It is also about the way the business is started. For example, if you get VC and fail, then that's it folks. You've got nothing.
If you do not get VC, then how can it fail unless you give up? Go back to work, get a job, and keep a side business. Admittedly that can be difficult. I have been denied a position at a top 5 auto manufacturer due to my "entrepreneurial spirit." That was odd to say the least, but probably the correct assumption and the hirer knows better than I do. I digress...
Point being, if you start up a lean company, with no debt, no commitments to leases, no big expenditures then really the only cost is rent and food and maybe a car and some other stuff like that and you can expense those out of your revenue if you do it right, but shoot... it's like free will. There are no rules, except what the government tells you to do and those suck, but they'll remind you if you are late on your taxes and if you aren't making money, then it doesn't matter. Unless you are inc'ed in california, then it's $800/yr, but that is really insurance to protect your personal assets if you get sued... it's all about perspective.
The hardest part of a startup is figuring out all the laws and regulations and getting over the hit by the bus syndrome if you want "real" customers. But the solution there is to create something that doesn't need support. Build a quick hit and if people don't care if you are around after they buy it, it's less of a concern.
It may not be as risky as they say, but it definitely isn't a sure thing and it isn't easier to make more money at a startup than at a corporation. The potential is greater, but the average amount made by startups is probably lower than the amount of salary earned by those who kept the corporate life. A lot of the people I used to work with have multiple homes in different cities and nice cars and are rolling in the dough making six figures. They think I am not taking my life seriously because I don't have a bed and sleep on a blanket and don't watch tv or do anything but write code, but heh...
But that's the thing... I'd rather make $50k at a startup I built with my own hands than $100,000/yr working in a gray cube "slinging code" for some corporation... not everyone feels the same way though and if you don't, probably better to stick with the "real world"...
the good thing about doing a startup, is that the growth is usually exponential. If you make X in one year, chances are you'll make at least X+1 the next.
Working at a job, you are usually stuck with that 3-5% raise, that barely covers rise in the inflation. And maybe you get lucky and switch jobs to snag an extra 10% raise. Eventually you get tapped out in the $100-150K range.
Meanwhile if you have your own business, the sky is the limit. Your growth rate will no doubt be higher than 3-5%. Chances are, that the first couple of years you'll end up doubling your yearly income. The key thing is to stick it out, keep your costs low so that you can survive long enough to reach the snow ball effect.
Stick it out, yes... that's the most important part. That's the hardest part. I think most people who have a startup want to quit at some point. It has to hurt. You have to move through the hurt, because everytime you keep going when you want to give up, someone else out there with the same idea who got to the same point where you want to give up... well, they actually gave up. They gave up which means more customers for you...
I was at a library once and this was a very popular library. There was a whole crowd of people waiting outside before the library opened all wanting to rush inside and find a desk where they could sit and read the books. The security guard had to yell at the people twice DON'T RUN! It was insane.
So what I found was, the people who went the farthest into the library were most likely to find a spot. Some people went in say, half way and instead of simply going farther in, they stopped and turned around and went back and hunted through the desks they'd already passed hoping to find a desk everyone else had passed up.
But on the next floor or closer to the corner, there were still open spots! Those readers simply didn't go far enough. They gave up too soon and so someone who went farther got an open spot those who gave up could have gotten.
It was a metaphor for startups... "Keep walking!" that's my motto. If a customer says no, keep walking, find another customer. If you find a bug, keep walking and fix it. Just keep walking. Don't stop. Don't turn around. You'll stumble, but pick yourself up.
Damn, it's hard sometimes... it's really hard sometimes. You'll want to cry (you'll notice those go from tears of sadness to tears of joy as you walk), you'll want to smash your computer. You'll get depressed. You'll get hungry and have no food. You'll sleep on the floor. Everyone will think you are crazy. You are crazy. Crazy is good.
This is certainly true. I always said to myself that running a startup is like running a marathon. If you can just move one step at a time BUT KEEP MOVING, soon, you'll arrive.
That's what i did when i finished my marathon last year. Just one step at a time, no matter, how much i hate it (especially started from 30km+). The metaphor of cry from sadness to joy and everything else is so spot on pj!
Starting a service business need not be risky, but starting a startup seems to be quite risky. From what I've seen so far, the standard urban statistic about the 10% success rate is not hard to believe.
Any data of how many founders who fail go start the second startup? I think that probably 90+% startups fail but founders failure rate is probably much lower.
For me definition of founder failure would be giving up and going back to big company and not trying again.
My issue with the 10% rate is that the population of startups is not homogenous. Put differently, many startups are essentially doomed to failure at the time of the founding, and others have much better chances.
If one takes serious measures to belong to that second group of startups which are not (necesarily) doomed to failure, then the really relevant question is: what is the success rate in this group? 25%? A third? A coin flip?
Of course there's also a non-trivial chance of belonging to the first group, but not acknowledging or being aware of it.
Certainly, though they need not be exclusive endeavors. You can launch a small business with the plan of growing it slowly into a full-blown startup. So you start with the near-term goal of paying your rent and food, and a longer term goal of doing much better. (The whole idea of planning to build a $1B company makes little sense to me. Rather, first build a $100k company, then turn that into a $1M one, then $10M, etc.)
Admittedly, this sort of strategy doesn't work for all kinds of startups, in which case you might start a related small business, and use it as a base to launch startups.
The failure rate depends on the business. I remember reading that the failure rate for restaurants is something like 75%, for some meaning of failure. The failure for hobbies turned into retail stores is probably similar. A home based business, particularly information based is a whole different animal. The supplemental income can be quite nice without the drag of retail space and employees. Just think of how many employees a restaurant takes.
Losing money in the Schedule C sense is not so bad. You can be making a nice supplemental income but losing money as far as the tax man is concerned when you deduct home office, telecommunications, autos, and office equipment.
And you don't care when a web site "fails", because you probably have one or five on the back burner.
I like looking at the "risk" of buying a new car vs. starting a business. When one buys a new car, they may spend $35,000 and as soon as they drive it off the lot, the value rapidly drops. When you talk to the average salaryman, they never say "buying a car is risky" when in fact, its one of the dumbest financial risks that one can take.
When starting a business, that same $35,000 investment actually has a chance of increasing in value, even if 95% of businesses fail.
Most people who say business is "risky" are just not comfortable with ambiguity. Buying a car is very well-known. Building a product that has never been built before means that you're venturing into the unknown, a very scary proposition for most people.
If you buy a car for its utility value, you can get a perfectly usable car for $10,000-$15,000. Say you spend that $15,000 on the car, you still have $20,000 left over that you could invest in a business.
You completely missed the point; this thread is about people who say "starting a business is risky". If you measure risk in terms of ROI in dollars: purchasing a deprecating asset vs. starting a business is a no-brainer, yet most "average joes" that tell you "starting a business is risky" won't think twice about blowing lots of money on a brand new car.
The author does not seem to mention the value of cash flow. Structured correctly, the business can be only ramen-profitable, but the cash flow can enable many other gains (equipment, transport, facilities, etc.).
My wife and I have financed a very nice life for the last 20 years on the back of a service company that makes a product every once in awhile (when I want the extra challenges).
