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Retire Early. Retire Often.
The Startup Lie That Keeps on Taking
Buckle your seatbelt. Your retirement plan must make an emergency crash landing.
The dream used to be graduate, get a job, get married, have a family, and work your butt off. And after you retire, you plod toward the smell of death’s freshly-baked cookies.
The dream sequence was to last 80-years, or 40 million TikTok videos give or take. But today’s tech-savvy meme-based youth lack that kind of patience. And they can thank technology for that.
Much like tech aims to speed up everything we do, startups aim to speed up the American dream. By dangling big exits at prospects, startups get away with sucking life out of young people. And they mislead them about wealth-building along the way.
If you’re in a startup rocket, or piloting one yourself, here’s what you need to know before take-off.
The appeal of a startup is its exit. And the exit converts a startup’s private, worthless shares into public, valuable ones.
Investors put money into startups in exchange for those shares. Some of those shares end up the property of startup employees as well.
Before the exit, the shares are like your second-grade art projects. To you, they’re priceless, to everyone else, scribbles on paper.
You can’t sell them to anyone outside the company. And even if you could, no one beyond your bubble has any clue what kind of returns your shares represent.
Your enterprise rests on speculation. The kind of speculation that sees 9 in 10 startups burn up in the atmosphere. And that makes venture capital the riskiest investment. Period.
That ‘share’ in your pocket has a 90% chance of igniting your pants ablaze.
Whereas an index fund can give you a return of 10% annually. If you’d rather take the VC odds, read on.
If you dream of your startup’s disemvoweled name hitting the S&P 500, you’re in for a SRPRS! According to recent surveys, 97% of ‘exits’ are mergers or acquisitions.
You build your house. You sacrifice vacations, hobbies, family, and sanity in the prime of your life. And then a merger has you hand over the keys — at a discount.
Few mergers and acquisitions leave founders awash in cash. Entrepreneurs find their equity entangled in the buyer’s shares.
And buyers lord it over the founders. They demanding founders work another short lifetime before they can cash out.
It’s less exit, and more exit ramp. And where does the ramp get off? Bogalusa.
That’s the situation for people with high equity. But what about employees?
Mice Among(Slightly) Larger Mice
Employees make comparable commitments, but reap fractional rewards.
To get at those fractions, employees work as hard as founders but below market rates. They also make similar sacrifices along the way. Among those sacrifices: job security.
According to the Harvard Business Review, 30% of acquired employees are ‘redundant.’ And you know what they do with redundant employees? Promote them! Lol jk grab your things.
Imagine, after toiling for years, they lose their jobs without ceremony. Their shares turn to dust. And the hair they lost refuses to go back into their heads. They’ve saved little money and lost plenty time.
They ignored the risk, as did their founders. Founders prefer to remain ignorant in the face of overwhelming statistics. Which is natural, most founders are naive optimists.
So exit reality remains nebulous to founders, but a mirage to employees. With the promise of early retirement, thoughts of generating cashflow are as frequent as unicorn IPOs.
Speaking of retirement.
Retirement Is Hog-Spittle
When the United States established a retirement age of 65, most wouldn’t live to see it.
The average lifespan for a working man in 1935 was a whopping 58 years. If the poor bastard somehow managed to retire, his days living on taxpayer dough were numbered.
Fast-forward and we live 25-years longer than good ol’ Uncle Sam’s line-item accounted for. Today, Social Security flounders.
Intended to support 5-years of routine gardening, Social Security now supports a quarter-century of hedge-trimming for four times as many people.
We must and will move the goal posts. Retirement age will grow to 70, then 75. Our 89-year-old president will sign the bill himself.
We will raise expectations of the elderly human body and mind. Grandpa will be tossing together company TikToks from his dialysis chair.
What does this all mean? Work and life are marathons, not sprints. The startup cycle drains us mentally, emotionally, and weakens our longevity.
Meanwhile, the system intends to keep you around for longer, so plan on remaining spritely. Plan to work.
I can see your eyes rolling. And you’re thinking, “well, I’ll put money away into a 401k and retire like normal.”
Retirement Saving Is(Also) Hog-Spittle
The 401k is yet another mirage. 401ks are managed, employer-sponsored funds over which participants have no control.
The IRS gives you an incentive to buy and employers an incentive to match (ake write-offs).
Seems good, right? But when you take that money out at retirement age, the IRS taxes that cash as regular income. Not capital gains.
To get the most out of your 401k, you better show up to retirement as broke as a one-wheeled tricycle. You’ll be happy to learn, that’s a low bar to clear.
The people who dump their money into a 401k have little left over for cashflow investments.
And when emergencies hit, they pull cash out while incurring fees and reducing their long-term payouts. Yum!
What To Do
For every dollar you plan to raise for your startup, you have to ask yourself this question:
Am I buying time?
If your business model delivers returns which exceed costs, what do you need the money for? If the cash enables you to expand sooner, grow faster, or X your Y sooner than Z, reconsider.
Because in exchange for control of your company, all you get is the chance to arrive at your merger, acquisition, or self-annihilation 6-months ahead of schedule. #worthIt.
“But if I’m going to fail, I should find out sooner.” Anyone thinking that overlooks one critical risk: growth.
Growth, especially when accelerated, implies risk. What works well with a team of three will receive a slap to the face at 10, and a rock-your-world earthquake at 50.
The best kind of growth aligns with customer expectations and remains commensurate to your talents.
Think of your startup as an entrant at an eating contest. If it shows up and tries to shovel 200 hot dogs down its gullet, it will manage 6 and emergency personnel will remove the rest.
To win, you eat one hot dog today, two tomorrow, three the day after, and so on until you make national headlines.
And if you’re employed by a startup, take it easy. Invest wisely, exercise daily. And heed this warning: your odds, they’re slim.