Welcome to this lesson! In this particular post, I will be talking about the need for founders to delay gratification when it comes to their new enterprises as can be learned from nature. Also, as promised in the introduction, we will consider case studies and see how this (delaying gratification) can affect the success of startups. But first what is gratification? and what does delaying gratification mean?
What is gratification?
Gratification is the need to received what is desired. It is defined by Dictionary.com as the state of being gratified; great satisfaction. But what does it mean to gratify? To gratify means to reward; remunerate.
Gratification can be regarded as that reward for the hardwork of a person. In this particular case, the hardwork of the founder(s) in the form of temporal (time), intellectual, financial, physical, or any other type of capital invested in the business. This reward can be well deserved, and can be derived in a variety of ways. One of such ways is “indulging” in some gifts by taking out a part of earned profits.
What does it mean to delay gratification?
Delay is a word in common use and it means to put off to a later time or to postpone or defer. Therefore, to delay gratification means to put off getting reward to a later time.
But you might ask, why will it be necessary to defer renumeration? After all, the laborer is deserving of his wage, and you are entitled to getting something for your hardwork. Even if not for anything, to keep your spirit up and continue to grind for success. We’ll get to that in a bit but first let’s examine nature’s perspective.
This lesson will be examining the life of plants and see how gratification applies.
In plants, there is a natural process that runs from germination to maturity (and fruiting) and the plants perform best when this cycle is allowed to take its due course. In nature, fruits are a way for plants to multiply, a concept that will be considered in later lessons. But to the farmer or whoever cultivates a plant, the fruit is the reward.
Plants are classified as photoautotrophs which simply means they capture energy form the sun and use CO2 as their source of carbon. Therefore, they are the primary producers of organic energy. Humans on the other hand, cannot use energy from the sun and CO2 to sustain their processes. This makes humans rely on plants for energy.
Humans primarily cultivate plants for consumption and fruit trees are not an exception. Anyone who cultivates fruits or any plant for that matter, knows that there is usually a time of investment in the form of land preparation, planting, weeding, among others which ensure that the plant has the optimal conditions for bearing fruit.
Fruit trees are usually perennial. This means that their lifespan is greater than 2 years by classification. But in reality, most trees continue to live and produce for decades. Some other plants such as legumes are classified as annual crops, grow, fruit, and die within a year. Without bothering you with the details of agriculture, perennials may take up to three or more years before they begin to fruit. More about the lifespan/productivity and time of fruiting will also be considered in another lesson.
For this lesson, someone who cultivates fruit trees has to continuously invest in the tree year after year before any fruit shows up. Furthermore, if the cultivator decides to maximize the productivity of the tree, it might be needed to sacrifice (not harvest) some of the first fruits.
The reason perennials take a long time to fruit is because they need to grow, and properly develop before fruiting. But once they begin to fruit, they do so year in year out for the rest of their life. Anyone who cultivates these trees understands the need to wait and does so patiently knowing that it would eventually pay off. Abandoning the tree midway will result in a lost effort, therefore, he/she perseveres until it is time to harvest.
But how does all this talk relate to startups.
Founders, Startups, and Gratification
Founders at the beginning of their entrepreneurial journey may be tempted to ¨reap the fruits of their labor¨. These ¨fruits ¨ are usually in the form of profits made from business conducted at the early stages. This is referred to as deriving instant gratification and can be very disadvantageous to the startup. Removal of these profits can lead to stagnation and the eventual death of the startup.
This is because startups need to grow to a reasonable extent before they become self-sustaining and can start catering for the wants of the founder just like the trees need time to grow and develop before fruiting. Therefore the need to delay gratification.
A founder needs to understand the need to let the business grow before pulling out funds. As can be seen in nature, trying to reap fruits too quickly can result in the hampering of the potential of the plant, never reaching its full capacity.
Two different real examples of how gratification can affect a startup are discussed in details below
According to CB Insights, running out of funds is responsible for 29% of startup failures. In their classification, not being able to secure funding was different, therefore it can be inferred that these companies did have funds they were operating with. An example of such a company is Daqri – an augmented reality startup that burnt through $250 million of funding. This serves to drive the importance of funding in sustaining a startup.
Now to the case studies – the companies who mismanaged company funds for selfish gains and as a result ran the company to the ground. We will be examining two companies a well-established company brought down by greed – Kmart and a startup that had a greedy founder – WeWork.
The roots of this company can be traced to as far back as 1899. It has since thrived achieving giant status and making billions of dollars in revenue. But how does a well-established company like this that has practically existed for more than a century collapse?
On January 22, 2002, Kmart filed for bankruptcy under the leadership of Chairman Charles Conaway and President Mark Schwartz. They were accused of misleading shareholders and other company officials about the company’s financial crisis.
They also allegedly spent the company’s money on airplanes, houses, boats and other luxuries. At a conference for Kmart employees on January 22, Conaway accepted “full blame” for the financial disaster.
The company later emerged from bankruptcy and merged with Sears. 16 years later Sears the parent company also filed for bankruptcy. In February 2019, 202 Kmart stores were sold to Transform Holdco LLC. The sale only saw more decline for Kmart.
On August 29, 2019, the massive closure of 77 Kmart stores was announced, with the stores being closed by December 15, 2019. In November 2019, Kmart announced the closing of 45 stores in February 2020, which included the last Kmart in many states of the US.
On February 6, 2020, Kmart announced it will close 15 more stores on June 30, 2020, due to the city buying the property.
Suffice it to say that Kmart was not the same again after what happened in 2002.
For many employees, WeWork’s proposition was as intoxicating as it was vague. “I bought into it,” a designer said, of the company’s vision—“this new ‘office of the future.’
WeWork was founded in 2010 and expanded to 836 locations and had 150000 employees
Softbank invested $3.1b in wework and leading new rounds funding pushing the valuation up till $47b
Wework had positioned it self as a tech company using words such as physical social network and artificial intelligence to pave a easier path to seeking capital.
Tech businesses differ in valuation compared to Traditional businesses because of their ability to scale rapidly.
It was the perfect story of a startup and by May 2019 they filed for an IPO in order to begin trading in the stock market.
A Pre -requisite for IPO’s is the release of company’s financials called S-1 filings.
By the time people got a chance to look at their books they bailed on investing in the startup.
In 2018 the company generated $1.8 b and spent $3.7b. It needed money from the IPO to continue operating
The actions of the CEO did not help the company either, Newmann borrowed money against his own stock and used it to purchase properties which he then leased to the company. He also registered the name WE under his own name and then sold it to the company for $6m.
He borrowed $740m against his own stock and sold a large number of his own stock and acquired a private get.
Adam New had lost credibility and was ousted with two new CEOs brought in and the company and to seek profitability as a real estate company that they really are.
Delaying gratification can be something hard especially when the founder does not have another source of income, but it is essential.
The only downside to delaying gratification is that you might not be able to enjoy the “liberties” that would have been otherwise possible. But this is what differentiates entrepreneurs.
Someone once said, “Entrepreneurship is living a few years of your life like most people won’t so that you can spend the rest of your life like most people can’t.”
It gives the new company a fighting chance as it takes an “unnecessary” burden off of its shoulders. Therefore if you a passionate about building a lasting business, delay gratification!
With that being said, it is also important to keep yourself motivated. to keep your drive alive. Delaying gratification is really a call to persevere. This is to help you push through the times when things will not be ideal. There are a number of ways you can keep yourself motivated and some of them include:
- Taking stock –
- Keeping records helps track growth, one can see how far one has come and this in itself can be satisfying.
- Another way, is to constantly remind yourself of the reason you chose to be an entrepreneur.
- This is a potent way of renewing your drive.
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