Tuesday, July 20, 2010

Entrepreneurship is about happiness, not wealth

When entrepreneurs come to me, I always point out the following:

1) The chances of a venture-backed startup being a hit and returning meaningful wealth are about 1 in 10.

2) You're likely to have about 20-25 years in your career where you can found a company.

3) Each time you found a company, you're going to end up spending 4-5 years of your life on it.

4) Therefore, the equation for entrepreneurial wealth is the following: You have a 10% chance of success per startup, and you get 5 swings to hit it out of the park.

5) 0.9 x 0.9 x 0.9 x0.9 x0.9 = 0.59. In other words, even after 5 startups, your chances of a major success are just 41%. If you become a startup founder, the most likely outcome is that you never get rich, and that if money is your goal, you should go into a different line of work.

Let me reiterate--you have a less than 50/50 chance of founding a successful startup, even if you manage to raise VC every time (which is not a forgone conclusion) and even if you devote essentially your entire professional life to it.

And yet, that's the choice I made. I decided that I was willing to live with the odds being stacked against "success" because entrepreneurship and the startup life makes me happy--a lot happier than when I was a consultant, or when I was a corporate employee.

7 years ago, I told a good friend, "I have everything that money can't buy." That truth was brought home to me in a particularly poignant fashion when my friend, an ambitious and incredibly successful entrepreneur and corporate executive, died of a heart attack last year at 41.

Live your life and be happy, because some outcomes are out of your control.

Inspired by this excellent post from Mark Suster.

5 comments:

Kevin Cherrick said...

I'm fascinated by this. Can you be more specific by 'meaningful wealth'? I take this to mean 'money my parents would have killed for' and 'money that is not achievable through a job and a career for 97% of Americans. Am I wrong?

Given my assumption, 41% chance of meaningful wealth while having an exciting, challenging, uneven, but regularish paying position in small companies.

What is the higher chance of meaningful wealth

Kevin Cherrick said...

To continue the thought:

What is the higher chance of meaningful wealth that these entrepreneurs are missing out on?

Anonymous said...

Given that the chance of "making it big" with a startup is 10%, would you not advise students who just graduating to go into the startup world after graduating if they plan on going to a top-tier business school?

Chris said...

Kevin,

It's a truism of the retirement planning industry that one can safely withdraw approximately 4% of the principal each year without ever worrying about running out of money.

For me, meaningful wealth is having enough money to follow the 4% principle, not have to work, and live the life you want.

$1 million isn't enough, since most of us with families can't live on $40,000 a year.

$10 million should work for those without outlandish tastes--$400,000 a year should easily suffice for a life of ease.

If you worked on Wall Street for 25 years, and you were any good, you would pretty much be guaranteed of achieving this goal.

Chris said...

Anonymous,

I'm not trying to discourage entrepreneurship, just false expectations. If you want to be an entrepreneur, do it. If you just want money, find another line of work.

In fact, it probably makes sense for people who think they want to be entrepreneurs to join a startup before business school, so that they can get a better sense of whether or not the startup life suits them.