Why I won't do a startup and (probably) neither should you.
edmarkovich.blogspot.com
edmarkovich.blogspot.com
Sadly, this puts the article into perspective right from the start. Not to put BS people down, but this is going to be a very limited perspective on the goals, dangers, and prospects of doing a startup.
> Is a cupcake shop making $100k successful? Depends on the owner. If his alternative is a $65k factory job, yes. If he left a $250k legal job to do it, no: the business destroys $150k of wealth every year. Yikes!
I can think of any number of reasons why it might still be a win. You might be much happier making a 100k with cupcakes than spending your life doing soulless lawyer things. You might make amazing cupcakes, enriching the world around you. Your legal job might be a dead end. You might feel that life is short and you want to do something you like. You might want to experiment. You might have a really cool idea for a cupcake shop concept. And, technically, no wealth is destroyed at all.
> I have no problem with someone going this route, but it doesn't make sense for me: my lifestyle would not be improved by working more hours for less money at greater risk.
If you're not willing to work more hours for less money at greater risk, my intuition says you're probably not going to create something really outstanding either. If immediate and assured rewards are what's driving you, keep going up the corporate ladder because this is exactly what your personality type warrants. But without taking risks, being creative, occasionally working your ass off, and potentially failing sometimes, your chances for achieving greatness will also be significantly reduced.
> Corporate can be fun.
That depends on your personality. With everything stated so far in the article, yes, corporate is the way to go for you. Other people? Not so much. Going corporate is not intrinsically fun, and nothing else is either for that matter. If an environment fits you, chances are you'll thrive there and find fun in it.
> Value gets us paid.
That depends on your definition of value. Clearly, I would say the danger here is the tendency to simplify this, by assuming pay is always tightly coupled to value, and hence the value of something can be derived from looking at the wealth of the person doing it. Which is a bad path to be on, in my opinion.
Paraphrasing the logic: the 10,000th engineer at Google adds more value, which is why he is paid more than the average startup person. It's a meaningless statement. Google has a magical core business, which the 10,000th employee had nothing to do with. the core business throws off a lot of profit, which allows them to pay for all kinds of stuff. There's just no way to say whether the marginal Google engineer creates more value than the average startup, and using salaries as the sole benchmark drives us to lazy conclusions. Most likely, the google engineer is working on something that will go nowhere - perhaps it is Google Wave! - but the company can afford to overpay him for his trial-and-error, because search has a >25% operating margin.
If anything, the average startup, even the failures, contribute more value in the sense of social outcomes because we have a massive decision tree of trial-and-error of all the possible permutations of business. Some of them work, some of them don't. (...important that we try...)
> Corporate can be fun.
I am chuckling that this is a Bloomberg guy who is way into the culture. Depending on who you talk to - others describe it as the most political, micro-managing environment they've ever experienced. I don't think it's a particularly innovative company at this point, but like Google, they have a magical core business, basically a monopoly on a segment of financial terminals, which allows them to do all kinds of ridiculous stuff. Does the 10,000th employee of Bloomberg add more value than the average startup? No, chances are he's trying to figure out how to copy a competitor - with a 5% chance he's doing something legitimately new - but the company makes so much money on other stuff, they can afford his efforts.
The reality of major corporations is that the strength of their legacy businesses allow them to throw off a lot of cash and their employees don't need to do that much to improve the situation - they just jockey to make sure they are the one who gets to sit in a big chair. M&A is a huge factor in the long term positioning of major corporations for this reason - swallow the competition.
Procter & Gamble uses MBAs to figure out how to shrink a toilet paper roll while raising the price by $0.05. Is that innovation, or "value", that's objectively better than even a failing startup? Probably not, but they can afford to pay.
You write all that as if the next few paragraphs didn't have all those caveats already.
That misses the important point that the business itself has value. You can sell businesses, either to someone who would be quite happy with the $100k, or someone who wants access to the business assets (clients, stores, cupcake recipes, brand, etc).
If you work the legal job for 3 years and earn $250k a year, you'll have $750k. If you build a cupcake business over 3 years, draw $100k in salary from it, and then sell it for $1m, you come out ahead.
This isn't a case of "You can fiddle the arithmetic to make it better"; it's a case of "the business owner is building an asset as well as drawing a salary." If you quit the legal job, you don't get any more money out of it. But if you decide you don't want the cupcake shop any more, you can get dramatically more than a year's salary as a result.
That said, I dislike how much the bubble around here paints the choice as a dichotomy: do a startup right after school or be a slave to Big Corps forever.
The VC world likes em young, and that's fine for them. But statistically, founders of such companies probably don't come out ahead, financially, relative to those who pursue say an MBA and a big corp job. However, there are a lot of people who take the experience and contacts from Big Corps to start a business. Both companies where I worked as an engineer were founded by guys in their late 30's or early 40's after developing a base of experience in industry. They had revenue from almost day one, they had the experience to identify niches that could make them money. They're not looking at $500m exits selling to Yahoo, but they've made a lot of money and had an a priori reasonable expectation of doing so.
I'd also like to point out another thing: if you're thinking about starting a business right out of school, look at Peter Theil--what he did instead of what he says. Theil took his double Stanford degrees to Wall Street and made a bunch of money and contacts before he co-founded Paypal (at 31). If you want to start a business, that's a good way to go about doing it.
"...my lifestyle would not be improved by working more hours for less money at greater risk."
Boom. That's actually solid self-awareness and true of many people. That said, my life fundamentally shifted and my purpose became clear when I did exactly that.
Fighting for a product I believe in. Developing a product I'm passionate about. Late nights of creative problem solving in my code that will directly effect our success. Owning what I build. The chance to win. And the risk, for me, is part of the thrill.
Compared to all this, the loss in terms of steady income from a corporate job is nothing.
See, you make it sound like fighting for your country, or for your rights, or for your freedom. But most people don't feel the same way about products. That's because they are products. They're not that important. In other words, to most people slaving away at some application or game that nobody cares about is the very definition of "mediocre life". As opposed to, say, spending time with their families or enjoying their hobbies.
However if you look at the value per employee in a large corporation, you'll always find out that the value per employee in a startup environment is much higher.
That is why people are drawn to startups because they can make a difference and not be a small cog in a big system. The question is not if the large corporation has a much bigger impact on the world but how big is your role in a company that has an impact on the world.
> A larger firm is more efficient (that's why almost everything is made by large firms) which makes employees of these firms more productive. This may be counterintuitive, but it's right
...I got a tad ragey. Everything is made by large firms because capitalism is predicated upon, well, capital, and the larger you are, the more you can grow. Mergers and acquisitions are the sound of that growth.
The next issue I have with that statement is this - define efficient.
The local branch of HP tenders for government websites, and then it charges the government $4000 to change text in a hyperlink. Is it more efficient at generating revenue than a small PHP firm? Yes. Is it helping the client make a more efficient use of their IT spend than a small PHP firm? Hell no.
Former employees of large dev shops who work with me tell me about the time they wasted in being forced to argue with clients about whether or not bugs were actually bugs, because bugs weren't billable but feature requests were. Apparently, this is more productive.
Having escaped from a public sector bureaucracy to a small start-up which is now at the 30-person size, claiming that a large private sector bureaucracy is more efficient and makes individuals within it more productive is most extraordinary.
Incidentally, the only real difference between a public sector bureaucracy and a private sector bureaucracy is that the latter gives its middle managers bigger bonuses.
The marginal contribution of an additional Google programmer is almost zero. Google can most definitely do with 9,999 programmers the same things they can do with 10,000. That doesn't mean that working at Google means you won't contribute to the world. It just means your chances of doing something meaningful at a startup are much, much higher.
I could also argue that failed startups help others by weeding out businesses plans/ideas that might not exactly work (at a given moment in time/space). Look at the many failed startups from the dotcom bubble. There are plans/ideas from that era that will not approached by the current batch of startup entrepreneurs. All because they have the historical data/evidence from the past bubble.
Working as an engineer, I'd probably pull a similar salary between a company like Apple or a high-end consulting firm. The profit per employee between these firms is drastically different though. We're not paid in proportion to the value we generate. We're paid in terms of market forces with a slight bump if our company especially values us. We don't see the upside of our efforts, the companies we work for do.
You should have a lemonade stand. You should learn how to manage your time. You should find out if you have what it takes to build something from beginning to end. You should try and sell someone something.
This doesn't mean you need to lose $100k of your friends and family's money. It does mean you should go through the process of discovering if you can be a leader and build something from scratch. If it all falls flat, call me. I always prefer to hire people who know what they are good at, and what they aren't. I'll take the guy who failed at 2 startups and tells me he won't do a third over the person fresh out of college who thinks he can run my company better than me. So will every Manager I know at Microsoft, Amazon, and Google.
You guys should check this out: http://www.youtube.com/watch?v=EEZkQv25uEs
It is true that many companies fail for reasons that may have been more obvious to an MBA than a lay-person, but failure-mitigation and success propogation are only co-incidentally linked. Failure mitigation is a boundary constraint, not a primary explanatory relationship or variable.
Common sense business advisory, industry networking, and start-up specific logistical information is now provided by a variety of experts and emergent institutions (eg, YC and other accelerators, with VCs and Board members, and en extremis a variety of biz-dev types available for consultancy and freelance work.)
There are definitly also counter-examples, and one that comes to mind is Gilt (https://en.wikipedia.org/wiki/Gilt_Groupe), but I'm not sure this isn't the type of exception that proves the rule. That is to say entrenpreneurs build starups, and they may may not have, need, or want an MBA.
The other consideration here is survivorship bias. Many people in the "mba cohort" may have de-risked their entry into the middle class/management ranks such that it just doesn't make sense to take any path more risky. That is to say, the development of firm-specific (and tech specific) skills inherent in a startup may prevent the MBA from following up a failed opportunity and jumping back into an "MBA" career path on even ground, if the field is something like banking, consulting, marketing, ect...ie, the traditional MBA paths. Its not clear that such an experience adds significant market value in many areas. Although there are paths where such would obviously be useful, especially in combination with some technical savvy and business acumen. So in other words, this may be as much about doing (x|MBA) as it is (x) itself.
Money != Success
Startups aren't for everyone but what you learn about yourself, doing business, customers, markets, etc... should not be ignored.
Corporate jobs are also not for everyone but there are many this you learn on that environment that is invaluable too.
I say fuck the odds, keep your job and build something, and sell it. If you can't sell enough of it then figure out why and what's next.
On my phone please excuse typos.
Time isn't money; time is infinitely more precious.
If you make it to an age of 80 or 90 and look back, you will feel a lot happier and accomplished if you did a lot of those things in the time you had on this planet. On the other hand, if you look back at your life and all you've done was being a part of a meaningless money generating machine, I'm pretty sure you'll feel really miserable. Unless, of course, you are psychopath (like a lot of people in corporate seem to be).
I experienced this third category about 5 or so years ago. This one guy came into a company in a senior position, and almost immediately started trying to get people he didn't like fired. He'd pit people against each other, having them do the same assignment to see which one would do it quicker... he'd call people out in meetings for being terrible coders who should be fired (some of his accusation I happened agreed with by coincidence - but most of them were unfairly leveled, and directed toward competent people that he pictured was in his way). He'd talk to senior management telling them about people who he thought should be fired, and they listened. Admittedly, we lost a couple of bad developers: but we also lost good developers who just happened to rub him the wrong way.
That kind of experience isn't just negative, it's scary. He never leveled his gaze at me, but mostly because I realized that he was seeing no negative repercussions for his actions early - and was even being praised for it - and thus tried my best to avoid being in situations where I had to work alongside him.
On a side note, I still feel bad about not speaking up about this and trying to fight him and/or get him fired to save those who worth saving. At the time, I had just gotten married and I was the only breadwinner - going up against him felt like it would be suicide. So I kept my mouth shut, and I do still feel bad about that to this day. I'd like to believe that, were this ever to happen again, I would speak up... but honestly I'm not sure. It's hard to stand up when the consequence of failing is that you'd probably be the next one on the chopping block.
Anyways, I digress. Corporate can be fun - it can also be hell. If you land in the former category, consider yourself lucky (I do now!). And if someone tries to ruin that, don't be a coward like I was: stand up and fight. Because it's not going to get any better if everyone is too afraid of being fired to keep the culture healthy.
In my opinion its more of a calling that can't be ignored and there are far more pros than the possibility of becoming "rich".