“Leigh Buchanan is an editor-at-large for Inc. magazine. A former editor at Harvard Business Review and founding editor of Webmaster magazine, she writes regular columns on leadership and workplace culture.”
“What do you call those who bravely take calculated risks in pursuit of their passions?
In his new book, Life Is a Startup: What Founders Can Teach Us About Making Choices and Managing Change, Wasserman explains how entrepreneurs approach risk in ways regular folks can emulate.
1. Constrain your personal burn rate.
Entrepreneurs get frugal fast. They know they’ll have to dig into their own pockets for seed money. They anticipate going without a salary for a year or two. So even before they start their business they establish a low “personal burn rate” and stash every available dollar in savings. Wasserman says that among founders who’ve attended his workshops, 39 percent reduced their spending and 11 percent downsized their housing prior to launch.
Students and startup founders famously subsist on ramen. Anyone else with a dream deferred can do that too. Wasserman recommends paying particular attention to periods of transition: when you land your first job out of school or get kicked upstairs to a higher-paying position. The temptation is strong during those times to buy the house or take the vacation or send the kids to private school. With every such decision the handcuffs clamp tighter. “Anticipate what is going to be the toughest stage of life in terms of finances,” Wasserman says, “and don’t get used to the cushy stage that will be really hard to give up.”
2. Don’t obsess over status.
Changing direction often means sacrificing more than material goods. For example, if you have a good job in an impressive organization, you’ll also be giving up status and prestige. “There are psychic handcuffs as well as financial ones,” Wasserman says. “Your new career may not be something your mother brags about to all her friends.” Entrepreneurs typically focus on the larger opportunity to make positive change offered by a startup, for example, by creating products that improve customers’ lives and wealth for employees. Many other changes also offer long-term upsides. “Guard against falling in love with the secondary trappings of your current life,” Wasserman advises, “and think about potential gains in the future.”
3. Don’t dive before you can swim.
Entrepreneurs who start companies while working their old jobs are 33 percent less likely to fail, Wasserman says. That’s because they build gradually, in stages, conducting small experiments and accruing knowledge and resources as they go. “Not just jumping in gives you the luxury of time to develop your skills,” he says. “You are not so blinded by passion that you don’t see the practical implications.” While you “date” a potential option you can also be taking a class, making industry contacts, auditioning a new job as a volunteer, or assembling a personal board of advisers. Wasserman recently took that advice himself, becoming a visiting professor at several schools while deciding whether to leave Harvard.
4. Set your favorability threshold.
By reputation, entrepreneurs will chase opportunities even over a cliff. In fact, successful entrepreneurs carefully assess conditions to judge when enough factors are propitious to launch. For a startup, those factors might be the existence of a market that will pay, the entrepreneur’s own skills and resources, and her personal situation, such as family demands. In a non-founder context, someone deciding whether to move across country for a new job might assess his own career opportunities, his spouse’s, and the couple’s current financial circumstances.
Different people have different “favorability thresholds”: the point at which they’re willing to go for it, Wasserman says. For some, 2½ of those factors must be favorable. Others will be comfortable with 1½. “There will be different decisions even if we are looking at the same constellation of circumstances,” he says. But once people understand what conditions must be satisfied, “they can start planning what it takes to get them over that threshold.”
5. Keep some variables constant.
Not many entrepreneurs put in 40 years in the marketing departments of large drug companies and then leave to launch their own surf shops. More likely, they’ll start brand-building businesses that specialize in pharmaceuticals so they can leverage their expertise and contacts. Starting your own business is risky enough, after all. Switching to an unfamiliar industry with unfamiliar products and customers seems foolhardy. “They may end up making no impact because they tossed all sorts of things up in the air and had to relearn almost every domain,” Wasserman says.
Similarly, people switching careers should keep some variables in place so they don’t have to learn everything fresh. Wasserman borrows the term “pillars” from hiring expert Geoff Smart to describe those variables. “If one pillar is unfamiliar then you get that stretch and excitement of the new,” he says. “But you can be productive from day one because you still have two other pillars to build on.”
6. Reframe failure.
For at least 20 years, entrepreneurs and the backers who love them have extolled failure as a badge of honor. That memo hasn’t gone out to the rest of the world. Still, anyone hesitant about a risk should consider what might be gained if things go wrong. Wisdom. Ideas for a new direction. A stronger spine. Great stories about perseverance they can pass on to the kids. “Entrepreneurs don’t just have faith that this will turn out well. They make it into something that will turn out well,” Wasserman says. “Don’t see failure as something to recoil from. See it as a blessing.”
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