Tuesday, May 31, 2005

Why Does an Entrepreneur Do What He Does?

[tags: Entrepreneur, Pincus, VC, start-up]

Why does an entrepreneur do what he does? Clearly, there are easier ways to earn a living, resulting in a much more comfortable lifestyle. If we don’t realize this before our first start-up, we quickly learn that starting a job is very similar to the military recruiting tagline: “It’s not just a job, it’s an adventure.” Adventure is code for long hours, demanding work, emotionally demanding, poor pay, where success also requires an element of luck.

When you take a purely dispassionate look at the underlying economics, starting a company makes no sense. The odds of success are very long, the hours are long and the pay is sub-market. If your company is lucky enough and good enough to earn a liquidity event, the odds are good that your piece of that payout is small, especially if you build on VC funding. And if you take VC funding, odds are that you will be replaced as CEO by someone the VCs like better. Basically, as Mark Pincus points out, the economics of starting a company simply don’t make sense.

So, why do we do it again and again? It comes down to a simple perspective. Most people fear change. They prefer the status quo, which is no doubt more comfortable. We live in a short attention span world, where instant gratification is everything. The dream is the comfortable house, new cars and regular vacations.

Entrepreneurs are different. We embrace change and abhor the status quo. We see things the way they are and see how they could be better. Then we become obsessed with making it better. Our dream is to build something, to make a mark on the world, to bring our vision to life. We have a love-hate relationship with our companies. We love what we do, but we hate what it takes. It shouldn’t be that hard, but it is…always.

Here is the difference between a VC and an entrepreneur:

VCs see rewards; entrepreneurs see potential. VCs look at a seed and say: “But who will buy this seed?” Entrepreneurs see the seed and say: “With the right soil and nutrients, this seed will grow into a strong and productive plant that will provide wonderful food.”

VCs want productive farms, entrepreneurs are enamored with the empty plot and a sack of seeds…the potential is what excites the entrepreneur. Once you have a thriving farm, the thrill is gone.

Which of the following statements best describes you:

1. Give me a few great people and together we will beat extreme odds and build something that will change the world. If we are successful the rewards could be immense.

2. Give me a $200M fund and I’ll deliver solid returns by investing in great start-ups that already have solid products and customers. By diversifying risk I will personally make more than $1M per year over the life of the fund.

Only an idiot, or an entrepreneur, would jump at #1 over #2 every time. If you beat the long odds, you’re an entrepreneur. If you fail, history and your wife call you an idiot.