Entrepreneurial Risk

People want advice on how to get rich –and pay for it. Now how not to go bust does not appear to be valid advice –yet given that over time only a minority of companies do not go bust, avoiding death is the best possible –and most robust --advice.
NASSIM NICHOLAS TALEB

95% of all businesses fail. That is a staggering statistic and a disheartening one. The upside is that the winners make up for the losses or else investing in index funds would never be profitable.

I am trying to come to peace with the inescapable conclusion that becoming an entrepreneur is a sucker's game. You won't hear this from the winners. They believe their own myth that they did it all on their own. They had an idea and pursued it diligently and fought the good fight and won, and you can win, too. But economics is not just about the seen but the unseen, and I see the wreckage of all the losers. Taking a sizable chunk of capital and putting it all in the single basket of a start up venture is the height of stupidity. You would be better to wage it on a single hand of blackjack.

Winning in business is largely a matter of luck. Getting a good job is relatively easy. You only need one satisfied customer. Starting a good business is hard because you need multiple customers. The customer is always right, and they are not always going to recognize the genius of your business no matter how much sense it makes to you.

I find this depressing because I am someone who would love to be an entrepreneur because of the freedom it brings. But my rational mind knows better. Give me a million bucks, and I am going to diversify into the index funds I invest in now along with gold and treasuries. Starting your own business might be fun, but it is rarely going to be successful. I totally agree with this quotation from TJ:

I'm gradually coming to suspect that entrepreneurship is for suckers - if you really want to become happy, it's best to get a well-paying and reliable job that you enjoy.

Or better yet, rather than be a hacker, be a backer. Taleb mentions somewhere in The Black Swan that investors in companies make more money overall than individual entrepreneurs.

Between entrepreneurs and venture capitalists, the VC people are the smart ones. It's OK to invest in start ups as long as you diversify. This is what venture capital does. Most of their investments will be losers, but the returns from the winners are so big they make up for the losses of the rest.

I am making my peace with the fact that I should just focus on getting a better job and investing the money in my portfolio and leave the entrepreneurship to the suckers. I know a successful entrepreneur. She is also a gambling addict dropping big money on lottery tickets and the Indian casino. The one thing all successful entrepreneurs have in common is a naive faith in their control over things they can't control. They mistake luck for skill, and they have a large appetite for risk. Successful entrepreneurs win big, but the vast majority of people who start businesses are failures and end up worse off than if they had simply kept their jobs and invested their money. I collect anecdotes of failed entrepreneurs, and they are not unlike the stories of alcoholics, drug addicts, and gambling addicts. I know of one guy who toiled on his business for 40 years and died flat broke. That was really dumb.

I admire the ones who make it, but I don't envy them much the same way I don't envy people who survived a shark attack. I see them as lucky not to be fish food. As much as I would love to own and run my own business, I know it isn't for me. I will have to settle for pouring my creative efforts into writing this blog and maybe learning some new skills.
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NOTES

1. http://tj-place.blogspot.com/2009/01/nassim-nicholas-taleb-and-felix-dennis.html

2. http://www.edge.org/q2009/q09_10.html#taleb

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