Why Starting a Company Is Like Falling off a Cliff

Falling off a Cliff

Does the call of entrepreneurship make your current job seem boring? Are you looking for adventure? Do you seek IPO riches? Are you looking for an escape?

Don’t be too quick to make the leap, warns Robert P. Strauss, professor of economics and public policy at Carnegie Mellon University. He says today’s economy isn’t friendly to typical small businesses and the employment situation is worse.

“Starting a business is a young person’s game,” Strauss believes. Mid-career workers who quit their day jobs to start their own business may not be able to easily slide back into full-time work. The situation becomes even more difficult as workers age.

Startups require money and Strauss says the necessary cash may be hard to come by. Personal and business credit is tight, with banks unwilling to fund new companies at the pace they once did. In addition, measures of consumer and business optimism remain weak and can frighten off potential investors, including family and friends. Personal credit cards are often maxed-out and new ones difficult to get.

“Even successful businesses are being turned away when they ask banks to fund inventory or expansion,” observes Strauss, who has extensive public service experience at the U.S. Treasury and the Joint Committee on Taxation.

He also reminds would-be entrepreneurs of something experienced startup CEOs already know: Most new companies fail, sometimes miserably, taking savings, marriages, homes and kids’ educations with them.

If Strauss’ warnings dissuade you, they probably should: The easily discouraged don’t have the right stuff to start a business.

On The Other Hand…

But bear in mind there exists what seems to be an alternate universe of venture capital, where you can almost find a chorus singing, “It’s never a bad time to start a business!”

Scratch through the VC rah-rah and the essential truth is revealed: They are always talking about “great ideas,” as in the next Twitter or Facebook, usually fronted by a team with previous venture funding and experience.

“It is always a good time to start a business as long as you plan to dedicate your life to it,” according to Tim Draper, one of Silicon Valley’s best-known venture capitalists. “I think we are at the beginning of another tech boom, and it is warranted,” he adds. “People have worked very hard for a long time for this. There is more money available than any time in the last decade.”

Kevin Surace agrees. “It is ALWAYS a great time to start a great company,” says the serial entrepreneur and CEO of AppVance, a cloud-based app testing company. “Great products that solve real problems can always get funded.”

That means a lot depending on the greatness of your idea plus your team and its approach to the marketplace. “What I look for are unique businesses with good long-term potential,” Draper says. “I also look for real energy in the founding team.”

Draper is among many VCs who place tremendous importance on the startup team, given that it may take years for a company to go public or be purchased. During that time, the original great idea may sour, requiring the founders to reinvent their business, perhaps several times.

Strauss says the venture market works best for people without families or other time-consuming interests. Families suffer when the venture money arrives, or even during the search for it.

Most mid-career business startups involve people who have lost previous employment and start companies not because they want to, but because they can’t find a new job. Regardless of your motivation, when starting a business “be ready for the largest challenges you have ever faced,” Surace says. “Truthfully, it is not for everyone. In fact, it is for the few, not the many. If you are ready to fail, with egg on your face, do it. Then succeed.”

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