means giving up time and money, which not everyone can afford to do. The opportunity cost of not taking a job with a high-paying guaranteed income is very real. You won’t realize how much time you have to sacrifice from friends and family until you start your own business. Your odds of success are relatively low. So if you’re looking to start a company to get rich, I suggest you find much more efficient ways to do so. Invest in real estate, join Google or Facebook, open a McDonald’s franchise. If you really want to start a business because you are passionate about an idea or love to build, then nothing is going to stop you from doing it.
There is no perfect time to start a company. When I was working at eBay, I had just graduated from business school and was ready to change the world. I clearly wasn’t going to do it from a cubicle farm in San Jose. But I felt that I needed to gain more experience as an executive to be able to start a company. I told myself that without getting to a VP level at successful tech company, that I would not be an effective leader of a startup. It wasn’t until later that I realized that I was being naive. If anything, being entrenched in big corporate politics and culture will actually hurt your ability to effectively run a startup. Case in point, I had a colleague at another startup I worked at say that an email I wrote wasn’t how things were done at Google. Do you think I gave a shit how things were done at Google? If you did things the way they were done at Google at a small startup, you’d still be stuck in some conference room arguing with one another to make yourself feel smarter. You cannot build a startup with a big company mentality. In fact, I know investors who refuse to invest in founders coming out of FAANG companies with no startup experience for this very reason. Most of these founders have been institutionalized and are like Brooks from Shawshank Redemption when they are no longer on a fancy campus. That being said, I do believe that if you don’t have a good idea, you should go work at a rocketship before starting your own company. To this day, I still distinctly remember Justin Kan giving me this same advice like it was yesterday.
It might be odd for me to say this as someone who is trying to mentor and inspire the next generation of founders, but my goal is to be as honest and real with my readership as possible. The time spent toiling away on a mediocre idea that you’re not excited about or in a market with a very small TAM, is going to be better spent learning and building your network at a rocketship. I define a rocketship as a Series C or Series D company that is on a trajectory to an IPO. These companies have product market fit and are in the growth stage of fundraising. They have a lot of buzz and the talent they acquire is extremely impressive. There are plenty of highly talented executives that move from rocketship to rocketship which you can see from their resumes and LinkedIn profiles. They are very good at what they do at the stage they do it. If it’s an earlier stage company (Series B or C), it’s usually an extremely talented engineering or product leader. Only a rocketship can attract that level of talent and the VCs sell those folks on how successful that company is going to be. Their reputations depend on it, so they have a lot of information that others don’t have. In later rounds and prior to IPO, look for top human resource leaders and CFOs being brought in. Just like a real rocketship, you’ll know a rocketship when you see one.
There are three main reasons I recommend joining one of these companies before starting your own:
First, you will learn a ton about scaling. By the Series C or D stage, the company will likely have developed effective processes, identified best of breed systems and software, and established cultural norms. All of this takes a few years of growing pains at any startup to figure out through trial and error. Rather than joining it as an awkward adolescent, you get to join it as a somewhat functional adult. This means you get to learn how a finely-oiled machine works and hear about the mistakes that were endured to get there. When you start your own business, you will no doubt make a ton of mistakes, but learning what is possible on the other end will help you get there.
Second, you will add an invaluable network. The importance of building your network can never be underestimated. You are not guaranteed an offer at a rocketship company, you have to survive the gauntlet because you’ll be competing with many others who also want in. But once you’re in, your fellow survivors will be just as talented, if not more so, than you. The rocketship has done you a favor by screening your new colleagues into an amazingly powerful and valuable network. These are your future cofounders, employees and investors. Alumni of rocketships go on to start companies or get hired by venture capital firms. This stamp on your resume will also open doors for you with investors and press. First-time founders from Instacart, Airbnb, Zoom, Affirm and others have a much easier time getting meetings and investments from angels and venture capitalists. These rocketship brands are more meaningful on a resume than a Stanford, Harvard or MIT degree, because they reflect the unique experience of having been a part of something that has evolved and grown into something huge.
Finally, one of the most important reasons of joining a rocketship is cash. There is nothing more liberating when starting a company than having the financial freedom to not worry about your bills or how to put food on the table. I cannot emphasize enough how important it is to be able to work on your startup without these things hanging over your head. A liquidity event from a rocketship like an IPO or acquisition buys you the most important thing when starting a company: time. The longer you have to work on an idea, the more proof and traction you can build to effectively fundraise. Or if you choose not to raise outside capital, cash can buy you time to get to revenue which may allow you to bootstrap the business to profitability and more. Either way, joining a rocketship that has nearly guaranteed liquidity in the near future can buy you time and freedom to work on your startup. Consider that you could spend anywhere from 5–7 years toiling away on a startup that ends up a zombie or does not survive. During that time you could have been vesting equity in a successful startup and having a liquidity event. These are the tradeoffs that you need to seriously evaluate. This becomes even more important when you take into account life stage. If you are single with no debt, it’s much easier to make this decision than if you have a family and a mortgage to pay.
You might be saying to yourself, “Wow Dave, I signed up for this newsletter to be inspired to start a company and now you’re telling me to go get a job.” Not exactly. I am telling you what all of the Twittersphere and tech media won’t tell you. Life as a founder is a grind, and it’s not for everyone. If you’re like me and nothing is going to stop you from starting a company, then why not improve your odds of success by gaining some valuable insight and experience, building a stronger network and putting away some cash in the bank? Don’t just start a company because you think it’ll make you rich or it’s what all the “cool kids” are doing. If that’s your motivation, I am pretty confident you will fail miserably. If you aren’t excited about what you are building, it will be too easy to give up on it. You can lie to others all you want, but in the end you have to look in the mirror and be honest with yourself. In the meantime, you could be working at a rocketship and putting yourself in a better position for when you do find that idea that you’re genuinely passionate about.