
Why Entrepreneurs Start Companies Rather Than Join Them - thesumofall
https://steveblank.com/2018/04/11/why-entrepreneurs-start-companies-rather-than-join-them/
======
terminado

      “More often than not, she relies on charts, graphs 
       and quantitative analysis as a foundation for a 
       decision, particularly when it comes to evaluating 
       people … At a recent personnel meeting, she homes in 
       on grade-point averages and SAT scores to narrow a 
       list of candidates, many having graduated from Ivy 
       League schools, … One candidate got a C in macroeconomics. 
    
      “That’s troubling to me,” Ms. Mayer says. 
      “Good students are good at all things.”
    

Kind of a stunning misconception right there. A person only needs to look in
the mirror, to invalidate such an idea.

~~~
bhickey
> “Good students are good at all things.”

This is an unfounded and dangerous belief. Skills do not necessarily transfer.
Ben Carson, for example, is by all accounts the most talented neurosurgeon to
ever live. He doesn't give the impression of being qualified as a federal
administrator. Another example -- back in school we had a physics Nobel
Laureate who decided he was a biologist. Despite all indications to the
contrary he was taken seriously in this endeavor.

~~~
walshemj
No they are not real polymaths are incredibly rare and don't fit the mould
that rote learning and getting a 4.0.

They only one close to a real polymath I know started a company when young
sold it out for $$ at a young age then decided to get a Phd in music - after a
bad accident whist in traction taught himself programming - oh and was also a
session musician and played on top 10 hits

~~~
dschuler
Your comments are hard to read because they parse ambiguously. It could be
"No, they are not real. Polymaths are...", or it could begin "No, they are not
real polymaths...". This makes me wonder how Latin could do without
punctuation.

------
osrec
In my experience, being an entrepreneur is all about taking on and managing
risk well. An entrepreneurial spirit almost enjoys risk. At a firm, you
usually don't get much material risk exposure to manage, so entrepreneurial
individuals end up seeking out opportunities that can give them a more direct
handle on their risk exposure (and any subsequent rewards). More often than
not, this means starting a company where you largely decide which risks you're
comfortable accepting, and which risks you prefer to avoid. The thrill is in
navigating those risks using your guile to deliver value much above the
expected risk premia for your domain. I worked in an investment bank for a few
years, but the risk environment was too restrictive for me to really make a
mark (from a job security perspective also, I'd often see lifers get the boot,
so never _really_ felt comfortable, even though on paper I should have been).
Thus I quit, started my own company, took on a great deal more risk, but still
experienced more work satisfaction. I think what I like most is the ability to
take your professional future by the horns without any artificial constraints
holding me back. For me, what it comes down to is this: entrepreneurs despise
restrictions, and modern companies can't seem to exist without them.

~~~
throwaway84742
Except of course tech entrepreneurs of today mostly do not invest their own
capital, and therefore do not incur much personal risk.

~~~
Radim
Hey, hey. Some of us actually bootstrapped our companies, effectively paying
people (incl. ourselves) from our own pocket :-)

For some, the risk/independence trade-off doesn't stop at "VC's bitch".

~~~
throwaway84742
Sure, there are some who bootstrap. But the vast majority do not.

~~~
eloff
Source? I think one would find that most tech entrepreneurs are not backed by
VC capital. VCs only invest in certain kinds of businesses that have the
potential to grow to at least ten million dollars. YC looks for potential
billion dollar companies. The VC business model just doesn't work for smaller
businesses, which are probably the majority of tech businesses.

------
kelvin0
I have come to a conclusion: There are deductive style thinkers and there are
inductive type thinkers. The deductive works from the abstract theory towards
a proof of his reasoning. The inductive works from facts, and backwards to a
theory or model.

The deductive 'type' can usually be a very good student and academic, but not
so great as a practitioner. They can be very reliable within a very structured
environment.

The inductive 'type' is usually better at doing things and learning from these
and getting an intuition for how they work. They are not good at 'following'
ideas and usual make horrible students and employees. They are pretty good at
adapting in a more chaotic environment.

So the problem in tech (interviews)seems to me that the 'deductive types' get
the best scores and signal themselves as being the 'brightest'. However in
reality what you want in industry are 'doers' such as the 'inductive' type
people ... but they are the ones failing at your ridiculous tests/puzzle
questions.

Ideally a person should balance between the 2 modes (inductive and deductive)
and be a master at almost everything.

------
dalbasal
This blog and the paper it's about remind me a lot of PG's "After
Credentials."
[http://paulgraham.com/credentials.html](http://paulgraham.com/credentials.html)
.

He uses "credentials" the way "resume" is used here. Large companies allocate
compensation & power based on credentials, including those you get in-company
like seniority and job title. Startups let you succeed and fail based on
performance instead of this poxy proxy for it. He goes in depth into the
"grades problem" that Mayer seems to exemplify and several commenters here
brought up.

I think pg was optimistic about this topic in 2008, and this article relates
to his larger vision of a "high-resolution" economy where un-credentialed
entrepreneurship plays a larger role, and corporate-bureaucratic credentialism
plays a smaller one.

We'll soon have 3-5 trillion dollar companies (unicorn-eating dragons,
technically). They're less "old fashioned" in their credentialism, but they're
credentialist nonetheless.

I'm with Paul though, we need to figure out ways of having the economy that is
less abstract.

~~~
sjg007
Thanks for posting this. I think some people can become so specialized that
they fit into specific roles and that some products rely on a group of
professionals from different disciplines working together.

------
prewett
The most interesting point of the article to me is that fact that taxes above
$100k were 70% - 90% until 1970. That seems like it nicely explains why income
inequality and CEO salaries have increase since 1970. With a tax rate like
that, you pretty much can't have much income inequality.

~~~
patio11
The tax code simultaneously strongly encouraged you to not consume
goods/services but rather have a company consume them on your behalf. This is
still pretty de rigeur in Japan, which results in situations like this
regarding executive perks: Bob lives in an extremely desirable house, which he
rents for hundreds of dollars per month. It is owned by the real estate arm of
BigCo, where Bob is CEO. Bob doesn't own a car; BigCo has issued him a $250k
company car. Bob's children attend private schools, receiving a scholarship
from BigCo for emerging leaders like themselves. Bob is in reasonably good
health, given his frequent use of a gym and country club (dues billed to
BigCo), and his wife's cancer situation is entirely managed by their gold-
plated health insurance policy. Bob is socially assured of a sinecure post-
retirement like e.g. being on the board of directors of a company socially
close to BigCo.

Bob's salary is $90k a year. _Phew_ ; income inequality, solved.

(The current standard in the United States is that most of the above fringe
benefits would result in taxable income to the employee. This is close to the
current formal rule in Japan, which adopted guidance very similar to the US'
on about a 25 year lag, but the substantial give-and-take between tax
authorities and employers/taxpayers makes the actual practice in Japan
substantially more varied than in the US, including among firms which would
consider themselves enthusiastically complying with the rules.)

~~~
adrianN
I'm not a tax expert by a long shot, but I believe that here in Germany perks
from your company count as taxable income. Company cars definitely do.

~~~
candiodari
Germany, like any other European country I know, charges 0% tax as long as a
company doesn't pay it out to it's owners. Every other use (see next
paragraph) is untaxed. In fact they pay less tax than individuals (no VAT).
And of course, high incomes have such companies, that receive their salaries
instead of them themselves. This is common and perfectly acceptable, in fact,
as a consultant you are taken advantage of if you don't do that.

How does it work ? One pays "proper" tax on a nice income they pay themselves
indirectly (but 1/3 or less of their real pay) and then invest it in something
that's some form of capital replacement business (buy something - rent it out)
and grow that business all their career, and of course use it for perks, like
free dinners, vacations, health care, education, hotels, cleaning service, ...
There's even the more blatant ways to get untaxed pay. For instance renting
your own house (you put an office room in your mansion, then "rent" it to your
own company for a very nice rent. Untaxed, and legal)

For tax purposes, of course, those aren't free dinners. Those are "sales
negotiations", which are indeed also conducted in expensive restaurants.
"Company conferences", not vacations. As for additional healthcare, that
receives special tax treatment by default.

Company cars (aside from being a necessity. You're socially judged in Germany
by the car you drive. You want "senior consultant" ? Don't arrive in a
Renault, or generally any car under $50k. Hell I know people who hack this
system by using rentals, removing the stickers and using those to go
interview). Anyway company cars are untaxed (0%) as long as their "primary
use" is company business. Wanna bet how often that is true for higher pay
individuals ?

Oh and I've actually walked into the general management building of Deutsche
Bank. I guarantee not one of the managers is paying a dime in tax on company
perks, and yet ... that building is a palace. You can get free massages there.
There's an exquisite restaurant (10 euro per meal). It's the best museum of
German art in existence, by a HUGE margin, it's got sleeping rooms (which
should be understood to be a free hotel service, because that's what they
are), and of course, every business partner or "business partner" ... can be
given access, again, for free. And all this service, for free, in the dead
center of the city. Hell, the free parking alone is worth 500 euro per month.

Can we please stop with the idea that Europe is somehow a more egalitarian
place than the US ? It's not. Also no European business will be caught dead
paying half the salary you get in Colorado to a software engineer (you can get
comparable to Colorado as a consultant with maximum "tax hacking" though,
still nowhere near the valley). Lastly, at least in my experience, European
companies are a lot less meritocratic than US ones (not that I'm seriously
claiming there isn't a healthy dose of nepotism/favoritism in the US, but it
doesn't tend to be 90%+ of the company, whereas that is very common in the
EU).

~~~
mattmanser
This wall of text is a bunch of personal anecdotes that don't support your
conclusion.

Europe, generally, _is_ more egalitarian. Most of the countries operate on
social democracies. Many countries have free health care. I would also like to
point out countries in the EU are different. They're not like states in the
US, they're very different.

The US has people without access to water. Huge trailer parks. Much higher
rates of homelessness. Worse income equality. Smaller social welfare programs.

Whatever your personal experience of walking into a bank is, it doesn't matter
and it doesn't make you right.

It's also a bit silly to point at a bank, which are notorious in all
countries.

The software salary thing is very odd thing to point at too, the US has a
disproportionate amount of the internet companies which is heavily inflating
your software salaries due to demand.

~~~
candiodari
I've seen pretty sizeable trailer parks without fresh water in Holland, too.
Granted, nothing comparable to what you find in America, but finding regions
of endemic poverty in Europe is not hard at all.

------
mattsfrey
This takes a very heavy analytical approach to the reasons for seeking an
entrepreneurship path. I think it misses the larger point - most people go
into it for highly personal subjective reasons. Mine, and most I feel like are
simply choosing to chase after the dream of making real money, enough to buy
our freedom from the rat race and live life on our own terms.

~~~
adrianN
There are a lot of software engineering jobs that provide enough income for
you to retire before you're fifty.

~~~
davidjnelson
Outside of an equity event or very, very special circumstances, I don’t see
that being true in the Bay Area. Managers at Google/Facebook, no problem.

------
temporalparts
One additional thing I would add to the article is that large companies have a
harder time leveraging someone with multifaceted strengths, which the
entrepreneurial route can better leverage. Large companies are about
specialization and efficiency at scale for employees; their structure
inherently has a harder time to get the most out of the the multiple strengths
an entrepreneurial person likely possesses. Conversely, someone who is amazing
at only one thing, eg software engineering, but lacks in leadership, sales,
marketing, design, etc could have an amazing career in a large company but
might have a harder time starting a company where there aren't already teams
of people to compensate for his/her weaknesses.

------
boostropio997
Article is right on. A lot of entrepreneurs are simultaneously the most and
least employable people you'll ever meet.

------
NPMaxwell
Having been entrepreneurial itself becomes a signal that opens doors at
companies -- even if the business fails. I don't know about hiring on and
doing what you're told, but being the person who made sure it all happened --
including doing everything you haven't yet hired someone for. I've seen
several folks who stepped out, failed at a business idea, and then stepped
back into corporate at a higher level. Starting up a new company is like
starting a new division. It signals that you can handle the complexity and
diversity of responsibility. [https://www.nytimes.com/2016/09/11/upshot/how-
to-become-a-ce...](https://www.nytimes.com/2016/09/11/upshot/how-to-become-a-
ceo-the-quickest-path-is-a-winding-one.html)

~~~
justherefortart
My experience was the exact opposite.

They'd all ask, "Why would I hire you if you're just going to leave and do
another startup?".

Even in San Francisco, which was more surprising than in the midwest.

~~~
NPMaxwell
You got me thinking it over. It's a question (like "what are your three
biggest weaknesses?") that you need to have an answer for. In my case, I said
that, while I could do sales, I didn't like sales.

------
jogjayr
> No wonder the most successful Google products, other than search, have been
> acquisitions of startups not internal products: YouTube, Android,
> DoubleClick, Keyhole (Google Maps), Waze were started and run by
> entrepreneurs.

What about Gmail and Chrome?

~~~
rorykoehler
Neither Gmail or Chrome were exceptionally innovative ideas. More iterative
technical executions which Google are exceptionally good at imo.

~~~
jogjayr
You're moving the goalposts. The blog post just spoke about "most successful
products". And "innovative" is subjective. Moreover there was nothing like
Gmail at the time it debuted (AJAX, huge storage, powerful search). Chrome was
technically very innovative and also popularized UI things that have become
standard - tabs at the top, omnibar.

~~~
temporalparts
Regardless of how innovative Gmail and Chrome were (and I agree they were),
more of Google's "innovative" products are a result of acquisition. This
supports the article's hypothesis that Google's internal product innovation is
not as great.

Some examples of failed innovation at Google are Wave, Allo, Chat, Plus, etc.
Having worked at Google, I can count way more product failures than successes
that originated internally.

~~~
jogjayr
But in the real world too, way more companies fail than succeed. It would be
weird if internally developed products _didn 't_ also fail a lot.

Some of the successful acquisitions (YouTube, Waze) were made at a time when
they were already popular and had traction. YouTube wasn't the only video
sharing site around at the time (there was even Google Video[1]) but it was
obviously the most well-liked.

1\.
[https://en.wikipedia.org/wiki/Google_Video](https://en.wikipedia.org/wiki/Google_Video)

------
tonyedgecombe
_Venture capital flourished when the tax rates plummeted in the late 1970s._

Yet business formation in the US is near a forty year low:
[http://money.cnn.com/2016/09/08/news/economy/us-startups-
nea...](http://money.cnn.com/2016/09/08/news/economy/us-startups-near-40-year-
low/index.html)

~~~
walshemj
_cough_ Fairchild _cough_ Intel - and the other fairchildren

------
billsix
The title is tautological.

Tell me about "the entrepreneur who never started a company".

~~~
ak39
Blank is using the word "entrepreneur" more in the skill sense, the mindset
sense - an identity. Someone who is given a wider canvas to express creative
ideas and to solve problems than the narrow surface areas offered by
traditional employers (employers who mostly only seek cookie-cut identities to
execute already established company ideas).

------
mathattack
Interesting. The converse may also be true. People with shiny resumes may also
have more incentive to stay at banks/consulting/largecos.

~~~
sjg007
What is a shiny resume really?

~~~
sah2ed
Someone with an Ivy league education I'm guessing.

~~~
walshemj
The right Private/Public Schools then Harvard / Oxbridge (PPE) playing the
right sort of sports Polo, Rowing , Rugger.

------
ian0
Obviously it varies but personally the major reason I tend towards working
outside organisations is the "quality" of my endeavour.

Within an established organisation, even great ones, getting things done
involves often involves internal machinations - "buy in" etc. The best people
at large companies are experts at this.

As an entrepreneur, this skill helps make a sale, or raise funds. But its
directly linked to the problem you are solving. Its "how do I make a thing
that does X" VS "how do I make this thing do X".

Its purer. Its more interesting. Its easier to romanticise - and easier to
pass that feeling on. Its also liberating to have complete freedom (for
awhile!) and no-one to blame but yourself.

------
alephnan
I knew some “entrepreneurs” from college who couldn’t land a job upon
graduation. They’re prideful, so they sugarcoat their situation and justify
why it is meaningful, when really the opportunity cost was zero. This isn’t a
knock against all entrepreneurs. It’s the difference between “billionaires are
dropouts” vs “dropouts are billionaires”. Ironically, one of those
“entrepreneurs” said “I’m a C student, therefore all of you will end up
working for me.” Last I heard, they were smuggling medicine in the legal-
grayarea across borders.

------
m3kw9
Probably because they have already strong convictions about something and
having a boss is not much different for them than a bigger company

------
phkahler
"In this case the entrepreneurs know something potential employers don’t –
that nowhere on their resume does it show resiliency, curiosity, agility,
resourcefulness, pattern recognition, tenacity and having a passion for
products."

Those aren't really signaled by asking coding questions either.

------
1290cc
My own career is an example of this, by all accounts and measurements used in
HR in the US I shouldn't be earning as much as I do or as successful or sort
after in my field.

Its always a shock to colleagues when they ask where I went to college and my
response is that I'm still on my gap year that started 15 years ago. When I go
into the details of what happened throughout that period the bias towards
college education disappears.

And the paper is correct, I fully understand that my skills on offer are on
par or better than what any C-level or senior exec can offer, but I only
realized this after a few years of interacting and working with these people.

------
IncRnd
_“I want to be my own boss.” “I love risk.” “I want flexible work hours.” “I
want to work on tough problems that matter.” “I have a vision and want to see
it through.” “I saw a better opportunity and grabbed it. …”_

I've started several companies, and the reason was the same each time, I
believed there was a market for an idea from which I could make money. Those
other reasons never came into play. I suppose that starting a bussiness has
different reasons for people who are already unhappy with their lives, but
starting a business really shouldn't be undertaken to minimize stress and the
number of working hours.

------
grosjona
>> that explains a new theory of why some people choose to be entrepreneurs.

People don't 'choose' to be entrepreneurs - Choosing to be an entrepreneur is
usually the first step but it doesn't make you an entrepreneur. It can take
decades to reach the point where you can become one.

I've been trying for 10 years and I'm now only partially an entrepreneur in
the sense that I earn a decent amount of passive income from a side business
but I'm still also an 'employee' because I still have a day job too.

It takes a long time to build up the network that you need to become an
entrepreneur.

~~~
ithinkinstereo
You don't need a "network" to start a business.

In fact, many founders start businesses in industries and niches that, at
first, they might have little, to no, connection to.

If you think a network is critical, probably the most effective (time-wise,
maybe not so much cost-wise) way to acquire one is to go get an MBA or gain
employment in a professional services firm (consulting, banking, accounting,
law, etc.) that works in that industry.

~~~
justherefortart
You can open a Subway inexpensively, then work in it for yourself.

Everyone around me has a bunch of rent houses while they work normal jobs to
pay everything off. Hell, my neighbor has 15 or so homes and lives in Europe
most the year and has since the early 1990s.

Lots of different types of entrepreneurs and avenues to success. Capital is
the key in my experience.

------
xivzgrev
There are plenty of highly talwnted people who work for existing companies vs
start their own thing. The fact that big companies often acquire startups I
think has less to do with caliber of talent and more the focus of that energy.
You are asked to move some KPI OKR whatever. And you are evaluated on how much
you move it on at least an annual basis. Successful startups often take many
years to become valuable or product revenue. It's too risky for most companies
to hold off evaluating for that long.

~~~
xivzgrev
Also the notion that only great products besides search for google came from
acqusition is false. Top of my head: gmail.

------
hellofunk
> At a recent personnel meeting, she homes in on grade-point averages and SAT
> scores to narrow a list of candidates, many having graduated from Ivy League
> schools, …One candidate got a C in macroeconomics. “That’s troubling to me,”
> Ms. Mayer says. “Good students are good at all things.”

No wonder Yahoo failed.

~~~
bhickey
I disagree with her leadership style, but it's unfair to blame Yahoo!'s
collapse on her. The company was doomed with or without her. She took on an
untenable role in exchange for a big pay package.

~~~
nojvek
Well technically, they were paying her the big pay package to turn around the
company, anyone could have burnt yahoo to the ground. Law of entropy.

------
cvaidya1986
Ah this makes so much sense. Interesting perspective on hiring metrics! I’d
put a premium on entrepreneurial initiatives completed as a solid metric.

------
kevindong
Is that (starting a company) not literally the definition of an entrepreneur?

[https://www.google.com/search?q=define+entrepreneur](https://www.google.com/search?q=define+entrepreneur)

> a person who organizes and operates a business or businesses, taking on
> greater than normal financial risks in order to do so.

------
otalp
This does not consider the fact that only a small segment of the population is
capable of being entrepreneurs - at least in tech, in the first place. In
order to leave a cushy job and start a startup you must:

1)Be born in a country that's rich with local talent that you can hire. Or
have the ability to move to such a country.

2)Be free of debt, either from student loans or mortgage

3)Have affluent friends or families(the paper rightly notes that most early
funding comes from friends and family) - so affluent that they are willing to
invest in something they know will possibly fail, as most startups do.

4)Be the right age - if you're starting a family or paying off a mortgage, it
would be completely irrational to abandon a stable job.

When you consider all this, there are perhaps a few hundred thousand people
for whom it would be wise to become an entrepreneur - and by this I don't mean
a local store, but with ambitions to scale up.

All these factors could explain the charecteristics: Immigrants from Asia and
Europe tend to be richer than the average population there much more educated.
They are young and largely free of undergraduate debt. Similarly, people who
grow up in affluent families(relative to the median family) probably already
have seed money, fall-back options and security that failure doesn't mean
homelessness. Not everyone has that luxury.

Looking at the most popular entrepreneurs in the world - Bill Gates,
Zuckerberg and Spiegel all grew up in very rich homes, while Jobs grew up
right in the heart of Silicon Valley. Kalncik lived 3 years without a salary
and moved into his parents house for a long time.

~~~
shareometry
I strongly disagree with your second point. There are quite a few very
successful entrepreneurs who have started companies while being mired in
terrible financial circumstances. In fact, it's very common for these
circumstances to be the stimulus that gets people moving in the direction of
their own company. There are many, many stories of this, to the point that
it's a cliché.

I myself started my first business at a time when I had virtually no money in
the bank, and my car was literally repossessed one month before my business
became profitable. If I had stopped and said "I can't afford this" and just
given up and gone to get a job, I would have never seen the success that came
later.

Also, you point out particular entrepreneurs who came from rich families. You
completely leave out the wide array of entrepreneurs who did not. John Paul
DeJoria, for example, was living on a friend's property because he was
homeless and had almost no money. He started his business in those
circumstances. He's estimated at somewhere in the ballpark of 3 billion net
worth presently. There are quite a few stories of people with virtually no
money building empires out of the rubble.

While I agree that there are a number of factors that feed into whether a
startup is successful or not, I would kindly submit to you that one's attitude
towards whether or not it can be accomplished is a very massive part of the
picture. It takes focus and determination to get most businesses off the
ground. Once you begin listing the reasons you can't accomplish it, you've
begun setting up the circumstances such that you won't.

~~~
simonebrunozzi
Truth is, the list is very personal.

For me (formerly well-paid executive at IT companies in the US, originally
from Italy), #2 (plus, some reserve money) was absolutely necessary to
convince myself to leave my last job and start a company, last year.

~~~
laythea
It seems that you were fortunate that the burden of your decision was light,
but this would not be the case, generally I would have thought.

------
jk2323
Many entrepreneurs are terrible employees.

------
dmritard96
article aside, for the most part, this title is a tautology right?

~~~
thaumasiotes
"Entrepreneurs start companies" would be a tautology.

"Why entrepeneurs become entrepreneurs" is a question that can be answered (to
some degree). If more than one answer is possible, as here, it doesn't really
make sense to complain that the question is a "tautology".

------
dustingetz
technology is changing the balance of power

nontech led companies are dying, no growth to be had there

why would i work for that

~~~
nugi
Even the best tech needs foundations, buildings and services to function. Get
off your high horse. Money is where friction is, not nessarrily, or even
usually, advancement in tech. Not to mention non tech companies are dying at a
much slower rate than tech ones if you plotted them all.

