The 3 Year Rule

Apr 2014

(Based on an Office Hours)

 

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”

– Sun Tzu

 

“By working faithfully eight hours a day you may eventually get to be boss and work twelve hours a day.”

– Robert Frost

 

New companies take a while to get established. It takes time to figure out the fundamentals and to know whether a new business will succeed or fail. There’s a broad rule that this is about 3 years.

The reason it’s 3 years is because it is a significant chunk of time that correlates to about 10,000 hours spent. It’s a process nearly every founder goes through. A formational period when you realise everything you thought about your business turned out to be false. It’s not uncommon for new businesses to change completely during this time.

It is an exploratory phase where, like a newborn opening its eyes for the first time and taking in how everything works, you are supposed to experiment and figure out repeatable tasks to get more customers and grow the business quickly. Most founders when they first enter an industry don’t even fully understand the nuances of it or what people want. Your job in the beginning is to figure that out.

Ideally, if a company is going to fail, you should figure out quickly so as to avoid wasting any more time on it. I usually say to people if they’ve been working on a company for 3 years and it seems to be in the same place, it’s better to quit. You should know by now whether or not a company is going to succeed. If after this time there is no indication it will, it likely isn’t going to. That’s not to say if it doesn’t succeed in 3 years it won’t, but if signs aren’t present in this time that it will then it likely won’t.

There will of course always be exceptions. Some companies take off right from their inception. But these are anomalies and you’ll find internally they were a lot more messed up than they seemed from the outside or history paints them to be.

This kind of growth can be especially misleading because it’s celebrated and is easy to see it as the goal in itself. It’s not. The goal is to build a meaningful business. Growth contributes but the timeline from which growth happens is meaningless. It doesn’t matter if a business grows over 10 years or over 1. Hyper growth is a metric used to attract investors, not customers and frequently if the rise is fast so too is the fall.

What this means is when starting a new venture, you are signing up for a minimum of 3 years. In the worst case scenario, 3 years will be wasted. In the best case scenario you will have a business you own and may run forever. When framed like that, it forms the proof for why a new company shouldn’t be started on a whim. It is a serious undertaking which will consume the only resource you’ll never get back. Time.

In this is the proof for why you shouldn’t keep starting new things. The goal is not to start lots of little things but one big thing. It’s why it is unwise to start a number of projects or jump from startup to startup. When someone seems to be jumping from one company to the next and they haven’t spent at least 3 years on any of them. They are almost certainly doomed to fail. I’ve found that to be near scarily accurate. It’s because with every new iteration, this time starts again. If the company changes, the clock resets itself.

Now after the 3 years expires, if you don’t have a viable business, this is how people get burnt by startups. Because of that negative area they spent establishing it and the opportunity cost of spending 3 years on a failed business. They end up in the same place they were when they first started. Often in worse condition, because of everything they invested to get it started.

I always imagined it like a video game. Where the first few years of the business were like playing through the tutorial missions. The really hard stuff hasn’t even happened yet. But the tutorials are enough for a lot of players to realise they don’t actually like the game and to stop playing before they’ve spent all their lives.

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