Friday, February 17, 2012

The Elusive Fortune


I talk frequently to hopeful entrepreneurs and groups about a concept I call the “5 Deadly Sins of Entrepreneurism.” Many times these “sins” get into an entrepreneurs mind and take over their thought process. At that point hopeful business owners go from thinking about how to make their business successful to thinking about being successful. Many times this is a premature state and causes the business to stall or fail.

Sin #2 is Fortune. I saw an Inc. magazine article recently that suggested some rather startling statistics about founder fortunes, at least in terms of founder pay in the technology sector where the survey was conducted. I suspect that these statistics are fairly common across the industry spectrum.

The survey measured how often the founder is the highest paid executive in the firm. Here are the findings:

Highest Paid           17%
Tied                       24%
Not Highest Paid     59%

To get really good people, who are typically employees not entrepreneurs, you have to pay them well. There may not be enough cash flow left over to pay yourself well. In fact, the survey found that in the 283 tech companies surveyed, that the founder was paid less than at least one of their subordinates in almost 60% of the companies. This situation has been experienced by several of my business acquaintances who started businesses and were in some cases the lowest paid employee during the start-up phase.

Now clearly this situation will change over time if the start-up is successful. But it’s a cautionary tale for entrepreneurs to think about their expectations for their start-up. You’ll likely not be super successful over night. Time commitments, cash flow difficulties, and the like take their toll on entrepreneurs who aren’t prepared for the lean start-up times.

This discussion is never meant to scare people off, but to prepare them for the reality of starting a business. If you and your family are prepared for what’s coming, you’ll stand a better chance of surviving and getting to the payoff time later.  

No comments:

Post a Comment