Banking on a Startup Life

Today marks my one year anniversary at TheLadders. I came to TheLadders after one year in investment banking in the Morgan Stanley east coast technology group. Walking in the door on September 14th, 2009, I had very little idea of what I was getting myself into, and my role at TheLadders has morphed about four times in the last 12 months.

Looking back at my experience (or, let’s be honest, the lack thereof) and after fielding the question about 74 times from rising Juniors and Seniors in College, I thought I’d jot down a few thoughts on the similarities and differences between the two experiences. I don’t know if I’ve had anything like a “typical” experience in either case, so I won’t claim that these “lessons” are universally applicable. Still, to the extent that there exists, somewhere out there, someone who is exactly like me, this might prove helpful.

Lesson #1: there’s a difference between business and finance.

Though I knew very little else, one thing I knew for sure coming out of school is that I wanted to be an internet entrepreneur (yea, yea – me and everyone else). I was convinced that going into investment banking, particularly in the technology group, was the best way to get started. Banking promised to open doors, expose me to different types of technology companies at a high level, and teach me the basics of business and finance. Banking met almost all of my expectations.

This is probably obvious to anyone with as little as a few years of experience, but it took me a while to figure it out. Banking taught me how to read a balance sheet, value a company, and build an investor presentation. Banking did not teach me how to inspire and manage a team, how to learn about and build products for customers, and how to identify a market fit for those products. Finance, though an important and necessary part of business, is not business. Though I didn’t know it at the time, equating business with finance is like saying: if you know how to tie your shoes you can run a marathon.

Lesson #2: management and delegation does not equal talent development.

I had a fairly small group at Morgan Stanley – something like 20 people total. The head of our group was a great guy from whom I learned a great deal. The pool of analysts were managed by a “Staffer” who made sure we had roughly equal shares of work. The work was conducted on a project-basis – presentation for client x, analysis for client y. Naturally it made sense for each analyst to own a particular set of clients, and because my group was so small, we each got the chance to work closely with Managing Directors, who owned the relationships with those clients.

Managers at TheLadders spend more time on talent development in a day than I experienced at Morgan Stanley in a year. Analyst programs in investment banking are typically two years stints, at which point most analysts join Private Equity firms or Hedge Funds for better hours and higher pay. The big banks have a really hard time keeping people, and their HR teams have tried all sorts of things to up retention. Unfortunately for them, they are stuck in a vicious cycle.

Since analysts are in and out in two years, and likely only “all there” for 1.5 years (3 months ramping and 3 months of “senioritis”), senior group members have very little incentive to form long-lasting relationships/mentorships (in my last few weeks at the firm, one of the EDs with whom I worked most closely called me James…). Since they don’t typically take the time to develop long-lasting relationships/mentorships, nobody thinks twice about leaving after 2 years – and so the cycle continues.

Lesson #3: love what your boss is doing

When I joined Morgan Stanley, I could see myself as a Managing Director. That lasted about 3 months. There’s nothing wrong with that career path, but I realized quickly that it wasn’t for me. The best thing Banking did for me was put me across the table from CEOs at companies like TheLadders and Rosetta Stone. It soon became clear to me that the jobs of these CEOs was to create value where there was none, and that my job was to help move that value around. This is a worthy calling, but not one that I was particularly fond of.

When I lost interest in my boss’s job, and his boss’s job, and all the way on up to John Mack, I quickly lost interest in my job and started treating it as a means to an end – “I just have to get through my analyst years and then I can do whatever I want.” This attitude it toxic when you’re at the same time asked to give up your nights and weekends.

Lesson #4: “the only financial security you need is the confidence that you are learning more where you are than you could anywhere else.”

This lesson is in quotes because I have no place giving it. It’s certainly not true for all people in all professions, and I don’t even know if it’s true for me. I hope that I’m lucky enough for this to be true.

When I began evaluating opportunities post-banking, I sat down with a number of internet VCs and entrepreneurs and asked them what I should do over the next 5 years to get ready to be an internet entrepreneur. My plan was: go work for a growth capital firm to get exposure to lots of different early stage internet companies, make a ton of money, then in 5 years launch my own company with all the money I had saved.

I met with about 8 people. Every single person, VC and entrepreneur alike, said the exact same thing: “if you want to learn how to run an internet company, go work at an internet company.”

The first 7 times I heard this advice, I shrugged it off. It wasn’t until one VC continued to push me, and followed up with lesson #4, that the idea finally clicked. One year out of college, and I was already beginning to feel the weight of those golden handcuffs closing around my wrists. With lesson #4 I was able to break free of their grip, and haven’t once second-guessed the decision.

For the internet entrepreneur the math goes like this:

20 years working in Finance: $20MM

Probability of being successful: 80%

= $16MM

vs.

20 years working for a startup and changing the world: Priceless

Probability of being successful: 1%

= What’s 1% of priceless?

I wouldn’t exchange my experience in banking for anything. I learned a lot and met a lot of fascinating people. Most importantly, it led me to my current job, which is probably the one thing for which I would exchange banking.

When rising juniors and seniors ask me whether they should join a startup or go work for a bank, I tell them that they should go where they are going to learn more than they would anywhere else. The answer isn’t very helpful, but then again neither is the question, which brings me to lesson #5.

Lesson #5: There is no track to being a successful internet entrepreneur – nothing can possibly “prepare” you for creating something where there was nothing before.

  • http://twitter.com/magburns マギ一

    NICE! Very similar to my own reasons for leaving hedge fund trading. The word “Priceless” has been kind of corrupted, co-opted, I think, but all in all, great advice.

    • http://www.jakelevine.me jakelevine

      Thanks and good point! MasterCard destroyed the word

  • jeremyhfisher

    Great article, Jake, but your internet entrepreneur math places way too much economic value on a finance career. Consider the present value of that $16MM and the risk/reward for a startup career looks even better.
    -Fellow former Morgan Stanley banker-turned internet entrepreneur (founder of http://dinevore.com)

    • http://www.jakelevine.me jakelevine

      True, plus who doesn’t think they can do better than 1%? :)

  • http://communitas.tumblr.com/ tobymurdock

    dude, great post. i faced lots of the same questions you have as a huge chunk of my friends do wall street. god bless them and i wish them all happiness.

    for me however, i’ve decided on the entrepreneurial life. i’m now on my second start-up of my own (http://bit.ly/a7r13R). there’s a shit-ton of ups and downs and a good amount of financial insecurity. but life is much more of a creative adventure (plus i get to live in boulder, co).

    screw the ass-holes who left you the negative comments on BI. best of luck to you and let me know if i can ever be of any help.

    • http://www.jakelevine.me jakelevine

      Thanks Toby! And congrats on the recent funding round – very cool idea. Joining TheLadders isn’t exactly as risky as going out on my own, but it has given me the chance to join a “creative adventure” where together with a great team we’re solving a huge problem – and I love going to work every day.

  • http://www.billda.com/ Bill DAlessandro

    Jake – love your post. Sounds like you’re getting roughed up a bit by the idiots over in the Business Insider comments, so I wanted to come over here where the volume is a little lower.

    I made exactly the same decision you did and it’s absolutely the best thing I’ve done, both from a learning and personal happiness perspective. I used to work as a banking analyst as well, and left after 18 months to work at a dotcom company in a more hands on role. Couldn’t agree more with the distinction you draw between “business” and “finance” – the finance you learn in banking is only a small silver of the skills you need to run a business.

    I wrote up my experience here in case you’re interested in reading a similar story.

    Cheers,
    Bill

    • http://www.jakelevine.me jakelevine

      Hi Bill – I appreciate the note, and great post! There is certainly a lot about it that rings true for me.

  • http://twitter.com/escthecity Escape the City

    Hi Jake.

    Great work on the move.

    Ignore those idiots over on the Business Insider. People seem to struggle with the idea of other people (particularly young people) deciding that there’s more to life than the corporate financial mainstream. Perhaps because they take it as a criticism of their own careers / life choices. Or perhaps because they’re just really unhappy with their jobs and want to take it out on you!

    I wrote a long comment over on the article but it seemed to vanish when I submitted.

    Anyway – nice one.

    Rob

    • http://www.jakelevine.me jakelevine

      I certainly did not want to give the impression that my experience and lessons are applicable to all, and I have all the respect in the world for folks in investment banking. I just found out that it wasn’t for me.

      Thanks for the kind words!

  • AY

    Nice post Jake, and congratulations on the move. If everyone had your circumspection, character, and desire to actually build something, our country’d be in much better shape.

    • http://www.jakelevine.me jakelevine

      Thanks very much for the humbling words!

  • Drew S.

    In the true annoying banker spirit, can you scrub the numbers on your valuation of the startup life – there must be some numbers out there that show the typical financial return of a typical Internet entrepreneur. And yes, I want Max, 3rd quartile, mean, median, 1st quartile, min (I assume min=$0 or NEG). It’s kind of a jackass question, but I’m also legitimately curious how it compares.

  • http://www.startable.com Healy Jones

    Your comments on management in the financial services industry hit the nail on the head. My experiences in the finance world didn’t really prepare me to manage the team at my startup. Nice, reflective blog post.

    • http://www.jakelevine.me jakelevine

      Thanks very much – what are you working on now?

      • http://www.startable.com Healy Jones

        http://www.officedrop.com – a SaaS digital filing system and scanning service for small businesses. Really having fun and we’ve been growing quite well this summer.

  • Pingback: Creating Something Big, Alone | jake levine

  • Kevin Curtin

    Jake,

    I wish I had seen this before reaching out! This is EXACTLY what’s going through my mind now. Brilliant post, and I couldn’t agree more with the notion that making things must be more rewarding than moving wealth around. Definitely inspiring.

  • Robert Thuston

    Lesson #4