A few weeks ago (Jan 11, 2013), we woke up to the news of Aaron Swartz’ demise. An avid programmer, entrepreneur and an activist, he was known as much for reddit as he was for his crusade to liberate information locked behind pay walls. The US Congress is now investigating allegations of over-zealous prosecution in a recent criminal case against him, but it was clear that he had battled depression for a long time (his girlfriend disagrees). Aaron hung himself at the age of 26.
Tragically, last week the tech community was again shaken up by a Facebook post announcing the sudden demise of a luminary among them. Jody Sherman was well known and loved on both coasts of the USA and especially in the Vegas and LA start-up world. His most recent start up, ecomom, capped an illustrious run of serial entrepreneurship and was an example of both his joie de vivre, and his desire to share everything he had. He was 47 and leaves behind a wife who by all accounts was a true partner. It was later revealed that he had died of a “self inflicted gunshot wound.”
There have been other examples in the recent past including Ilya Zhitormirskiy who founded Diaspora. Although the tech community is going to some lengths to not extrapolate these tragedies into pronouncements of a trend, there is a strident call now for an examination of mental health issues in tech entrepreneurship and an awareness of the stresses that founders go through. Mark Suster’s post is especially touching.
In my fourteen odd years of founding, operating and investing in start-ups, I’ve seen enough of the dark side of entrepreneurship. Every situation is different, and an analysis of Jody or Aaron’s specific circumstances is unlikely to be very helpful to others, but I am hoping an open discussion of the psychological aspects of entrepreneurship will increase awareness and lead to founders seeking timely help.
Perhaps one way to frame the discussion is to examine what founders can expect as stress inducers at every stage of a new endeavor:
- Pre-founding: This is when financing risks weigh heavily on a founder. To consider launching a start-up, we have to assume the founder is comfortable with product and market risk and the leap of faith required there. But there is always the opportunity cost of whatever you give up to pursue your dreams, and the specter of lower cash inflows and large cash outflows to prove that you have a viable start-up can be disconcerting to say the least.
- Building the founding team: The search for co-founders and early employees is never easy. It is a tall order to find others with the right skills, aligned vision and chemistry, but to find someone who you can trust completely is nearly impossible. In my view trust in the founding team is the single biggest determinant of success here on, and a lot of emotional capital gets expended as founding teams come together. I highly recommend a “founders’ memo” (see this sample at MIT Entrepreneurs Forum) to establish your understanding of rights, responsibilities and sharing of economics among the members of the team to prevent heartburn later.
- Pre-funding: Managing meager cash reserves and other limited resources to deliver on traction that investors seek, is a daily roller coaster.
- Funding: Fund raising in and of itself is not stressful if you go about it methodically; however, the negotiation of terms often is. Valuation, liquidation preferences, affirmative rights are all contentious, but then so are vesting schedules and other terms of an employment agreement as you are instated as a paid employee of the start-up you birthed.
- Post-funding: Financial issues no longer bother you and yet this is the most stressful of the phases of growth IMO. It usually starts with investors recommending strategy changes which frequently (but not always) sets up a clash between your gut instinct, your experiences and your vision, against others who are more analytically inclined and looking outside in. Its possible your board brings a broader (presumably shallow) set of experiences which you may not fully recognize or respect. Andthen it could get worse if investors insist on management changes. Everyday is a roller-coaster as you watch decisions being made that you may not agree with.
- On the path to success: This is where a lot of recent discussion is focused as depression among the more successful and visible entrepreneurs has taken its toll. Are we breeding a culture of maniacal obsession with high impact exits and Silicon Valley legacies? Is failure literally no longer an option? Several founders have reported going into periods of self doubt and generally falling victim to despondency rather than focusing on learning from their experiences, and moving on when things aren’t working. That is how it is supposed to work.
- The other outcome: One thing I don’t hear often enough in start-up forums is that most entrepreneurs fail! So why aren’t more founders better prepared for when things go wrong? This can be very stressful on several counts:
- Laying off your employees, is the most pain you can experience. You will spend sleepless nights thinking of employees’ children who came to the company picnic. Feelings of guilt, although not called for, are par for the course.
- Financial troubles rear their ugly head again: You need to cover “funeral” expenses. Yes, there are shutdown costs and I always suggest to every founder that he should keep a small sum of money aside for this as a winding down fund. Some liabilities like final wages, payroll taxes, and accrued vacation time need to be funded; it’s a criminal offense in most jurisdictions to not pay these.
- Facing the future: everything looks uncertain again and there is no comfort in that.
I’ve been fortunate in having a supportive partner, co-founders, friends and well-wishers to have survived each of these phases as an entrepreneur, but to be honest, I didn’t emerge unscathed. Nobody does! Founders do pay a price beyond their sweat and tears – regardless of outcome. And yet I’m sure each one of us that has been there and done that, cherished the experience and would sign up all over again. Jody and Aaron and Ilya died too early. And I’m sure there are countless more small-time entrepreneurs all over the world, from Armenia to Zaire, who have suffered similarly as they worked towards their dream.
So next time you meet your favorite entrepreneur don’t ask her how the company is doing, rather ask how she is doing. Take care people.
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