From MBA to Startup

This is Part 2 of my post detailing how I decided to pursue a more entrepreneurial path. In my previous post, I discussed that the first step was assessing my strengths and passions to determine whether the startup path was right for me. In this post, I will talk about how I answered the question, “Is now the right time?”

In economics, there is a concept known as loss aversion, which basically suggests that psychologically people have a strong preference for avoiding losses more than acquiring gains (so a $100 loss “hurts” more than a $100 gain feels good). When considering entrepreneurial ventures, I find that many people (myself included) tend to disproportionately fixate on the risk of loss without adequately considering the potential gains.

In considering whether it was the right time to start a startup, I tried get to the root of my fears and understand whether they were rational or irrational. As it turns out, virtually all of my concerns regarding starting my own company (whether pertaining to family, financial, experience, etc.) could be boiled down to the following two concerns: (1) a fear of failure and a (2) fear of financial instability/loss.

Fear of Failure: What if my startup crashes and burns and I lose credibility and can never find a job again? This is the dire scenario that haunts many potential entrepreneurs and prevents them from taking a risk. It certainly crossed my mind, but as I thought more about it, I realized that it was likely an irrational fear. I knew that most startups fail, but what would be the real impact in that case? Even if I were to fail, I could (hopefully) still count on the experience I had built up over the years and the contacts I had made through my MBA to find work. And I thought of people I knew who had taken a year off to travel or had been laid off or stepped away from the work force. I could not think of a single example of an individual who was not able to bounce back. I’m not saying that failure is not a risk or that it’s easy to find a job, I’m saying people are resilient and resourceful, and the outcome is usually not as dire as it is in our own minds. Ironically, nowadays in the startup world, failure is often valued as a rite of passage to success. Thus, I felt this risk could be largely mitigated.

Fear of Financial Instability/Loss: This was another risk that I carefully considered. A startup obviously requires capital. As someone who is self-reliant, I wanted to ensure that I clearly understood the financial implications before taking the leap. What’s interesting is that the risk of losing capital at the outset of an entrepreneurial venture - whether as a direct investment in the venture or the opportunity cost of not having a regular salary - is virtually 100%. However, I relied on two things to help think through this. First, I calculated a “Startup” budget to fully understand the capital requirements. Second, I conducted research and found a number of different funding options  for those in the startup world (I will discuss these options in a future post). And finally, I gave myself a limited timeframe to explore the entrepreneurial route. In this way, I could put a cap on the potential losses and limit the overall financial risk of the venture.

And so, I realized that while the risks of pursuing an entrepreneurial venture were real, they were also manageable. I weighed those risks against the potential rewards. While the probability of starting a hugely successful venture was small (based purely on the odds), at the very least I would get to work on something I was truly passionate about that had the potential to make a large impact. And I really felt that if I didn’t try this now, I would always regret it later.

The final “Aha!” moment for me in making my decision came when I considered the following: there was never going to be a perfect time to take a risk. Even if I waited 10 or 15 years to acquire additional experience, who knows what other factors - whether supporting a family or moving forward in my existing career - could prevent me from taking a risk at that point. I realized that in many ways now was the ideal time for me to take a risk. I had the drive and motivation, I was healthy, I didn’t have other people or children to support, and the New York startup scene seemed primed for growth. And so, after considering all of these factors, I decided that now was the best time for me to do this!

My decision was a very personal one. After speaking with many people along the way, I realized that there is no one “right” path. Some people choose to start something in their 20s or 30s, others wait till later in life; each person has to weigh the risks and rewards and come to a conclusion. Hopefully, people can take something away from the process I followed to come to a decision that makes sense for them.