“Risk comes from not knowing what you’re doing,” says business tycoon Warren Buffett, a man who believes in calculation. Often we hear about entrepreneurs who are fearless and undaunted. Most often by the end of these stories, the founder prevails and gets rewarded with success as well as a swimming pool full of cash for his courage. We tend to look up to these guys and get inspired to do something equally courageous – even foolish – while we’re still young.
Michael Masterson, author of Seven Years to Seven Figures and Automatic Wealth for Grads might disagree. Instead, Masterson prefers to cover conservative, calculated, and risk-averse entrepreneurs. These are not people we hear about often, and certainly not the sexiest of success stories. He calls them “chicken entrepreneurs.”
According to statistics from the US Small Business Administration, 50 percent of all startups fail in their first year. Bloomberg claims 80 percent die within the first 18 months, and before the five year mark, 95 percent of all small businesses inevitably croak. When put into perspective, it seems monumentally stupid to quit your job in pursuit of your startup dream. The more realistic option, it seems, is to become a chicken entrepreneur. Here are some basic rules.
See also: How quitting my corporate job for my startup dream f*cked up my life
1. Pay for nothing
The number one mantra of any chicken entrepreneur should be to find ways of circumventing startup costs. The usual ways you may have already heard include forgoing office space in favor of cafes, and using WordPress, Doodlekit, or Weebly to build a free website.
Something you may not have heard is that you can put together a couple of workers to run day-to-day operations in exchange for equity. Conventional wisdom and mentors will caution against giving away your equity in these early stages, but for a chicken entrepreneur, the strategy serves a few key functions.
The first is that it provides key manpower needed for the business to actually gain traction. Secondly, it helps weed out people who aren’t really dedicated to the idea. Very few people will work for your startup in exchange for shares currently worth nothing. The ones who do are keepers. The third (and most valuable) thing this strategy does is eliminate overhead costs of employee salaries. Committing to paying workers right out of the gate is not a risk that you as a chicken founder can afford to take. At least not until the company starts making sales.
Joshua Herzig-Marx, a founder of Incentive Targeting (acquired by Google in 2012) considers himself a smart risk manager. He tells Forbes having a firm handle on your acceptable loss “is like walking into a casino with US$50 in cash and no credit cards. Knowing how much you can lose, and trusting yourself not to exceed that amount, frees you to have more fun.”
2. Check your creativity at the door
Innovation is good. It’s what drives industries forward. It changes paradigms and perspectives. But it also requires faith in untested business models.
For risk-averse founders this is an absolute no go. The problem with addressing unsolved problems is that an entire stage of market surveys must be done before you can proceed at an acceptable level of risk. Gathering crucial customer data also costs money (see #1).
Chicken founders need to latch onto tried-and-true concepts, replicate, rinse, and repeat. Your micro-copywriting firm can still exist in the same space as big ad agencies, provided that you reach your target customers on a grassroots level and undercut the average market price. If you already have an idea about the market size for your standard tax consultancy, start there, and save your innovations for the future when you can afford them.
3. Start in the field you already work in
Not quitting your day job is the entire foundation chicken entrepreneurship sits in. So if you’re going to spend 80 percent of your time at a job that you know inside and out (and perhaps even enjoy), why not take the knowledge you gain from it and build your business around it. Masterson claims he favors this approach because it allows you to extend your wealth and business experience, while simultaneously working with a safety net. Jessica Seid of CNNMoney says:
If your job happens to be in the same industry where you’re planning to launch a business [...] being a chicken entrepreneur gives you all sorts of advantages you couldn’t have if you were on your own. For example, you can use your nine-to-five work to gain experience, amass contacts, and build a network in your field.
The beauty of executing a business model identical to one you already know works, is that you can also setup the proper backend straight away. You will be ahead of the game when it comes to knowing what programs and tools are best for tracking customers and optimizing performance.
4. Assume nothing about your partners
The more you are forced to rely on other people, the weaker your position is. Just because someone is your best friend doesn’t mean they are going to stick it out with you when shit hits the fan. Despite the attractiveness of the idea, your childhood buddy is almost never the right person to start up with (unless their skills and experience magically fit the bill), as the invisible barriers of professionalism and courtesy will cease to exist.
Entrepreneur and NFL Hall of Famer Fran Tarkenton says:
The first element of a good partnership is that both parties need to have something that can help the other one. A sure sign of a partnership mistake is when one side is getting all the benefit. One-sided partnerships never work. If one partner is helping the other but not getting anything in return, trouble is on its way
Chicken entrepreneurship is all about playing it safe and perhaps being boring. But being a chicken entrepreneur now may end up giving you the freedom to be a risk-taking Rambo founder in the future.
See also: Book review: How to Start a Business Without Any Money
Image of chicken via Flickr user Katie Brady; image of empty pockets via Flickr user Dan Moyle; image of innovation via Flickr user Boegh.
Forget courage. Why being a chicken entrepreneur may suit you better
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