

Just How Risky Is Entrepreneurship, Really? - hellacious
http://blogs.hbr.org/cs/2012/01/just_how_risky_is_entrepreneur.html

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jpulgarin
Very risky: For the average founder, the expected utility of starting a VC
funded company is around -$200k.

<http://www.nber.org/papers/w14219>

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dreamdu5t
Founders aren't necessarily the ones putting up the cash. I haven't seen any
statistics on the percentage of "startups" that are founder-funded, but in my
personal experience the majority are not - even if the money is borrowed from
family. Not considering opportunity cost, the founder isn't out $200k, _the
investors are._ IMHO founders usually have the best position in a startup.
They get paid to possibly reap the benefits of ownership, but if it fails they
are out of a job like any other employee. They assume similar costs as their
employees, but stand to gain much more.

~~~
seiwyn
The point isn't that the founder loses 200k out of his pocket, it's that the
founder loses out on a potential of 200k by taking a lower salary working on
the startup instead of working at a company.

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didgeoridoo
"In addition to the psychic merits of working on the personally meaningful, in
an economy where low-wage, high-skill overseas workers and no-wage machines
encroach ever more rapidly, it is essential to compete both in input and
output."

I think the importance of these points completely dwarfs the rest of the
argument.

Set aside the fact that the psychic value of working on your own project can,
for many people, offset much of the higher expected monetary value of a
steadier job. Crucially, starting and running your own company rapidly
develops your executive, decision-making and management skills, largely
independent of financial success. These are skills that aren't going to
machines or offshore, at least in the near term. Entrepreneurship IS long-term
risk mitigation.

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scottkduncan
> "First, entrepreneurship is not riskier than working at a big bank or law
> firm, a fact vividly underscored by the de facto nationalization of the
> banking sector..."

We might have to rewind the tape here - I think I must have slept through this
part.

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superprime
Yeah.

I'd say working for a big bank or law firm is much more stable (less risky in
terms of job security/steady career trajectory), although less stable than
other sectors.

On the other hand, it's also arguable that it's harder to go big if you're
working at a bank or law firm (more risky in that you're less likely to be
able to retire young, and not just because of your extravagant fatcat
mcbankster lifestyle).

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jstanderfer
There is a flaw in this argument.

First they say that 56% of companies started in 2004 were still in business in
2010. Then they reference the VC rule of thumb that 4 of 5 companies will
flounder and dismiss VC companies as being "riskier". But then for their
argument on making "real money" as an entrepreneur they reference the same VC
companies that they already dismissed as being riskier and having a failure
rate far higher than the 44% the article led off with.

~~~
jpdoctor
> _First they say that 56% of companies started in 2004 were still in business
> in 2010. Then they reference the VC rule of thumb that 4 of 5 companies will
> flounder and dismiss VC companies as being "riskier"._

The fact that having VCs lowers your chance of success seems lost on them.

It is perhaps due to a conflict of interest: Harvard is invested in several VC
funds.

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ef4
While it _is_ risky, I think that the average person overestimates the risk of
entrepreneurship and underestimates the risk of being an employee. There's a
cultural inertia that still hasn't caught on to the fact that the equation has
shifted.

Entrepreneurship is still risky, but it is much less risky today than ever
before because the costs (of coordinating people, promoting an idea,
distributing information and products, even manufacturing, etc) are lower than
ever.

Meanwhile the risks of being an employee are higher than ever. Job security is
steadily eroding for many people because of rapidly evolving technology and
globally integrated markets.

I'm not saying everyone should be an entrepreneur, but I do think everyone
needs to learn to _think_ like an entrepreneur. Even an employee is a business
of one, and they'll sink or swim based on how well they choose their market
(employer), tailor their product (skills) to that market, and promote their
brand (reputation).

(Also keep in mind that "entrepreneurship" is a much bigger category than the
typical hacker-news-worthy startup. There is a wide continuum of risk and
reward.)

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rbojanowski
Interesting article but it really only addreses part of the risk function. The
part that's missing is what, as an entrepreneur, are you putting on the line.

As a long time entrepreneur, I can tell you I was putting a lot less on the
line 15 years ago when I was right out of college. And I suspect it will be
different 15 years from now.

Are you putting your mortgage at risk? How many dependents do you have? What's
your tolerance for risk?

If I hadn't enjoyed being an entrepreneur so much, perhaps I would be married
with kids living in a house with a white picket fence in the burbs. But then
again, perhaps my wife would be sleeping with a retired hockey player and my
kids would be jerks. Who knows?

My advice is to do it if you love it. If you're not enjoying the ride, get
off.

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Duckpaddle2
If entrepreneurship is such a force for good in our society, why doesn't the
government promote the small business interests more? What I am speaking of is
the truly overwhelming amount of paperwork and taxes that must be satisfied
from day 1. Just to beat a dead horse, the requirement for the 1090 forms for
all, including corporate payees, would have absolutely choked most small
businesses. And woe be unto those who through ignorance or arrogance didn't
file. My plea is to all readers, think before you vote this year. See who is
really promoting a better environment for small business, and vote for them.
Let us reduce the risk for entrepreneurs and build a better society!

~~~
Yhippa
It is in the best interest of corporations (which are made of people like you
and me) to relentlessly lobby the government to continue to make laws
favorable to their existence at the expense of others including SMBs which
could eventually threaten their business.

If I run a large bank it might be in my best interest to push for laws that
mirror my company's current practices to make competitors play catch-up and to
shut out upstarts.

