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Are You Ready to Be an Entrepreneur—Before You Get Started
‘Entrepreneurship is living a few years of your life like most people won’t, so you can spend the rest of your life like most people can’t,’ goes a famous quote.
While all of us aspire towards the life that the latter half of the quote hints at, the journey needs to begin by assessing if we are indeed ready for the first half. That is exactly where we need to begin—by looking at some of the prerequisites to take this tough yet life-changing road.
The Entrepreneurial Mindset
We have all heard about how entrepreneurship offers solutions to a wide range of challenges besides sparking innovation and fuelling economies. To do this, there needs to be an important catalyst in place—an entrepreneurial mindset. That resilient, resourceful and solutions-oriented approach that is unshaken even in the most adverse circumstances. While all of this sounds extremely heroic, even magical, it needs deep reflection for you to ascertain if you indeed have the mindset required to succeed. My suggestion would be to get down to the brass tacks and think of the following four aspects in particular to ascertain your entrepreneurial readiness quotient.
1. Deferred Gratification
You may have heard of the famous marshmallow experiment conducted at Stanford University in the 1960s that explored the benefits of delayed gratification. Essentially, children were seated in a room with a single marshmallow on a plate and were told they could eat it now, or wait fifteen minutes, which would allow them to receive two marshmallows in place of one. The study found that the children who opted to wait tended to have better life outcomes, including but not limited to higher SAT scores, lower BMI, fewer instances of substance abuse and more. The Marshmallow Test provides powerful lessons that are directly applicable to entrepreneurship. After all, it could take several months or years of hard work before you can start seeing profitability in your business and achieve healthy cash flows. All this while, however, you have to be able to make decisions that set your business up to win in the long-term. In the context of entrepreneurship then, embracing delayed gratification means investing time, effort and resources into building a solid foundation for the business, rather than seeking quick profits. The question to ask yourself is: Are you willing to grind day after day, laying the groundwork for the future. Can you dedicate yourself to business fundamentals even as you delay immediate gratification?
If your answer to the above questions is a well-thoughtout yes, odds are that you will be able to create value, foster innovation and achieve lasting success in your venture.
2. Risk
In December 2008, Tesla (that produced high-end electric cars) and SpaceX (that built rockets) were on the verge of financial collapse. The year had been tough for the founder, Elon Musk, since both companies were in trouble and cash was down to nothing. Musk needed $40 million to keep Tesla afloat. He pieced together $20 million of his own money and leaned on investors to match the amount. The nail-biting story of a last-minute rescue that prevented Tesla from bankruptcy and preserved the electric car dream at a time when major US car companies had abandoned electric vehicle production is told in a biography by the acclaimed journalist and writer Walter Isaacson. Entrepreneurial folklore is replete with other such examples of entrepreneurs who took massive risks. In fact, if there is one quality that is common to all entrepreneurs—whether they spearhead an early-stage start-up or are leading a company that clocks hundreds of millions of dollars in revenue—it has to be their ability to take game-changing risks. Simply put, risk-taking is the willingness to take chances in the pursuit of gain, even when the outcome is uncertain. Some of the many risks that entrepreneurs face include leaving a steady pay cheque, using personal savings with no guarantee of a return on investment misjudging customer interest in a product or service . . . the list goes on. So much so that risk is said to be what’s left over after you think you’ve thought of everything.
When you talk to people about what it means to be a ‘risk-taker,’ however, most people will begin describing daredevils and gamblers. Yet, that is not what risk-taking in terms of entrepreneurship means. Above anything, successful entrepreneurs need to be calculated risk-takers.
Ask yourself where you score on the ‘calculated risktaking’ scale. Do you have a preference for working with certainty and are you paralysed by fear when it comes to decision-making? Or do you thrive on taking measured risks? That said, taking calculated risks is like building a muscle. It’s not easy and it takes practice, but done well, you can actually start to enjoy it. Importantly, it is this ability to take calculated risks that, in turn, allows the founders to enjoy a huge upside on account of their high ownership stakes, when the start-up begins to grow.
3. No Fixed Salary
‘Dear Customer, Acct XXXX is credited with Rs XXXX on 1 January. Info: Salary’
This is one familiar ping that many of us take delight in on the first of every month. If you are making a transition to entrepreneurship from a corporate role, you particularly need to think this aspect through very carefully, for it is a pleasure that you will have to forgo at least in the early stages. It goes without saying that this comes with several lifestyle and mindset adjustments that you need to be prepared for.
That said, it is also important to state that your ability to negotiate your salary grows as the start-up transitions through various stages. Below are a few benchmarks that are prevalent in the industry and can be used to decide your own salaries at various stages of fundraising, a concept that we will delve into in detail in some of the later chapters:
• Seed: Most founder salaries at the seed stage are just enough to manage their basic personal expenses. Salaries at this stage can range between Rs 1 lakh and Rs 1.5 lakh per month, depending on the city you’re living in and the amount of funding the start-up has raised. As a thumb rule, no more than 10 per cent of the total funding amount goes into the hands of the founders if the funding is less than Rs 2 crore.
• Series A: At this point, you should negotiate with investors to double the salary payout to a monthly in-hand amount, which is at par with the talent the start-up has to hire on closing Series A.
• Series B: It is best to negotiate a secondary sale of some shareholding to incoming investors so as to generate some cash in hand, which can be used for building assets and savings. This is the first opportunity for the founder to cash out on their work and effort.
These are, of course, just indicative estimates. Actual salaries and founder payouts may vary with industry, size of the fundraise and need of the business.
4. Social Concerns
My wife comes from a family of people employed in top corporates. She herself was happily employed with Meta before taking the leap of faith to join me in my entrepreneurial venture. Needless to say, in the early stages she was hesitant to take the road less travelled. Understandably so, for it is not easy to let go of a job with defined responsibilities, fixed salary and defined reporting structures, in order to venture into uncharted terrain.
To add to your predicament, you are also faced with a host of social concerns. Friends and family could be calling you out on your decision to leave a cushy job, terming it untenable. Besides, you could also be witnessing the seemingly perfect lives of your peers on social media, replete with fancy vacations. It is the willingness to forgo social validation and deal with tons of ambiguity that is a big perquisite to the entrepreneurial path.
On the other extreme, if you are headed to the world of entrepreneurship driven by the glitz and glamour of newspaper headlines—of large funding rounds and the making of unicorns—you need to remember that behind every such headline are many more stories of pain and struggle that entrepreneurs need to be mentally prepared for. Think of any entrepreneur you look up to and odds are they have had more than their share of struggles and failure. Before Amazon became the huge success that it is today, Jeff Bezos had an array of failed ideas. Before starting PayPal and investing in companies like Facebook, Peter Thiel’s early hedge fund, Clarium Capital, reportedly lost 90 per cent of its $7 billion assets on the stock market, currencies and oil prices. Closer home, similar stories abound where entrepreneurs who are now seen as being extremely successful had to overcome the failure of several start-ups. Let these examples serve as encouragement to learn from your mistakes and remain steadfast on your path.
Ikigai Framework: Passion, Opportunity, Skill, Willingness to Pay
Having undertaken a brief assessment of your mindset and whether or not it is conducive to the rocky yet hugely fulfilling road to entrepreneurship, it is time now to move to the next important aspect—namely, how do you zero down on an effective idea?
There are several frameworks that help evaluate the feasibility of a business idea that are largely based on whether or not the idea solves a large enough problem, creates an impact and makes you some wealth in the bargain. While we will speak of spotting business opportunities in detail in a later section, I would like to introduce a framework that I find particularly helpful. The POS framework has three important constituents:
• Passion
• Opportunity
• Skill Set
In choosing an idea, you need to carefully evaluate three factors: whether you are passionate about the idea, if there is a market opportunity for it and whether or not you have complementary skills to see the idea to fruition. It stands to reason that if you have the passion for something and there’s a huge market opportunity for it but you do not have complementary skills to execute it, you are likely to fail. On the other hand, if there is an opportunity in the market for which you have the necessary skill set but no passion, you might make some money but with drudgery. After all, how long can you keep working on something you are not passionate about? Eventually, you will be exhausted. Conversely, if you have the passion and the requisite skills but there isn’t a large enough market opportunity, you may enjoy the experience but receive limited returns on your investment and eventually give up. All three: Passion, Opportunity and Skill Set, therefore need to be aligned for the business to work.
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