There are four main personal capitals (“4 Cs”) to consider as you jump into entrepreneurship. They determine your resilience as the founder, the viability of a venture, and the well-being of those involved.
- Mental Capital: Can you endure the anxiety, pressure, and prolonged focus of venture building?
- Financial Capital: Do you have sufficient personal runway?
- Time Capital: Can you put the time in to make the venture a success?
- Relationship Capital: Do your loved ones understand the risk you’re taking on?
Why is this important?
In this recessionary period, we learned to have tough conversations early with our founders and their families. There have been a lot of unforeseen challenges that pushed the startups and founders into crisis mode. Founders who aren’t adequately prepared struggle. This is especially true for partners of entrepreneurs who often bear the brunt.
We will delve into each Capital and explore how you can increase your Capitals. We urge you to proactively assess your 4 Cs to ensure a smoother entrepreneurial journey.
Mental Capital
Mental Capital is the bedrock of your ability to weather the demanding entrepreneurship journey. Entrepreneurship is filled with uncertainties and challenges. Founders need to have mental resilience, self-awareness, and optimism to excel.
Key points to consider:
- Experience in an Entrepreneurial Setting:
Demonstrating readiness often involves prior experience. This experience can come in a variety of settings. Your past experience founding and managing businesses, as an early leader in startups, or as an intrapreneur managing people and P&L will reflect on your ability to manage the pressure of building ventures. - Experience Working with a Coach:
Working with a coach or therapist showcases mental agility and builds capacity for self-awareness. All our founders work closely with executive coaches to unlock their potential. - Current Readiness:
We encourage founders to self-assess their personal motivation and energy level. Your excitement is the biggest indicator of how successful you’ll be in navigating this grind.
If you’re low on this Capital:
- Speak to a few entrepreneurs about their experience with the mental grind.
- Do an early experiment on venture building without going all in, e.g. as a side project, joining other people’s ventures, etc.
- Try working with a coach or therapist.
- Take a short break if you’re feeling burned out.
- Reflect on your reasons for becoming an entrepreneur and solving this specific problem.
Financial Capital
Financial Capital is not just necessary for your business but also for your personal life. Having stability in your lifestyle is important, especially during the initial non-profitable years. We covered more of this in our previous article on Entrepreneurial Risk Profile: Financial Risk Capacity and Appetite.
Key points to consider:
- Burn Rate and Savings:
Clear understanding of personal burn rate and runway is crucial. A comfortable 24-month personal runway allows for focus on venture building without added financial stress. - Investment Readiness:
Comfort in spending personal burn and saving if required. An appetite to have skin in the game and take the downside risk for a potential upside.
If you’re low on this Capital:
- Breakdown your current or target burn rate and lifestyle.
- Clarify your minimum burn rate and lifestyle.
- Evaluate how much of your savings you are comfortable risking.
- Sit down with your partner and discuss the items above.
- Build your savings in the next year or two.
- Experiment with a more frugal lifestyle to extend your personal runway.
- Seek support from friends and family, e.g. diversifying the risk by having your partner make a safe bet while you take the risky one.
- Consider working with a business partner to share the risk.
Time Capital
Time will be your most constrained resource as a founder. The ability to prioritize and allocate time is key to the success of any entrepreneurial endeavour.
Key points to consider:
- Flexible Commitments:
Evaluate your existing professional and personal responsibilities. Entrepreneurship is more than a full-time job. Consider how many hours and how many months you can allocate to venture building. - Non-Negotiable Commitments:
Plan for flexibility with your non-negotiable commitments. Consider if there are family situations that need your utmost attention and would limit your availability.
If you’re low on this Capital:
- Consider if you’re able to reduce your professional or personal commitments responsibly and ethically.
- List the support you can get to cover your non-negotiable commitments.
- Assess what would have to happen to make these changes.
- Reflect on the impact of these changes and your comfort level with the potential impact.
Relationship Capital
Relationship Capital is the last item because you need to have alignment and support with your family and partner on all the other types of Capital. Your family shares the risks that you undertake. They are your vital support system during the hardest time of venture building.
Key points to consider:
- Know and Agree on the Risks:
Break down the risks and rewards with your family. Ensure they understand what they’re also getting into. Get agreement on the short and long-term implications. - Family/Partner Support:
Get family and partner support, whether it be on the venture building or the other parts of your life that would need help. Nothing beats the motivation and safety net provided by family buy-in and support.
If you’re low on this Capital:
- Have open conversations about personal motivations, goals, time commitments, and contingency plans.
- Talk about the potential impact on your family life over the next 24 months.
- Some starter conversation points:
- Why it matters to you
- What you’re hoping to achieve
- What the time commitment looks like
- What failure looks like
- What success looks like
- What you’ll do if it doesn’t work out
- When you know if it is working or not
- How this changes how you’ll show up over the next 24 months
Risk Profile Scorecard
Assess your own capitals using this Risk Profile Scorecard template.
We’re excited to hear from you if you’re ready to undertake the entrepreneurship challenge!
Written by Cindy Gamal.