Why is no one dreaming of opening their own business?

I'm in the process of making a career transition into real estate and currently I'm in an Ivy League grad school. I am absolutely staggered that hardly anyone has any aspiration to set up their own business. Entrepreneurship doesn't even seem to be on anyone's agenda. Everyone is chasing associate roles at big name shops. Am I just around the wrong group of people and getting the wrong impression? Or is this the case? And if it is, why? Surely with a good education and given enough time most people could set up and grow a successful real estate shop themselves? 

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Comments (94)

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Jul 13, 2021 - 11:00pm

Starting your own business is hard. Not many ever get in a position where they could go out and raise capital, they don't have the connections to source great deals and you have to remember that when a person does get to a point in their career where they could realistically start their own firm, they're tied down with golden handcuffs. Or they got a decent amount of carry or a family and just can't afford to risk it. Or maybe they become too comfortable with a salary and just lose that ambition they might've had when younger.

I always day dream about having my own firm one day. At 22, it's a long ways off but people underestimate what they can achieve in 10 years. 

Jul 13, 2021 - 11:12pm

This, starting a business (even a lean one) is incredibly challenging.  We salary folks take for granted the benefit of having coworkers, accounting, tax, law, IT, etc. departments.  

Jul 16, 2021 - 12:23pm

100% agree on this. I'm salaried as an analyst at one of the big 3 shops and still want to be commissioned broker one day and then start my own portfolio using my own and OPM. Praying that I don't get too comfortable these next 2 yrs...

Jul 26, 2021 - 7:07am

Reeses

Starting your own business is hard. Not many ever get in a position where they could go out and raise capital, they don't have the connections to source great deals and you have to remember that when a person does get to a point in their career where they could realistically start their own firm, they're tied down with golden handcuffs. Or they got a decent amount of carry or a family and just can't afford to risk it. Or maybe they become too comfortable with a salary and just lose that ambition they might've had when younger.

I always day dream about having my own firm one day. At 22, it's a long ways off but people underestimate what they can achieve in 10 years. 

Exactly this. I recently left my job at CBRE to start on my own. Definitely part of the decision to do this now rather than later was being scared of having golden handcuffs in 5 to 10 years and stay as an employee for the rest of my life. 

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Jul 13, 2021 - 11:15pm

On the one hand I agree with the above but on the other hand if you look at a lot of the founders of the big shops, they had much worse odds than a lot of the people have today. The majority of the people on here have a much better education and far more resources at their disposal that folks did 10-20 years ago. I guess golden handcuffs kill dreams. 

Jul 14, 2021 - 12:15am

I think it's the other way around - the influx of institutional capital/companies in the space as well as the increasing efficiency of markets due to data availability have caused the industry to really mature.  It's way harder to find opportunities now than it was 20+ years ago and bc of this way harder to start new companies IMO.  

Jul 14, 2021 - 4:45pm

BrickandMorty

I think it's the other way around - the influx of institutional capital/companies in the space as well as the increasing efficiency of markets due to data availability have caused the industry to really mature.  It's way harder to find opportunities now than it was 20+ years ago and bc of this way harder to start new companies IMO.  

No it isn't.  It's just that you look at what others have accomplished and think you can't do the same thing, which is true; once someone proves out a business plan, others pile into the space and opportunities dry up.  There are just as many opportunities to make fortunes now, it's just in slightly different products/business models.

As with everything in life, risk and reward are correlated.  It's easier to start a value-add fund these days because it's a proven investment thesis; it's harder to make a killing because everyone else has the same thought.  Say what you will about Adam Neumann, but he became a billionaire by pioneering something new - all the other coworking companies haven't done as well because they weren't first movers.  Extend that to, well, everything.

Jul 13, 2021 - 11:23pm

Aim for many is (1) gain experience at reputable firm and then (2) buy your own deals on the side with your own money / friends and family money and then (3) do enough of 2 to eventually live off of that passive income. 

Jul 13, 2021 - 11:41pm

I'm 25, started commercial banking about two years ago and at the same time started a tech startup (I have no technical skills, just hired Devs to build what I needed). It's great to be able to balance working in finance and also owning a startup on its way to success. Disclaimer: It's by no means easy, cheap, or fast - quite the opposite on all 3 fronts. The risk is also massive time/money/relationships lost. 

STONKS
Jul 14, 2021 - 8:35am

2rigged2fail

what problem does your software solve?

Intersection of esports and gaming, creates infrastructure that doesnt currently exist for an in demand value offering/market

STONKS
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Jul 13, 2021 - 11:43pm

I thought this way too when I was younger but many people simply are not wired for it and that's OK. Not everyone wants to be thinking about their work 24/7 and worried about their net worth fluctuating around wildly.

Of course this depends on how you tackle entrepreneurship but if you are a true entrepreneur and not a small business owner, then you will be routinely putting 95%+ (if not far more) of your net worth at risk. Making tons of money and losing it quickly is part of the fun but probably not very fun for most people. For me personally, it's hard to get excited about something or even want to work on it unless I have my own capital at risk.

  • 3
Jul 14, 2021 - 8:34am

m_1

I thought this way too when I was younger but many people simply are not wired for it and that's OK. Not everyone wants to be thinking about their work 24/7 and worried about their net worth fluctuating around wildly.

Of course this depends on how you tackle entrepreneurship but if you are a true entrepreneur and not a small business owner, then you will be routinely putting 95%+ (if not far more) of your net worth at risk. Making tons of money and losing it quickly is part of the fun but probably not very fun for most people. For me personally, it's hard to get excited about something or even want to work on it unless I have my own capital at risk.

Agree

STONKS
Jul 14, 2021 - 5:19am

I found most people at university to be risk averse too. the people I know that have started successful businesses started from nothing, no degree, and quite frankly had no other option to make money. I have a theory that it's not so much brains as it is taking massive risks, which 'uneducated' people are more willing to do.

  • 3
Jul 14, 2021 - 5:37am

People in generally, and especially the ones in top schools with good records are very risk averse. Even while joining to some firms, people seek open oppurtunities. Entrepreneurship involves great amount of risk. Starting from 1990s with the rise of tech, entrepreneurship is more or less glorified and the failure rate which is high is not shown. We mainly see successful start-ups which became big companies but there were hundreds of start-ups which are no longer operating.

Entrepreneurship requires finding good team, having knowledge or at least ability to operate in certain industries, connections, and capital. Not every person graduating from college has enough capital to start a business (+they need to repay college debt).

In initial years of operation, hours are brutal, little to not profits, and constant stress.

  • in a country where I am from, there is a kind of mindset among top school students; "To open a business I don't need a college degree. Why then am I studying here".

I think start-up building is for:

  1. People who accumulated experience and capital
  1. People who because of family pedigree has strong financial cushion
  1. People who are not very risk averse, don't pay attention to brand workplaces, and are naturally gifted but don't want to pursue purely academics

People in category 1 are normally people like where in WSO. People in category 2 are priviliged people. People in category 3 are usually people with good STEM background. (as most start-ups are somehow tech-related knowing how to code in a valuable asset)

Jul 14, 2021 - 6:04am

no balls and to an extent not wanting to, i know a very smart guy (like very smart) who just wants a family and a stable job although he would kill it in the entrepreneurial space (doing anything really, doesn't matter, he's that smart) 

I'm from Europe 

  • 1
Jul 15, 2021 - 12:32am

The way he talks, academic performance, job performance etc 

I'm from Europe 

  • Analyst 1 in RE - Comm
Jul 14, 2021 - 6:33am

Came across an interesting opportunity lately. Could potentially be related to real estate if you bought the buildings…

apparently, at least where I live, there is a massive shortage of dog groomers. It's nearly impossible to get an appointment and business aren't taking calls or accepting new clients. Partly because nobody wants to grow up and be a dog groomer, partly because covid resulted in every lonely single person going out and buying a dog for company. If you wanted to do something where there is a strong demand…buy a dog grooming operation. Kind of random.

  • VP in RE - Comm
Jul 14, 2021 - 10:17am

I had that entrepreneurial mindset in gradschool as well - get a job at Associate level at some XYZ brand name firm, work for 3-5 years, then spin off and do deals with friends with the hope of raising money together etc... That's very naive thinking and life doesn't just happen like that. It's all a fee business, and you wouldn't raise enough money to pay yourself full time by collecting couple dozen millions from family and friends.

I've done the math before, you'd need at least $100MM in AUM to make it a meaningful business. AMF and promotes net to about ~2%/year, which is about normal for coreplus/value-add stuff, so $2MM in fee income a year for 3 principals and 3-5 support staff (accounting, analysts, etc). Even then it's still slim operating margin for the business, considering you have to pay office rents, payroll overheads, operating costs, travels etc.... Any less than that AUM threshold, you won't be busy enough...And it ain't easy to raise $100MM to begin with.

I've adjusted my entrepreneurial mindset from starting from the ground up like that, to joining an entrepreneurial firm. You can still get in early as a principal, and build the company with someone else. I'm not Adam Neumann and won't be charismatic enough to convince people to give me billion of dollars so there's very low chance of me starting from the ground up.

Another option is to keep working for said XYZ brand name firms, for 5-10 years, do deals on the side with friends, and THEN quit once you have enough in the portfolio to justify quitting XYZ brand name firm to pursue the entrepreneurial route full time.

So to answer your questions, it's not that people don't have balls. Most just don't have what it takes to "start a fund" and end up working for someone else. Think about, you're a gradschool kid with little transaction experience, how will you convince people to give you $100MM to "start your fund"? What will you do differently than hundreds of other firms out there chasing the same deals....

Jul 14, 2021 - 10:46am

Probably not gonna go and start a fund straight out of school. Even if I could, I'd probably fail due to lack of experience. But doing smaller deals on the side, joining a growing firm, and getting to know the right people over the course of a decade can set you up nicely to go out on your own.

Jul 14, 2021 - 10:23pm

What do you imagine those small "side deals" would consist of?

Even buying and renovating a small house is pretty involved and would take all your free time. I'm sure it could be done though but depends on your full time schedule.

And where would you get the money for that? It takes money to make money.

Jul 14, 2021 - 1:44pm

This is the conclusion I've come to as well - at least for development. Better to join a smaller firm where you can influence decisions in a major way, but aren't the one personally signing on to guarantees and haven't had to go through the initial start up pain. Will you make less that way than starting your own successful firm (huge emphasis on successful)? Probably, yes. But you will take on significantly less risk, your stress will be lower, it'll probably give you 75% of the satisfaction of starting your own firm, and your work-life balance will be better. Starting your own company can be great, but I know people who have started RE companies that have ultimately failed. They made less over the long run, usually ended up divorced, and life in general sucked for about 10 years before they got back on their feet. Again, I've seen more $100M+ NW's from guys who you've never heard of before in real estate, but the low's are very low as well. If I can start at a small firm and have a 50% chance at getting to a $10-15M net worth than start my own and have a 5% chance of $100M but a good chance that failing ends up torching my life, I see the appeal in taking the safer route. 

Jul 14, 2021 - 4:55pm

I've done the math before, you'd need at least $100MM in AUM to make it a meaningful business. AMF and promotes net to about ~2%/year, which is about normal for coreplus/value-add stuff, so $2MM in fee income a year for 3 principals and 3-5 support staff (accounting, analysts, etc). Even then it's still slim operating margin for the business, considering you have to pay office rents, payroll overheads, operating costs, travels etc.... Any less than that AUM threshold, you won't be busy enough...And it ain't easy to raise $100MM to begin with.

Right, but no one is raising that little money with that much overhead to begin with.  If you have three principals, why have analysts at all?  What's the value add for the principals that you need them?  Be sole principle and hire analysts to do the work.

What you're describing is setting up the infrastructure for a half a billion dollar fund with 20% of the resources.  Frankly, anyone trying to be entrepreneurial is going to need to wear a lot of hats or of course the numbers won't work.  Yeah, you'll have to do your own accounting and be your own HR for a while.  If you think that you'll need half a dozen support staff the moment you go out on your own, I'd argue you don't have a realistic idea of what starting a company looks like.

Which, frankly, is a big blind spot in the collective eyes of WSO.  People see the "smaller" guys who raise $250-500mm per fund and think "of course I can invest the same way those guys do," without understanding that before those fund were hiring monkeys like us, they were struggling along and operating a bit of a fly-by-night operation themselves.  Most of the folks on this forum seem to want to skip straight from analyst to running a $1b+ fund.

And for what it's worth, this is why people go into development.  You could do a $20mm development deal and live comfortably off that for the entire life-cycle of the deal.  It's really tough to raise a fund and operate it and do all the compliance and all that on a shoestring - but it's much easier to do that o the development side, where you need to find one deal that works and hustle to get it done.  This is why comp is lower than in REPE (generally), or in IB - not a lot of people go from being an MD to starting their own boutique bank, but it's relatively common in the development world.

Jul 14, 2021 - 10:29pm

Good comments. I agree, three principals and a support staff of 3-5 makes absolutely no sense.

I know a developer in NYC doing notable $100M+ deals by himself with an acquisitions guy who's like 25 and that's it. They have a lawyer, accountant, and hire absolutely everyone else project by project.

There's not enough of a time crunch in development to need all of that manpower for that little money. One person can run an entire deal, even a fairly big one, and just hire everyone else.

I disagree you could live comfortably off a $20M deal for its lifecycle. How? Development fee of $600k during construction, which if you're only doing that single deal needs to be spread out to pay overhead and pay yourself for maybe 4-5 years, not to mention the multimillion dollar pursuit costs that deal would take just to get going.

Jul 14, 2021 - 10:40am

Not easy just starting your own company. A lot of risk involved and pressure to keep the lights on. All these associates roles that you say people want makes sense - they make 200K a year and don't have to worry about the stress of running their own company

Jul 14, 2021 - 10:48am

if you want to start something in finance you have to acquaire reputation first, if a 24 years old starts raising capital for their private equity first fund, they are just going to raise family & friends money if lucky, but if a guy with a 10-15 years experiencie in the big leagues... its gonna be easier

Jul 14, 2021 - 11:31am

I really think it's your ability to sell and who you know. Anyone can get 15-20 years of experience at a reputable firm but still not be able to get investors because of their personality, background, race, etc. also, most people don't want to make life revolve around work. It's really about knowing yourself and what you want from life and how you plan to get there

Jul 14, 2021 - 1:31pm

Put simply, not everyone is meant to have their own business. It's not always about being risk-averse. We all play a role is this world.  Entrepreneurship is sexy when it's done for the right reasons. That said, the internet has opened the door for many online businesses that aren't capital intensive and don't require a network.

Jul 14, 2021 - 2:29pm

I think part of the answer is that you're not going to see a lot of people on this forum who have really figured out or matured in their career on this forum. It's mostly people who are in school or fresh out of it, and at that age it's natural to just want to go to a big name firm that you've heard about. That's not to say there aren't entrepreneur types on this forum - there are a lot of great posters and I still find it to be a good resource sometimes. But the majority rules, and the majority here is kids who don't know shit about the business world yet.

Jul 14, 2021 - 2:46pm

why would you start your own business and chain yourself to grueling and stressful work for decades without having payoff visibility with high likelihood of losing time and money instead of making anything, if you can just work 9-5 (or 9-8 occasionally) in corp fin or advisory shop with good culture, collect $100-300k/year and invest it in established businesses and reap return on investment?

Jul 16, 2021 - 7:07am

Based on the people I know who make bank on OF - yes, it may count as a company. You can launch your own brand, go into apparel/merchandise, launch your own platform, etc. lots of money to me made. I understand the risks involved and the "permanent mark" attached to someone's face - but if the successful ones can make 1M before they are 30, why not?

(not saying that this line of work is good or bad, just saying that the people performing this kind of work seem happy doing it)

Jul 15, 2021 - 10:13am

For risk averse people or for whatever reason if someone wants to stay at his job, flipping RE can be lucrative.

What is possible is to partner with someone smart who has the time you don't have and don't have the money you do have.

Jul 15, 2021 - 12:54pm

Based on looking at general population trends and speaking with people who have started search funds, I think a great option for many will be to purchase a LMM family-owned business from someone who wants to retire and lacks a succession plan. In those instances, financial expertise, high-level operational experience, and an ability to sell/negotiate developed through many IB/PE/Consulting roles could lead to the dream of performance-linked equity. Patience and delayed gratification with some risk 2 the moon. 

Jul 15, 2021 - 1:29pm

Met quite a few founders/entrepreneurs through our VC unit and also just colleagues who left the business to start their own shop.

1) Founders/entrepreneurs are often people who think outside the box and had unusual career trajectories. Sudden changes in fields, a new interest in a startup idea (with research to back it up), often people who don't fit a mold and want to break the rules. Even create entirely new ecosystems. Folks who are creative, have a huge passion for risk, and the network that is like them. They are problem solvers and much more agile and nimble compared to others.

2) If you look at the structured way of learning, studying, recruiting and working in traditional areas like banking you'll notice it doesn't always breed creativity, or most of the  personal skills required to run your own business. You will learn about accounting, raising funds, the networking aspect and even the legal ones. But my own MD once said that he admires the founders who are in their 20s, came from nothing and made it big through just one idea and good execution.

3) Even though some of us are running a BU or a team, we are never alone. There are huge resources (that are also very expensive) at our hands every single day. HR, compliance, credit risk, etc cost money and none of this is available to a founder. He has to either pay external services or need to wear so many hats that it will be hard to believe a single person or a small group would have that many skills.

4) Lastly, there are many companies, ideas and founders out there. Hard work, a good network, and good employees are a good place to be when you start. However, a huge component is also sheer luck. We funded many companies in the last years and, because of Covid, many of them went under. To us, that was a write-off. To these founders and families this was the single biggest catastrophe they will ever experience - and none of these brilliant people deserved to fail like this.

Jul 15, 2021 - 3:27pm

I'll mention again my theory on skillset leverage, and this applies to entrepreneurship.
 

You're in finance and say trying to do something capital intensive (like real estate), you're going to need finance people to fund you.  Well, finance people are not going to see you as value add compared to a non-finance specialist person. Therefore, there is at least a latent disadvantage to being a finance-only founder team.  You're not going to be viewed as valuable by capital, out of the gate.
 

- Need to show value beyond finance.  You can do that by being creative/original thinker, show high resourcefulness, being a systems generator/architect, and with finance skills, but I'd say that's rare in this field.  Therefore, most will have to work for the man, but that's fine if you're making bank.  If you're making good money in corporate, your wife will never say why you didn't trade that all to go on your own.  On the flip side, your wife will question you when you are down during your entrepreneurial pursuit.  

- starting your own business is not for everyone.  And even that's not binary as there are lifestyle entrepreneurs and those who press the limits.  Big risk spectrum.

Have compassion as well as ambition and you’ll go far in life
  • 1
Jul 15, 2021 - 4:40pm

Because investment banking / private equity is more based on basic arithmetic / interpersonal skills and a solid understanding of finance all of which doesn't require a super high IQ. While many people in this industry are definitely smart and have had high GPA's and success, they don't necessarily have the skills and business acumen to take it to the next level or if they do they are generally risk averse. 

Jul 16, 2021 - 7:31am

I think there might be some timing bias here. In general, entrepreneurship has been something reserved for the upper caste these days. With a few decades of wage stagnation for the middle/lower class, and massive inflation of the lowest tiers on Maslow's hierarchy many (including folks on this forum) simply cannot consider taking such a risk for fear of homelessness etc (given that it takes the common individual longer to build up any safety net for risk taking, if they do at all). I think as people on this forum become more comfortable after they move up social castes the propensity to participate in entrepreneurship will increase.

Jul 16, 2021 - 9:58am

Agree with you on some of this - if you look at a lot of the most successful tech startups, they tend to be started by people who come from a lot of wealth. Not really all that surprising there - it's a lot easier to start a business with seed capital from your family, and you know if you fail you will always have a safety net to catch you. This is especially true in real estate because of the capital intensive nature of the business. That being said, I don't think that most people's concern with starting a business is avoiding homelessness. That's probably a bit extreme for most entrepreneurs. Now blowtorching money/wealth/retirement savings on a failed experiment - I do think that is one of the largest concerns for most. 

Jul 16, 2021 - 1:09pm

yes for many students risk of failing (lost time, lost job opportunities etc.) is way higher because they dont have the family and connections to support them should they fail.

Jul 16, 2021 - 10:32am

I guess this could pretty much depend on the environment. For instance, those COVID years are obviously too risky to engage in horeca, and the similar concerns may arise in other sectors...

Towards The New Economy
  • Analyst 2 in RE - Comm
Jul 19, 2021 - 11:28am

It is REALLY hard to get to a point where you feel confident enough to start your own firm in most realms of finance. Usually it requires you to not only be an expert in what you plan to do, but also be able to raise capital all while running a business. An added kicker is your track record usually must be flawless at the start to continue to scale.

Jul 22, 2021 - 2:07pm

Definitely dream of going on my own. I think the dream has changed based where we are as a society and the market. I've found that if it's a traditional route it much tougher to do it in area that have any type of good market fundamentals. Definitely a "red ocean" with amount of money chasing deals/yield. It's become way too political on top of that. I find myself more interested in master planned developments. Think Lake Nona (near Orlando), Serenbe (near Atlanta), and Seaside (Florida panhandle).

If it's not something like that I still there is a lot of disruption to come CRE from tech. Not towards home buying, brokerage, asset management service or construction (damn Katerra). They're huge inefficiency in the construction draw process. Few companies already working on this (think Rabbet). I also see huge inefficiencies in the affordable housing space and we all know the need for that type of housing will only grow in the near future. 

Jul 22, 2021 - 5:28pm

I'm about 6 months away from hopefully starting a business. I think "no one" is a bit overstated, especially on the real estate forum of all things. 

Commercial Real Estate Developer

  • 2
Jul 27, 2021 - 8:12am

Hah, if it actually happens and gets further down the road, sure

Commercial Real Estate Developer

Jul 27, 2021 - 8:15am

Commercial Real Estate Developer

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