Aside from my work in STORM and Juan Great Leap, I “incubate” firms.
It’s really just a passion of mine to look for the right ideas, find the right people to pursue them, and then try to build something from nothing. Sometimes it succeeds, sometimes it doesn’t.
So, if you can imagine, a big part of this hobby of mine is constant “founder-hunting.”
There are a great many challenges to “founder-hunting.” (I’ve covered quite a bit of this in this blog.)
Illustrated here is another fairly typical one:
Peter: “So…everything sounds good! This is the % equity you’ll be entitled to as Founding CEO. As for salary, obviously the startup can’t afford your current salary, but we can still squeeze out what I think is a substantial amount, ______.”
Founder: “Uhm…can the salary still be increased?”
Peter: “Dude, we went through the figures. You know this is the safest amount we can muster. Wait, what are you going to pay for? You didn’t get married and suddenly have kids last night, right?”
Founder: “Well, no, but I am paying for a car for the next two years.”
Peter: “Uh…don’t you live like 3 kilometers from your current office?”
Founder: “Yeah, but…doesn’t everyone get a car plan? It was a good deal.”
Peter: And you got a brand new one? (sighs defeatedly)
Founder: “Uh. Yes. I, uhm…also got a studio unit…”
Ah….The car-condo yuppie dream.
Most people I know who take advantage of these “good deals” CANNOT afford them – hence they do a loan. In effect, they give up a large amount of their monthly salary over the next 3-4 years not only to pay for the car, but also to pay for the huge interest expense (bank margin) generated in spreading the loan over 3-4 years.
(You know what, you could have used that money to bankroll a startup that could pay for 5 cars for you in the same amount of years)
People justify this expenditure with the very confident “I will increase my salary by this so and so amount every year, so this amount won’t look so big in a few years.”
Bad, bad move. (salary increases aren’t by any means guaranteed, emergency expenditures ALWAYS happen)
Even if you get buyer’s remorse, say, A DAY AFTER YOU RECEIVE THE CAR, you’re already done for. You will never ever make the same amount of money you just spent because a car’s value plummets disproportionately as a used vehicle.
Then the critical question comes in: okay, why a NEW car? Why a higher model? Why didn’t you stop with the car? Why get a home loan for a condo as well?
Eventually, if you keep asking why, the reasoning for a lot of people (whether they admit it or not) becomes apparent: it’s to keep up with the Joneses.
New car makes you more popular. The new car is “appropriate for your level.” (that’s what I thought)
The Joneses will anchor you. There is no need to keep up with them.
Retain your fiscal flexibility. Fiscal maturity and flexibility are so important to a young entrepreneur. Most startups cannot survive with immediate high salaries (some cannot with ANY salary), necessitated by unnecessary financial anchors. Don’t ever destroy your long term dreams by chasing shiny, short-term objects.
Ignore the Joneses.