Overnight success stories make for great news, but how people achieve—and perceive—success can be complicated in reality. Have a plan, but hold it lightly.
It's important to understand why the nature of both real and perceived growth is changing because of the Anxiety Economy, and why change takes years longer than you want.
There's never been an easier time to start a business—even with less than $100.
Businesses are growing faster than ever.
It seems like every week another company's gone from nothing to $100 million in record time, or been acquired for $1 billion or some other huge amount.
While there will be ups and downs in the economy in the coming years, the overall trend of “easier to start, faster possible growth” will continue as we get more and more connected.
Yet there's also never been more anxiety, frustration, and depression—especially among CEOs and aspiring entrepreneurs.
Whether you're new to business or have been at it for decades, everybody struggles with the now overwhelming number of choices in what you can do; build, use, and ways to grow … that all keep changing constantly, such as:
You can't do all of it, and do it all well.
Plus we're dealing with generational changes:
All this anxiety and uncertainty is one reason why growth and predictability keep increasing in importance. People want to reduce uncertainty.
There are reasons why anxiety is growing, despite our relative luxury compared to billions of others:
These issues have been around forever. But the Internet, mobile phones, and social networking turbo-charge them.
“We always focused on solving the unending problems in our companies, so we only saw issues. While we only saw from other companies the success they presented to the outside world.”—Ken Ross, entrepreneur/investor
These factors all work together. First, there's some change or struggle at work you're dealing with. But at the same time you're overwhelmed with messages and to-do lists, and with less energy to deal with them. Plus, everyone else you're watching online, in social media or the news, appears to be successful … it's a triple whammy.
This isn't a self-help message about, “Oh, you're not really struggling, it's all an illusion.” These factors directly affect revenue growth. Because it's not just you—it's the same experience for your employees and customers. The Reality Distortion Field warps their own expectations and decisions, including whether they should work at, buy from, or stay with your company.
Remember three things when overwhelmed:
These problems can be a quadruple whammy for many entrepreneurs, especially in technology; early reports are showing that entrepreneurs are more likely to have a brain and/or emotions that work differently than the average person. A study by Dr. Michael Freeman, a clinical professor at UCSF (and an entrepreneur as well), was one of the first of its kind to link higher rates of “mental health” issues to entrepreneurship.
Of 242 entrepreneurs surveyed, 49% reported having a mental health condition. Depression was the top issue, present in 30% of all entrepreneurs, followed by ADHD (29%) and anxiety problems (27%). By contrast, only 7% of the general U.S. population rates itself as depressed. Yes, part of the depression is caused by the stress of running a company, but the study tried to account for that by also tracking mental conditions in close family members—which were also higher than the populace.
Here's a takeaway: If you say, or someone says, that you have a “mental condition” (whatever that means to them), don't automatically assume it needs to be “fixed”. It can be both a pain in the ass and a fantastic gift—so how can you work with it rather than believe you need to eliminate it? Many of the most successful artists' minds worked differently from ordinary people—offering both extra benefits, like break through creativity, as well as extra problems, like soul-crushing depression. But often if you remove one you lose both. Something incredibly frustrating today can turn out to be a huge advantage in the future, once you see how it fits into the puzzle.
Trust us, our families think we are certifiably crazy (no joke). Which we are, in our own ways … and we embrace it. If we didn't, if we hadn't—we wouldn't be here writing this book.
For details and updates on that study, see www.MichaelAFreemanMD.com/Research.html.
A mutual friend of ours is Mark Suster, past serial entrepreneur and now partner at LA-based venture capital firm Upfront Ventures, and writer of the popular blog “Both Sides of the Table.” Enter Mark:
I often have career discussions with entrepreneurs, both young and more mature, who are thinking about joining a company. I usually try the old trick of answering a question with a question: “Is it time for you to learn or to earn?”
Let's face it: If you're thinking about joining a startup that has already raised, say, $5 million (as the director of marketing, or as product management manager, senior architect, international business development lead, etc.), the chances of making your retirement money there is extremely small. That's okay. Not every job you have is supposed to be your big break. It's okay for that to be a job where you learn.
Yet people often ask me whether I think a company is going to be a big hit. It's clear that they're confusing learn with earn. So here's a simple calculation I do for them: okay, you would own 0.25% of the stock. They raised $5 million in their B round. Let's assume that the company raised it at a normal VC valuation and gave up 33% of the company and thus $5 million/33% = $15 million post-money valuation. If you never raise another round of venture capital (a big if), and if your company is sold for the normal venture exit ($50 million on average for the 200 or so that get sold annually), then what is your stake? $125,000? Yup. Simple math would have answered that, but people rarely do the calculations or think about them.
Let's say that it took four years to exit—that's $31,250/year. Now … these are stock options, not restricted stock, so you'll likely be taxed at a short-term capital gains rate. In my state (California), that averages around 42.5%. So after tax you'd make an extra $18,000/year; and that's in a positive scenario! Also, this ignores liquidation preferences, which actually means you'll earn less.
Now let's go crazy. Say you get 1%, you sell for $150 million, and it's in three years (e.g., you won the lottery). That's an after-tax gain of $287,500/year for two years. Not bad. But, wait a second … stock vests over four years. You didn't get acceleration on a change of control? Sorry, we'll have to either cut your earnings in half, to $143,750, or you'll have to complete two more years at whichever BigCo that bought you to earn it all. Either way that money's earned over four years—so it's $143,750/year for four years.
Don't get me wrong. This isn't shabby money. Most people would love to make that much in four years. But don't confuse getting stock in a company with retirement. Given that a decent home in an expensive area such as Palo Alto or Santa Monica will set you back $2 million, it's hardly riding off into the sunset. It's why Jason says “the risk-adjusted economics of starting a company suck.”
I'm not trying to depress you; I'm just trying to be realistic. If you want to earn—and by earn, I mean the chance to buy your house outright—you have to start a company or join as a senior executive. Or you have to hit the lottery and be an early middle management player at a place like Google, Facebook, MySpace, or Twitter. Let's be honest: how many of those are created per year in the entire country? One? Two, max? I spoke with an investor recently who told me that 1,500 deals get funded every year in the United States; 80 (5.3%) eventually sell for $50 million, and only 8 (0.5%) eventually sell for $150 million or more.
So when the Stanford MBA, the ex-senior technology developer, or the former Chief Revenue Officer of a company is calling me and asking my advice on their next gig, you can see why I start with, “Are you ready to earn or to learn?”
Are you ready to earn, or to learn?
For most people it's learn. I only emphasize the question because I find it much more helpful to join a company with realistic expectations. My advice is often this: Make sure that what you get out of working at this company is one or several of the following: a great network of talented executives and VCs, more responsibility than your last job, specific industry or technical skills that will help you in what you do next, or a chance to partner with companies that will increase your industry relationships, and so on. Learn now to earn later.
When I was CEO of my first company (where I admittedly fucked up everything before I figured it all out), we initially calculated for people how much their options were eventually going to be worth. This was in 1999. A company called Ventro, with only $2 million in revenue, was trading at an $8 billion valuation. It was easy to do these calculations. Over time I realized that this created a rotten culture.
Later, I took to telling people the following: “Join BuildOnline because you think you'll get great experience. Join because you like the mission of what we're doing. Join because if you do a good job, we'll help you punch above your weight class and work in a more senior role. And if you ever feel in the year ahead of you that you won't increase the value of your resume and you're not having fun, then go. Join because we pay good, but not amazing, salaries. Stock options are the icing on the cake. They'll never make you rich. Don't join for the options.”
Obviously you should take only jobs that you enjoy and that let you be passionate about coming to work every day. That's a given. Don't blindly join a company without knowing why you'd join or asking the right questions.
A friend recently called to ask for advice on becoming the CTO of a startup. He'd be employee number three. The company was being spun out of a larger company. I asked him how much of the company would be owned by the parent company and how much would be owned by management. He hadn't thought to ask. When we next spoke, he'd found out that the CEO had about 5% and there was no management option pool in place. My advice was … run! I said, “All the hard work is ahead. Why start the game with a company that has a structure that's likely to fail?”
Another talented young man called recently to talk shop. He had an offer in New York, another with a well-known startup in the Bay area, and a third offer with a startup in Los Angeles. He also has his own company, which he'd started six months earlier. He's not even 21. He wanted to know what to do. I told him that he needed to decide whether to learn or to earn. He's young enough to do either, but you need to know why you're doing it. I advised against the LA job because it was a bigger company and his role would be pushing paper from one side of his desk to the other. If you're going to learn, then at least go work somewhere exciting. If it works, you can stay and grow for the next five years. If it doesn't, you'll have done three startups by age 26. And you'll be ready to earn.
On the other hand, at sub-21 you have the ability to swing for the fences and try to earn, if you're so inclined, and if you think you have the skill set and the idea. When you're 40, with three kids and a mortgage, this is much harder.
Now, for the earn part. My friend is a very talented executive. He went to Harvard Business School and has worked at three prominent startups and two well-known big companies. He's worked in the United States and internationally. He's in his early 40s. Whenever he calls me, he must think I'm a broken record. I always say, “Dude [I live in SoCal now!], it's time to earn. Stop dicking around with another number-two job (he always gets offered the number-two position). It's time for you to be in the driver's seat. Either start a company or go somewhere where they need a CEO.”
If you really want to earn, you need to be among the top three or four leaders in the company. It's best to be a founder. Very few people can do this. It's a rare skill. Be realistic about your skills, background, and ideas.
I'm not all about the money; I think working in a startup can be an enormously rewarding experience. I wouldn't recommend it otherwise. But you need to match your talents, age, skills, ambition, and economic situation to your current reality. At a minimum, be realistic about the outcomes. And make sure you ask yourself, “Am I here to learn or to earn?”
Match your talents, age, skills, ambition, and economic situation to your current reality.
Having a good heart isn't enough. You need to learn how to make money to grow your organization, whether it's for- or non-profit.
As discussed in the Nail A Niche section, Avanoo is a company that is going from a first sale to $5 million quickly. Along with cofounder Prosper Nwankpa, Daniel Jacobs took a roundabout journey to founding the company—including pit stops with orphans, artists, and Hari Krishnas.
Daniel always wanted to make a difference in the world. He used to believe (or hope) that a good heart and honorable values would be enough to create a movement that made a difference.
Now, he says he's learned the hard way that regardless of how meaningful an organization's vision and values are, it's not going to exist unless its founders embrace money. Including how to market, sell, and predictably grow.
Before founding Avanoo, from 2006 to 2010 Daniel had started and run a “philanthropic technology company” called Everywun. Everywun was a volunteer platform that businesses used to give their employees ways to earn points for volunteer work. Employees could get points, for example, by planting trees, feeding kids, or fixing malaria in Africa. Those employees could redeem those points for very specific goodwill outcomes, like “use 50 points to feed a child for a day.” Businesses paid Everywun to use the service, as an employee benefit. It was a do-gooder's dream.
But then the recession hit, and in 2010 Everywun failed. Daniel felt he'd hit rock bottom.
“I'd devoted all of my life, practically every ounce of energy, for six years, believing that I would grow something that would make a powerful, sustained impact on the world. Then it was gone. And there was a big void. It felt awful, terrible. But I also saw in that void an opportunity. When I was working on that business, I couldn't touch any of the people I wanted to serve. Technology sat between me and the people I wanted to have as part of my community. But then when the technology was forced out of the way, I had the opportunity to be of service in a different way: with my hands, with my heart, as an anonymous helper on the ground.”
He gave away all his stuff and went off traveling in South and Central America for a couple of years.
He worked on an Argentine organic farm run by a Hari Krishna group outside of Buenos Aires. In Cordoba, Argentina, he mentored entrepreneurs and served as a foil for Mormon missionary friends. In Santiago, Chile, he lived, and made art, with street artists.
Eventually, he landed in an old Guatemalan mountain town. He helped build houses for single, middle-aged women who'd adopted orphans to live with them, so that the community could avoid having a single institutional-style orphanage.
In 2012, Daniel was in this town, surrounded by kids who had so little but who seemed happy. It didn't make sense to him, because kids in the United States have so many resources, but so many behavioral problems—and don't seem nearly as happy. “It struck me: I'd come to help the kids here with material resources, but people back home had just as much of a need, but of a different kind. I wondered, is it possible to support people in transforming from the inside out, in ways we can measure? And show that a transformation actually happened?”
This was an exciting question to him—exciting enough that he spent more than a year researching it. And the research led him to partner with an old friend he'd met when he was 17, Prosper Nwankpa. Together they founded Avanoo.
Don't obsess about getting to success so fast that you ignore your inherent interests, those “whispers” in the back of your head that you usually ignore as being impractical—you know, pretty much anything that isn't about your to-do list or your immediate career and home concerns. Anytime you say, “I'd like to do X, but I can't because of Y” imagine what it would be like if Y were not in the way. How can you pursue dreams you had when you were younger, such as moving to another country, making art, writing music or poetry, having kids, or adopting?
Don't obsess about getting to success so fast that you ignore your inherent interests.
Those larks and quirks may be what end up helping you to success faster in the long run. Or at least they can help you stand out as a unique and interesting soul. Explore the whispers first, and then later you'll find ways to bring them into your business life.
I never thought of myself as an artist, but a few years ago, I started messing around with crayons, then colored pencils, then pastels—and later I ended up drawing all kinds of sketches for my work, including Predictable Revenue, and the art in this book.
It might be tech news, your social feeds, or even this book that make you Compare and Despair, thinking you have to go big or go home. You may feel that working in consulting, services, a small business, or whatever you do isn't big, fast, or good enough.
Ignoring what others say or do, any business that works for you is perfect. You may need to explore to find out what the hell that is. And along the way, like Daniel and me, maybe you'll change your mind about how important faster growth is to you. Maybe it'll be a much bigger, or a much smaller, deal than you previously thought.
We're just saying if and when you decide you do want to go bigger, there are ways to do it.
Something you hear all the time in Silicon Valley is, “We're going to change the world!” and “We're revolutionizing the world of [insert mission here]!” Great. We understand that's exciting and that you want your mission to be meaningful. But our sense of what truly changes the world is the people who developed the polio vaccine, radio, food refrigeration, electrical systems, or inspired millions into nonviolent revolution. If you're making a web-based sales tool, invoicing solution, mobile document syncing solution, travel app, or a new way to share pictures with people … maybe not so much world-changing.
Look, it's very important for you and your team to have meaningful work. It's not that these aren't great things, it's just that the world would get there one way or another without them. There are reasons Sergey Brin is working on autonomous cars and Elon Musk on unlimited solar energy.
What you can do is make Your World better by appreciating all the tangible ways you're already helping the people you work with, serve, or inspire:
Make Your World better by appreciating all the tangible ways you already help the people you work with, serve, or inspire.
Wherever you are in your journey, one thing we've learned in both startups and Fortune 500 companies is that, risk-adjusted, it's probably less lucrative to do a startup. And startups aren't even any more nimble than the best teams in Big Cos. But in a startup, it is easier to make Your World better and see it grow and happen day by day.