Leave it to engineers to reduce the formula for success to a mathematical equation. Ps = 1 - Pf
This shorthand, from left to right, reads “the probability of success is equal to one minus the probability of failure.” The too cute concept being communicated herein is that the lower you make the probability of failure, the higher becomes your probability of succeeding. Knowing how to fail, and then not doing it, becomes a big part of knowing how to succeed.
Here in Silicon Valley, we see a lot of failure. Sure, local brand name companies, from Hewlett Packard to Google, make Silicon Valley look like a series of spectacular successes, but we have graveyards filled with the bones of startups that nobody ever knew, aside from some venture capitalists who lost a lot of money funding them. As an angel investor, many failures waiting happen come to me for investment.
There are many “rules” to success. Here are the most important rules for not failing, plus a bonus rule for excelling.
1. Be frugal
At one time in Silicon Valley, new hires at tech firms were being given free leases on BMWs. The companies that did that -- and burned through all their investor cash -- are not with us anymore. Business has ups and downs. Part of surviving the down cycles is to not blow all your cash during the up cycle. Humorist Dave Barry once said the government needed the Department of Louise, consisting of a single mom named Louise who would disapprove any spending that was not absolutely necessary. You need to be your own Department of Louise.
2. Bank for disaster
There are down cycles, and there are calamities. I ran Micrel Corporation for 37 years, 36 of them profitably (on a GAAP basis). We had our share of stumbles, but we once lost a customer who represented 25 percent of our revenues. This caused significant hardships. Cash will get you through times of hardship better than an empty bank account or endless bridge loans. Bank your excess, and keep at least three months of operating capital in reserve. This way you can survive even the deepest of downturns.
3. Personally bank two years' worth
As a founder, you may have to go a while without a real paycheck. If you go bankrupt while your company is struggling to its feet, you may take the company down with you. Before you go into your startup full-time, make sure you have enough cash to pay all your essential bills for two entire years. It takes most companies three years -- a full product development and release cycle -- before they are solidly on their feet. Stay on your feet until your company is too.
4. Find great mentors
Learning from other people’s mistakes and successes is a great way to avoid making your own mistakes. After all, why repeat known bad habits? Good mentors are worth taking the time to find and consulting with frequently (part of Tough Things First Venture is that we actively mentor the companies we fund). Mentors should keep you focused, call you out when you indulge in wishful thinking, monitor your progress, check your books and play twenty questions with you. They help you think through situations and think outside your box.
5. Have an idea
There are a lot of acceptable product and business ideas. But the difference between a good one and a great one may not be much. Take the time to make sure you have a great idea and a well-crafted product before marching into your market. The cost for starting weak and trying to improve on the fly is huge. There is no cost in pivoting when the product is solid.
Read about leadership, management and the structure of business. Few books cover it all, but Tough Things First does. You could do worse than to learn the ropes from the longest serving CEO in Silicon Valley.
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This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors.