Some people think that being an entrepreneur and founding a startup is the path to riches. It can be, but a more certain (and faster) path to riches is the casino. Huh? Most startups need money to grow. About 1 in 50 startups are successful in raising money. Of those that raise money, half fail in 18-36 months, returning nothing to founders. Another 30% fail in 3-5 years, returning less than 1X, and usually nothing to the founders who hold common stock. The remaining 20% account for the profitable returns to investors and entrepreneurs, and generally take 8-13 years. This means that an entrepreneur’s chance of success is roughly 1 in 250, includes years of no or low salary and lots of hard work, and with winning odds about the same as one’s odds of having eight straight roulette spins come up black or red.
An alternative for those who want to get rich is take $10,000 and go to your nearest casino. You just need to decide whether you prefer red or black. Put the $10,000 down on the color of your choice to leave for eight spins. At the end of eight spins, you will have $0 or ~$2.5M. And much like a startup, after seven spins, you may have $1.25M, and go bust on the eighth spin having nothing. Many startups are cruising along, show nice growth, and something totally outside of their control wipes out the company.
There are a couple of takeaways from this. The first is that founding a startup is a longshot at making one wealthy. The second is that even for a startup that appears to be on the path to success, one wrong decision can undermine years of hard work. How can one reduce the chances of this happening? One obvious way is customer traction, as gaining many customers (or a few high-value customers) provides one with revenue, runway, and a customer base for A/B testing. I recommend the book, Traction: How Any Startup Can Achieve Explosive Customer Growth. I also believe that a startup cannot be too early in marketing efforts to start gaining customer awareness.
Mark’s short bio:
Mark Neuhausen is a technology serial intrapreneur with 30+ years of experience successfully launching new products and services for medium-to-large-sized companies. Mark started angel investing in 2015. He enjoys leveraging his experience to help people and companies reach their potential with a passion for the early stage startup ecosystem in the Pacific Northwest. His activities include mentoring, advising, connecting, and educating companies/teams, judging at university business plan competitions and startup weekends, and investing in companies personally, and as part of networks and syndicates.