Glass half full or half empty doesn’t matter when you’re enjoying the drink.
The Set Up
Catching up Jerry Neumann’s latest blog post last week on Schumpeter on Strategy something that really caught my eye was this chart, which is cited as from The Illusions of Entrepreneurship.
The chart compares employee and entrepreneur income, and as Jerry notes: “for the middle eight deciles, they are the same. 80% of entrepreneurs make the same amount of money they would if they were employed.”
This really resonated with an unsubstantiated belief I’ve held – that if I was early in or founded a company that worst case I would earn the same as I would as an employee in a larger company. So I guess maybe not “worst case” but perhaps “strong odds are”.
Of course there’s two ways to look at that info (half full / half empty?). Either (1) why bother trying to start a company if you can have a regular job? or (2) why bother having a regular job if you can be a founder or in early in a startup?
Put me down for option (2).
Argument from Opportunity Cost
There’s really a two-fold opportunity cost to choosing the “regular job” route from how I look at it.
First, if you ever want to create and control your own product that will change the world in a positive way, a.k.a. start a company, then there is an opportunity cost to not having seen what it takes up close. Particularly if you want to understand how the venture-funded growth startup space works there’s no better way to learn than seeing it as up close as possible (fair warning, the more up close you see it the less you’ll like it).
Second, working in a regular job you miss “at bats” as founder or early-in at a startup where there could be upside that opens up more freedom and opportunity down the road. If Elon Musk doesn’t do PayPal does he go on to do Tesla, SpaceX, etc.? Not that any of us are Elon Musk, but it’s as familiar an example as it is extreme.
Considering the graph longer and thinking about the state of the tech industry it struck me that it less likely holds for technical founders who could be senior engineers or managers, at least in any time that counts as recent. By that I mean it’s not a secret that you can make a shit ton of money at a large company by having both a big salary and an equity stake that the public markets turn into gold. I’m pretty sure (but am too lazy to research if the data is available) that filtering down the consideration just to recent tech trends to compare being a regular tech employee vs a tech founder that the graph would not line up so cleanly.
The opposite side of that coin is the danger of comfort. There are worse kinds of danger of course. But I guess you could say it as there being an opportunity cost to being comfortable, which is that with more to lose you may pass up on creating that thing after all.
The graph screams to me that there is less downside risk to being an entrepreneur than we may think. It may seem “risky” but that graph tells me the risk is more illusion than reality. Obviously any given situation at any particular time is its own special animal. Given the state of the tech industry the risk may be capturing less wealth, but I’m more doubtful there’s ultimately risk capturing enough wealth.