I would suggest that 20 years ago life was far more affordable for the average person, such that it was more conducive to risk taking for personal gain. Today, everything is so damn expensive (housing being the most obvious, but really everything) that taking a few years out of your life to try to start a business feels like a massively riskier proposition in that those are years you’d otherwise be making money to ideally save for a house down payment which keeps getting farther and farther away even while working (in some areas of the GTA, house prices were increasing on average by $80k/month).
I am not arguing anything about the risks the business owners is taking, I am saying taking a job is not the low-risk, low-reward option it used to be.
Years ago there was an implicit agreement when taking a job: work here for 40 years and you will not get rich but at least you will always have a job. That agreement is gone. Work for one company until you are in your 50's and you will be "laid-off" and replaced with a younger worker. Many people still think starting business is high risk compared to working for a company, but over the past 20 years the risks have changed and no longer makes sense to bear all the risk of losing your job with none of the commensurate up side of owning a business.
I think the OP makes some excellent points, but unfortunately he uses the phrase "no risk" instead of, as I'd phrase it, "dramatically less risk." There is definitely opportunity cost. At the beginning you won't have an income. If you're 30, like myself, you'll watch your friends who didn't go down the same road start to pile up "stuff." Cars, houses, whatever. They'll have it and you won't. Even if your startup turns a corner to provide lifestyle income, there are still issues. This is a purely anecdotal example, but yesterday my wife and I went to a bank to talk about pre-qualifying for a mortgage loan, and apparently you need two years of self-employment history.
But here was the point that I think got lost in such a binary stated view of risk: right now it's easy to jump back on the totem pole. If I really wanted to buy property that bad, I could get a job making well over my previous salary within weeks. There are not a lot of entrepreneurial endeavors where that is true.
Consider something like opening a restaurant. There is not just opportunity cost but real investment cost before you even get started. And if you bomb, and statistically it's very likely you will, there is not nearly the the likelihood you can at least go back to where you started. As another anecdotal example, my friend is a second year lawyer at a firm, one of the few people in his graduating class that got a nice corporate law job so that he actually has a chance to pay off his massive loans. And he pretty much hates his life, but there's a huge chance that if he left to pursue one of his dreams, there would be no "reset" button. There is no easy chance that if he doesn't succeed, he can just go back to being a highly compensated corporate lawyer within a few weeks.
So yes, there's obviously risk in starting your own startup. There's always a cost to pursuing a dream, and not everyone wants to pay that cost. The distinction is as a technology startup founder in this current environment, your cost is dramatically lower than anyone else's, and I think that's ultimately what I think the OP is trying to say.
You can always lose your own life, pretty much. If you can go back to your old room at your parent's room while you find a job and start earning again, sure, it's easy to take risks (I've done it this way).
On the other hand, if you come from a rather poor background and have no one to fall back on, finding yourself with a failed company, in debt, maybe kicked out of your place because you can't pay rent, I'd say that rather terrifying.
I'm all for entrepreneurship, but if failing means living in the street, then let's just not start a company for now.
A lot of it is about more than the money, but even just considering the money issue entrepreneurship is often better. Let's face it -- if you're intelligent, then selling your time for money (salary) just isn't a very efficient way of making money. Sure, there is an element of risk, but there's risk in almost everything you do in life. Driving a car is "risky", but that doesn't mean YOU have to be a risky driver. Same for entrepreneurship.
To me, working the same job for 40 years hoping I'll save enough money to be able to retire in spite of unknown but probably increasing inflation is what is risky.
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.
It's interesting when I lived in the US
it was surprising how many of my coworkers on their early twenties were averse to risk... they wouldn't start a new business venture and their reasons were:
- I have student loans
- I need health insurance
- I need to build a foundation so that my kids can go to college.
- After the economic crisis, it isn't worth it....
But living in a contry were:
- You don't have student debt
- Your health services are warranted
- Your kids can go to college and even great colleges for free...
Makes being an Entrepreneur SO much easy...
that you wouldn't believe.
True but that doesn't mean there is no place for those who just want to build a small business without having to sacrifice their personal life to it.
Decreasing risk is also beneficial to society at large if a larger portion of people are allowed to build businesses that provide jobs.
There is also the thought that lowering the personal risk to you and your family allows you to take more chances with your business ideas and become more innovative.
Everyone drives on roads, takes their kids to school, and may need to go to the hospital at times. Some of us pay extra for private roads to be built and for private schools for our children to attend because the government equivalents are crap.
As the poster mentioned, if you are an entrepreneur, normally you forgo a steady salary and corporate benefits in order for a big payout later. When the government is going to take a huge chunk out of that payout when you've already been sacrificing hard just to get there - it begins to look less and less worth it.
I've spent my adult career going from startup to startup. Looking at the current regulatory and confiscatory tax environment, I don't know if I'd do the same starting over.
If I could go back 20 years, I'd probably just go work for a big company like IBM or UPS and stay there. If I'm noticing that pressure against entrepreneurs then others are noticing it too. The government is slowly but surely killing off drivers that increase risk taking.
Once you don't have to worry about not having to pay rent, not having to pay electricity etc then your appetite for risks grows. To get to that point you either need to start from a rich household (parents) or get to a certain age, have some money to support you (from previous work) and then go into entrepreneurial experiments. This is a big reason why you see older entrepreneurs embarking into that journey.
Doing that creating requires taking on sizable risk, a chunk of investment up front, and most importantly, a lot of hard work, consistently applied over multiple years. I know I have had conversations with myself about starting a business or building a rent house and the cost benefit calculus always comes back “invest in the stock market, 10% return for zero effort over the long haul.”
It’s getting over the initial hump of “would trying this be profitable, discounting for risk, effort, and opportunity cost?” That is the issue. Lower real returns in the market might change this.
It's hard to take an article seriously that has so many fallacies.
For example, lifestyle is a choice. Whether you're bootstrapping your own start-up, or working as a highly paid employee, you freely choose how to spend your money. Lifestyle inflation may be real, but it's almost entirely avoidable. It's a matter of discipline.
Secondly, the article is comparing the risk of losing an investment vs. the risk of losing a source of income. Very different things. If you invest countless hours and tens of thousands of dollars in a failed start-up, that is gone. Hundreds of thousand of dollars in opportunity cost down the drain. If you lose your job, what do you really lose? No, you get to keep all the money you earned so far, and chances are, you're even getting a nice severance package. And you go out and find another job within a few months at the most. Where's the "risk"? You're not putting anything on the line.
I'm not saying that being employed is superior to starting your own business. It's just that this sounds more like self-justification, presenting a skewed picture.
Exactly what I had in mind. Just to make my point more understandable: if I own an apartment and I pursue my dream and sell it so that I can invest it in my startup, that’s risking it all. Does such strategy have a positive outcome in the long run (even if by outcome we only mean happiness however it’s measured)? I doubt that.
Bringing down risk taking to a simple “risk it all” is a trivia that is maybe inspiring but naive.
What’s worse, those kinds of strategies are appealing to people mostly because of survivorship bias: one hears inspiring stories from those who risked it all and made it to the top but rarely from those who loosed it all (those don’t sell too well).
Agree or disagree on his take, the data deserves some consideration. Having started my own business young with success, I’ve been of the mindset that staring a risky venture is wiser in your youth.
I’ve always told my friends to try something out while they’re young before they have all the monthly expenses of a family etc.
But start small and validate the demand, and don’t quit your job because it’s funding your business. Otherwise debt can kill your runway and discourage taking further chances.
But to me, this is the biggest myth of all: starting a business has risks to be sure. As does planning your career path in the corporate world. Your skill could get automated or outsourced. You could get cut at a critical point in your career.
There is no "safe" path these days. There are paths that seem to have less risk, but you can approach business in a way that limits your exposure easier than you can do that with a job (most jobs require an investment of 40+ hours per week). I think Patio is an example of this.
Oh sure the upside is higher because you might start the next Uber or Facebook or Dropbox. However the utility of money diminishes IMO for most people past the point you no longer need to work. It depends on what you goals are and the probability distribution you are after. Also many founders end up burned and in poor physical health so there is that risk too.
It isn't like 3 or 4 percent though. Starting a startup ranges from a largely risk free career move to impossible. Most people today start at negative. Want to live in a decent sized city? That's at least $2k a month. An education? Might very well be $50k in debt. Job security? Need to put in the hours young.
Otherwise there is a very real chances of getting evicted, not being able to find a decent job, not being able to keep your friends or start a family. Plenty of people who are successful today have their parents pay for university, their first apartment and/or a safety net. And that is just to have a normal career.
Experiencing first hand. I hope at this age, I should have saved enough. But, single income and mortgage means better be realistic. I do take risk though, working for startup on cutting edge tech, than for a large company. Basically insurance for future job security. The risk I cannot think of is starting my own business.
Related - it is impossible to take risks if you or family have crippling health issues.
And when you have both, why even bother to take major risks.
I suspect a large part of this is due to the fact that those with wealthy parents are more likely to have a) family money to fall back on if things go wrong and b) family investment in the early days
Everyone else has to seriously consider the (high) risks of their startup failing and not being able to afford rent, or whether their idea is worth burning their life savings.
I think this is the issue. Starting a company is a lot riskier than working at one. To do that you usually need capital and/or someone who is willing to work their ass off for peanuts for a couple of years. The only reason people will take risks is for outsized returns.
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