Sometimes you come up with something that is so great that you don’t want to trust someone else to see it through. Whether this is an idea born of a discovery that you had come across while conducting your dissertation research or it is simply a service for which you believe there is an open market and you are uniquely qualified to provide, launching a new venture can be a tricky and enervating process that many wander into unprepared.
Preparation and a willingness to do whatever it takes can often be the difference between becoming a successful entrepreneur and experiencing a very expensive and frustrating learning experience.
Entry Points
When starting a new business you may be the only employee, making you CEO and responsible for the most important decisions, while concurrently the lowest level employee faced with addressing the most menial of tasks. Alternatively, you may have convinced a few people to come along with you for the ride as co-founders, (usually the co-inventors of your product or idea which may include your thesis advisor if you developed the basis of your business with their help.) Either way, although it is important to make early and explicit determinations regarding ownership of the business and its assets, your specific title is not all that important since everyone will essentially be involved with every part of the business until it is big enough to support hiring employees with specific responsibilities.
Application Process
You’re basically hiring yourself since it’s your company, so I guess the question that you should ask yourself in regard to the application process is, “Would I hire me to build and run a company?” If you are confident in your abilities and excited about your product/ideas, then go for it and never look back. Even a failed venture, although sometimes expensive and frustrating, is a great learning experience and a significant addition to your CV or resume.
Work Hours
If you have to ask, you may not like the answer… But seriously, starting a new venture can be an all-consuming undertaking and you may not even feel as though you are “off the clock”. Whether it is building and running the company or networking and securing venture capital funding, there is always work to be done and the buck stops at you.
Compensation
Of all possible career choices, the expected compensation for an entrepreneur is most likely the most uncertain and variable. In the very early stages of a startup, especially if the company is not yet producing or selling a product or service and is not yet venture-backed, there is likely no compensation at all outside of equity in the company (which is something to keep in mind for those with kids and/or a mortgage). For a startup that is making a profit but is not venture-backed, the pay is dependent on the level of profit and the decision of the founders regarding how much of the profit should be focused on growing the company versus paychecks. As many startups will eventually look to be venture-backed in order to secure enough capital to significantly grow, you should be aware that taking too much of the early profits for your own pay can signify a weak commitment to growing and developing the company, which in turn will hurt your chances of convincing venture capitalists to buy-in.
Regarding specific compensation figures for venture-backed startups, in an interview with TechCrunch, Peter Thiel, a well-known entrepreneur, and venture capitalist, estimated the average CEO salary to be between $100,000 and $125,000. Unfortunately, he did not indicate an estimation of the average amount of equity held by these CEOs. It is important to remember that ownership in your company, or equity, will be a currency used to attract venture financing.
It is also important to know that the maturity of a startup as gauged by the number of rounds of venture financing can also be a variable to consider. A study by Ola Bengtsson at Lund University and John R.M. Hand at UNC Chapel Hill entitled “CEO Compensation in Private Venture-Backed Firms” found that the median CEO compensation for a company in its first venture financing round is $189,000 while holding 7% of the company’s equity, while compensation for a CEO of a company in its seventh round of venture financing earned $277,000 while holding 5% of the company’s equity. In other words, your compensation will largely be dependent on how successful you are at raising money for your company, which is often determined by the success of your company and how well you are able to convince venture capitalists that your company is headed in the right direction.
Exit Options
If your company is successful, there are basically two significant events that can lead to a major payday for you and your investors: your company goes public (shares of your company are publicly traded on the open market) and your company is bought out by a larger corporation. If you choose to go public with your company, you may also choose to stick it out as CEO and see just how far your business can grow. If your company is bought out by a larger corporation, then the ride may be over, albeit with a significant going away present. For those who move on from their business, there are those who become “serial entrepreneurs” meaning that they love the process of building companies so much that they make a career out of starting them. If you should choose to leave the world of starting companies, regardless of your previous success or failure, there is the chance that you have gotten to know the venture capital industry well enough that you decide to be on the other side of the entrepreneurial roller coaster of funding. Luckily, you are likely to have done some networking and have built credibility for knowing how to (and just as importantly, how not to) run a company, which will be very helpful in securing a position within a venture capital firm.