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Myth: Entrepreneurship Will Make You Rich (gigaom.com)
74 points by peter123 on Oct 18, 2009 | hide | past | web | favorite | 68 comments

1) Being an entrepreneur, for me, isn't about being wealthy, it's about being successful.

2) Rich is a variable term, and intended to be so.

Entrepreneurship may not make you wealthy, but it can certainly make you rich.

I enjoy the freedom and independence afforded by starting EveryDNS and OpenDNS. Both contain a passion for a system I love, the DNS, and both have let me help millions of consumers around the world. I even like knowing I control the DNS for millions and millions of Internet users. That's an awesome responsibility and it certainly makes me feel rich about everything I do.

And when it comes to money, Eric is only somewhat right. He says you should get a job that rewards and promotes effort. But lots of lawyers and finance kids in New York thought they had stable jobs that would make them rich. Ask them today and most will tell you a different story altogether. Now they hate their jobs and have no job security or path to becoming really wealthy.

So like I said, being entrepreneur, for me, isn't about being wealthy, it's about being successful. That's a measuring stick that's far more important.

PS- Eric is awesome and I like that he's beating the drum on this stuff, I wish I were doing more of it. :-)

Can't agree more.

People that I've spoken with in the past more often than not associated the idea of me doing a startup in the tech industry with gaining massive wealth. While I may entertain this, deep down I find it lacking as there's so much more than wealth to be had.

How about, living in a world... some distant future from the everyday-everyday where day-by-day you toil piecing together a vision, one day injecting it into the present, in order to influence a whole new set of social behaviors while also unfolding valuable opportunities. How about, the day of flipping that proverbial switch, releasing this vision out in the wild. How about, the potential of millions interacting with your vision, it becoming a staple part of a users online experiences. There's something undeniably provoking about all this, rush of my life.

Wealth, although a welcomed aside pales in comparison. Hell I would even go so far as to say, in a world where sex is constantly peddled as a cure all, let me say it, sex pales in comparison to the feeling I get from being an entrepreneur.

> sex pales in comparison to the feeling I get from being an entrepreneur.

Ha, and they suggest that software developers are naturally weird.


Kidding.. sorta. ;)

I heart OpenDNS! Just thought I would jump in and say so.

That is all.

Straw man. Nothing is guaranteed to make you rich. Entrepreneurship certainly has vastly more potential to make you rich.

And if we're not talking about being rich strictly, but are implicitly including a quality of life component, well, the information I've seen[1] implies that entrepreneurship is near the income level of other professionals and has a higher sense of well-being.

[1] http://www.gallup.com/poll/122960/business-owners-richer-job...

Many more people become rich from careful career planning and money management than do from starting companies. The difference between the approaches isn't the potential, it's the speed and the risk.

Depends on the scale of rich.

What do you think of, when you think about startup entrepreneurs getting "rich"?

Fuck you money. 50 mil in ~5 years.

Also, let's not confuse "startup", a single project requiring one's all, with "ventures", a diverse portfolio of small businesses seeded with one's capital but managed and run by domain experts.

Personally, I think the finger in many pies approach is far more interesting and rewarding, since you're hedging your bets.

Just to be clear about one thing: even in successful VC-funded companies with actual exits, 50MM is an anomaly. I have a bunch of friends who have sold companies, and in the crazy-talk best case, one of them got ~$10MM, and it wasn't his first 7+ figure win.

The companies that go for mid/high 8 figures are all apparently VC-funded, most for multiple rounds, meaning that any given founder might be hovering near single-digit points of equity.

Going after a "fuck you" $50MM payday seems like an awfully bad idea. It's not going to happen.

These approaches are not mutually exclusive.

Right. In the average case, you have almost as much opportunity to money manage, etc. as a professional and thus wind up with big savings. The bonus is that you increase tremendously your chances of becoming rich in a shorter term.

Plus you get to control your own destiny, which humans really crave.

What's career planning and how does one go about it?

"I eventually want to be rich, so I'm going to be a lawyer, not an artist."

"I eventually want to be rich, so I'm going to move to Ann Arbor to go to Michigan for law, instead of staying with my friends in Phoenix."

"I eventually want to be rich, so I'm going to join a major firm after law school, not a nonprofit."

"I eventually want to be rich, so I'm going to find out what the merit comp scheme is at my law firm, and put extra effort into doing that stuff."

"I eventually want to be rich, so I'm going to work 80 hour weeks to impress the partnership selection process".

etc, etc, etc.

Was that what you wanted to know?

I see what you mean but I'm having trouble translating this from lawyers to computer programmers. You can get a programming job at a large company and then impress someone with your skills and become a tech lead and an engineering director and eventually a Senior VP, is that what you mean? The odds for a hard working hacker of getting rich that way seem worse than for an attorney of becoming a partner, or for the same hacker of getting rich through a startup.

In my experience everyone who got rich did it by owning a significant stake in a business (not necessarily a startup or even anything high tech.) I'm aware there are people who got rich from writing bestsellers or becoming movie stars but I don't know anyone like it and I think such people are extremely rare. And I may be wrong but I would be inclined to classify hackers who got promoted to VPs and CTOs together with the movie stars.

I don't really know much about the ownership structure of law firms, but I always assumed becoming a partner is a big deal because it means co-owning the firm in some sense, and getting a share of profits directly, not through salary and bonus. So that's why I figure this is different.

I'm having a hard time addressing your concern, because your notion that it's harder for a developer to eventually become a director or VP than it is for a lawyer to become a partner is neither (a) supported with any evidence or (b) apparent from my experience.

I don't know anybody that you know who became rich, and so that whole second paragraph sails right past me. Especially when it concludes with a suggestion that hacker VPs are as rare as movie stars.

As for the partner track at law firms, uh, fine. Substitute MBA -> investment banker, or CPA -> CFO, or Med School -> Anesthesiologist, or any number of other careers that don't have partner tracks.

Even if your salary never breaks $110k as a dev, you're still fantastically lucky to get that in any career, and perfectly capable of becoming a millionaire. So, I guess, cry me a river about how hard it is for techs to succeed without starting entirely new businesses?

Finally, let me just leave you with an uncomfortable truth: it is a safe bet that you will never get rich starting a company, or any number of companies.

If your definition of rich is $110k salary or owning $1M in assets (which translates to relatively safe passive income of $40k before tax, according to the financial planning books I read) then sure, you can absolutely achieve it with careful career planning. I don't believe that's what most people would call "rich" though. There are actually people who will tell you that $100k in the Bay Area is "barely breaking it even" (not that I agree.)

I freely concede I could be wrong with respect to directors and partners. I work at a software company and my girlfriend works at a law firm.

I absolutely agree with you that the odds of getting rich by starting a company are low, all I'm saying they're better than the odds of getting rich by other means.

> I see what you mean but I'm having trouble translating this from lawyers to computer programmers.

It was pretty obvious to me.

>> "I eventually want to be rich, so I'm going to be a lawyer, not an artist."

Of course, it should be possible to "get rich" making >$100k year. All it takes is money management.

> In my experience everyone who got rich did it by owning a significant stake in a business (not necessarily a startup or even anything high tech.)

Partnership is "a stake". It can be significant in dollars even if it is insignificant in percentage (and the reverse).

We're off in a little rat trap now about what the terminally awesome state is in any given career. If we were talking about salespeople, someone would be saying, "yeah, but how likely is it that you'd ever be a CEO? And hey, if you're a CEO, you might as well have started a company anyways, because most of your wealth comes from a stake."

But it's just a conversational rat trap. Unless your definition of "rich" means "owning a private jet", you never have to come close to being a VP/Engineering to become rich over a carefully managed career. You just have to be good with money.

Spending the money that you make wisely and making more of it than you spend.

Yes the #1 way people become millionaires is still via buying real estate.

That is very misleading. There is a difference between having a million in the bank, and having a home that is worth a million. I would choose the first.

I think he was implying "and selling real estate". And everyone would choose the completely liquid asset over the one that takes months to sell.

I would choose the second. Real estate is fairly solid, money in the bank is money that gets worth less every day.

Sure the real estate market is in the dump right now, but that doesn't mean that a home isn't a solid investment.

A home may devalue a bit, it needs upkeep and so on. But it'll never 'crash'.

I'd definitely choose 1M in cash over living and owning a home worth 1M. The home is both illiquid and necessary: when you sell your home and cash in on the million, you've still got to find a new place to live. Given that you want to live in the same city (or state, etc.) and that you probably need space for all the stuff you accumulated, your office, and that fabulous kitchen, how much do you think you'll spend for a new home then?

A home is only a solid investment if you're living in it. The real value of a home is in that it gives you something you want and need: a roof over your head in a place you want to live.

But if you're paying a home loan on a second home, it's an investment asset just like any other asset and is just as vulnerable to market fluctuations.

Actually, the home that you're living in isn't that solid of an investment...it's more like forced savings. Generally you'll come out ahead (versus if you rented), but depending on the market, it could easily take 10+ years before it works out in your favor.

If you can buy property and then have other people pay the mortgage for you, now THAT is a solid investment.

I would buy real estates. Given a million bucks, I would buy five $175,000 homes and rent all of them out. By then, I could build whatever I want without needing outside money.

The best thing about this strategy? It can happen slowly and sequentially with minimal risks.

I don't think real estate is that safe and assured of an it'll make you rich. The Irish recession is caused primarily because the economy was held up by the real estate business. Now there are too many houses and nobody willing to buy any. As a result, the value of real estate has dropped and people with your money making plan have found themselves losing money instead.

Assuming the houses are in a desirable area, it's hard to do badly over the long-term.*

*possibly very very long-term.

Even on Second Life.

ha, only if millionare = 1M Linden bucks = what, about $2200?

No, I actually meant real millionaire...


I think that's just a link bait title which the author only addresses briefly. The rest of the article is actually quite valuable.

Assuming the people defined as "business owners" in the Gallup data have been running their business for a while, they represent a very small minority of entrepreneurs, those who actually succeeded to some extent.

"Entrepreneurship certainly has vastly more potential to make you rich"? Well, you might be the next Larry Ellison, in the same way you might start a band and become as rich as U2. If wealth is your goal, an MBA and a job in investment banking is a far more reliable and reproducible path.

As I see it, most just hope to be able to make a living building software (/playing music/farming/etc) independently. Getting rich is a very rare byproduct.

Quibbling, perhaps, but "entrepreneur" is not a profession. Professions have codes of conduct, organizations that certify members as part of that profession, etc, etc. "Entrepreneur" appears to be on the opposite side of that spectrum.

You're definitely quibbling.

It probably goes with being a recently credentialed actuary. It can feel like a job with the government at times, probably because a lot of the work is related to regulatory requirements.

Not to say there aren't entrepreneurial professionals, or entrepreneurial actuaries.

Another example of a profession, in some states: interior designer. I think most of us are scared of the idea of our profession becoming a Profession.

Major error with this line of thinking:

> A more rational career path for money-making is one that rewards effort, in the form of promotions, increased security, salary and status.

You trade off a lot if you're getting paid for effort instead of for results. No one wants effort. No one wants a badly burnt steak, not well cooked pie, crummily engineered car, and so on. But people will gladly pay a lot for results. Desiring to get paid despite burning steak ("rewarding effort") is a path to much less wealth than you could make, but even more scary, it's a path to much less happiness. Getting paid while failing to deliver what people wanted destroys your self esteem. Doing interesting work and needing to get it right is engaging and stimulating. Harder, more risky, sure. But much more enjoyable and fulfilling.

> Startups, unfortunately, punish effort that doesn’t yield results.

Right - no wants to pay for burnt steak. You want to get paid for turning on the grill, regardless of how it comes out? Don't expect to get paid much, or to have a particularly stimulating work life.

All true, but at least I can better predict my ability to output effort than predict my ability to output results, even if I am good at what I do.

Definitely true - stability is worth something, especially if you've got a family or just want a life with less stress.

But if you don't have serious economic commitments and can handle a little stress, why not freelance after hours for a little while and see how it goes? Can wade in slowly some. If you're willing to focus, you can make 3x, 10x what you'd make salaried if you go self employed.

I remember reading somewhere that the average employee gets something like 2.5 productive hours of work done every 8 hour day: The rest is shuffling papers, meetings, chatting, goofing off online. If you can focus intensely for 5-6 hours a day, you can make a lot more money and have a more free, stimulating, enjoyable life. It is legitimately more intense and stressful, but I'd recommend almost anyone take a crack at it. The rewards are very, very good, definitely worth taking a year or two to see if it suits you. And I mean, why not give it a try? It's huge for you if it works out, and employers more and more are respecting the guy coming back to industry after working for himself for a while.

My experience with freelancing mirrors this. It is a bit more stressful because I'm actually working much more efficiently and seriously but I earn twice as much and I can choose my own schedule...

It's liberating. In my old job, I was frustrated and not as happy... now I've got more money, do some really fun projects (because when freelancing you do get to pick your clients a bit more) and I'm trying to grow bigger so as to launch my own product... Life is good...

So to anyone frustrated with his work, I would definitely recommend trying to freelance...

For the US dwellers, it does say "the pursuit of happiness".

My brother pointed out to me that being rich really isn't the goal. Being able to control your own schedule while paying all the bills is a pretty good life.

That is exactly why I want to become an entrepreneur. I just seem to do badly in a corporate environment.

If you're really successful, you will inevitably be working in a corporate environment, even one of your own creation.

Some people make the transition happen really well, some don't.

It also depends on where you are in the corporate machine. As someone else mentioned on HN once, perhaps Gates couldn't even move up in today's Microsoft, but he makes a pretty good CEO.

You wouldn't be working in a corporate environment generally for very long (often founders move on) and in any case, it isn't like you are a "regular" employee if you are really successful ;)

A lot of things are easy to bear when you know they are temporary - and you don't have the locked in feeling.

Exactly, entrepreneurship is about autonomy, not money.

Sometimes they go together, but the autonomy is more important. People who feel otherwise end up becoming investment bankers, not entrepreneurs.

"There is only one success--to be able to spend life in your own way." Christopher Morley

See also http://www.skmurphy.com/blog/2007/11/23/success-for-a-boostr... which expands on this.

Funny...what you described sounds an awful lot like being a grad student. :)

Hehe, possibly true... but I think a lot of people have more than just "being able to pay the bills" on their list of financial needs. Most of the grad students I know are indeed able to pay their bills, but are also compulsive penny-pinchers and can't (or won't) really live any other way. Going back into academia isn't worth it to me based on that alone.

Startups, unfortunately, punish effort that doesn’t yield results. In fact, the biggest source of waste in a startup is building something nobody wants. While in an academic R&D lab, creation for creation’s sake will often get you praise, in a startup, it will often put you out of business.

The best articulation of why I'm fond of entrepreneurship world instead of academic world...

To succeed in academia, you need to build things that please your customer, its just that your customer is a funding agency and/or your community. There are many, many publications that nobody sites, which is the equivalent of products nobody buys.

Yes, thank you! That was exactly my reaction. I don't believe that you should reward hard work for hard work's sake alone. You should reward purposeful hard work that yields beneficial results.

I really like Eric, saw him down at stanford a couple of weeks ago.

Honestly, I am poor. Dirt poor. But I LOVE what I do. I consult to pay the bills. Right now, I'm hyper focused on starting a new business so I haven't been spending a lot of time getting new clients.

I had a client that fell on my lap the other day and I was so frustrated with them. The only reason they wanted to start their company was to make a lot of money and get rich. No passion, no iconoclastic idea's. Just, lets do this because it will make money.

I would love to see less money grubbing jerks and more passionate people who just love to create stuff. So i'm with Eric in getting the word out. This won't make you rich! Only do this if you love it. *pushes aside pulpit.

You have most likely already seen this, but Guy Kawasaki often talks about a similar annoyance with people involved in entrepreneurship purely for the money: http://video.google.com/videoplay?docid=-3755718939216161559...

I'd echo PG's words in that a startup is about compounding your work life into a few years. Even if your startup fails, you'll get a massive amount of experience in seeing it through. Employers will appreciate all the experience you gained in launching a product.

Yes, agreed. I just joined a small early stage startup. While I was deciding whether or not to accept their offer, I was thinking, "would I accept this job even if I knew right now that in a year the company will fail and I'll have to find a new job?" The answer to that turned out to be "yes." The pay is better than my old (non-startup) job, and I feel like the experience I'd gain would more than offset the hassle and worry about needing to find a new job.

Of course, I don't expect us to fail, but it's nice to take a pessimistic view into account ^_~.

All true, but the question for many isn't about the potential ROI (effectively unlimited), but the expected ROI (for the average startup, it is not much more than that experience you talked about). Is that expected experience substantially more valuable than say grad school which is less stressful?

"Valuable", in a market sense, means people are willing to pay for it. Apply for the same set of jobs, once with a graduate degree and once with a failed startup under your belt. See how many companies are willing to pay for your services.

My hypothesis is that there are disjunct sets of employers who will value one over the other, but the set of employers who value startup experience value it more than the set of employers who value grad school experience value grad school.

My suspicion, and only suspicion, is that you are largely right. Of course, I also think it matters how far along you got in the process and waht kind of stories you can tell from it.

I suspect that the founders of a company that put out an actual product with real users, hired non-founder employees, and perhaps got VC level funding at one point is much more valuable in the market than someone who filed the papers to officially incorporate but died while still working out of a garage with no non-founder employees and few users.

There we go again. If anyone understand the mind of an entrepreneur, they will stop trying to tell them to do anything other than what they are doing.

If you want to help entrepreneurs, help them refine their ideas, execute against them, and get closer to success.

Anything else is a waste of your time.

It may be a myth upon people who are not entrepreneurs but I'm pretty certain money is not what drives entrepreneurs rather being successful, doing what you love, etc.

He doesn't say the participants at seedcamp wanted to get rich. He doesn't name any sources for such a "myth" existing. The way I see it, people value entrepreneurship for a whole bunch of reasons, guaranteed financial success most certainly NOT being amonst those. He wants to write an article on his perceptions, fine. He just doesn't base it in reality, though.

I suspect he doesn't feel the need to justify it because it's a commonplace in his world. It sure is in mine.

This was especially problematic during the dot-com bubble. This town filled up with MBA-holding locusts and greasily slick smooth talkers. They were in it for the money, and nothing else. Of course, most of their businesses failed, and they went off to plague somebody else. Good riddance, I say.

The problem still continues, though, and it's not limited to high tech. The big MLM scams are funded mainly through taking money from idiots who believe that they'll quickly get rich through this exciting new turnkey business opportunity, even though they've gotten totally screwed on the last three. You want some data points, go to an Herbalife convention.

This article doesn't make much sense, to be honest...

But anyways if you ask me, entrepreneurship is about becoming successful, rather than rich, because once you are successful, the money will naturally come -- at least you'll love what you do, and not starve while doing it :)

Excellent article. Not exactly a myth, but the wrong goal. Striving to maximize financial return is simply not the sort of motivation that is most likely to result in a successful startup.

Truth: Entrepreneurship leads to contentment

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