You never succeed with your First Startup?

A recent conversation with a starting out entrepreneur recently illustrates some prevailing attitudes of young entrepreneurs in Singapore. If you have found a start-up and it has a product which others might want, what’s the likely scenario for you? The first option is to maintain your position to move on with the product and company. The second option is to license the product to another company or other interested parties. Finally, the last option is to sell the company. So, what is the implication as to why most people don’t succeed with their first startup?

For that matter, success is hard to define. I am going to restrict the discussion to people with the first start-up that they built and define a successful start-up as a company that you regain ten times the revenue or effort you initially put in. That’s a pretty high rate of return I am asking.

Let’s start from the entrepreneur’s perspective. In his scenario, he has found a product or business solution to a problem in a certain industry. Assuming that it is really a solution that is in demand because it can increase the efficiency and productivity in the related industry, he wants to hold on to it. That’s the first option which I have indicated earlier. Everyone wants to hold on with the possession that they have. Hence it is likely that he or she does not want to sell. I will be happy to cast a bet that most first time young entrepreneurs will do that. After all, it’s why they started out in the first place. That’s nothing wrong with that, because it demonstrates their passion and desire to succeed.

The second option is rather tricky. If you license your product to another company, it means that the other company has the same propensity to produce a similar product. Here is a way to think about it. A historical example will help. Creative was building a software to organize music information for a music device in the early day of the MP3 player wars. So Apple came to them and asked them whether they can license out the software to them. Given the knowledge that Apple was going to put the software into their iPod, the most rational move was that Creative would not licence that technology to them. Be careful if you are thinking of licensing your product.

Finally, the last option of selling it to them will become ridiculous. From the perspective of the entrepreneur, if he or she want to do it, why sell it so quickly? If you follow my reasoning now, you would think that it is precisely why most young entrepreneurs don’t give up so quickly.

Now let me reverse the argument and take you on another trend of thought. Out of ten companies, it is likely that five of them will fail, four of them may barely or moderately survive but grow slowly, and finally one will hit success. So, what am I trying to tell you? It’s likely that you will survive if you have a good team, and very rarely hit success. So, the interesting and counter-intuitive solution is to sell your first start-up. That sounds not right to the passionate entrepreneurs out there, who will accuse me of belittling their ability. My answer is that I totally believe in you and I am not here to belittle you by asking you to do something you hate. Hear me out for a little more.

If you think that you have no more ideas after selling this one first, then you are an unlucky entrepreneur. In fact, there are so many ideas out of this world but we don’t have the time to do them. Let me examine the rationale on this issue. The reason is that when you sell your first start-up by making a profit out of it. You demonstrate two things which investors (who will invest in your next start-up) likes. The first is the track record that you hold in making successful companies. If you sold out your first company for 100K which started from zero cents, it means that you are likely to make it work again. It also proves that they can trust you with the money. The second thing is the amount of capital you can raise for the next project. If you have made some profit off the first company you started, you can invest personally into the second one such that you are in the position that you can leverage with your investor and ask them to take lesser equity which most people do. Of course, you will have better resources this time round, because building the next start-up after the first becomes easier.

I have seen enough cases of young entrepreneurs thinking too highly of themselves and end up backpedalling in the wrong direction. Still, I thought that I should pen this down for everyone to think about, and perhaps, you make your conclusion after hearing what I have to say here.

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