Why is it that every entrepreneur buys into the concept that a suffering a lot is good for their start-up?
Certainly every VC and early stage investor i have ever met, sings the praises of “entrepreneurs suffering to win”. And clearly if you’re the investor paying the bills then it’s no surprise that you are arguing to pay the management as little as possible until they are making you a return. But I am unconvinced that pushing this concept too hard is a good idea. I am unconvinced, because for every story where the founder struggled from nothing to create a success, there is a parallel story of a founder with a good idea, good salary and a well funded business.
Pain does not guarantee success.
Let me declare my experience. I have successfully raised investment from Corporates (syzygy), public markets (syzygy), private equity (eSubstance / Ink and Edengene) and Angel investors (Law in Order). I have also failed to raise investment from Angels and early stage institutional investors.
So let’s examine the argument.
In favour of pain
There are a few interesting reasons to support the pain theory:
- If you are suffering, then it encourages you to focus on understanding and applying the key levers of your business that can make it a success.
- If you are not making any money personally then it drives you to work bloody hard to find ways to change that. You are desperate to get the business driving sales and profit so that you can take out some more money
- If you’re struggling then it makes you change things quickly. It makes you give up routes that aren’t working. It drives you to adapt. You can’t prevaricate.
- Paying entrepreneurs very little at the start allows the business to run for longer on less cash
The key arguments against the pain theory are as follows:
- It can cause serious ill-health. I should know I ended up in hospital for 6 weeks once
- It destroys marriages and families. Ask experienced entrepreneurs and many will comment on this possibility
- There isn’t any more guarantee of success. Sweat plays a part in success but in today’s competitive world it isn’t the golden key
- Pain can give entrepreneurs tunnel vision and actually prevent them from seeing the big picture. And they need the big picture to make the right decisions
My humble view is that success is much more strongly correlated with the mitigation of risk. Whenever, I speak to successful serial entrepreneurs, I hear how strongly focused they are on reducing risk and knocking down the problem areas, wherever they may be. They are resolutely focused on understanding how to improve the relative profitability of their product or service, how to scale it quickly and how to win and retain loyal customers. Successful entrepreneurs build capabilities, partnerships and resources early on. The make’em suffer theory is a red herring when you look at these drivers of success.
So is there a middle ground?
Yes I believe the right answer is a mix of these components:
- The entrepreneur needs enough money and collegiate support not to be driven over the edge. But this shouldn’t be too much to make them comfortable. There isn’t a single number for every start-up, but the immediate answer shouldn’t be “£0”, which too many early stage investors seem to think
- If an entrepreneur chooses to pay themselves nothing to make it happen, then investors shouldn’t necessarily assume that the entrepreneur needs to invest lots of capital as well.
- Every entrepreneur needs minimal distractions from outside influences, like the arrival of a child or a divorce.
- The key focus should be on getting sales out of the start-up and not being diverted on making money out of consulting or side bets.
- Businesses with breadth and depth in their management teams tend to do better than others, so start-ups should look to find cost effective ways to bring good people on board or just giving advice.
I would be fascinated to see more research into this topic, but for now, don’t just sign up to the theory that pain is good.
Understand what that means and how that relates very personally to you.