Forced Entrepreneurs
papers.ssrn.com
papers.ssrn.com
This isn’t really true and should not motivate us to value desperation. Survivorship bias prevents us from hearing the voices of those who chose the final solution to desperation.
Thousands of scientists and engineers would not have been motivated to work on ballistic rocketry and guidance systems if they had not been curious to learn about the moon and outer space.
Congress would never have spent 4% of the 1966 US federal budget on the Apollo program[1] if it had not been desperate to tell allies and enemies about our ability to land a payload in Leningrad.
NASA inspired millions of children in the 60s and 70s to go into science yet real progress in space technology seems to have only picked up recently. Similarly with nuclear technology, it took 12 years to get from nukes could exist to 15KT yields to 50MT yields but we still don't have fusion and fission reactor designs haven't changed that much in decades despite significant problems.
Sometimes I feel like people are change adverse and won't just change things to improve them. People only really change things when there's a significant threat of them getting worse. Reality is surely more complicated and nuanced but I think it will mark a significant change in our evolution when we improve things because we know they can be better instead of racing to avoid a disaster.
I’d encourage you to read the Wikipedia article on Taylorism and then to read The Toyota Way and/or Leadership is Language.
I don't have a strong opinion on this issue, IMO it's too complicated and subjective to feel confident in any particular stance. There's no question in my mind that entrepreneurs taking larger personal risks are more motivated to make things work, but whether that translates to a net positive or not? Who knows?
Where we see desperation in a company history, we should look again to check if it is actually relentlessly resourceful curiosity.
Anyone capable of starting a tech company has the skills and motivation required to get a reasonably well paying tech job.
And that's more or less what most of them do when their startups fail. I see a lot of resumes from people listing themselves as CEO or CTO of a tech startup that barely registers in a Google search.
I know at least one recruiter who makes a habit of calling up people at Crunchbase companies with <10 employees and letting them know to reach out if they're ever thinking about going back to the job market. Turns out, a lot of them are ready to go back to regular jobs after realizing that startup life isn't as glamorous as it sounds.
If I wanted to stay in this field, my only option was to start my own business which I ended up doing. Things worked out quite well.
> Anyone capable of starting a tech company has the skills and motivation required to get a reasonably well paying tech job.
I find that way too simplistic and too blankety even for a blanket statement.
I say that's mostly true, provided they're authorized to work in the US and move there.
In a similar boat now after having had a taste of entrepreneurship but running out of runway. I used to be a model tech worker but now being back at a regular job just seems so... pointless, even though it pays well
Strategizing and executing at the business level is so much more fun than back and forth discussion about how to best fit something into a large existing codebase and making sure your PRs are small enough... but it’s hard to get employment doing that kind of work with a SW engineer’s resume
These days, sitting at the office listening to Katie go on about her weekend and Micheal go on about Apex legends or as you mention... but it's missing that weight or sense of purpose.
In my country though, putting former startup founder @ 28 years old makes you un-hireable.
> we confirm labor shocks disproportionately impact high-earners and these same workers start more successful firms
I had to work 2x as hard to make the same salary on my own the first year, but after that the rewards became easier as the company grew.
I doubt I would have had the courage or interest in leaving a comfortable salaried position for entrepreneurship if I wasn’t forced into it. Turned out to be a life changing lay off for me though in a good way.
> "Forced entrepreneurs" risk great personal consequences because they have no other options.
This is just ground reality for many entrepreneurs (immigrant families opening new restaurants, for example) and does not serve as much of a differentiating factor. Based on the study in the OP, the differentiating factor is more likely to be some difference in risk tolerance by way of savings (since these were high earners after all), some difference in skill (since these were high earners after all), or some difference in opinion of self (since these were high earners after all) which kept them from giving up and just taking a minimum wage unskilled labor gig somewhere.
It's not interesting that people turned to entrepreneurship after being laid off. It's interesting that people who were laid off from cushier jobs were able to start businesses more successfully.
To me, it just feels so much more real than working at a big company. At a big company, I felt like I just tried to make my boss happy and I had a very limited toolset to do such. As an entrepreneur, it's very connected to delivering value to other people who won't give you the time of day if you don't. It's difficult to explain but it feels way more real than a job.
Also love how customers don’t give a ** about who you are, just how good your product is. Very different from typical employment where there’s a constant undercurrent of posturing and your person/personality is always front and center to your performance, as much as people don’t wanna admit it
But c'mon, I quit my job to get away from working for a living for a year. I put in 4-6 hours a day in earnest, but it was pretty obvious from the beginning that I wasn't gonna finish and coding the game was just an opportunity to be more creative than I am as a manager.
No way would I have ever entertained this idea without knowing I could walk back in to a high-paid job a month after starting to look, which I did.
The willingness to walk away is a game changer in sales (and other things in life).
Or you don't try entrepreneurship at all, because if you fail you don't have anything to fall back on.
I've been for a long time waiting for that crisis to pop up and I go back to my community to try something new, not as an employee but as an employer.
Many other software devs shared common concerns with me, like that it isn't worth to drop the ball now that salaries are sky high.
I think a recession would definitely annoy people, but like when it rains, it would clean up a lot of things. Too many zombie companies going on, big tech getting so much money as it seems the only thing that will stick around post-crisis.
We need to shed the tears before there is progress. Can't keep holding this thing on forever.
Annoy people is a funny way to describe poverty.
This is possible in theory, but it does really look like it's not happening on the US.
Sure, in a recession, Elon Musk might get poorer, but it isn't the same kind of poverty that affects the poor.
If US wants to tackle it properly, first solve the initial issues. It is possible to have a recession where poor people aren't the ones most affected, it's all a matter of approving policies, laws and really looking after the poor.
A recession where some rich people that took more risk than they should and get punished isn't bad. What is bad is workers depending so much on their employers to survive. Well, in the US that would get tagged as communism.
Best regards from Germany.
(a) We have universal healthcare for those without income: Medicaid.
(b) We have universal healthcare for those over 65: Medicare.
(c) Discussing healthcare reform is not considered "far left," there is significant debate about how to do this and how to pay for it across the spectrum. So far relatively left politicians have gotten the most airtime about this, but it is discussed broadly.
Your note reads as snarky and condescending, and then you signed it "Best regards from Germany," which just confirms this is a drive-by European comment.
When it comes to countries that aren't your own, my recommendation would be to ask questions and seek to understand rather than to casually cast judgment.
As a final note, please consider that the US is not analogous to Germany. California is analogous to Germany. The US is analogous to the EU. From my reading of international news, it appears that it's more difficult to work out things at the EU-level than it is at the level of an individual nation. That's useful to keep in mind when attempting to make comparisons between the two regions.
> (b) We have universal healthcare for those over 65: Medicare.
In varying ways, both of these programs have large gaps and do not achieve "universal" coverage for the groups they claim to be for.
For instance, when it comes to Medicaid, there is a lack of actual, physical access to care facilities for those without transportation options or a lack of ability to take sick time at work. Many rural areas have severe doctor shortages. There are many others.
> (c) Discussing healthcare reform is not considered "far left," there is significant debate about how to do this and how to pay for it across the spectrum. So far relatively left politicians have gotten the most airtime about this, but it is discussed broadly.
US pays more than most European countries do for healthcare on almost any comparable measure, per-capita, adjusted for life expectancy / outcomes, and many others. Switching to a multi-payer system with basically a variant of a public option, ironically similar to what Germany and a few other European countries have, seems like a pragmatic short-term choice. Unfortunately this isn't a popular solution on either side of the aisle.
That statement is not true at all.
I give you that California has about half of Germanys population, but it is not a country. California is a State. Germany is a country and the membership in a political union like the EU does not make it a state.
California (and the other US States) have their own labor laws, their own environmental standards, their own transportation and energy departments, their own distinct safety net programs, even their own militaries! (aka the "national" guard)!
Further, the Federal Government is specifically limited via the 10th Amendment to only those powers which are enumerated to it. By default, legal power is held by the states, not the federal government. This is very unusual.
Every "country" has a different mix of systems and different degrees of local autonomy, but US States are at the very high end of local authority while the federal government is at the low end. Thus, comparing some European nation to the US Federal Government is often misleading as it implies that the US federal government even has the power to do things that a European nation can do, which is frequently not the case, or else is greatly complicated by needing state participation and approval.
I grant you that they are different forms of federal republic, but the point that California is not a country stays the same.
I don't care what kind of power the federal government of the United States has or doesn't have. That is a problem for the US to figure out for themselves.
I don't think that when people compare European nations to the US that they are speaking about the US federal government specifically or imply anything about the power of the US federal government. What is more likely is that they are asking why the people of the USA have not archived what people of other countries take for granted. The fact that this would have to be archived via state or federal government is a detail at best.
These details matter, and they are important specifically when talking about public policy matters and trying to advocate for change.
Back to my original point, there is nothing stopping any US state from adopting universal healthcare, but it’s not clear if the federal government even could if it wanted to (see Medicare expansion and how many states have chosen not to opt in!). Thus if you want to make comparisons to the “things that Europeans take for granted,” it is often more productive to look at what individual US states do and can do, rather than obsess over the federal government. Trivializing that is just a road to getting nothing done.
Geography isn't even consistently taught in the US. Americans don't seem to care about it, they are busy eating their donuts and sipping their mountain dews, despite having a huge GDP and $ per capita... a declining age expectancy that matches third world countries.
No, the US isn't analogous to the EU. You don't live in the only federalist country in the world.
Your comment can only make me believe you have had a horrible geography education, my only advice is to try to fix it. Learn about the political systems that exist in the world, the countries, their GDPs and peculiarities about their land. Otherwise it is pointless to discuss.
There are tens of millions of people who are eligible for Medicaid under the ACA, but they live in states that never expanded Medicaid under the ACA so they can't sign up for it.
Also, if someone makes more than $12k to $17k a year as an individual in a state that expanded Medicaid, they're no longer eligible for Medicaid.
Also, the US has one of the largest public healthcare systems in the world. Comparisons are slightly complicated but, as a % of GDP, it is roughly the same size as Germany (on a tax base a fraction of the size). The only nation in Europe that actually has a larger public health sector than the US is Sweden.
Work is the only way to lift people out of poverty. Germany is a self-evident example of this: the economy revolves around large corporations who are heavily protected by competition from govt. I would bet on the competitive American model that can renew itself every time over the corporatist model that protects wealthy industrialists in exchange for meagre handouts to the poors. The US tax system is a great example of the potential of redistribution (particularly, property taxes...an area of notable weakness in Germany).
Come to Germany and see if it is really unequal with your eyes. :-)
If anything, the current environment makes it more attractive to start a company, not less. Investment money is cheap and plentiful. Businesses and customers have plenty of money to spend on your products. Risk tolerance is high, so customers are less afraid to take a chance on your unproven business.
And if all else fails, you can walk right back into a hot job market and pick up where you left off.
All of those traits are reversed in an economic crisis. The idea that a crisis spurs people to take entrepreneurial risk or fosters entrepreneurial success is backwards. Now is just about the optimal time to start a software business, if there ever was one.
It's a few years since I've been in academia, but is it normal these days for papers to receive five years of updates? Or to be five years old and still "forthcoming"?
The past few years have punished W-2 wages even more when compared to non-W-2 earners or people who partial incomes from W-2.
PPP Loans, SEP-IRAs, QBI deduction, plus plenty of other random deductions as well that are no where near the sketchy deductions that certain people take such as hair/makeup.
Like many things, this doesn't apply only to software engineers but any job that you can easily contract out or do plenty of remote work.
The current US tax structure encourages entrepreneurship. At the same time it seems to make it slightly scary/challenging with tons of ridiculous paper work, especially if you move across state lines. Oh & paying taxes is a pain. If someone wanted a huge unicorn type business idea, making it super easy to handle all this garbage would be nice. Most places are either to expensive for a single or tiny business, or don't offer enough help. Huge opportunity with an expanding niche & no one is doing it really well.
It's important to keep in mind that running a business, even one where you're the only employee, is a pain in the ass in America (and especially in California). In addition to all the compensation things you don't get through an employer (health insurance, 401k matching, subsidized meals, paid vacation days, etc.) you also have added overhead in self employment tax, professional insurance, compliance/service fees, etc. And then you have the added headache of a small mountain of paperwork, both to get started and at tax time every year, in addition to having to keep your accounting straight and sometimes having to chase down payments. Also keep in mind that the line items you listed have caveats. QBI phases out at certain income levels and for certain professions (I get $0 from it), PPP is a one-time deal, IRAs are not equivalent to getting free matching money from an employer 401k, etc.
As others in here have mentioned, you also have to maintain your client pipeline and even then there's no guarantee things will work out. For example, last year when the pandemic started my primary client paid the early termination fee, cut my contract 4 months short, and left me to twiddle my thumbs while my W2 friends happily plugged away at their normal jobs with no income interruption. That's the kind of risk you take and over time it absolutely will impact your total earnings. In general, self-employment is most definitely not for everyone - I usually only recommend it for a limited subset of people.
I would love to see significant reform to simplify taxation for small businesses, but more than that I would love for the US to have a simple, high quality universal healthcare program so that I didn't need to worry about healthcare provision as part of my company.
This comes at the expense of time and energy. Running a "company" will involve a lot of other things beyond software engineering. Like stocks, there's also no guarantee you will beat the market (the market being the best salary you can get).
The most time and energy efficient way to make money with little risk is still to take a standard software engineering job, don't take on unnecessary responsibilities, and just work remote to eliminate commute (you don't get paid for commute time but because you still have to do it you have to account for it as part of your work hours, which can vastly reduce your true hourly rate).
It's usually the initial setup that is the biggest pain & if you ever make any changes like wanting to move states or addresses. This is where I think a service would be really beneficial. At the same time, the amount of time/revenue lost to this is less than the amount gained by tax benefits. I mean every company made 5 months of salary plus benefits per employee from the PPP loan over the past 2 years. That alone was huge.
From personal experience, it sounds like "the best salary you can get" requires hunting for decent opportunities, studying for tons of ridiculous interview questions, networking with employees at the company to get a leg up & of course taking a ton of interviews. Plenty of time/energy goes into that as well. Of course you can counter argue that getting clients takes plenty of time energy. So it maybe comes down to each person's own unique situation and which opportunity is best for them. I've found that doing great work, gets your name out there & marketing is not required. Learning to say "no" to jobs tends to be required more than marketing.
Finding clients takes about the same effort as preparing for job interviews except you have to constantly be looking for clients.
It's not easy finding and managing multiple long term clients, and even then you need about 3 or 4 to ensure one doesn't hold too much leverage over you.
In the end, it's a wash, if starting a company was two or three times better than a salaried job it might be worth it, but as it stands it's barely 1.2x better than a salaried job.
If you want more money it's best to just do a salaried full time job and then do some work occasionally on the side or develop other passive income streams.
In many countries, big consultancies lobby governments to treat such business as disguised employment. Here in the UK from this year, you may likely be caught by these new rules and have to pay employer and employee tax on the entire revenue - which essentially means you pay more tax than an employee, you don't have any employment rights and you still have business running costs that you cannot claim any tax relief from.
Being an "entrepreneur" is a means to and end, not and end in and of itself.
Actually this result surprises me.
The survivorship bias I was expecting was that upper middle class and upper class people got opportunities to try ideas over and over again because their funding never ran dry. And therefore we get to hear misleading stories about entrepreneurs starting from their garage, but turns out the garage was at a home in Atherton, the most expensive zip code deep in Silicon Valley.
As a founder, if your business doesn't fit that mold you probably shouldn't raise from VCs. There are angels out there with a higher risk tolerance who write fewer checks and are more interested in contributing directly to a company's success outside of capital.
The idea that workers are diluted by the VCs is usually bogus. In an upside scenario, everyone wins. In a neutral exit scenario, the employees get to keep their wages, the investors get their money paid out first (if there's any left) and the founders/employees get hosed. In a downside scenario, everyone loses, except employees still get to keep their wages earned.
It seems like you're conflating wage workers vs VC vs founder. Each of these roles has a wildly different risk profile when it comes to a startup.
if what I just wrote is true, then I can see how others might use vc-backed companies as a proxy for broad economic gains
Uber and DoorDash have entered the chat...