Friday, May 16, 2008

Taking my own advice

When should you start a company? This is the quintessential entrepreneurial question. A running debate rages: when do you have a feature rather than a company? When is a company being started because it should be rather than when it merely can be? What does it take to make a company successful? This debate heats up appropriately when exits are plentiful and lots things get funded that shouldn’t.

When potential entrepreneurs ask me when they should start a company? I tell them you should start a company when you can’t do anything else. When you have an idea that has such a grip on you, you can’t sleep at night. When you know it would be far worse not to pursue a venture than to fail miserably trying. If you have any intelligence at all, it is the only way you can do such an irrational thing as start a company.

It is called risk capital for a reason. Over half of all funded ventures fail: by most accounts fewer than 30% succeed in any meaningful way. The exercise of venture investment only becomes rational when 20% of the ventures in aggregate can provide ridiculous returns (better and 10 to 1). With diversity and persistence this looks somewhat rational and perhaps even highly lucrative when managed across multiple funds with portfolios of companies.

But take a specific venture, there is no rational for it being a good idea. In my experience companies succeed when they are meant to succeed; when all the stars align. It is like the old advertising adage: “we know half our advertising is a useless waste of money; we just don’t know which half.”

Don’t get me wrong, you need to do all the right things to succeed: identify a market; develop a compelling value proposition; get the right people; manage your cash well; keep maniacally focused, etc. etc. But all that’s not enough. You also have to have uncanny instinct (or maybe just dumb luck). When a prospective venture posses you, dominates your thoughts, doesn’t let you sleep, and jolts you from aha moment to aha moment yielding seeming clairvoyance, then you know it is time to start a company. New Stealth Co has that grip on me. I am going to build a wildly successful company and it will change the world.

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