Starting a Company is Less Risky Than You Think
and it might be a better career move too...
|Erik Torenberg||Jul 26, 2020||23||5|
Note: Welcome to my newsletter! Every week I’ll share a short essay, followed by recommendations of content to read and listen to. I welcome any feedback.
Starting a company is less risky than you think.
Failing at a startup isn’t blemish on your resume. On the contrary, in some circles, it’s a badge of honor that you carry for the rest of your life—You’ve been in the arena. That has real currency in the tech community.
We are told that it’s better to join a Series A company first, because that will be better training for starting a company than...starting a company. You build your network, brand, and skills and can then start a company, the logic goes.
I don’t buy this.
Not that you won’t get that and more working at a Series A company. You will. But ultimately, working at Series A company teaches you how to work at a Series A company—or, more charitably, what a well-run company looks like from the inside.
But founding a company is about getting it from 0-1. It’s a different skill set. You learn by doing.
We’re also told to work at a startup first because it’s less risky. I don’t buy that either.
Sure, there may be less financial risk in starting a company, but I don’t buy the corollary risk typically associated with founding a company—that if we fail, we will be viewed as a failure and thus unemployable.
On the contrary: In my opinion, starting a company is usually a better way to build your network and your brand relative to joining a company, in addition to having disproportionate financial upside.
How? External facing founders are, in some sense, building their network all day, chatting with investors, hires, and more—and employees are basically building the founder’s network and credibility by proxy. If the company implodes, these networks stay with the founder in their next endeavor.
Brand is a bit trickier, but I think of it like this: companies are effectively quasi-religions and founders are effectively quasi-religious leaders. When employees speak about the company they repeat the founding story, which becomes something of an urban legend. When the company has any sort of success, the founder gets disproportionate credit and publicity, and this recognition also stays with the founder in their next endeavor, even when it’s a failure.
Silicon Valley is very charitable in that way: Instead of saying “Wow that founder failed I will never work with him”, more often than not, they say “Founding a company is hard. I’m impressed with how much they achieved (before they failed).”
Failure is the norm, after all. So any success achieved before the failure is remarkable.
And it is indeed likely the company will fail. If it’s a particularly high profile failure, some people will criticize the founder for raising money and failing, but builders and investors will respect them for trying.
Take Clinkle as an example–employees left the company almost triumphantly, posting their resignations to social media, and yet the founder still raised money for his next thing. If the Juicero founder went out for his next company, I’d bet he’d raise some money too. Silicon Valley respects the person in the arena.
So this is why in many important tech circles, there’s typically lower career risk in starting a company than joining a company.
Notice I said “career risk”, not “job risk”
Job Risk: the chance your job will no longer exist
Career Risk: the chance your long-term career will be negatively affected
Though startups have much higher job risk than a larger company, they reward you with greatly diminished career risk.
To be sure, starting companies isn’t for everyone, or even most people. Many people are simply unable: They may have to take care of other people financially, or they may have other obligations that prevent them from going full-time into work.
Others may just not want to be a founder. Since we celebrate founders so much, there’s implicit pressure to become one. But you can make more than enough money (and impact) by working at startups or other companies.
This piece is only for people who want to be founders, but are telling themselves that starting a company sooner is too risky from a career perspective, or that they need to join a company first to learn how to start a company.
It’s worth noting that startups have real emotional costs: You’ll have more stress, which is hard to put a price on. Likely more loneliness too. You’ll become intimately familiar with cognitive dissonance, self doubt & other side effects. You’ll sacrifice short-medium term stability & peace of mind (maybe happiness) in exchange for a potential financial & impact outcome that, at the end of the day, is unlikely (separate from any career benefits). You’ll hope the journey is its own reward, but it will be hard to appreciate this in the moment.
To be clear, If you can’t or don’t want to start a company, don’t start a company.
If you do want to start a company though, consider starting earlier than you think. Don’t fall for idea that you have to work at a company before starting one, or that it’s necessarily a better path.
To be sure, joining a company can be a better decision for your entrepreneurial career in some scenarios, when it’s truly a unique accelerant of network and learning. Being at Product Hunt accelerated my network more so than anything I could have started at the time. My co-founder Ben Casnocha would say the same thing about being Chief of Staff for Reid Hoffman. I think working at On Deck (*ahem…*) today would also be that accelerant in terms of meeting future co-founders and investors. Even beyond the career benefits, sometimes you can just achieve the problem you aim to solve better as a part of a company than starting on your own, if they have enough resources and advantages you don’t yet have.
However, while sometimes incredible growth opportunities emerge that outweigh anything you could have started on your own, these opportunities are rarer than we think. These roles are often hard to come by—they typically have to be created—so they’re less likely to be the first things that come up.
One concern to watch out for by joining a company, if your goal is to eventually start one, is becoming too comfortable. Once you join something that’s working and build a reputation there, you may become less eager to start a company that might risk your reputation in the short term—“What are you even working on?”—but may be an asymmetric bet for long-term success.
If you do end up joining a company, join a startup over a big company, and then work to become a leader within a company. You want to get to as close to the entrepreneurial activity as possible
If you’re unsure whether to start or join a company, the On Deck Fellowship (note: we just announced the next cohort) helps increase optionality here, by giving you a network and credential even before you start a company. And, once you fundraise, joining a network like Village Global or YC helps create optionality as well.
My point is not that people are more likely to succeed in building a unicorn than they think. They’re not. My point is that even the failed attempt to build a big company—through the skills, network, and reputation gained in the process—often creates more optionality than joining a company, exceptions above notwithstanding.
Nearly a decade ago, I started a company called rapt.fm (we lost the actual domain name—don’t ask), which was trying to be Twitch for music, starting with rap battles. I spent 3 years of my life on it, and while we had some traction, it didn’t really have potential for venture scale, and I ended up winding down the business.
I thought that I’d forever be known as a Total Failure, but a week later people seemed to forget, and I joined Product Hunt as a founding team member. People respected me for trying to build rapt.fm and assumed that I’d just keep trying to build companies, and at one point I’d succeed. I was surprised people respected a failure, but in retrospect it made sense.
Looking back, the rapt.fm experience enabled me to grow my network, learn a lot, and meet people that I’d then go on to build Product Hunt, On Deck, and Village Global with. If I joined a big company, I don’t think I’d have built the network to do these things shortly after.
In conclusion: If you want to start a company some day, consider starting it earlier than you think. The odds are you won’t hit it big the first time, but the potential upside is enormous, and the base case—improving your skills, network, and reputation—likely creates more optionality than working for a big company, making the decision worth it from a long-term career perspective.
Ultimately, if your goal is to be a founder, the bigger risk is not that you fail right away, it’s that, if you don’t start enough companies, you don’t get enough actual shots on goal to actually create a big company.
Book of the week: “Primal Screams” by Mary Eberstadt. Mary argues that the rise of political tribalism can be traced back to the collapse of the family. In her other book she posits that the collapse of the family can be traced back to the sexual revolution.
Podcast of the week: Jacob Helberg on the US & China cold war and how Silicon Valley should respond.
Until next week,