Why Most Founders Don't Get Rich

"I've been running my startup for over five years and I'm somehow more broke than when I started. WTF happened? I thought the whole point of this startup thing was to create a road to wealth that I couldn't find elsewhere. Am I the only one doing this?wrong?"

Most startup Founders never get rich — and it's 100% our own fault.

I'm not talking about not getting rich because our startup failed — that one is obvious. I'm talking about having a startup that actually worked and still not getting rich. And when I say "rich" I don't mean "Powerball Rich" I'm talking in most cases, making any money at all. As a whole, we tend to suck at making money for ourselves.

The reason for this is that the startup ethos is riddled with fallacies about how we should approach profit and wealth. We've constructed a narrative that glorifies sacrifice and risk while somehow completely overlooking common sense and profit.

Founders need a reality check. We need to remind ourselves that treading down the most dangerous paths of essentially making ourselves broke is frankly way too easy to do. What's worse — we high-five ourselves while doing it. It's time to change course, my friends.

We Bet Too Big

There's something sexy about making big, audacious goals. We use our big visions to attract talent, capital, and customers in grand fashion. We talk about how we'll grow to be the "biggest" someday, and when we do, the riches will soon follow. We raise big rounds of capital to finance that vision, and as we deposit those checks, what we picture to be a mountain of cash we're stacking up ends up being our own graves that we're filling.

Often, we simply bet too big to be successful and, by way of that, get rich. Every time we raise more money we're increasing the threshold we need to cross to create more wealth. We justify this, of course, with the idea that it takes a lot more capital to make a lot more money. And while that's sometimes true, it also means we're racking up an insane amount of debt in the process.

Over time, if we can't get over that threshold, where we can pay all of our investors back (and more), we end up going broke personally. We may have built a big company, but if it never got "big enough" to pay us out, it's as good as never having had it at all in our bank account.

We Starve Ourselves to Feed Everyone Else

In other cases, the business itself is generating revenue, and by way of that the people that work there are getting fed, but it comes at the expense of the Founder themselves. In the early days, we justify it by saying that our sacrifice will be rewarded later. We're willing to forgo salaries now for that future date that may or may never come.

It's not uncommon for a Founder who has raised a ton of money to take a salary well below market in order to free up funding to pay everyone else well above market. So while everyone else is eating well, the Founder is essentially starving. What's worse — we tell ourselves that it's a "noble" diet. It's not.

The only reason we don't feed ourselves like everyone else is because we convince ourselves it's OK. For a short period of time, maybe, but what happens is those initial sacrifices go quickly forgotten, and our crap paychecks become our default compensation, not a temporary fix. We're literally starving ourselves while handing out bread.

We Never Take Money off the Table

Most Founders picture some Shangri-La future where there's so much "extra" money to be had that we can freely take it off the table without hampering the business. We religiously take every dollar we make and re-invest it back in the company, with the hope and understanding that it will generate even more money in the future.

But here's what actually happens. We forgo any profit, re-invest it, and the company grows (yay!). But guess what? Then the company needs even more money to stay alive, or worse, we over-expand and the company needs more money to cover the shortfall. Either way, every time we forgo pulling money out, the likelihood of ever actually getting it back goes to less than zero.

Here's a gentle reminder that the whole point of building these startups is to make money. If we don't take it off the table, we're defeating the entire purpose of building a business to begin with. Even small distributions are 100x more valuable than not taking any.

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In Case You Missed It

Many Startups Shut Down a Few Times Before Succeeding Most startups are not overnight successes. In fact, many of them have to shut down (sometimes more than once) to build back up to the success they eventually achieve.

Founders, Time is Your Greatest Asset (podcast) Thinking long-term is a total game-changer. It not only toughens you up, but it also attracts investors and partners who are in it for the long run, boosting your chances of scoring lasting success in the crazy world of startups.

The Goal is NOT to be a Startup Sure, Startups get more opportunities to grow and funding offers to expand. But you can’t stay in this phase forever.

About the Author

Wil Schroter

Wil Schroter is the?Founder + CEO of Startups.com , a startup platform that includes Bizplan,?Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years?(despite his involvement).?After that he launched 8 more companies, the last 3 venture-backed, to refine his learning of what not to do. He's?a seasoned expert at starting companies and a total amateur at everything else.