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Leanpreneur: The Secret Time Function of Entrepreneur and Startup Time

Many busy people like to say, “Time is money.” But the difference between regular time and entrepreneur time is substantial. 

When I ran my first venture capital fund, I invested into a young entrepreneur who had great visions of being the next major high-tech player in Silicon Valley. Despite his inexperience as an entrepreneur, I funded him for $250,000 to get him going. He was developing groundbreaking technology in an emerging, dynamic and rapidly changing marketplace—and being a complexity scientist, I expected some innovation turbulence during his startup process. I didn’t fund him on “just an idea.” He made a first version of the prototype of his innovation; and so I funded him based on that.

"I didn’t fund him on “just an idea.” He made a first version of the prototype of his innovation; and so I funded him based on that."

Over the next six months, he experienced the reality of riding on a startup roller coaster of uncertainty. His first prototype didn’t scale well into the second version of the prototype. (A side note: I never set the milestones and objectives of any entrepreneur when I invest.) He wasn’t meeting the startup milestones and deadlines he had set for himself, and because he didn’t manage his cash well, he ran out of money. The next logical thing for him to do was to come back to me for more money. And he did.

Instead of coming to my office, he asked me to come and see his new prototype at his office. Curious to see his new version of the prototype, I drove over with a few of my smartest portfolio CEO friends who had good knowledge of the market sector and could give me advice and feedback. 

We drove up from Silicon Valley to San Francisco. The first thing I noticed when I enter the young entrepreneur’s offices was that the offices looked really cool. Hell, it was a startup palace—way cooler than my office. They didn’t spend too much money on their offices but it appeared to me that they spend way too much time making the offices look cool instead of getting the next version of the damn technology prototype to look cool. Let me not get ahead of myself.

"Hell, it was a startup palace—way cooler than my office."

The entrepreneur seemed a little nervous—especially when he saw I brought a few of my portfolio CEO troops with me. He nervously offered to give us a tour of their “innovation lab.” I rolled my eyes somewhat, got up and joined my CEOs for the magical lab innovation tour. I had high expectations of seeing an incredible prototype at the end of the tour.

We finally settled down on the leather sofas for the pitch. The entrepreneur brought out his new prototype. He explained his current situation of where they’ve been, what they need and what they wanted to do moving forward. I could tell he was embarrassed about pitching me in front of his fellow portfolio CEOs. I guess it’s kind of like a sibling pitching his parents for money in front of the other brothers.

Holding the prototype in his hand, he continued to sugarcoat his progress and minimize his milestone failures. He knew that he didn’t perform based on the milestones and goals he had set himself.

“This looks like crap. Is this what you brought me all the way from Silicon Valley to see?”

“Can I look at the prototype?” I interrupted him calmly. He handed it to me reluctantly. I quickly analyzed the prototype from a mechanical engineering perspective (I have a mechanical engineering background). As he was still talking about the incredible market opportunity to the other two portfolio CEOs, I calmly interrupted, “This looks like crap. Is this what you brought me all the way from Silicon Valley to see?” 

“Yes—but we can make the prototype even better. We just need more money to do that.”

My tone escalated, “Are you frickin’ serious? I came all this way for THIS?” My Serbian-Croatian blood was starting to boil through my veins.

He stopped talking. He just stood there staring at me for a moment, surprised because during all the time he had known me, I was always extremely supportive and patient. And then I went a little ballistic. I started screaming at him. (In the Serbian-Croatian culture, people will scream at each other in difficult situations. This was a difficult situation.)

I was screaming like Chef Ramsey screams at his chefs during the television series Kitchen Nightmares. In this situation, substitute entrepreneur for of an aspiring chef. “Not only did you waste my time, but you wasted the time of these two great entrepreneurs. They volunteered to come on their own dime and time to see if they can help your startup grow,” I said, extremely animated. Looking back, I should have called it “Startup Nightmares.” 

I quickly got up and started pacing his nicely decorated innovation lab. I was mad but in reality it wasn’t for the fact that he had sugarcoated or even exaggerated his startup position. As a venture capitalist, I had learned that some entrepreneurs would lie, exaggerate or omit some of the crucial startup facts in order to get the next round of funding. This is expected at times and the sugar coating is a function of the amount of struggle they are facing at the time. Of course, you don’t prefer for them to do that but it does happen. The sugarcoating by some ends up helping in the long run—but it is always best to be honestly blunt with investors.

"If you are ever in a difficult startup situation and need more money from your VC, I believe the best approach is to be honestly blunt."

As a side note to any entrepreneur: If you are ever in a difficult startup situation and need more money from your VC, I believe the best approach is to be honestly blunt. “Startup mistakes” happen. Owning up to your errors and providing alternative solutions to solving the problem shows that you have leadership skills. Startups are hard. VCs know you will go through your startup roller coaster ride.

Mostly I was mad because this entrepreneur had wasted my time—and the time of his fellow portfolio CEOs. After I completely calmed down while the CEOs were grilling him with tough questions, I asked him calmly, “Do you know what my time is worth?”

“No,” he said quickly while waiting for another outburst from me. But another outburst didn’t happen. Calmly I said, “It is worth about thirty thousand dollars an hour.” Do you know how I got this number?

"Calmly I said, “It is worth about thirty thousand dollars an hour.” Do you know how I got this number?"

“No, he said quietly and intrigued. 

“Look—you have pressure to preform in your startup. I get it. I have pressure to perform on the entire portfolio of the startup companies in which I invested. And your cool startup is one of them. I have to have an aggregate exit of all the startups based on the total funds invested and I set the goal of that milestone exit just like you set your own milestones. This is how I calculated my hour to be worth around $30,000 dollars per hour.”

He put his head down—in a similar fashion to the characters in the TV series “Arrested Development” when they experience failure because they did something stupid. I couldn’t leave the meeting on a negative note with him. Being a cautious optimist at heart, I got up, and as I walked towards the door, I turned around and said, “When can you make me a real working prototype?” 

“I can do it in seventy-two hours,” he said with hope and excitement in his voice.

“Do it—and this time I will come to your office on my own personal dime,” I said. I wanted to show him that I still believed in him and his team.

I strolled out of the office while the CEOs gave him some further encouragement and business advice. When we met downstairs, I said to them, “I feel really bad going ballistic on the guy because I have never done that to any of the portfolio CEOs.” 

One CEO calmly tapped me on my shoulder and said, “He needed some ass-whipping today. Hey, let’s go get some great sushi. There is a great restaurant right around the corner.”

He knew I loved sushi. It was his way of helping me calm down. I did calm down. We went back seventy-two hours later to see a real, working and definitely kick-ass prototype. 

I invested more money into the startup. But our relationship was never quite the same. I am not so sure this entrepreneur appreciated what I did for him from a psychological and monetary perspective.

The Time Functional Difference Between Regular Time and Entrepreneur Time 

I gave you a real market example of one startup going through market turbulence to help you understand the difference between regular time and entrepreneur time. Time is definitely money, and when people say that to you, most of them are thinking about the cost of time based on the amount of money they currently make on an hourly, or yearly basis.

"When you see time from that perspective, the value of time in terms of its cost becomes limiting. You are seeing the cost of time as a function of your current job or position."

When you see time from that perspective, the value of time in terms of its cost becomes limiting. You are seeing the cost of time as a function of your current job or position. For instance, if you make $150,000 per year and you work, on the average, 60 hour per week to get paid that much, your current time is worth:

$150,000 / 50 Weeks* X 60 hours = $50 per hour

* Please assume a two-week vacation. 

This is how most people base their cost of time. You could assume that whatever you’re currently doing—even during non-working hours—is worth $50 dollars per hour.

However, if you go this route and assume the entire amount of hours in a year, (including resting, sleeping, watching TV, bathing, exercising, etc.) the time formula changes: 

$150,000 / 365 days / year X 24 hours = $17.12 per hour

In summary, if you make this kind of money, you can look at your time, any time spent working or even goofing off in terms of this cost of time.

You should calculate the time function of entrepreneur and startup time in a substantially different way. The secret is this: your entrepreneur time is a function of your personal entrepreneur goal and your company’s goal—and not what you currently make.

Imagine you’re doing a startup with dreams of revolutionizing an industry and changing the world for the better. But along the way, you want to make some money. Because you want to make money, your time is money. If you self-funded your startup, then you have set goals and expectations of how much you want to make next year, in the next three years and possibly in the future of your startup exit.

Here’s one entrepreneur goal formula:

I made this entrepreneur time chart simple for you to see the difference of cost of time versus entrepreneur and startup function of time. This table sets monetary expectations as a function of years and time allocated per day working.

In Exhibit 1, if you want to make $10 million for yourself personally in 4 years through the efforts of building your startup, and you work 10 hours per day, or 70 hours per week to achieve your objectives, your average cost is $685 per working hour.

* Please assume “no vacation” for entrepreneurs and innovators.

In Exhibit 2, if you want to make $10 million for yourself personally in 4 years through the efforts of building your startup, and you account for the total time assuming the classic entrepreneur statement of 24-7, (accounting for all personal and work time) to achieve your objectives, your average cost is $285 per hour. 

Do you see how your value of time as an entrepreneur, innovator and investor changes drastically when you work backwards from a visualized objective you set for yourself and your startup in the future? There is nothing more I can say. Study the numbers and make up your own time function.

Copyright © 2016 entrepreneurdex 

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Damir Perge, author of Entrepreneur Myths: The Startup Reality, is the founder of entrepreneurdex, a startup studio using complexity science to fund, launch, accelerate and scale startups and growing businesses.

An entrepreneur and investor, with more than 25 years experience, he's worked with ventures in the technology, internet, media and publishing, entertainment, energy, and manufacturing sectors raising more than $300 million in capital for various companies and investing more than $50 million into startup and emerging ventures. He's sat on the boards of 11 companies, served as editor-in-chief of Futuredex, a private equity magazine. Follow 

Pre-order Damir Perge's upcoming books at damirperge.com >

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