In Real Life, Not Every Tale About Start-Ups Ends Happily Ever After
The lure of start-up companies is powerful. Stories abound about millionaire secretaries at hot new technology firms whose start-up stock soared stratospherically in value after their companies went public; and tales proliferate about determined young visionaries, such as Mark Cohen, founder of Damark Catalog Co., who turned an initial 1986 investment of $1,000 into $364 million when he sold his company in 1993.
But are all stories encouraging for the bold men and women who toss their secure jobs, pension plans, health benefits and tenure at Fortune 500 corporations to accept employment at Start-Up Inc.? The statistics tell the truth: According to the Small Business Administration, of the nearly 900,000 start-up businesses that open their doors each year, only 43% remain in operation five years later--a success rate worse than that of California marriages.
“We have a lot of folks who come to us and say, ‘I want to start a company because I’ve got this great idea’--some concept or invention,” says John Koenig, a partner at the Wellesley, Mass., law firm of Glovsky & Koenig, which offers legal counseling to hopeful entrepreneurs. “But after we research their idea,” Koenig says, “it turns out they need $50,000 just to make a demonstration model.
“I have to warn them that they may very well end up with an extremely expensive doorstop.”
What separates entrepreneurial winners from losers? And what traits should a start-up employee possess to weather the white-knuckled world of “emerging corporations”?
Most business analysts agree: One needs an unusual combination of assertiveness, creativity, flexibility and perseverance, all fueled by a dollop of courage.
“Things happen at 100 miles an hour when you’re starting up,” says 28-year-old Jerry Yang, who, with his partner David Filo, founded the Internet search engine Yahoo in 1993, which last year generated $19 million in sales, up from $1 million the year before. Yang and Filo initially began their operations as a hobby while attending graduate school at Stanford University. Today, they oversee a staff of 170 employees.
“You have to be able to solve problems that nobody else can solve,” says Yang. “And it helps to be paranoid. We’re very paranoid. Because we remember that we were just two grad students before all this, and there can be another wave soon--two other people in a garage or a university somewhere with another great idea.”
Online producer Gian Trotta, 35, of Long Island, N.Y., has been employed at several technology start-up firms over the last decade. The lure of such companies is definitely strong, Trotta agrees, but employment at start-ups can have its downside.
Just two months ago, Trotta resigned from the Silicon Valley-based Internet search engine firm Excite after the company heads suddenly sent word that he and several other telecommuting managers had to relocate to Excite’s California headquarters. Trotta chose to remain on Long Island, where he is currently weighing three job offers.
“There’s definitely risk involved,” says Trotta. “And it helps to be a person comfortable with that risk. A lot of talented, bright, hungry, creative young people are employed at start-ups who are willing to put in incredible amounts of energy and time into their projects.
“I’ve had to put off starting a family until now. But I’m 35, and my wife and I really want to begin putting down roots.”
Sky Dayton, 25, the chairman of Pasadena-based EarthLink Network, an Internet access provider, has already successfully launched four start-up companies. Dayton confesses to having put in “18-hour days, seven days a week,” to get his operations off the ground. While starting up one venture, Dayton recalls, “I was willing to take a sleeping bag there and stay every night” until he was sure it had succeeded.
Dayton’s latest venture, EarthLink, began with a staff of two in 1994 and now commands a sprawling business campus in Pasadena that houses 640 employees and boasts a subscriber list of 250,000.
“The two traits I’ve relied upon most have been perseverance and communication,” Dayton says. “You can’t be turned off by perceived rejection in a business environment whose natural order is chaos.
“And I also can’t stress how important communication is. You have to be honest with yourself and be able to communicate with your staff, investors and customers. People really underestimate how much communication comes into play when you’re trying to achieve goals.”
So take note: A budding entrepreneur or potential start-up company employee should weigh a multitude of factors before planting a flag at a new base. How much risk is he or she willing to take? Does the new company offer promising technology? Does it have strong market potential? Are the leaders of the company experienced, well-connected and financially secure?
If the venture succeeds, it could be worth billions and its chairman heralded as “the next Bill Gates,” while his or her celebrating employees put down payments on seaside mansions as their stock multiplies to Croesus levels.
But if the venture fails--and there’s a 57% chance it will--the entrepreneur and start-up worker can end up broke, embattled and employed at the very same stodgy blue-chip firms that they escaped from months before.
“Anyone who wants to work at a start-up has to keep in mind that the only certainty in new media is uncertainty,” says Gian Trotta, the online producer from Long Island.
And throughout 1997, at least 900,000 eager new companies will lure potential executives, employees and investors with their siren calls of seductive chaos.
