I have a good friend who is doing his first startup. He is ambitious, young, and willing to do anything for his idea. He’s taking huge risks. He has no savings, has lived for a year on credit cards and top ramen, and is going to keep going until he makes this work, or dies. He doesn’t understand risk.
I have other friends who are in steady jobs at great companies, and are considering startups. Their first question is always, “How much personal runway do I need if this thing fails?”. They don’t understand risk either.
There seem to be two approaches to understanding personal risk. The top-down approach, requires that you understand the worst case scenerio, the best case scenerio, and your likelihood of falling on either. The bottom-up approach means that you understand what you absolutely aren’t willing to risk and then never do things that have any probability of crossing that threshold—your life as an MVP.
I like the bottom-up approach.
For me, having a comfortable bed, the ability to eat out a few times a week and to travel fairly often, are things I’m not willing to give up. At a minimum, this means that I need about $3,000/month after taxes. I usually find myself with more, but I can get by on that in a pinch.
With this knowledge, I know that if I take a risk that will mean I don’t get paid for six months, I better have at least $20,000 in the bank, or a plan to get it. Conversly, if I find myself getting low on savings, or not generating at least $3,000 in revenue, it means I’d probably better change course.
Everyone is different, and there are obviously other parts to this equation, but approaching my life as a minimum viable product helps me stay sane and (somewhat) stable.