
If You Want to Go Broke, Listen to a Billionaire - sixtypoundhound
https://sideprojectplaybook.com/if-you-want-to-go-broke-listen-to-a-billionaire/
======
mdorazio
I think it's worth discussing things that _actually_ lead to positive outcomes
in business settings rather than looking at outliers who mostly got lucky.
People I know in the "successful entrepreneurs despite never getting lucky"
category generally have some combination of attributes that the whole VC
industry (including wishful founders) often downplays:

\- Actual domain expertise (a summer internship or talking to a few people
doesn't count)

\- A solid grasp on business fundamentals and managing teams effectively

\- A strong network of people who serve as potential employees, partners,
customers, mentors, etc. due to being outgoing and generally spending time on
developing relationships

\- An uncanny ability to recognize niche business problems that are
underserved by existing options

\- A willingness to laugh at concepts like "work-life balance", "happy
marriage", and "spend more time with your kids"

\- The ability to build a strong team from nothing and keep it strong by
firing people who suck and rewarding people who are good

\- Recognition of what you are and are not good at, and then finding good
people to do the latter for you

\- The ability to sell things effectively (no, if you build it they probably
won't just come)

I'm sure others on HN have their own lists.

~~~
hogFeast
Why do you need to categorise this? It seems so utterly futile: "Oh, just do
these ten things, and you will become a billionaire...all you need to know is
the secret knowledge that only billionaires know".

Do something you enjoy. Stop trying to study the success of other people and
reverse engineer it. Not for anything else: you can be sure that they spent
more time just doing the thing they wanted to do rather than study other
people for tips.

I do get this feeling. I went through it. But then I realised that none of the
stuff that matters to me is going to change. If you want to be able to jump
into a big pool of gold coins like Scrooge McDuck...then maybe.

Also, if you are really interested in business the absolute last thing you
should be doing is building lists of personal characteristics. Read what
public companies are doing, read financial reports, etc. That is actual
business (I don't think the OP is interested in business, he just wants
success...which is something else...go into politics maybe?).

~~~
perl4ever
"Oh, just do these ten things, and you will become a billionaire"

I think you're completely misconstruing what you responded to. That list is
neither about becoming a billionaire nor about what to do to get there. It's
describing talents or tendencies that make people build things worth millions,
not billions.

~~~
imgabe
I don't think it's misconstrued at all. You build things worth millions or
billions by doing the actual work to build them. Not by aping the personality
traits of people who built other things.

~~~
perl4ever
If your point is that hardly anyone can read a list of personality traits and
then go out and adopt them, I certainly agree. But I don't think that was
being promoted as plausible.

------
H8crilA
Investing is a "loser's game". By comparing it to tennis: a "winner's game" is
a tennis game in which you try to play the ball so well that your opponent
can't handle it, and you score a point. This is how professionals play tennis,
they win by superior play. An amateur is playing a "loser's game" \- focused
on just bouncing the ball 20 times and hoping that his opponent bounces the
ball only 19 times. Similarly in investing the whole point is to avoid
trouble, stay in the game for a long time and _maybe_ eventually score a nice
win on the way. This implies insistence on low prices (buy low sell high /
margin of safety), not chasing crazy returns (because crazy high returns are
often surrounded by crazy bad losses) and diversification (accepting the fact
that one's judgement is probably poor and that there is inherent randomness in
the world).

~~~
dragontamer
It should be noted that Stockfish chess heavily prunes its searches because it
too plays a "loser's game". Instead of searching for the best move, Stockfish
narrows its search and simply tries to prove that the move it does pick "isn't
bad".

Ameatur level Chess is about figuring out a good "trick": a powerful pin or
maybe a fork that the opponent didn't see. So low-level chess is a "winner's
game".

High-level chess, at least computer chess, is more about making fewer mistakes
than the opponent.

\---------

Bogey Golf is another one. Playing for +18 leads to a score of ~88 after a
round of golf, solid for an amateur. Not good enough for the pro-leagues. You
get onto the green in 3-shots and only have 2-putts.

Pro-players of course take big, aggressive hits. Tiger Woods in his hayday
would get onto the green in just 1-shot (throwing out his back and knee, it
certainly wasn't a healthy swing). But a typical player who tried to hit that
hard would end up missing their shots, whiffing the ball, or just straight up
sending the ball out of bounds.

~~~
cjlars
A common saying in chess is that the winner is the person who made the second
to last mistake.

However, having played quite a bit against stockfish it certainly doesn't feel
like that. It just crushes you, mercilessly and swiftly no matter what you do.

~~~
dragontamer
Well, Stockfish probably exhaustively checks all moves ~4 or 5 ply forward.

But the move that Stockfish picks has been searched to depth 30 or even 50,
depending on how easy or hard the position is. Its infeasible to actually
search all possibilities, but Stockfish basically is searching "deep", to
ensure that most obvious tactical patterns are accounted for (orderings of
captures and stuff of that nature)

That's roughly the "shape" of Stockfish's search tree. Super deep for the
moves it picks, but very shallow on its exhaustive search.

------
zelon88
Great read! Lots of potent talking points for your next financial meeting at
work.

I saw a company advisor get all bent because so many people were taking out
401k loans. So we had to listen to him (a millionaire) and the CEO (also a
millionaire) talk about how "cheap" money is at the moment and how they're
both taking out mortgages and investing the money because their mortgage rates
are so low. Then my boss said, verbatim, "I know, for a fact, with what you're
making that any of you could get a loan at a credit union right now."

There's a lot of older people in my industry who take an executives word for
gospel. It was heartbreaking to see this man gaslight everybody with his
unwitting ignorance to how real people get by.

~~~
perl4ever
Do you in fact know anyone who has taken a 401k loan?

Right now, I can't get a mortgage loan from a bank, but then again, I don't
have a 401k either. I'm not sure of what scenario would make me do it if I did
have a 401k.

~~~
zelon88
There was one guy who shared his experience. He said he has high risk
investments and was worried about the market. When things stabilized he put
the money back.

Another shared that he used it for home repair. Another bought a car.

The downside seem to be 1) high fees 2) that money isn't making interest 3)
you wind up paying tax on it when you pay the loan back with your regular pay.

~~~
perl4ever
I don't know. When I had the option of taking a 401k loan, my impression was
it was a thing that had no reason to exist, much like an HSA. It's all a net
loss to society to set up these games with rules for avoiding taxes that bait
people into making decisions that cause problems later on.

~~~
zelon88
I think the only time it truly makes sense is when your credit is so bad you
can't take out another line of credit, assuming you can afford to pay it back.

The only pro that I could see to it was that it doesn't require a credit
check. You're borrowing your own money.

However, this is far outweighed by the fact that if you leave the company the
balance is due immediately. So if you borrow $10k and get fired with a $5k
balance you will immediately owe your company $5k.

------
refurb
My current role has me interacting on a regular basis with the CEO and several
VPs of a Fortune 500 company.

Now, don’t get me wrong, each of them have definite skill sets, but when it
comes to business strategy, they’re just guessing like the rest of us. Of
course their guesses are more informed than mine, but they are still guesses.

What I’ve noticed makes for a very effective senior leader is the ability to
ask the right questions - they may have little to know domain knowledge, but
they still have a good ability to smoke out a bullshit story.

------
Havoc
Interestingly enough I see a parallel to this in my family.

I'm the one with the high end financial education so they ask me for advice
(fair enough). Yet circumstances differ so it's invariable a case of "do as I
say, not as I do". No sister...leveraged derivatives with short DTEs aren't
for you.

...weird parallel in a microcosm sense.

------
NickNaraghi
This article could have just as easily been titled "If You Want to Go _For_
Broke, Listen to a Billionaire"

Not all startups are VC-backable; not all entrepreneurs are trying to build
massive companies. Entrepreneurs, as a microcosm of all people, have a wide
variety of values and goals.

So when the author says:

> A Better Formula For Regular Entrepreneurs

What's "better"? What's a "regular entrepreneur"? More precise language might
be something like "A formula with a higher chance of success for entrepreneurs
who value a likely moderately-positive outcome over an unlikely massively-
positive outcome."

Personally, I'm going for broke. I want to create the largest possible
positive impact that I can for humanity. VC incentives to seek unicorns may
not be aligned with all entrepreneurs, especially the "regular entrepreneurs"
above. But I think for some, the incentives and economics are aligned.

~~~
WillPontificate
Then that's the right strategy for you. You're intentionally loading all your
bets towards a single massive payday.

For someone on Main Street, however, the odds of any payoff are probably more
important than the size of the potential payoff.

~~~
adventured
I've known a lot of Main Street entrepreneurs over the years, small business
people of various levels of success. I know far more of those people than I
know entrepreneurs that have been VC-backed.

I'm talking about people that own insurance agencies, small city newspapers,
boutique shops, fast food franchises, small consulting businesses in tech or
elsewhere, car dealerships, convenience stores, bakeries, food shops, and so
on.

To add to what the parent, Will, said - very few people in general possess
extraordinary skill at anything. That's just reality. It's true of most
business creators as well as it is the general population. Most entrepreneurs
don't have access to the networks required to raise millions of dollars in
venture capital, even if they wanted to. And given the very finite nature of
such things (there are only so many VCs and so much money, and relatively few
VC deals even in the largest economy that has 330m people), most could never
get access to them. The numbers are badly against anyone that wants to attempt
it.

You're not building the next giant company without extraordinary skill, most
likely. Sure, there are some flukes that get through somehow, mostly that
isn't the case however. Mostly, it takes extraordinarily skill at a thing,
combined with immense luck, typically immense hard work, immense sacrifice,
and access to elite networks. Yes, Joe/Jane Average can beat the odds,
overcome everything that is dramatically stacked against them, it happens, and
it's kind of like hitting the lottery. More likely they'll ruin their life
chasing a nearly impossible dream.

99%+ of the population is eliminated from contention instantly. It's simply
not a consideration, it's not a potential, and I believe most of them know it.
Certainly all the small business operators I've ever talked to, they tend to
understand their capabilities and limits very well, especially those that have
been in business a while. They know better than to waste their time on
fantasies (and that isn't a bad thing). Very few of them that I know did it to
try to get very wealthy, mostly it was for all the other reasons:
independence, not having a boss, charting your own course, pursuing a solid
opportunity that becomes a good job, doing something they enjoy, etc. The VC
game is an entirely different beast, it makes perfect sense that most
entrepreneurs would have little interest in it.

~~~
WillPontificate
Bingo... a stable business you enjoy pursued for sustainable reasons. I'd add
a slight financial component to the list of reasons (hiding in my basement for
$50K/year isn't appealing) but that seems consistent with the strategy I
recommended.

A second benefit: many established small businesses can be bought for under 5
X EBITDA ($10 MM - $100 MM sales) which usually can be levered up 3:1 using an
SBA loan. You could also generate similar returns by funding the right types
of organic growth projects. If chosen prudently, there's a lot of upside in
those numbers.... (with some risk, naturally)

So while they may do it for the lifestyle, the underlying investment dynamics
of the niche are very attractive...

~~~
adventured
One of my favorite small business examples is a friend that quit working for
an insurance agency and bought one of his own (typical car & property
insurance agency) for 1x sales. In service segments like insurance or
accounting, it's often easy to find businesses to buy at 1x sales. The former
owner was retiring and ready to be done with it.

Simple small business concept. He instantly replaced his former income, bought
himself a job. The purchase paid for itself in a few years. Since the purchase
he has organically - with very little advertising effort, mostly through good
customer attention - increased the size of the business 4x or so. The year by
year growth goals are very modest, and over time the persistent gains
obviously add up (snowball down the hill). The same effort he would have been
putting in for his former employer, will make him a multi-millionaire instead,
with quite modest risk.

He doesn't regard himself as an entrepreneur, he thinks of being an
entrepreneur as those that take very outsized risk (the media propaganda
version everyone gets fed). He's wrong though, he's an excellent example of an
entrepreneur. The best entrepreneurs are usually those that understand the
task is to eliminate the risk in the equation, not to actually take or pursue
risk. Risk is what threatens the business, eliminating the risk is what
ensures prosperity (or at least gives you the best shot at it). In my
observation, small business operators are often frequently quite good at
spotting and quickly eliminating risk in their businesses, they're very close
to the metal so to speak, very exposed to the nerves of the operation.

------
tunesmith
I went down the rabbit hole with the Kelly Criterion recently, last time I
thought about venture capitalism. Starting with a scenario of a repeated bet
where you have a 10% chance of a 50:1 upside, Kelly says to bet a percentage
of your bankroll each time, while someone of a more conservative bent might
want to have a 95% chance of not going below a certain drawdown.

With those stats, you have to bet 28-29 times to have a 95% chance of winning
your 50x upside. So depending on your maximum drawdown, you have to make a
much smaller bet than what Kelly Criterion counsels.

In fact that seems to be a general thing - Kelly Criterion is generally about
maximizing geometric returns, but the volatility will kill you - it takes
_lot_ of betting to have high odds of being close to those theoretical
returns.

I'm not really experienced enough with the math to find strategies that
maximize your expected growth when subjected to a certain drawdown
restriction, but that's what people need when they are at lower net worth
levels.

~~~
disjhshava
The math works out a lot better if your society has a strong social safety
net, and friendly bankruptcy and limited liability laws.

~~~
tunesmith
Man, I have to learn more about that at some point. I own a business but it
was never designed to be one that took out a business loan. I never even
considered it because I just equated losing it with the awfulness of losing a
bunch of personal money. Is there a class one can take that teaches people how
to work the bankruptcy/llc system the way it's intended to be worked? Meaning,
not abusing it, but being "entrepreneurial" in the way that those laws are
apparently supposed to incentivize?

~~~
joncrane
I think it's more of a thing where you talk to a bankruptcy lawyer. I'm sure
some are willing to talk for free for 30 minutes or so. Maybe talk to one or
two, then draw up a list of questions and pay one for a full consultation.

------
euske
While I'm no investor or anything, there's one life-y takeaway from this
article: diversify your areas of interests. Take as many bets as possible.
I've always been working on it.

------
RickJWagner
Ah. This is about entrepreneurs, not average people.

To become rich (not broke), listen instead to billionaires like Warren Buffett
or millionaires like Jack Bogle. They both offer plans for average people to
become wealthy. (With very high probabilities of happening. But it takes
decades.)

See Bogleheads.org for details.

------
sandwall
Love this. Reminds me of one of my favorite xkcd's on survivorship bias:
[https://xkcd.com/1827/](https://xkcd.com/1827/)

~~~
perl4ever
The other day, I was asked to graph project completion time against starting
year, in the hopes of showing a positive trend.

Well, going from 2017 to 2018 to 2019 seemed to show an obviously improving
trend. But then I realized I needed to explain that it's not just a
coincidence that 2017 had more projects that took over a year, compared to
2019.

------
streetcat1
So is there a concerte example where a big competitior "crushed" a smaller
one?

I can give plenty for which a small competitior crashed a big one.

~~~
justinclift
[https://en.wikipedia.org/wiki/Stac_Electronics#Microsoft_law...](https://en.wikipedia.org/wiki/Stac_Electronics#Microsoft_lawsuit)

[https://en.wikipedia.org/wiki/Advanced_Micro_Devices,_Inc._v...](https://en.wikipedia.org/wiki/Advanced_Micro_Devices,_Inc._v._Intel_Corp).

Also, see Amazon vs any of the 3rd party Amazon Marketplace sellers
subsequently displaced using the various Amazon home brands.

------
georgewsinger
If we don't have technologists going for historical wins (or 10,000x returns,
in VC speak), then our society will forever stagnate.

Lifestyle businesses won't drive the developed world into 10%+ GDP annual
growth. But a few moonshots succeeding might actually be able to do that.

I'll keep listening to the billionaires, thank you very much. Am 100% willing
to go bust (we're all going bust in the long-run).

------
OrgNet
If you want to be rich, act like a billionaire (actions speak louder then
words).

~~~
knicholes
How do billionaires act? I don't know any personally.

~~~
rodgerd
It's not very useful advice, given that is spans from Elon Musk - who uses a
top of the line business jet to commute from one part of the Bay area to
another, very eco-conscious, and owns multiple mansions - to Warren Buffet who
famously lives in the relatively modest house he purchased decades ago.

~~~
WillPontificate
Exactly.

Mathematically we're living in different universes. Moves that are rational
for someone who has a few billion dollars under management don't work for the
rest of us, because we're unable to diversify risk to the same extent.

Along the same lines, however, our "hurdle rate" for a life impacting
investment is substantially lower....

