Why dont more people start companies?
Andy note: Best of WSO - this post originally went up October 2009 and we thought it deserved to go back on the homepage for those who may have never seen it.
Hey guys, so I have a simple yet important question: why is it that so few students from elite schools start their own companies right after graduation?
The richest kids at my Ivy school have parents who own their own companies. It seems like most people with a net worth greater than 10 mil own companies (is this accurate?)
So, then, why is it that the best and brightest students choose to become employees? A shockingly low percentage of HBS grads start companies at graduation, and even fewer do from undergrad schools like Wharton.
Please tell me guys, what am I missing? why is everyone so obsessed with even getting a job to begin with. Am I wrong that business owners make the most money? is it herd mentality? Is it pure risk aversion? Is it that everyone actually thinks doing 100 hours/week of powerpoint may help then start something later on in life?
Why make a million/year at Goldman Sachs when you can make exponentially more money doing something as stupid as running a garbage company????
There actually are more than
There actually are more than you think, but they're are definitely out weighed by kids going into banking. Banking is somewhat of the "next step" after an Ivy or whatever, prestigious, (used to) make a ton of money, (used to) secure, and for some kids the comfortable choice. Starting a business is sketchy; you have to find someone as crazy as you & basically lay it all on the line with a HUGE chance of failing, even with venture backing and a EE degree from Princeton. While your banker friends from school are enjoying their models and bottles your stoked on the care package your mom sent while your trying to re-write 700+ lines of back-end code that isn't interacting with your user interface.
Its just the risk-reward
Its just the risk-reward trade off. Just look at how many start ups fail. The odds are severely stacked against you.
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Schools are employee factories. They are self-perpetuating institutions that sell kids on the idea that the more education you have the better job you will get, and then go get an advanced degree for an even better job, etc...
If you notice most of the innovators of the last two decades, the ones who've had the most significant impact on our daily lives, are all creative people who divorced themselves from the education system. Here is a fantastic (and quite hilarious) video from TED explaining the phenomenon:
School is pretty heavy on indoctrination and pushes the 40-40-40 plan (work 40 hours a week for 40 years so you can retire on 40% of what you already can't afford to live on). Obviously, the numbers are skewed higher in banking, something along the lines of a 110-40-50 plan, but the concept is the same.
School very much skews people
School very much skews people into the "employee" mindset. It was actually quite difficult to break out of that myself last year when I was getting started with my own ventures, since I had followed the typical elite institution --> banking path my entire life.
I think the other thing that stops a lot of people is that starting a company sounds "romantic" but in practice the actual work is not fun.
Sure, everyone wants to be the next Larry and Sergei - but when push comes to shove, are you going to work your ass off for years with the possibility of getting no financial return from it?
Even if you're not trying to be the next Google, there's still a lot of upfront work and you won't see much upside for a long time.
People at top schools are conditioned into the "immediate reward" mindset, which is why they skew more heavily toward finance.
The "risk" (both financial and opportunity cost) of starting a company is actually much lower today than it has been in the past, but it is still a less certain option than following "The Track."
All the points are true and
All the points are true and valid; however the US needs more smart & motivated entrepreneurs.
i'd really love to hear a bit
i'd really love to hear a bit more from dosk regarding what he's learned in diverging from the so-called "track." what do you need in order to make that jump, and make it work? any lessons learned that would have been helpful in hindsight?
"i don't have a good idea"
what i hear most as an excuse is "i don't have a good idea." what I always tell people in response is that being a successful entrepreneur is less about the idea and more about the execution. Ideas are everywhere, but few are the next Google...that does not mean you need to be the next Google.
I started this site 3-4 years ago and it was small, brought in minimal cash and I spent 100s of hours trying to make it better, struggling with web development, marketing and a whole host of other issues i had no experience with -- many people thought I was stupid / crazy and/or didnt get it. The way I explained it -- if I was willing to work 100s of hours for someone else, why wouldnt I work 100s of hours for myself for the chance at never having a boss again?
If you are motivated and relatively smart you can take a pretty mundane / simple idea (iBanking discussion board) and turn it into a nice small "lifestyle" business. Now I plan to run WSO full time when 3 years ago that would have been laughable. The key is you have to be willing to work your ass off. Look at what Dosk did with Mergers & Inquisitions...when he first launched his blog, he was on here giving great detailed advice to anyone that wanted it -- as a result his blog got more traffic, his reputation was built and he was able to build ancillary businesses off of that success.
i have seen countless other iBanking communities / blogs that eventually die out -- i don't think that it because their ideas are any worse/better. I just think Dosk outworked all of them (and was relatively early like WSO) = execution.
-Patrick
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How do banks and HF feel
How do banks and HF feel about you running a side business while employed? I know my contract stipulates I cannot, but how firm is that? Do they really care or is that just there so your not making calls for your business at your desk.
Very interesting topic of
Very interesting topic of discussion. Patrick makes a very valid point regarding the "lack of good idea." You don't need to start the next google, twitter, amazon, which is the trap many of us, including myself, fall into. As a VC analyst, I'm always thinking about the next "big" thing. In pitches its all about disruptive technology in a multi-billion dollar market with a clear exit strategy. The companies that fit into that description are the ones we all hear about, which seems to create a feeling that if you don't have the next big idea then your company will automatically fail.
We all have our over priced education, which tells us we should be working for some "prestigious" company/firm. For some reason our schools lead us to believe we are better than everyone -- we are better than students at xyz school, we are better than kids that never went to school, etc, etc. I'm sure all have friends who decided to go into the trades(plumber, electrician,etc) and I'm sure some of us made fun of them for not going college. The funny thing is that while the rest of us are getting owned at an ibank, pe shop, or accounting firm, if they become good at what they do and start their own company they will be the ones with the million dollar homes. Companies don't need to be a disruptive force or complicated at all...they just need to be good at what they do.
Ultimately
How do banks and HF feel about you running a side business while employed? I know my contract stipulates I cannot, but how firm is that? Do they really care or is that just there so your not making calls for your business at your desk.
Ultimately, you have to ask yourself whose team you're playing for. If you are playing for their team, then the answer is simple - you do nothing but work for them.
If, however, you're playing for your team, the answer is the opposite but just as simple. You do whatever you have to do to earn your release from indenture.
At the end of the day (thought I'd work one of those annoying buzzwords in), would the company go to bat for you if the chips were down? A few bad trades made way over your head that you had nothing to do with and you're pounding the pavement looking for another job.
Your primary loyalty has to be to yourself and your family.
For me trading is like
For me trading is like running my own business. I know that im getting paid for exactly what Im worth and there is no debating that since I control my P&L. What is unique about prop trading is the ability to really leverage your edge. Take an idea and prove that it works on a small scale and given the right liquidity you can really have something profound that you can make a lot of money doing. I have been trading since April and what used to be a good week is now a good morning, it swings both ways but if you have an edge that wont matter in the long run. Most people deep down I think are pretty risk averse and would rather have security.
From a young age I knew I wanted to run my own business but never really had that big idea till I started noticing repetitive patterns in markets. I kinda have to disagree that idea generation is over rated. I think one of the most important factors is surprise.... PASSION for what it is you do. Patrick loves this site and its clear.
As far as education goes I also agree that elite institutions are good at molding drones but it seems like the people that are REALLY driven to excel do so past a couple years in banking.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
I have been wondering the same
WARNING: LONG POST (skip)
I have been wondering the same thing about why more students, especially from elite colleges do not try to go out there and make their own destiny. Yes I know that the failure rate is very high, but when is the last time you didnt learn something valuable from a failure?
I was lucky to attend Baruch College Zicklin School of business which left me with 0 debt and has a top 10 ranked entrepreneurship program. I know that if I had graduated with a ton of debt, paying it off with a high paying job in finance would be my first priority. Perhaps it is the lack of faculty or mentors that are entrepreneurs since most professors are either lifetime academics or worked in the corporate world.
One of my very good friends (he is 40, I am 24) ran a very successful business (sold it for 100m)always used to tell me that college just trains the guys the guys to work for him. And that includes his Harvard educated lawyers and the statisticians with PHD's crunching numbers for him.He has been a very big influence on me and the moment I got laid off from Morgan Stanley I was more than happy to start my life as a full time entrepreneur. I already had an online retail company I started during college and I went 100% full time with it and it was pretty successful(for a young college grad)
Im currently working on 2 very exciting ventures which I think will make a positive impact on our society, and even if they fail I will always continue to work on new ventures. I plan to apply for top MBA programs in the next year or 2 so I can expand my skills, network, and create a brand name for myself where it will be a lot easier than it is now to get funding and even respect as an entrepreneur. There are many HS dropouts that think they are becoming entrepreneurs by attending a Primerica meeting and paying $200 for a new member kit; I would like to distinguish myself from that crowd.
I wish more people started their own companies, I find that these people are always the most interesting to talk to as they have a wealth of experience, well traveled,and are very outgoing. I have friends working in corp finance/banking and all they ever talk about is their jobs and coworkers. For the most part their lives consist of spending their entire time at work and not having a life outside that. Dont get me wrong entrepreneurship is A LOT of work (7 days a week!!) but its flexible and scalable.
On a more senior level both traders and Ibankers are pretty entrepreneurial. One of my friends is a Sales Trading Director at a BB and I was surprised how entrepreneurial his job really is. Although I probably have a very slim chance, I'm definitely going to look into the VC field in grad school as it seems like a good fit for an entrepreneur.
Great post!
Really think that this is a great post that I decided to create an account (finally after reading wallstreetoasis for a long time).
As I am nearing my 2nd year as a consultant, I'm in the process of creating my own venture soon. Would like to get people's experiences who have started their own startup:
1) Apart from hardwork, what does it really take to start an online business (do you need to learn how to program? Or at least understand how HTML/PHP work?)
2) Anyone knows entrepreneur-forums similar to wallstreetoasis?
Good points all around
greenapple - if you want to hear more, just email me - it would take way too long to explain on a message board but I'll give it a shot. :)
The short version is that what Patrick said is exactly right - it's 99% execution and 1% inspiration. This is why I never worry when people say, "Oh look at XYZ site or XYZ product they are competing with you!"
Competition is a GOOD thing - it means there's interest in the market. After that, it all comes down to execution.
I would say the key lessons I learned:
1. Do not expect immediate results. I was running M&I for almost a year before it really began to take off. For months I barely made any money with it.
2. It's more about consistent work vs. killing yourself all at once. This is in stark contrast to banking and school, where you're always working last-minute on projects.
I'd say the key things are to start small as Patrick and I did, keep costs down, and then test lots of different ideas to see what sticks.
This is actually the exact reason I launched my modeling program in the first place - I had no idea whether it would work, but I spent a few weeks creating the first videos for $0, got really good feedback, then expanded from there.
I think the other good point that Patrick raised is that it's not that difficult today to start a business that supports your lifestyle - yes, if you want to make $500 billion you will have to do a lot of work, but if you just want more flexibility, freedom, and ability to travel, that's very do-able.
i think it is the lack of
i think it is the lack of structure
being in an empty room of my "company" and being like, what next? its so flexible, no groups or divisions. its been a nightmare of mine, especially as i realize i might eventually branch off from my compnay.
I also registered just to comment on this topic
Patrick, I agree with you
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Patrick. Just wondering, but
well
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Owwwww my eye!! Seriously
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
...
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Edmundo, You're right. There
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BTW, I don't know if any of
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Seriously
For the record
What does elite schools have
For my aspiring Entrepreneurial Nomads, check out my blog.
My micro's a little rusty,
The data set is all biased.
A comment on the TechCrunch article
Scaling up
Business is an iterative process
Another point
?
?
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thats really funny, because
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I share the OP's thought
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(double post)
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all the wealthy guys I know
+1
WallStreetOasis.com: guts:
I'm in the process of trying
leveredarb: all the wealthy
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I can't really call the
You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist. - Friedrich Nietzsche
I was working in asset
i worked on two decent ideas