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Tricky Trade-Offs That Smart People Make Before Becoming Entrepreneurs (Part 1)

Best team vs. best idea...

10/07/2017 8:37 AM IST | Updated 21/08/2017 6:50 PM IST
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Maybe you've always had this childhood dream that one day you would start your own company. Or as an adult are secretly learning to be a programmer, hoping that one day you can build the Amazon or eBay of the future. We are a community of entrepreneurs. As someone who has been an entrepreneur for 20 long years, I know that the odds are stacked against us—despite our hard work, commitment and smarts.

I have been lucky to establish two startups which have become successful but also pursued opportunities which turned out to be far less successful than what they could have been. What's interesting about this is that only successful stints show up on an entrepreneur's resume, making some of us look far smarter and successful than we have actually been! This makes it harder for new entrepreneurs to fully appreciate the number of trials and errors it takes before one truly becomes successful.

[A]s India accepts entrepreneurial culture, it still has a long way to go when it comes to embracing entrepreneurial failure.

Fortunately for India, the number of startups has been increasing year on year for the past 10-15 years. Being an entrepreneur has become the "cool" thing to do and entrepreneurs are now celebrated for their success. But as India accepts entrepreneurial culture, it still has a long way to go when it comes to embracing entrepreneurial failure.

Over the course of a four-part series, I hope to share a few learnings from my 20-year old entrepreneurship journey which could be a useful reference for rising entrepreneurs, and make their path a little bit easier. Let me begin with addressing some of the key trade-offs in starting a new venture.

Jump now vs. jump later

I'll say timing is everything. It's crucial to determine the right time when you should take the entrepreneurial plunge. My desire to be an entrepreneur started very early in life—I had always wanted to create a business, build a large organisation and manage a team.

Once I graduated from college, I joined McKinsey & Co. as a management consultant. The four years I spent at McKinsey gave me an excellent perspective of how businesses work. Although working at McKinsey was a great learning experience, I realised that each year made it harder to leave McKinsey and start my own business—greater opportunity costs, greater personal and family expectations, and greater trade-offs in personal life—reducing my ability to take the plunge. Constraints in life tend to increase over time, so starting earlier is often easier and enables entrepreneurs to put in more time, effort and focus in starting their new ventures.

Perceived risk vs. real risk

Many people working in the corporate world desire to become entrepreneurs but stop themselves from doing so as there is a very large opportunity cost—lost pay and lost increments in perpetuity. This is the perceived risk, which can be so high that it prevents those even with good business acumen from becoming entrepreneurs.

The real personal risk depends on the ability to get a job in case the entrepreneurial venture is not successful...

While this math is correct, there is another way to look at this situation. The real personal risk depends on the ability to get a job in case the entrepreneurial venture is not successful—a job which will pay enough to meet the person's cost base. By this yardstick, people with good educational and professional backgrounds can more easily become entrepreneurs, especially if they have kept their personal cost base low.

Best team vs. best idea

In today's world, the ability to make progress is greatly determined by team effort rather than individual brilliance. Having a small founding team with common business goals and values significantly increases entrepreneurial success—access to complementary skills, higher bandwidth to focus on different business dimensions, more collaborative decision-making (especially in new areas), and support during tough times. Based on my experience, a two- to four- member team is ideal—more members may slow down teams and lead to incompatibility issues.

This brings us to an interesting question: what should come first—the idea or the team? While it may seem counter-intuitive, having a great idea first and then forming a good team is harder than creating an informal team with members who share common business interests and values, even if the core business idea is not completely defined.

[I]dentify broad areas of your interest and start networking to create your founding team rather than agonise over ideas in hopes of finding that "eureka" moment!

The latter approach gives the new team a chance to brainstorm, crystallize the business idea, and be collectively excited by it. More importantly, in case the initial business idea does not work out for some reason (which is very often the case), the team can modify the idea or try out other alternatives.

As you scan for successful startups, you will notice that most successful companies have been started by teams rather than individual first-time entrepreneurs. Also, many of these companies started with an idea which was iterated and modified several times, until the team hit upon a winning formula. So, if you are interested in becoming an entrepreneur, I suggest you identify broad areas of your interest and start networking to create your founding team rather than agonise over ideas in hopes of finding that "eureka" moment!

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