Startup general interest

The importance of purpose

By October 10, 2013 No Comments

Much has been written about the importance of businesses having a purpose above and beyond making money. Good people prefer to work for a company with a good mission, a good purpose helps galvanise and align employees, and customers find it easier to get behind a brand that has a purpose.

This is a financial justification to add to the list, from the founder of Climate Control Corporation that was just acquired for $1bn.

Look at the numbers, he says: “There’s a 0.00006% chance of building a company that will grow to be worth more than a billion dollars. Even if you do raise money and sell a company or take it public, your median time to doing that is probably 49 months. Assuming there are three founders, your median expected payoff would be $300,000 each — that’s the equivalent of $73,000 a year. And the probability of making nothing is 67%. So if your motivation for doing a startup is financial reward, you’re better off going to Google, a hedge fund, choosing a career with stable income potential.”

That’s brutal. I’m not sure where the numbers come from but I am sure that the raw chances of getting a company to a $1bn valuation are very low. This low chance is why I’m not a fan of spray and pray investment models. 0.00006% of $1bn is just $600.

The quote comes from an article on the First Round Capital site which is well worth reading, not least for how he talks about the importance of knuckling down and getting on with the ‘Grind’.