Keep personal burn rate low
Take risks when you’re poor
Justin Kan
I have a friend who dreamed of starting something whilst still at university. Cindy got great grades, killed the do curricular portion of school and started her career at McKinsey. Who doesn’t take an offer from McKinsey and so her dreams waited. 2 years later, she doesn’t get fired which means she gets sent for Harvard Business School with all expenses paid for. The catch is afterwards she is bonded for another 2 years.
During business school, she toys with the idea of startups and even does some free work. She takes part in startup competitions and places third for her idea. At the end of 2 year business school, she contemplates her options. She really wants to do her own thing but a simple expected return model will show that another 2 years at McKinsey for a 2 year holiday at Harvard is not a bad price – the expected return on her startup is likely 0. In fact, most would die for her lot in life. Her idea takes a back seat.
Cindy does her 2 years and is promoted to engagement manager. At this point she’s earning 6 figures, has a great life with soul cycle memberships, organic weekend brunches and lives in the best neighborhood. She weighs up her options. It doesn’t make economic sense to jump and risk her clear path to partner for some idea which will likely fail. So she stays her path. Extrapolate the years but the decision framework never works out.
There’s many versions to this story whether you’re in big tech, big accounting or chasing whatever you’re told by your circle is important. The message is simple. Chasing your dream will likely never make economical sense to the good grade high achiever.
It only makes sense for the lowly immigrant with few other options. It only makes sense if you’re poor and this is your way out. Your back is against the wall and the only way is to succeed. Failure is not an option. When you look at Silicon Valley’s greatest icons, maybe that’s why the immigrant story is so strong. Andy Grove, Intel’s famed CEO is the result of Holocaust survivors. If your only option is to succeed, then maybe you will.
When your army has crossed the border, you should burn your boats and bridges, in order to make it clear to everybody that you have no hankering after home
Sun Tzu – Art of War
My grandmother escaped the Japanese invasion from China with what they had on their backs. With no education and capital, they gathered dried sticks from the hills and walked 10km downtown to sell their wares. Eventually, her brother got a goldsmith’s apprenticeship and introduced my grandfather to the same shop. Given this was his only skill, he launched his own business and within 30 years sent 9 kids to international universities. Again, no options forces entrepreneurship and necessity is the mother of invention.
So what if we are fortunate then how do we pay this game? How do we create an environment where we can force ourselves to jump off the cliff? I’m with you and never want to get to the point of having to sell sticks. But there’s ready provokes to emulate in our lives to allow ourselves to shoot for the stars. From what I’ve observed, you need these 4 principles to get to the zen state to jump off the cliff.
Keep your personal burn rate low
As in the cautionary tale, people typically tend to expand their spending to their earnings. Once you get that bigger TV or soul cycle classes it’s hard to go back. What this means is that when the time to jump comes, their liabilities trap them from being able to jump. The economics don’t work out.
I spent less than $23,000 last year. This means I can jump off the cliff and survive for a while before I need to find safety. It means I have longer runway to try more things and try succeed. It means the economics of startups become less disgusting.
Cut off the safety net
Say no to the high flying job. Quit that Goldman Sachs train. When your back is against the wall you’ll fight harder. Anyway, if you really fail then you probably can get the same job.
After business school I had offers from Amazon, Google, Square and BCG. BCG had me in golden handcuffs. I said no to 6 figures and instead jumped full time into Xendit. No other income except the but we paid ourselves to pay rent, eat and exercise.
Change your measurement
Implicit in Cindy’s tale is a social expectation on success. Good grades, stable job, brand name companies are the mantra of our parents. Once you’re sipping expensive wine and discussing how to optimize your Starwood preferred status or airline miles, it is hard to flee that social construct. You have to be willing to get off that rat race ladder and be confident enough to strike out on your own.
During business school, there was a pride to get a Google offer. There was status to going to BCG. There were bragging rights to join one of the greatest growing companies in the Valley. But I said fuck it. Anyway, I didn’t really care about their opinions. Turns out we got into YCombinator, the biggest bragging rights for early stage companies. Accel invested in us, bragging rights from a top tier VC. Within two years, I became Forbes 30 under 30. I wasn’t even the top 40% at BCG. I had to get off other’s metrics to make my own. It worked out. I’m thankful I was never the best at BCG, else I likely may have never quit.
Take risks whilst the opportunity cost is low
This is when the logical equation is most in favor to do your own thing. When you have nothing to lose you have everything to gain. When you’re at the bottom, the only way is up. So I find that when people are poor, that’s is the best time to bet the farm.
During my first two years working for BCG, I was paying off my wife’s school debt. We lived on 30-40k that year. The rest went to loans. Whilst at business school, I racked up 180,000 in debt. We graduated with a net worth far below the homeless person at the local train station. It was the lowest opportunity cost time in our lives. So it was jump then or never. We jumped.
Takeaway
If you really want to reach the stars, the environment you need to create for the highest chance of success is to:
- Keep personal burn low
- Cut the safety net
- Change your measurement
- Take risks at the lowest opportunity costs
P.S. Didn’t get the ideal job you wanted that had the most status? Not top of your class? Great, that may just be the best thing that happened to you. You can now stop measuring to other people’s scales and create your own.
