Hold onto the day job to achieve success as an entrepreneur

Serial entrepreneur Patrick McGinnis has advice for those in start-up mode

 

The road to entrepreneurship is littered with casualties. Estimates for failure vary widely from study to study and industry to industry but it is generally accepted that less than half of start-ups make the grade.

Many that do survive don’t make money for their promoters. A recent US study of 10,000 founders revealed that 73 per cent of responders paid themselves less than $50,000 (€44,000) a year.

For those who have left corporate jobs the transition can be a painful one. Take Ali Mese, a former Bain & Co consultant. In September 2014 he posted a blog on the site Medium titled: How Quitting my Corporate Job for my Dream Start-up F*ucked my Life Up. The post, which went viral, detailed the unexpected personal, familial and social stresses resulting from the decision to leave a well-paid corporate post.

Day job

According to serial entrepreneur Patrick McGinnis, there is a better way. The author of The 10% Entrepreneur, who has investments in 21 projects, says executives should hold on to their day jobs and become part-time entrepreneurs on the side.

“Entrepreneurship seems glamorous and an industry has grown up out of promoting it as a concept but the reality is often different and involves hard slog with a strong chance of failure,” he says.

Research from the University of Wisconsin shows that part-time entrepreneurs have a 50 per cent greater chance of success, he says.

It can also take many forms, ranging from founding a business to becoming an angel investor or even an adviser who invests their time and expertise in exchange for a form of equity. Different forms involve distinctly different strategies.

“As a founder you should be thinking about businesses that really play to your unique skills. In the early days you can work alone if the time commitment is minimal and the capital requirements are small. “However, if the business grows you will need to develop a strategy for how you scale that might involve a lease on a workspace or hiring staff, for example.”

By contrast, investing in a business founded by someone else requires a different mindset.

“You need to establish: Does this business really suit my needs or is it really all about my cousin who has asked me to invest? Do I understand the motivations of the other investors and do they share my values? And finally, what can I actually add to this business in terms of expertise or clients? If you can’t answer the last question in particular, maybe it’s not for you,” McGinnis says.

In the book, he describes a five-stage process for assessing an investment, which starts with finding the opportunity (sourcing), assessing how it fits with your 10 per cent plan (screening), analysing the opportunity (due diligence), commit or pass (final decision) and making it official (documentation). The beauty of being a 10 per cent entrepreneur is that it allows you to make small bets and experiment and tweak without betting the farm. The confidence gained from one venture can translate to a second or even a portfolio in time if that’s what you wish. It’s psychologically easier as well with the comfort of a day job to fall back upon as well, he notes.

Entrepreneurial mindset

“When you embrace an entrepreneurial mindset you see opportunities in places you never saw before. Your power comes from your expertise but it also comes from your network,” he adds.

McGinnis’s own path to entrepreneurship came out of the realisation that he wasn’t diversified enough. Working within a division of insurance giant AIG his world was rocked in 2008 when the corporation was saved by the US government at the height of the financial crisis.

A background in venture capital helped and his investment portfolio has yielded a 20-fold increase in its value but has also convinced him that this is an approach that everyone should take.

His investments include an early stake in Ipsy, a major online beauty community, and in a production company that holds the rights to The Last King of Scotland, now being staged as a play.

As well as highlighting the downsides of full-time entrepreneurship, McGinnis is also critical of the complacency that affects many people in the corporate world, noting Gallups’s 2015 research showing that nearly 70 per cent of the US workforce is either “not engaged” or “actively disengaged”.

“Climbing the corporate ladder is not the barometer of career achievement it once was. It’s yesterday’s dream,” he says. “The old meritocratic mind-set through which many of us were taught to view our careers – ‘work hard, keep your head down and move ahead’ – no longer applies in a world where looking to grab on to the next rung of the ladder is not a viable strategy.”

Success, it appears, can start with in having a foot in two camps.

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