Do you have what it takes to be a startup founder? This episode is a candid reality check. Before you go any further towards founding a startup or raising investment, you need to honestly ask yourself: are you ready for this?
The average SaaS company takes about 9 years from founding to exit.
Founding a startup means 10–14 hour days, years of financial sacrifice, and extreme psychological stress. The average SaaS company is a nine year marathon from founding to exit. Five homework tasks are set to help you assess your readiness: planning your early-stage finances, restructuring your personal life for brutal work hours, building the mental resilience needed to prevent burnout, embracing non-technical disciplines such as sales, accounting, and HR, and identifying the deep personal motivation that will carry you through inevitable crises. The most compelling founders are those driven not primarily by wealth, but by a genuine desire to solve a problem they have personally experienced — and that passion will matter to investors just as much as any financial metric.
Transcript:
Kia ora koutou, hello and welcome to Episode 7 of nzangels.com – a guide to raising angel investment in Aotearoa New Zealand. I’m Dave Moskovitz, one of New Zealand’s most experienced angel investors.
Are you ready for this?
In Episode 2, we quoted Paul Graham who said that running a startup is like being punched in the face repeatedly. Others have compared it to running a marathon – but the nice thing about a marathon is that it’s over in 42.195km, and the average finish time is around 4 hours 30 minutes.
According to Crunchbase, the average Software as a Service (SaaS) company takes about 9 years from founding to exit. So you should plan on at least a decade of working your guts out, and if you finish earlier, good on you (although an early exit may mean you’ve foregone more growth and a bigger payday). And you may get caught up in an earn-out for several years after that.
At the start, unless you’re already sitting on a big pile of cash from your previous startup exit, an inheritance, the bank of mum and dad, your spouse’s big salary, or your side-hustle trading crypto, you’re likely to be living on two minute noodles.
Are you ready for this?
Part one of your homework is to figure out how you’re going to fund the early stages of your startup, before you hit significant revenue. In the current climate, you’re unlikely to be able to score investment before you can prove that you have something you can sell and you know how to grow sales.
Research by Antler.vc shows that on average founders work 10-12 hours per day, and 14 hours per day is not uncommon in the early stages. Do you like sport, music, movies, or even just hanging out with family? Well you can say goodbye to those. You won’t have much time for friends either. Your business will consume you. Your phone will be simultaneously your best friend and your worst enemy. You are unlikely to have much of a life outside of work.
Are you ready for this?
Part two of your homework from this episode is to figure out what you would need to change in your life if you were working 14 hours per day.
You will experience unimaginable stress that will put you at risk of mental illness, burnout, or even breakdown. What will you do when, in the same week, you lose an entire market due to the random decision of a foreign government, an investor fails to come through with a promised investment payment, an existing large customer unexpectedly goes into receivership with a big outstanding invoice, and you can’t make payroll? I’ve experienced all of these. Sure, there’s always a way through these kinds of crises, but you need to have the mental strength to keep a cool head and make sensible decisions in the face of conditions that would cause panic in any sane person. You wouldn’t run a marathon without having trained, and you’d be well advised to give yourself the mental training and tools to deal with stress. As an example, I find yoga and meditation helpful – before, not after the fact, but that’s only one tiny tool to keep you from losing your nut.
Part three of your homework is to develop a plan to increase your resilience. Trust me, and I say this from personal experience, you’re much better off preventing burnout than trying to recover from it.
You may be an engineer or a product person, but now you need to become an expert in accounting, legal, governance, capital raising, HR, you’ll need to be a networker par excellence, and most importantly a sales hero. If all you want to do is build stuff all day, you might want to reconsider, and go work in product at someone else’s company.
Are you ready for this?
Part four of your homework is to consider whether you like accounting, legal, governance, capital raising, HR, networking, and above all, sales enough to spend most of your waking hours doing those things, especially in the early stages. And after those early stages, whether you want to be the person who manages others doing all of the things. Because that’s what a CEO does, and what you’ll need to become – a sales professional, a manager, and a leader. Which of these things come naturally to you, which are you excited about, and which are you going to have to learn to love?
Are you ready for this?
If you love a hard challenge, and believe you are ready for this, then you must be truly motivated. But what’s driving your motivation?
In my 25 years of angel investing, I’ve only met a a very few founders who said they were mainly motivated to found a startup in order to get rich. Nearly all founders I’ve met have been motivated by bringing about some positive change in the world. Brooke, Leighton, and Sonya at Sharesies wanted to enable anybody to invest, even if they didn’t have much money. Andrew and Daniel at Publons wanted to speed up science by fixing peer review. Ben at Cogo wants to fix environmental degradation. Ratu at Openstar wants to nail fusion power. And Tal at Tapi wants to eliminate the pain that both landlords and tenants experience when something needs to get repaired in a rental property.
All of these founders are scratching a personal itch – a problem they’ve personally encountered, and they want to fix it for themselves and everyone else too. They firmly know what problem they’re trying to solve. Execute well, create a huge amount of value doing these things, and you’ll have a good payday at the end.
Part five of your homework is to identify what your underlying motivation is that would make you want to upend your life and run a marathon that is only 9 years long if you’re lucky. This may be the same as your company’s “so what” from Episode 6, but often founders have a deeper motivation. What is it that makes that motivation so important to you? And why are you the right person to be attacking this problem? Is it something about your life experience? When you hit the wall at the metaphorical 30k mark into your startup marathon, your motivation is the thing that is going to carry you through.
Investors will be very interested in all of these aspects of your personality as the founder of the company. Part one is about capital efficiency. Part two is about stamina. Part three is about resilience. Part four is about curiosity, agility, and adaptability. And part five is about your passion.
Your pitch, and investor due diligence, will be all the more convincing if you can answer these questions succinctly and convincingly. Best to start on that now.
And then you’ll be ready for this.
The pithy quote from today’s episode is: The average SaaS company takes about 9 years from founding to exit.
Our next episode is about your customer, and business models to serve them. Relentless focus on delighting your customer is one of the biggest factors in startup success.
Until then, ka kite!
Music credit: Tim Minchin, Ready for This
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