TechFI: The Tech Startup

Starting some sort of Tech Startup isn’t for everyone and its inherent financial uncertainty goes against the doctrine of a traditional FIRE strategy. However, it’s a path that many tech entrepreneurs have done fantastically well from and is something that anyone in Tech should at least consider.

Why do this?

Anyone can start a business. You don’t need to be in Tech. You can start a hairdresser, open an online store, become an Uber driver, buy a carwash. The choice is endless. In this article, I’ll focus solely on the subset of business opportunities available to people in tech that allow us to leverage our skills to create an asset that could help us achieve financial independence.

The observations that I make shouldn’t be taken as gospel. They’re simply the learnings from my own experiences, as a paid-up FIRE Fanboy, who has founded and run startups and consultancies in Australia and New Zealand. With that disclaimer out of the way, let’s take a deep breath and explore whether founding a tech business could improve your chances to retire early.

Why do a Startup?

We’ve all heard the rags to riches story of a tech entrepreneur building some App on their kitchen table and selling it to Facebook a few years later for a billion dollars. For developers, it’s especially easy to be enticed by this dream. We look at Apps like Flappy Birds or the early version of Snapchat and think “that looks simple, I could do better than this”. And this is often true. Building a piece of software to solve some problem or do something neat actually isn’t hard. A smart developer or two and a designer can knock together a pretty good MVP application in a few weeks. Buy a domain name, put together a simple WordPress landing page and do a bit of Facebook or Google advertising and you can test whether the idea has legs. Pretty simple right?

Actually, it is that simple. It also doesn’t need to cost much money. If you’re a developer or designer (or even better both) and you have a bit of discipline then you can build and test ideas and over and over again. There’s almost no risk to doing it. There’s even hack events you can join to do just this. If you have the stamina you can hold down a job and work on these side projects after hours, or during work hours if you possess excellent alt-tab dexterity.  When I was running Touchtech one of our iOS contractors was building a Steam game in his spare time. It’s now been released, and for the past 5 years has paid for his family house and a decent chunk of his retirement savings. A side-gig that he’s passionate about has become his main income stream and set him well on the path towards financial independence.

So if it’s so easy why doesn’t everyone do this? I think the answer is two-fold. Firstly spending holidays, weekends and evenings working on side projects isn’t for everyone and it can be hard to find the motivation to stick with it. When I’ve tried this sort of thing I’ve usually needed to take time off work or switch to part-time work in order to find sufficient focus to work on the project. Secondly, it’s very hard to commercialize these ideas. It’s easy to have an idea and code it up. It takes a completely different set of skills to raise capital, take an idea to market, build a team, build commercial relationships and so on. These business skills transcend software development and are required to create a successful software business. It’s essential to have someone on the Startup team that can turn an idea from an MVP into something valuable.

Investing in your Startup

At this commercialization stage, things get serious, particularly from a personal financial independence perspective. Assume that you, and maybe a few others, have built an App in your spare time and it looks like the idea has legs. From here you’ll need to build a durable business and doing that is going to require money. Probably quite a lot of money. And if you’re already along the path to Financial Independence then it’s quite possible that you’ll be one of the people with some seed capital to invest. But should you?

Under most circumstances, if you’re holding true to the principles of Financial Independence then you probably shouldn’t invest too much of your own money in the Startup. I say this for a number of reasons:

  • Since you’re working in the Startup then you’re already taking a risk and investing your own money on top of that just amplifies that risk.
  • As a founder of the business, you should have already received shares when the company was incorporated. Why now pay for shares when you already have a stake in the business for free?
  • Some of the money you invest will be paid back to you as a salary, after tax. This doesn’t make sense from a tax management perspective. It’d be better just to work for free and receive shares as sweat equity, in-lieu of a salary.
  • Any investment that you make from your personal savings will likely be minor in terms of the capital that the business requires but will have a huge impact on your Financial Independence goals. A $50,000 investment might keep the business going 2 more months but could easily wipe 3 years off your early retirement target.
  • By not investing you’re forced to raise money from external investors. Their interest will truly test if this is a viable business and help challenge your assumptions and biases.

Working in your Startup

Assuming that you’ve been able to raise some money the next question is whether you should quit your day job and jump into business boots ‘n all?

The answer to this question depends on a range of different circumstances but, since your in tech, you do have some cards up your sleeve. If you’re the developer who coded the software then your role in the Startup will usually be CTO. Without you, there is no product so you’re probably a key member of the team. This means that you should be able to negotiate a fairly generous salary and equity position for yourself in the business. Depending on how much funding you’ve been able to raise you might even be able to get yourself a salary comparable to what you’re already earning. You could find yourself in a fortunate situation of having hardly any downside financial risk and the huge potential upside that comes with having a stake in an early stage startup. If you aren’t the CTO or your role isn’t so critical then it may be harder to achieve a risk-free outcome but this might not count out proceeding anyway.

The verdict.

I believe that attempting to build a Tech Startup whilst simultaneously pursuing Financial Independence can be hugely fulfilling and a perfectly valid FIRE strategy. You can get to work on something that you’re truly passionate about. There’s limited downside personal financial risk but huge upside if you’re able to exit. It lets you add an asset to your portfolio that you have influence over and that you can have a significant stake in. You can leverage your Tech skills in a way that scales beyond working for someone else. It’s a crazy ride filled with stress, elation, doubt and the whole gambit of human emotion. The amount of personal development experience you get from it is huge compared to a normal 9-5 job.

We’re lucky to live in a moment of history that extravagantly rewards successful tech entrepreneurship and it’s available to all of us. Why not roll the dice?

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