Monday, June 6, 2011

The Employee to Entrepreneur Transition

I work with a lot of startups and to me, one of the most fascinating journeys of personal growth to watch is the transition from corporate employee to entrepreneur.  While there are many who believe that "entrepreneurs are born not made" and that an entrepreneurial personality is completely antithetical to being a good corporate employee, my experience, supported by a 2009 Kauffman Foundation study(1), has been that this distinction is not so cut and dried.

According to the Kauffman Foundation study, there are two types of entrepreneurs.  The first, whom they label "early entrepreneurs" fits the classic Silicon Valley stereotype:  college educated, twenty-something single male who may or may not have graduated, technically oriented, iconoclast with a strong independent streak (e.g. Bill Gates, Larry Page).

However, the second more typical entrepreneur is a 40-year old married male with children.  About half had over ten years industry experience working for other companies before starting their first company.  Nearly half had either zero or negative entrepreneurial aspirations.  The majority were good students in high school and college with 95% of these holding at least a Bachelor's degree and 47% holding an advanced degree.  In short, these were people who fit the mold and in many cases performed well as corporate employees.  So it is possible to become an entrepreneur after having a corporate background.

Having said that, there is a definite transition that has to occur for a former corporate employee to become a successful entrepreneur, one that I've personally experienced.  And as you might expect, some are able to make the transition quickly and easily, while others not at all.  In my case, it took fifteen years (but I tend to be pig-headed and somewhat resistant to change).

So what does the employee to entrepreneur transition look like?
  • Defined Program =>Undefined Program:  As an employee, you job is to execute the program.  Your time, priorities, and, in many cases, even the means are defined.  This is true even if you are CEO.  As an entrepreneur, it is up to you to create the program.  There is no one telling you what your priorities should be or how or when you should spend your time.
  • Predictable Income=>Variable (initially zero) Income:  As an employee, you contribute your time, skills, and knowledge in exchange for a regular paycheck.  Base salary typically doesn't vary with how the business is doing (unless it is very, very bad in which case even the pay cut is pretty predictable).  As an entrepreneur, assuming that you get to the point of revenue, your income will often scale up, down, and sideways depending on the cash needs of your business.  Need a raise?  Then you have to find a way to raise profits.
  • Safety Net=>No Net:  As an employee, most companies often some form of benefits from health to retirement. Lose your job?  You can apply for unemployment.  As an entrepreneur, you may not be able to afford the luxury of benefits.  If you're lucky, you might be able to get medical.  Forget about a 401(k) plan.  And if your venture goes under particularly if you are classified as self-employed, you can't apply for unemployment.
  • Infrastructure=>No Infrastructure:  As an employee, its amazing how much office infrastructure one takes for granted until you become an entrepreneur and don't have it.  Payroll?  Copy machine?  Printer?  IT support?  Travel arrangements?  These are somewhat lacking when your office is the local Starbucks.  This can be particularly jarring for senior level corporate executives turned entrepreneur used to having an executive assistant.
  • Specialist=>Generalist:  As an employee, good corporate practice is to have a well defined job description with clear lines of responsibility.  Your value is in your "technical" skills whether that skill is JAVA programming or HR compliance.  And therefore your employer wants you to focus on doing your specialty well.  As an entrepreneur, you need to be able to handle many things outside your area of expertise, because if you don't, it won't get done.  Your value is in crystallizing and communicating a vision, motivating your team, and securing resources via your network.
It's important to understand this transition to avoid two common pitfalls that can sabotage your startup:
  • Spending money in areas you can't afford:  When you're doing a startup, your number one job is to get to product/market fit with a viable business model.  Any money spent on things not directly impacting this reduces your chance of success.  Now is not the time to spring for life insurance benefits, remodel the office, and hire an executive assistant to schedule your airline flights.
  • Hiring the wrong founding employees:  Silicon Valley is rife with horror stories about founding teams hiring the big company executive with the great connections but who can't seem to operate without support staff, won't extend outside their comfort zone, insists on 9-5 hours, and can't afford to skip an occasional paycheck.  Screen for this.
At the end of the day, the source of the pitfalls is fear.  When you're forty-something with a spouse and kids, not having a paycheck is scary.  Not having health insurance is scary.  Not having enough staff to handle the details so that you know balls are being dropped is scary.  Not having an executable road map is scary.

Which brings me to the defining characteristics of every successful entrepreneur:  courage driven by vision.

Footnotes:
(1)  Wadhwa, Vivek et.al, "The Anatomy of an Entrepreneur,"  The Marion Ewing Kauffman Foundation (2009).

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