Startup Commitment: You Have To Have Skin In The Game

Startup Commitment: You Have To Have Skin In The Game

Starting a startup is tough. Seriously tough. And as great (and supportive) as the startup community is, no one is going to give you the hand up you need to succeed. It has to be earned through hard work, sweat and tears. Which brings me to the point of today’s article and the question “how much skin do you have in the game?”

Over the past year I have been on a conscious journey to immerse myself in the startup ecosystem. In doing so I have had the opportunity to meet and speak with a large number of early stage startup founders and people considering launching a startup. After twelve months of doing this however I have found that these people fall at two ends of a spectrum (and rarely in between) when it comes to their level of commitment.

It’s a tough conversation to have. But when I look at the two camps of founders there is a large and distinct difference between them. On one hand I have come across founders who quit a six figure job, spent three months going unpaid in order study their market or worked a full time job so they could support the development of their idea/concept during the evenings and weekends. Their sacrifice was evident and clear.

I have come across founders who quit a six figure job, spent three months going unpaid in order study their market or worked a full time job so they could support the development of their idea

At the opposite end however was another group, which thankfully was much smaller in number. These founders unfortunately had the mindset that they were not in control of what they wanted to achieve. They had a great idea and “would be” successful if only someone would give them the money to hire the team they needed. Or felt that all their problems would be solved if someone would join them and build out the entire solution for free. They didn’t want to hustle and find these resources. They just expected them to arrive at their doorstep.

I know the message that follows can be blunt. But in such a situation how much skin do you have in the game? Regardless of whether you are talking to an investor or a potential co-founder or employee, what message do you think you are sending when you say that you won’t succeed unless you can find someone to do all the hard work for you?

One particular example stands out in my mind. I spoke with a potential startup founder around six months ago. They had an idea, a full time job but no way to build the product themselves (i.e. they were a non-technical founder). I was happy to speak with them and offer some insight where I could, however, they kept coming back to the point that if someone gave them $5,000 they would be able to get the product built and launched.

If that person stopped and considered what they were really asking they would see why they are never going to get an investor on board at that stage. Essentially they are saying that they won’t even invest 10% of their annual wage in an idea that they say they believe so strongly in.

Now, I don’t know how much this person earned. But they did have a full time white collar job, so let’s just say it was $50,000. If that person stopped and considered what they were really asking they would see why they are never going to get an investor on board at that stage. Essentially they are saying that they won’t even invest 10% of their annual wage in an idea that they say they believe so strongly in. If they don’t believe in it enough to put aside $100 a week for a year, then why would an investor think that, that is a good investment to make on their behalf? And while $5,000 certainly isn’t just pocket change I believe that as a startup founder it is your job to find a way to get your product / service built despite the challenges that confront you.

In fact, I am acutely aware of what it is like to be a non-technical founder. I am in this very situation at the moment with my latest startup, Task Pigeon, a task management application that makes it easy to create, assign and manage the tasks you and your team works on each day. What I recognise however, is that I am in control of what happens next with my company and I can’t expect anyone to be excited about the idea if I am not willing to back it 110% myself.

My current startup

My current startup

To stick with the investment theme for a minute, I don’t believe any startup founder should be asking anyone for money unless they have already backed the company with their own. How much you should put in obviously depends on your age, income and personal circumstances, but even if you are two or three Uni students hustling in your garage then I don’t see any reason why you can’t raise at least $3 – 5,000 to get things going.

The benefit of this is that story you tell an investor becomes that much stronger. You have shown that you were willing to back you idea with your own money and took a risk. If the amount of money is realistic for your stage of life/earning potential then that investor is going to appreciate the investment you have made in your own company. Because at the end of the day if you have nothing on the line, what’s stopping you from walking away if it all becomes too hard? Without an investment in your own company you literally have nothing to lose.

The alternative approach to a monetary investment is an investment in time. This is typically the trade off technical co-founders will make. They are willing to swap their time (and earning potential) for equity in the company. But if you are a non-technical founder with little money and no one to build your product yet, you can still use your time and skills to “invest” in your company and show that you have skin in the game.

But if you are a non-technical founder with little money and no one to build your product yet, you can still use your time and skills to “invest” in your company

This is in fact where I started with Task Pigeon. I wasn’t sure if I would outsource development or look to bring on a co-founder so wanted to make sure I created sweat equity and highlighted my commitment to the idea through a financial investment. For me I have always enjoyed design even though I don’t have the artistic ability to transfer ideas onto paper. What I could do however is articulate those ideas to a designer (who I hired through Upwork) and have him create the mock ups on Task Pigeon for me.

Not only was I deeply involved in the process (investing hours of my time), but I had created something that now had some value. Even at this early stage if I decided to seek out a co-founder instead of just going to them with an idea, I could show them how the application would work and the benefits it would achieve. However, there was still more than I could do. I took my designs and started speaking to my network. In fact I reached out to almost 200 people to get their initial feedback and to refine my messaging and the concept. This again created more value that I could reference when the time came.

The next step was to expand beyond my network and pay for some coverage on BetaList. This put Task Pigeon in front of a non-biased audience and allowed me to collect some valuable feedback on why people registered to join the beta and what they were looking for in a task management application.

Bringing all this together I now have a track record of time and energy that I have invested into this idea. If I choose to bring on a co-founder or hire someone on a salary/higher equity mix I have a wealth of information that I can reference to show how I am committed to the company and don’t expect them to work for “free”. Whether they take a partial salary or recognise that my work already is worth something to them doesn’t really matter. The point is that by joining Task Pigeon now they would be joining something that while still in its very earliest stages isn’t valued at nothing. My time and the work I have done to date would account for something, and they would not be joining at day zero when all I have is a sheet of paper and a few scribbled ideas.

in my opinion there is no better way of showing that you have skin in the game by backing yourself and putting your time and money where your mouth is.

Alternatively, if I decide to outsource development I will be making a financial investment in the company myself. I’m not going to an investor saying the only way I can get this built is if you give me money. I’m backing myself, and the idea first. Assuming all goes to plan the story I can tell an investor in 3, 6, 9 months time is going to be 10x stronger. There will be a real and tangible example of the time and money that I put in to get the company where is it. And in my opinion there is no better way of showing that you have skin in the game by backing yourself and putting your time and money where your mouth is.

So if you are an early stage founder or someone looking to start a company please back yourself first. Whether it is with time or money there are 101 ways you can show how committed you are to your idea and company before you start asking others to investment their time or money for little known return.

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Paul Towers
Paul Towers is a 3 x Entrepreneur and current Founder & CEO of Task Pigeon, a simple solution to create, assign and manage the tasks you and your team work on each day. Paul also supports the startup community via his daily newsletter, Startup Soda and early stage startup advice via Startup Engine. You can learn more about Paul Towers on his personal website.