“What the hell am I doing?”
I often struggled with this thought the past 2 years.
Dealing with financial uncertainty is a big part of starting a company, and in this article I want to talk about how I have set myself up for running the marathon that is entrepreneurship, not the sprint.
(personal) finance is a taboo topic, but I feel it’s very important.
I thought to share my experience at the risk of raising some eyebrows, since nobody ever told me how to deal with it.
Also let me immediately give the disclaimer that the story below is by no means financial advice and should only be seen only as me telling my own story for context.
A simple question that keeps me going
After selling my company, just to dive into a new adventure, I often found myself thinking the following questions:
“Why did I get out of a stable company? Why did I invest my money in another startup? Why didn’t I just play it safe? Will the revenue increase fast enough? Will we manage to hit that big milestone we have set for ourself? Will that big event be the big hit we hope it to be?”
After paying your own salary from your savings for many months in a row, it’s not always easy to keep yourself motivated.
Luckily, I have gone through this process before and by now I know well enough what to do to arm myself against this type of anxiety.
There is one answer that always helps me put things back into perspective:
Knowing everything that I know now, would I want to take any of the alternatives pathways than building this company?
(Starting a different startup, being employed, freelancing, just investing everything in real estate and living off of rent?)
The answer has always been clear: No
My fear of monotony.
Back in 2009, I was 20 and I got the closest thing to an office job I ever had: an internship in the online marketing department of a cd and dvd retailer in the Netherlands called Free record shop.
The company wasn’t doing so well. As a matter of fact, every day I went to work, one of my colleagues would open his laptop, take a deep breath, sigh, and say “let’s see what the damage is today”.
Going back every day to a perfectly predictable outcome is something that to this day still scares me more than anything in a professional setting.
In that particular situation I was surrounded by people that were all just awaiting the final moment the company would collapse.
A few months after I left that internship the old cd & dvd giant admitted defeat to the rapidly growing online media world of music and video streaming.
They filed for bankruptcy, and me and my business partner had started our own company happy to never return to monotony and risk aversion.
3 things that help me deal with uncertainty today
After my internship I made a vow to myself to do everything possible to stay in an independent position for as long as possible.
As my entrepreneurial career progressed over the following 15 years, my view on money and risk became clearer and I built 3 ways of coping with risk:
1. A F*ckup fund
2. Business money versus private money
3. Clear exit milestones
1. F*ckup fund
The first years of entrepreneurship (especially since I started at 19) were very cheap and low risk.
I also had the extremely privileged position that my family could support me during my studies and paying for my rent.
Once my first company started making more money, after 9 years of reinvesting all profits back in the company, I decided to reinvest my very first dividends into a second home.
In all those years I never bought fancy cars, or other unnecessary luxuries other than travel.
My focus was to keep myself in the position to take entrepreneurial risks, not to become rich or stop working.
I called this my F*ckup fund and I estimated that for every year I had worked like a crazy person I needed enough money to take a similar amount of years of not making money.
Now that the type of risks I am taking is bigger, it always gives me peace of mind to have something I can fall back on when things don’t work out at all, even if I never end up using it.
2. Business money versus private money
At some point, it became tempting to start mixing the money I have invested privately with my business investments. With just a bit more money I could after all hire that extra person right?
Keeping a clear division between private and business money keeps a healthy amount of pressure on the company to earn its own independence, and stops me from the temptation to go overboard.
If we compare a startup to the stock market, a startup is basically the very worst asset class there is, with 90% chance of losing all your money.
It’s therefore always a good idea to diversify your investments just like you would with any investment portfolio: spread over many different types of investments (stocks, ETFs, real estate, bonds etc) and different risk/reward categories.
3. Clear exit milestones
A major fallacy in any business is called “commitment to failure”.
In short, once you are heavily invested in a project, it’s harder and harder to admit defeat once the math on your project finances doesn’t add up anymore.
This will result in managers pumping more money into an already loss making project.
Being an optimistic entrepreneur, I am aware I’m very sensitive to this type of risk.
For that reason I have taught myself to get a good grip of future cashflow and budgeting yearly expenses.
This clearly indicates at what point the money will likely run out, and what kind of targets we have to reach at what point in the year for the business case to still make sense.
I also clearly communicate these deadlines and milestones to my team. This can be very stressful for the team and people could leave because of it.
It does however create transparency of where the company is and what everyone can do to help.
Conclusion: are you fit to deal with financial uncertainty?
Financial uncertainty will never be fun or easy to deal with. It’s a situation that is associated with many powerful emotions like fear, shame and insecurity.
If the prospect of financial insecurity scares you to the point of completely freezing, maybe reconsider whether entrepreneurship is for you.
I don’t particularly love risk or enjoy the process of navigating all the negative feelings associated with the unknown.
I just hate the idea of being able to exactly predict what will happen tomorrow more.
