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Entrepreneurs don’t have a gene for risk–they come from families with money

94 points by cup 11y ago

yummyfajitas 11y ago
This article makes little sense. It claims that the average cost to launch a startup is $30k - approximately 1 year of savings for a software engineer working frugally. The article doesn't even begin to support it's claim that family with money is necessary - at most, it seems one needs a frugal lifestyle and a middle class job.
- notacoward 11y ago
  I think you just made the authors' point. Sure, that's one year of savings for a software engineer - but what percentage of people are software engineers? What's the family-income profile of those who become software engineers? You can't refute the authors' claim by providing an example that exactly conforms with it.
  - yummyfajitas 11y ago
    The point is that the average business can be started with little more than the savings of a middle class American? 1 year of savings for a software engineer might be 2 years of savings for a person at the median income of $50k - my brother is below the median and just spend about that much on his wedding. I used "software engineer" as an example because it applies to most of us on HN, that's all.
    - notacoward 11y ago
      Your math is off. Let's say software engineers make twice median income - probably low, but it simplifies things. Twice the income means way more than twice the savings rate. In fact, if we take $100K/year of income and subtract $30K/year of savings, we're still well above median income. That means the median-income earner with the same cost of living would be falling behind to the tune of $20K/year. And no, factoring in taxes doesn't change anything significant. Factoring in the costs of home ownership might, but not in the way you'd like. The fact is that a median-income earner might be able to save some sliver of their pay, while a software engineer can save that same sliver plus darn near the entire top half. One year of software-engineer savings is several years' worth of median-income savings. That's a huge difference in terms of willingness to assume risk. Let's take two people who have each worked seven years saving $30K/year before spending $30K on a business that takes two years to fail. The software engineer could devote themselves full time and still come out with $180K (not counting interest) in their retirement account. The median-income earner can devote only spare time because $30K isn't even enough to live on for two years, and at the end his retirement account is wiped out. One risk is a trivial one that most people would accept. The other is a yawning chasm. As the authors said, willingness to risk that much is strongly correlated with already being pretty wealthy. There's only one word to describe the idea that risking $30K is no big deal. That word is "privilege" and you should check it.
      - yummyfajitas 11y ago
        I'm not disputing that it's easier to save $30k if you earn $100k than if you earn $60k - that's just arithmetic. I'm saying that $30k is easily within the reach of a software engineer and also reasonably within the reach of a used care salesman earning far less (e.g., my brother), it just takes more time. Also, $30k is easily enough to live on for 2 years, provided you are willing to reduce consumption. Among other things, there are lots of folks consumption below $15k/year (e.g., college students if you ignore the cost of college, some illegal immigrants in regions where they don't get welfare). Most people simply aren't willing to reduce consumption to college student levels, but that's a matter of willingness rather than ability.
        notacoward 11y ago
        > it just takes more time That's the key. Willingness to risk that money increases with the time it took to save it, and not just linearly. When the time increases by almost an order of magnitude, you're going to find darn few willing to risk it. > that's a matter of willingness rather than ability It doesn't matter why; the fact stands. Entrepreneurs are far more likely to come from the first and second quintiles than the more populous third through fifth. Sure, people in some parts of the country could live on $30K if they're willing to make severe sacrifices in their quality of life, but treating that as just a matter of slight degree compared to a software engineer who can still live as they please while making the same attempt seems a bit callous. At a certain level of sacrifice it's a qualitative difference between "crazy if you do" and "crazy if you don't".
        yummyfajitas 11y ago
        Yes, that's my point. Middle class and slightly upper middle class professionals, with no family support, are completely capable of starting a business. They are simply unwilling to do so. Also if living like a college student is considered to be "severe sacrifices", does this mean that upper class kids who go to college understand and experience poverty and deprivation? And therefore, when discussing it, they don't need to "check their privilege" and can simply think back to college?
- WalterBright 11y ago
  Basically, it's the cost of a new car. There are lots of new cars on the road. You could buy a $500 truck like mine, and invest the rest in a startup.
- unprepare 11y ago
  You're forgetting opportunity cost here, which is by far the largest factor. Say you worked a 9-5 for two years saving up $30k. You reach the end of two years and youre going to quit your job, losing all of your income, and then also spend 100% of your savings right away on beginning some new business that could fail at any point? You are thinking from the perspective of someone from wealth, missing the realities that would be faced by someone actually considering starting a business without a history of even middle class wealth. Most businesses are not the kind you can start on your off time, as a side project. You cannot keep your salary, you have no investment income, or passive income of any kind. What happens when you fail? you've spent every last cent of your savings, you have no job, you have a sizeable gap in your resume, and going back to your old career means youll have to take a pay cut compared to what you were making before you left to start the business. This is a real fear that keeps many people from going out on their own. If you are from wealth on the other hand, having no savings might not be as big of a deal. You wont become homeless if you have family and friends that have the means to take you in. You wont go hungry, you can even take a few weeks to reevaluate your decisions and decide if you want to start another business with your lessons learned, or if you should return to the job market and get yourself back on your feet.
  - yummyfajitas 11y ago
    You are thinking from the perspective of someone from wealth... That's quite a feat, given that I'm not from wealth at all. I've probably got more money than anyone else in my family and I've earned it mainly from salaried employment and personal investments. The opportunity costs you've described apply equally well to someone who came from wealth - resume gap, time spent not working, no job, etc. I'm not disputing that startup capital from family would be helpful. I'm disputing the article's implication that the amounts of capital needed are unavailable to regular people, or that only people from wealth can start a business.
    - unprepare 11y ago
      >I've earned it mainly from salaried employment and personal investments If investment income is a relevant part of your income stream, then congratulations - you are among the wealthiest and most financially literate of all americans. You are now someone who speaks from a position of wealth because of this. >opportunity costs you've described apply equally well to someone who came from wealth Oh really? Because when youre poor and your parents live in a one bedroom apartment and cant afford food for an extra person, maybe youve even been sending them money because they have problems keeping up with their bills and being able to eat everyday. Thats the same as a stanford grad, whose parents live nearby in a 4 bedroom plus house, can easily afford to send their children money when they need it, let alone allowing them to move back home with free room and board at any time. If you honestly dont see a difference, from the perspective of starting a business, between these two people, then we have nothing further to discuss. > or that only people from wealth can start a business. I have yet to see the article or a single commenter make this claim.
- thirdtruck 11y ago
  $30k might not sound like a lot, until it's your parents that are asking you for financial help and not the other way around. And that's before adding in the psychological "tax" of worrying about them. I'm not even asking for rich parents, just financially neutral ones.
seibelj 11y ago
Some people quit their jobs and throw everything into a new, risky venture. This is pretty dangerous, especially for those without wealth. More realistic people work 40-50 hours a week at work and another 40 on their own passions. The smartest find a do-nothing job where they could cash a check for showing up at the office and surfing the net all day (IT, help desk at large organizations) and devote their work time to their own passions.
- geomark 11y ago
  "The smartest find a do-nothing job where they could cash a check for showing up at the office and surfing the net all day (IT, help desk at large organizations) and devote their work time to their own passions." I guess you can call that smart. But it is also dishonest. They are effectively stealing from their employer. Many people seem fine with that, justifying it with the notion that their employer doesn't adquately utilize their skills, or is stupid to trust them so deserves to be taken advantage of, or didn't know how valuable their IP was so it was ok to take it and start a company around it. I've known quite a few people who did this, even a couple who went on to found billion dollar companies while on the payroll and using company resources.
  - reustle 11y ago
    I wouldn't go as far as saying it is stealing. I've been in situations before where I would need to go to my manager and ask for work, anything to do. I was too young to realize I could invest my time in bettering business process around me with the software development I was learning on my free time. Some places are just built around having a lot of people not doing too much.
    - geomark 11y ago
      That's the point of contention. It boils down to the fact that the boss is paying you to work on his stuff. Instead you work on your own stuff. It's a different story if the boss says spend your free work time doing whatever you want, or develop some skills of your own choosing. In my experience that's usually not the case.
saryant 11y ago
Counterpoints: Rockefeller. Carnegie. Jobs. Several of my entrepreneur friends.
- rosser 11y ago
  "The plural of anecdote is not 'data'."
  - vonklaus 11y ago
    This could be just as easily directed to the articles author.
  - vixen99 11y ago
    Mostly true but the singular of data (pl) is anecdote - considered as a discrete experience.
  - colinmegill 11y ago
    Best comment response ever. It is sad this will languish here rather than be etched into a stele.
    - contingencies 11y ago
      http://blog.revolutionanalytics.com/2011/04/the-plural-of-anecdote-is-data-after-all.html http://blog.revolutionanalytics.com/2011/04/the-plural-of-an...
  - _0ffh 11y ago
    Let's say, counterexamples are not unbiased samples.
  - kelnos 11y ago
    Actually, it is, for a statistically significant number of anecdotes.
  - dump100 11y ago
    It is `Empirical`
jotm 11y ago
I think it's more about education - being taught from a young age that entrepreneurship is a possibility and how to manage and make money leads to those people having a higher chance of starting a business. And of course, families that are relatively well off and don't have to worry about basic needs can afford to teach their children that, while poor parents will most likely teach them to be frugal and that having a safe job and not taking big risks is of upmost importance (or not teach them anything - children will notice anyway).
- bksenior 11y ago
  I can't stress this enough. I was a lower middle class kid who grew up with rich kids and seeing HOW other parents made a life made it so I had no question what I wanted to do. I learned from an early age what I could just apologize for and I developed a very high risk tolerance with proper research. I never took a dollar but always found a way to make it work. 2cents
vonklaus 11y ago
> We’re in an era of the cult of the entrepreneur. We analyze the Tory Burches and Evan Spiegels of the world looking for a magic formula or set of personality traits that lead to success. No, pop mags like Quartz do. Some entrepreneurs go to trade school and are electricians, deli owners and carpenters. Something like 7%[0] of Americans are self-employed, difficult to believe that many people come from massive wealth. [0]http://www.careerbuilder.com/share/aboutus/pressreleasesdetail.aspx?sd=2%2F6%2F2014&id=pr802&ed=12%2F31%2F2014 http://www.careerbuilder.com/share/aboutus/pressreleasesdeta...
- juliangregorian 11y ago
  That number is mostly freelancers and contractors, not "entrepreneurs" in the traditional sense and certainly not the types that are eligible for million-dollar exits.
- notacoward 11y ago
  It's not necessarily about massive wealth. One theory I've heard is that entrepreneurs tend to come from the second wealth tier, not the first. They have resources and fallbacks, but also a strong work ethic and something to strive for. The already rich are less likely to have that particular combination. There are certainly enough people in that "not so massively wealthy" group to support a 7% self-employment rate.
dschiptsov 11y ago
The key concept here is diversification - having more than one source of income. The more of these you have - the less you are affected by risks and market volatility. You have much lower loss-aversion, you could even afford to fail-fast, abandon and start again or just delegate. The simplest example is a landlord having a running businesses in his basements instead of just collecting a rent. These businesses could be seasonal, habit/passion-driven, barely profitable, etc. Btw, a rich family doesn't mean lots-of-money-in-the-bank, it usually means many diversified sources of income.
Gustomaximus 11y ago
From my view it seems factors 'families with money' bring are; - Finance: As per article family financial support can get people over one of the biggest hurdles of getting a business off the ground. Also coming from an upper income family odds are you have a higher income and more savings to invest/risk. - People they grew up around: If you grow up around people owning/running companies you are more likely to see this as a reality for yourself. You also have personalities to emulate in chasing this goal. - History of tech: Wealthier families has more access to tech in the past, although changing today. In my school age most kids didn't have access to their own computer, even at uni. This would be a barrier to leaning about IT that could build future behavior. - Connections: Growing up in a privileged environment you develop connections that can be useful. Also learn how to behave among people who are in a position of power to help you and develop the 'we are similar people' bond. - Sense of Entitlement: A great line from Rory Sutherlands TED talk was Oxford/Cambridge doesn't buy you a great education, it buys you a great sense of entitlement. This give you confidence to go achieve great things. In my small world I have clearly seen this difference from people who grew up on different side of the tracks though it seems to be changing a bit now. - Expectations: People growing up in a more privileged world have higher expectations placed on them. To a degree this can push people to try harder to build something significant rather than just reach a reasonable level of comfort a more general job will offer. - Fallback Option: I imagine this is one of the more important, people from a comfortable family know if their venture goes south they wont be homeless. Their family/friends will make sure they have board, food and an ability to restart. This puts them in a position to risk all with out the same downside.
- deleted 11y ago
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- neoveller 11y ago
  The last one likely matters the most, at least in my case. Ambitious ideas take more time than just product development/implementation. Marketing and business development run on much lengthier schedules. At half a year in on savings, I'm being pulled away from full-time on my startup back into contract work, where I'm constantly encouraged to just go full-time instead with these companies (mostly founding-stage startups with funding). Meanwhile, my entrepreneur friends who come from exceptionally wealthy backgrounds have no such constraints or risk of going homeless if their startup doesn't get funding or start making revenue. I'm not sure if I'll be able to make rent next month, short of a loan, unless I get a contract invoice paid in full within two weeks. I'll be just fine, but that fear of not making it on the basics is not weightless. I suspect I'll be looked at differently when it shows that it took me N months to get to X revenue, instead of 0.25N, as a result of just needing to survive.
unabst 11y ago
This was truer in the past when entrepreneurs had to build physical products or lobby for their business through established family connections of power. Today wealth is less required as long as a proper education can be paid for. Entrepreneurs thrive at Harvard, MIT, Caltec, Berkley, and the like... And software has been the social ladder super express. If Microsoft, google, virgin, facebook, instagram, uber, and apple weren't all started by wealthy entreprenuers then this article is refuted, since those are all the companies we emulate.
- Daishiman 11y ago
  Well, for starters, Microsoft, Google, Facebook, Instagram, Uber and Apple were effectively founded by white, highly educated men. As far as I know, in none of these cases were their families actually poor. Gates came from a straight up wealthy family; Zuckerberg's family is one of doctors and other highly-paid professionals too.
  - deleted 11y ago
    [deleted]
  - unabst 11y ago
    But the key common denominator is still education and software. Not poor does not equal rich, and even in Gates case his family wealth was never a factor in funding his company that was profitable early. You just have to be not-poor and surround yourself with smart people. I find race and gender a more relevant study than wealth.
    - kylebrown 11y ago
      Microsoft's first customer was IBM because an IBM VP sat on the board of Seattle National Bank with Bill Gates's mother (the bank was founded by Bill's grandfather).
      - unabst 11y ago
        Bill was upper middle class. Sure he had ties, but it wasn't wealth that made Microsoft a non-failure, nor was the IBM deal a simple handshake based on privilege.
WalterBright 11y ago
Counterpoint: 85% of Millionaires are self-made. See the book "The Millionaire Next Door."
- Daishiman 11y ago
  That's not really a counterpoint. Your parents don't have to be wealthy in order to qualify as coming from a wealthy family. Also, families of professionals can make comfortable six-figure salaries and are wealthy by any reasonable definition.
  - WalterBright 11y ago
    > Your parents don't have to be wealthy in order to qualify as coming from a wealthy family. I'm afraid that doesn't make sense.
    - michas 11y ago
      It does, considering the fact that families usually have more members than just parents and children.
    - Daishiman 11y ago
      Class != money
- 6t6t6 11y ago
  85% of the 1500 millionaires interviewed by Fidelity Millionaire Outlook "said" that they where self made. Still, I would like to know how many of this "self made" millionaires are not white, men, and don't come from a, let's say top 15% tier, wealthy family.
  - WalterBright 11y ago
    The book is by Stanley and Danko, who are not affiliated with Fidelity according to their bio. I would recommend at least skimming the book - it details how it is done. Wealthy parents are not required. The book is going for $2.48 on Amazon. Anyone can afford it. Why not give it a try before dismissing it?
vessenes 11y ago
I have found the opposite for 'vanilla' entrepreneurs; for a few years, I was part of the Young Entrepreneurs Organization (YEO), which collected under-40 founders of businesses with over $1mm in revenue. The Boston chapter had over 100 people in it, maybe closer to 250? Of those, almost none had 'top tier' degrees. Almost none had business school degrees. In fact, for a community of fairly wealthy Bostonians, it was notable how few had come through top-tier schools or advanced degree programs of any sort. Startup entrepreneurs might be different, and I've only read the article about the paper, but I just don't see this in my own entrepreneurial experience; most entrepreneurs I have known outside of Silicon Valley were motivated hard working types; some were visionaries, some were operations geniuses, some accidentally bought out their partners or bosses and got left with a business, most were from blue collar or middle class families. Put another way, Thurston Howell doesn't start a summer painting business staffed by college students, or a recruiting business which demands 90 hour weeks for the first ten years of life; instead Frank from Gloucester does because he can't stomach the thought of working for someone else for the next 40 years.
- dsfyu404ed 11y ago
  I'd venture a guess that most of those entrepreneurs aren't taking large risks or going far from the beaten path with their business model. Instead they're setting out to make a living by running a successful HVAC business or restaurant. Another thing I've observed as a (soon to be former, thank f##king god) MA resident and which has not contradicted what I've observed in VT, NH ME as well as other parts of the Boston/NYC/DC urban+suburban area is that the blue collar business owners (and to a much lesser extent, their employees) directly benefit from serving a wealthy area. Wealthy people hire landscapers, plumbers and mechanics much more readily than less wealthy. The owners of businesses that serve them milk it for every penny of profit (and rightly so). Don't believe me? Look at the trucks they drive and equipment they use. If it's all on it's last legs then times are tough. With all the people with the money to pay professionals for services times are anything but tough in most of MA Anyway, my point is that if one plays their cards right, they can do very well (comparable to white collar professionals outside of tech/engineering/financial) by owning a small business. Desire to be an entrepreneur has nothing to do with it, for someone who isn't wealthy in a wealthy area more possible situations where the risk/reward makes owning/starting a business a great strategic decision.
someear 11y ago
Click bait title imo - article is much softer. Key takeaway is that people are more willing to take risks if they have something to fall back on, which when said out loud, is pretty much a no brainer.
shin_lao 11y ago
On top of my mind, I don't think Steve Jobs and Larry Ellison came from families with money. Give me two billionaires I and you will see they don't have much in common except tenacity, willpower and seeing the world as something they can influence. I don't think you can learn a lot in analyzing successes, because there are so many different paths to success and chance plays a huge part. Also, IMHO success is more about what you don't do than what you do. But sure helps write articles which drive traffic.
- burnte 11y ago
  > I don't think Steve Jobs and Larry Ellison came from families with money. Doesn't mean anything. Most bombs aren't nuclear bombs, that doesn't mean there are no nuclear bombs. The fact that a handful of billionaires who were in the IT industry during its formative moments and getting a ground floor opportunity doesn't mean lots on entrepreneurs aren't coming from wealthy families.
  - adventured 11y ago
    Forbes has found US billionaires are increasingly coming from middle to lower-upper classes, and are not inheriting their wealth. [1] [2] It's trivially easy to come up with dozens of examples of people that came from average or poor backgrounds and became billionaires in the last 50 years. Soros, Oprah, Spielberg, Harold Simmons, Howard Schultz, George Lucas, Carl Icahn, Do Won Chang, Bob Parsons, Stephen Bisciotti, Henry Samueli, Jan Koum, J.R. Simplot, Kirk Kerkorian, Sergey Brin, Larry Page, Paul Allen, Leon Charney, Mark Cuban, Carl Lindner, Steve Jobs, Larry Ellison, Jeff Bezos, Shahid Khan, George Joseph, Jack Dorsey, Michael Bloomberg, Sheldon Adelson, Phil Knight, Ken Langone, Jack Dangermond, Elon Musk, Ken Langone, Harold Hamm, David Murdock, John Malone, Gordon Moore, Thomas Peterffy, Marc Andreessen, Michael Jordan, Alec Gores, Ralph Lauren, John Paul DeJoria, Kenny Troutt, Alan Gerry, Evan Williams - this list keeps going. http://www.forbes.com/sites/afontevecchia/2014/10/03/there-are-more-self-made-billionaires-in-the-forbes-400-than-ever-before/ http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a... "We crunched the data from our most recent Forbes 400 and discovered that more than 94% of the tech billionaires created their fortunes themselves." 40% of those tech billionaires came from a lower class background. In real estate it's nearly 50%. [2] http://www.forbes.com/sites/afontevecchia/2014/10/06/self-made-billionaires-thrive-in-silicon-valley-and-wall-street-as-manufacturing-suffers/ http://www.forbes.com/sites/afontevecchia/2014/10/06/self-ma...
deleted 11y ago
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colinmegill 11y ago
My two favorite go to's on the psychology of founders: https://www.harrisonmetal.com/ https://www.harrisonmetal.com/ && http://blakemasters.com/post/24578683805/peter-thiels-cs183-startup-class-18-notes http://blakemasters.com/post/24578683805/peter-thiels-cs183-...
adventured 11y ago
The title is misleading in the extreme: family money is merely one of the available options. You don't have to come from money, you can make your own opportunities by networking, finding investors, and so on. The 1870 - 1920 industrial revolution era of the US disproves this 'entrepreneurs come from families with money' premise. Most people starting businesses at that time came from relative poverty. That includes JD Rockefeller. China's boom of the last 30 years also disproves the family money premise. The radical majority of their millions of entrepreneurs over that time did not come from families with money.
lumberjack 11y ago
So people are not risking homelessness and being destitute to setup startups after all? That's a good thing. I think the smartest path for people without financial capital is to spend a decade getting industry experience and getting to know people in whatever field they aspire to disrupt.
mkempe 11y ago
It's not nature (genes), it's not nurture (family), and it's not class (inherited wealth). The entrepreneurial spirit is rooted in free-will and individual creativity. Anybody can do it, if and when they want to.
- rawTruthHurts 11y ago
  Yep; that's the line pretty much taught by Disney movies. And true it is, but much truer when you have the backup and the contacts that the average wealthy family (not Scrooge McDuck-wealthy, just wealthy) has, just like the real world teaches us every day.
  - mkempe 11y ago
    Jean-Baptiste Say coined the term. I do believe he predates Walt Disney by quite a bit. The entrepreneur ventures with a plan to use money in such a way that he will make a profit from his activity. It's simple. It requires an adventurous character, some perceptive understanding of market prices, notions on how to make a profit from productive activity, and the will to act accordingly. The concept was needed because countless people were doing it in the 18th century, under the eyes of those now known as classical economists.
    - rawTruthHurts 11y ago
      Yep; that's the line pretty much taught by Jean-Baptiste Say. And true it is, but much truer when you have the backup and the contacts that the average wealthy family (not Scrooge McDuck-wealthy, just wealthy) has, just like the real world teaches us every day.

94 points by cup 11y ago

This article makes little sense. It claims that the average cost to launch a startup is $30k - approximately 1 year of savings for a software engineer working frugally. The article doesn't even begin to support it's claim that family with money is necessary - at most, it seems one needs a frugal lifestyle and a middle class job.

notacoward 11y ago
I think you just made the authors' point. Sure, that's one year of savings for a software engineer - but what percentage of people are software engineers? What's the family-income profile of those who become software engineers? You can't refute the authors' claim by providing an example that exactly conforms with it.
- yummyfajitas 11y ago
  The point is that the average business can be started with little more than the savings of a middle class American? 1 year of savings for a software engineer might be 2 years of savings for a person at the median income of $50k - my brother is below the median and just spend about that much on his wedding. I used "software engineer" as an example because it applies to most of us on HN, that's all.
  - notacoward 11y ago
    Your math is off. Let's say software engineers make twice median income - probably low, but it simplifies things. Twice the income means way more than twice the savings rate. In fact, if we take $100K/year of income and subtract $30K/year of savings, we're still well above median income. That means the median-income earner with the same cost of living would be falling behind to the tune of $20K/year. And no, factoring in taxes doesn't change anything significant. Factoring in the costs of home ownership might, but not in the way you'd like. The fact is that a median-income earner might be able to save some sliver of their pay, while a software engineer can save that same sliver plus darn near the entire top half. One year of software-engineer savings is several years' worth of median-income savings. That's a huge difference in terms of willingness to assume risk. Let's take two people who have each worked seven years saving $30K/year before spending $30K on a business that takes two years to fail. The software engineer could devote themselves full time and still come out with $180K (not counting interest) in their retirement account. The median-income earner can devote only spare time because $30K isn't even enough to live on for two years, and at the end his retirement account is wiped out. One risk is a trivial one that most people would accept. The other is a yawning chasm. As the authors said, willingness to risk that much is strongly correlated with already being pretty wealthy. There's only one word to describe the idea that risking $30K is no big deal. That word is "privilege" and you should check it.
    - yummyfajitas 11y ago
      I'm not disputing that it's easier to save $30k if you earn $100k than if you earn $60k - that's just arithmetic. I'm saying that $30k is easily within the reach of a software engineer and also reasonably within the reach of a used care salesman earning far less (e.g., my brother), it just takes more time. Also, $30k is easily enough to live on for 2 years, provided you are willing to reduce consumption. Among other things, there are lots of folks consumption below $15k/year (e.g., college students if you ignore the cost of college, some illegal immigrants in regions where they don't get welfare). Most people simply aren't willing to reduce consumption to college student levels, but that's a matter of willingness rather than ability.
      - notacoward 11y ago
        > it just takes more time That's the key. Willingness to risk that money increases with the time it took to save it, and not just linearly. When the time increases by almost an order of magnitude, you're going to find darn few willing to risk it. > that's a matter of willingness rather than ability It doesn't matter why; the fact stands. Entrepreneurs are far more likely to come from the first and second quintiles than the more populous third through fifth. Sure, people in some parts of the country could live on $30K if they're willing to make severe sacrifices in their quality of life, but treating that as just a matter of slight degree compared to a software engineer who can still live as they please while making the same attempt seems a bit callous. At a certain level of sacrifice it's a qualitative difference between "crazy if you do" and "crazy if you don't".
        yummyfajitas 11y ago
        Yes, that's my point. Middle class and slightly upper middle class professionals, with no family support, are completely capable of starting a business. They are simply unwilling to do so. Also if living like a college student is considered to be "severe sacrifices", does this mean that upper class kids who go to college understand and experience poverty and deprivation? And therefore, when discussing it, they don't need to "check their privilege" and can simply think back to college?
WalterBright 11y ago
Basically, it's the cost of a new car. There are lots of new cars on the road. You could buy a $500 truck like mine, and invest the rest in a startup.
unprepare 11y ago
You're forgetting opportunity cost here, which is by far the largest factor. Say you worked a 9-5 for two years saving up $30k. You reach the end of two years and youre going to quit your job, losing all of your income, and then also spend 100% of your savings right away on beginning some new business that could fail at any point? You are thinking from the perspective of someone from wealth, missing the realities that would be faced by someone actually considering starting a business without a history of even middle class wealth. Most businesses are not the kind you can start on your off time, as a side project. You cannot keep your salary, you have no investment income, or passive income of any kind. What happens when you fail? you've spent every last cent of your savings, you have no job, you have a sizeable gap in your resume, and going back to your old career means youll have to take a pay cut compared to what you were making before you left to start the business. This is a real fear that keeps many people from going out on their own. If you are from wealth on the other hand, having no savings might not be as big of a deal. You wont become homeless if you have family and friends that have the means to take you in. You wont go hungry, you can even take a few weeks to reevaluate your decisions and decide if you want to start another business with your lessons learned, or if you should return to the job market and get yourself back on your feet.
- yummyfajitas 11y ago
  You are thinking from the perspective of someone from wealth... That's quite a feat, given that I'm not from wealth at all. I've probably got more money than anyone else in my family and I've earned it mainly from salaried employment and personal investments. The opportunity costs you've described apply equally well to someone who came from wealth - resume gap, time spent not working, no job, etc. I'm not disputing that startup capital from family would be helpful. I'm disputing the article's implication that the amounts of capital needed are unavailable to regular people, or that only people from wealth can start a business.
  - unprepare 11y ago
    >I've earned it mainly from salaried employment and personal investments If investment income is a relevant part of your income stream, then congratulations - you are among the wealthiest and most financially literate of all americans. You are now someone who speaks from a position of wealth because of this. >opportunity costs you've described apply equally well to someone who came from wealth Oh really? Because when youre poor and your parents live in a one bedroom apartment and cant afford food for an extra person, maybe youve even been sending them money because they have problems keeping up with their bills and being able to eat everyday. Thats the same as a stanford grad, whose parents live nearby in a 4 bedroom plus house, can easily afford to send their children money when they need it, let alone allowing them to move back home with free room and board at any time. If you honestly dont see a difference, from the perspective of starting a business, between these two people, then we have nothing further to discuss. > or that only people from wealth can start a business. I have yet to see the article or a single commenter make this claim.
thirdtruck 11y ago
$30k might not sound like a lot, until it's your parents that are asking you for financial help and not the other way around. And that's before adding in the psychological "tax" of worrying about them. I'm not even asking for rich parents, just financially neutral ones.

seibelj 11y ago

Some people quit their jobs and throw everything into a new, risky venture. This is pretty dangerous, especially for those without wealth. More realistic people work 40-50 hours a week at work and another 40 on their own passions. The smartest find a do-nothing job where they could cash a check for showing up at the office and surfing the net all day (IT, help desk at large organizations) and devote their work time to their own passions.

geomark 11y ago
"The smartest find a do-nothing job where they could cash a check for showing up at the office and surfing the net all day (IT, help desk at large organizations) and devote their work time to their own passions." I guess you can call that smart. But it is also dishonest. They are effectively stealing from their employer. Many people seem fine with that, justifying it with the notion that their employer doesn't adquately utilize their skills, or is stupid to trust them so deserves to be taken advantage of, or didn't know how valuable their IP was so it was ok to take it and start a company around it. I've known quite a few people who did this, even a couple who went on to found billion dollar companies while on the payroll and using company resources.
- reustle 11y ago
  I wouldn't go as far as saying it is stealing. I've been in situations before where I would need to go to my manager and ask for work, anything to do. I was too young to realize I could invest my time in bettering business process around me with the software development I was learning on my free time. Some places are just built around having a lot of people not doing too much.
  - geomark 11y ago
    That's the point of contention. It boils down to the fact that the boss is paying you to work on his stuff. Instead you work on your own stuff. It's a different story if the boss says spend your free work time doing whatever you want, or develop some skills of your own choosing. In my experience that's usually not the case.

saryant 11y ago

Counterpoints: Rockefeller. Carnegie. Jobs. Several of my entrepreneur friends.

rosser 11y ago
"The plural of anecdote is not 'data'."
- vonklaus 11y ago
  This could be just as easily directed to the articles author.
- vixen99 11y ago
  Mostly true but the singular of data (pl) is anecdote - considered as a discrete experience.
- colinmegill 11y ago
  Best comment response ever. It is sad this will languish here rather than be etched into a stele.
  - contingencies 11y ago
    http://blog.revolutionanalytics.com/2011/04/the-plural-of-anecdote-is-data-after-all.html http://blog.revolutionanalytics.com/2011/04/the-plural-of-an...
- _0ffh 11y ago
  Let's say, counterexamples are not unbiased samples.
- kelnos 11y ago
  Actually, it is, for a statistically significant number of anecdotes.
- dump100 11y ago
  It is `Empirical`

jotm 11y ago

I think it's more about education - being taught from a young age that entrepreneurship is a possibility and how to manage and make money leads to those people having a higher chance of starting a business. And of course, families that are relatively well off and don't have to worry about basic needs can afford to teach their children that, while poor parents will most likely teach them to be frugal and that having a safe job and not taking big risks is of upmost importance (or not teach them anything - children will notice anyway).

bksenior 11y ago
I can't stress this enough. I was a lower middle class kid who grew up with rich kids and seeing HOW other parents made a life made it so I had no question what I wanted to do. I learned from an early age what I could just apologize for and I developed a very high risk tolerance with proper research. I never took a dollar but always found a way to make it work. 2cents

vonklaus 11y ago

> We’re in an era of the cult of the entrepreneur. We analyze the Tory Burches and Evan Spiegels of the world looking for a magic formula or set of personality traits that lead to success. No, pop mags like Quartz do. Some entrepreneurs go to trade school and are electricians, deli owners and carpenters. Something like 7%[0] of Americans are self-employed, difficult to believe that many people come from massive wealth. [0]http://www.careerbuilder.com/share/aboutus/pressreleasesdetail.aspx?sd=2%2F6%2F2014&id=pr802&ed=12%2F31%2F2014 http://www.careerbuilder.com/share/aboutus/pressreleasesdeta...

juliangregorian 11y ago
That number is mostly freelancers and contractors, not "entrepreneurs" in the traditional sense and certainly not the types that are eligible for million-dollar exits.
notacoward 11y ago
It's not necessarily about massive wealth. One theory I've heard is that entrepreneurs tend to come from the second wealth tier, not the first. They have resources and fallbacks, but also a strong work ethic and something to strive for. The already rich are less likely to have that particular combination. There are certainly enough people in that "not so massively wealthy" group to support a 7% self-employment rate.

dschiptsov 11y ago

The key concept here is diversification - having more than one source of income. The more of these you have - the less you are affected by risks and market volatility. You have much lower loss-aversion, you could even afford to fail-fast, abandon and start again or just delegate. The simplest example is a landlord having a running businesses in his basements instead of just collecting a rent. These businesses could be seasonal, habit/passion-driven, barely profitable, etc. Btw, a rich family doesn't mean lots-of-money-in-the-bank, it usually means many diversified sources of income.

Gustomaximus 11y ago

From my view it seems factors 'families with money' bring are; - Finance: As per article family financial support can get people over one of the biggest hurdles of getting a business off the ground. Also coming from an upper income family odds are you have a higher income and more savings to invest/risk. - People they grew up around: If you grow up around people owning/running companies you are more likely to see this as a reality for yourself. You also have personalities to emulate in chasing this goal. - History of tech: Wealthier families has more access to tech in the past, although changing today. In my school age most kids didn't have access to their own computer, even at uni. This would be a barrier to leaning about IT that could build future behavior. - Connections: Growing up in a privileged environment you develop connections that can be useful. Also learn how to behave among people who are in a position of power to help you and develop the 'we are similar people' bond. - Sense of Entitlement: A great line from Rory Sutherlands TED talk was Oxford/Cambridge doesn't buy you a great education, it buys you a great sense of entitlement. This give you confidence to go achieve great things. In my small world I have clearly seen this difference from people who grew up on different side of the tracks though it seems to be changing a bit now. - Expectations: People growing up in a more privileged world have higher expectations placed on them. To a degree this can push people to try harder to build something significant rather than just reach a reasonable level of comfort a more general job will offer. - Fallback Option: I imagine this is one of the more important, people from a comfortable family know if their venture goes south they wont be homeless. Their family/friends will make sure they have board, food and an ability to restart. This puts them in a position to risk all with out the same downside.

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neoveller 11y ago
The last one likely matters the most, at least in my case. Ambitious ideas take more time than just product development/implementation. Marketing and business development run on much lengthier schedules. At half a year in on savings, I'm being pulled away from full-time on my startup back into contract work, where I'm constantly encouraged to just go full-time instead with these companies (mostly founding-stage startups with funding). Meanwhile, my entrepreneur friends who come from exceptionally wealthy backgrounds have no such constraints or risk of going homeless if their startup doesn't get funding or start making revenue. I'm not sure if I'll be able to make rent next month, short of a loan, unless I get a contract invoice paid in full within two weeks. I'll be just fine, but that fear of not making it on the basics is not weightless. I suspect I'll be looked at differently when it shows that it took me N months to get to X revenue, instead of 0.25N, as a result of just needing to survive.

unabst 11y ago

This was truer in the past when entrepreneurs had to build physical products or lobby for their business through established family connections of power. Today wealth is less required as long as a proper education can be paid for. Entrepreneurs thrive at Harvard, MIT, Caltec, Berkley, and the like... And software has been the social ladder super express. If Microsoft, google, virgin, facebook, instagram, uber, and apple weren't all started by wealthy entreprenuers then this article is refuted, since those are all the companies we emulate.

Daishiman 11y ago
Well, for starters, Microsoft, Google, Facebook, Instagram, Uber and Apple were effectively founded by white, highly educated men. As far as I know, in none of these cases were their families actually poor. Gates came from a straight up wealthy family; Zuckerberg's family is one of doctors and other highly-paid professionals too.
- deleted 11y ago
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- unabst 11y ago
  But the key common denominator is still education and software. Not poor does not equal rich, and even in Gates case his family wealth was never a factor in funding his company that was profitable early. You just have to be not-poor and surround yourself with smart people. I find race and gender a more relevant study than wealth.
  - kylebrown 11y ago
    Microsoft's first customer was IBM because an IBM VP sat on the board of Seattle National Bank with Bill Gates's mother (the bank was founded by Bill's grandfather).
    - unabst 11y ago
      Bill was upper middle class. Sure he had ties, but it wasn't wealth that made Microsoft a non-failure, nor was the IBM deal a simple handshake based on privilege.

WalterBright 11y ago

Counterpoint: 85% of Millionaires are self-made. See the book "The Millionaire Next Door."

Daishiman 11y ago
That's not really a counterpoint. Your parents don't have to be wealthy in order to qualify as coming from a wealthy family. Also, families of professionals can make comfortable six-figure salaries and are wealthy by any reasonable definition.
- WalterBright 11y ago
  > Your parents don't have to be wealthy in order to qualify as coming from a wealthy family. I'm afraid that doesn't make sense.
  - michas 11y ago
    It does, considering the fact that families usually have more members than just parents and children.
  - Daishiman 11y ago
    Class != money
6t6t6 11y ago
85% of the 1500 millionaires interviewed by Fidelity Millionaire Outlook "said" that they where self made. Still, I would like to know how many of this "self made" millionaires are not white, men, and don't come from a, let's say top 15% tier, wealthy family.
- WalterBright 11y ago
  The book is by Stanley and Danko, who are not affiliated with Fidelity according to their bio. I would recommend at least skimming the book - it details how it is done. Wealthy parents are not required. The book is going for $2.48 on Amazon. Anyone can afford it. Why not give it a try before dismissing it?

vessenes 11y ago

I have found the opposite for 'vanilla' entrepreneurs; for a few years, I was part of the Young Entrepreneurs Organization (YEO), which collected under-40 founders of businesses with over $1mm in revenue. The Boston chapter had over 100 people in it, maybe closer to 250? Of those, almost none had 'top tier' degrees. Almost none had business school degrees. In fact, for a community of fairly wealthy Bostonians, it was notable how few had come through top-tier schools or advanced degree programs of any sort. Startup entrepreneurs might be different, and I've only read the article about the paper, but I just don't see this in my own entrepreneurial experience; most entrepreneurs I have known outside of Silicon Valley were motivated hard working types; some were visionaries, some were operations geniuses, some accidentally bought out their partners or bosses and got left with a business, most were from blue collar or middle class families. Put another way, Thurston Howell doesn't start a summer painting business staffed by college students, or a recruiting business which demands 90 hour weeks for the first ten years of life; instead Frank from Gloucester does because he can't stomach the thought of working for someone else for the next 40 years.

dsfyu404ed 11y ago
I'd venture a guess that most of those entrepreneurs aren't taking large risks or going far from the beaten path with their business model. Instead they're setting out to make a living by running a successful HVAC business or restaurant. Another thing I've observed as a (soon to be former, thank f##king god) MA resident and which has not contradicted what I've observed in VT, NH ME as well as other parts of the Boston/NYC/DC urban+suburban area is that the blue collar business owners (and to a much lesser extent, their employees) directly benefit from serving a wealthy area. Wealthy people hire landscapers, plumbers and mechanics much more readily than less wealthy. The owners of businesses that serve them milk it for every penny of profit (and rightly so). Don't believe me? Look at the trucks they drive and equipment they use. If it's all on it's last legs then times are tough. With all the people with the money to pay professionals for services times are anything but tough in most of MA Anyway, my point is that if one plays their cards right, they can do very well (comparable to white collar professionals outside of tech/engineering/financial) by owning a small business. Desire to be an entrepreneur has nothing to do with it, for someone who isn't wealthy in a wealthy area more possible situations where the risk/reward makes owning/starting a business a great strategic decision.

someear 11y ago

Click bait title imo - article is much softer. Key takeaway is that people are more willing to take risks if they have something to fall back on, which when said out loud, is pretty much a no brainer.

shin_lao 11y ago

On top of my mind, I don't think Steve Jobs and Larry Ellison came from families with money. Give me two billionaires I and you will see they don't have much in common except tenacity, willpower and seeing the world as something they can influence. I don't think you can learn a lot in analyzing successes, because there are so many different paths to success and chance plays a huge part. Also, IMHO success is more about what you don't do than what you do. But sure helps write articles which drive traffic.

burnte 11y ago
> I don't think Steve Jobs and Larry Ellison came from families with money. Doesn't mean anything. Most bombs aren't nuclear bombs, that doesn't mean there are no nuclear bombs. The fact that a handful of billionaires who were in the IT industry during its formative moments and getting a ground floor opportunity doesn't mean lots on entrepreneurs aren't coming from wealthy families.
- adventured 11y ago
  Forbes has found US billionaires are increasingly coming from middle to lower-upper classes, and are not inheriting their wealth. [1] [2] It's trivially easy to come up with dozens of examples of people that came from average or poor backgrounds and became billionaires in the last 50 years. Soros, Oprah, Spielberg, Harold Simmons, Howard Schultz, George Lucas, Carl Icahn, Do Won Chang, Bob Parsons, Stephen Bisciotti, Henry Samueli, Jan Koum, J.R. Simplot, Kirk Kerkorian, Sergey Brin, Larry Page, Paul Allen, Leon Charney, Mark Cuban, Carl Lindner, Steve Jobs, Larry Ellison, Jeff Bezos, Shahid Khan, George Joseph, Jack Dorsey, Michael Bloomberg, Sheldon Adelson, Phil Knight, Ken Langone, Jack Dangermond, Elon Musk, Ken Langone, Harold Hamm, David Murdock, John Malone, Gordon Moore, Thomas Peterffy, Marc Andreessen, Michael Jordan, Alec Gores, Ralph Lauren, John Paul DeJoria, Kenny Troutt, Alan Gerry, Evan Williams - this list keeps going. http://www.forbes.com/sites/afontevecchia/2014/10/03/there-are-more-self-made-billionaires-in-the-forbes-400-than-ever-before/ http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a... "We crunched the data from our most recent Forbes 400 and discovered that more than 94% of the tech billionaires created their fortunes themselves." 40% of those tech billionaires came from a lower class background. In real estate it's nearly 50%. [2] http://www.forbes.com/sites/afontevecchia/2014/10/06/self-made-billionaires-thrive-in-silicon-valley-and-wall-street-as-manufacturing-suffers/ http://www.forbes.com/sites/afontevecchia/2014/10/06/self-ma...

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colinmegill 11y ago

My two favorite go to's on the psychology of founders: https://www.harrisonmetal.com/ https://www.harrisonmetal.com/ && http://blakemasters.com/post/24578683805/peter-thiels-cs183-startup-class-18-notes http://blakemasters.com/post/24578683805/peter-thiels-cs183-...

adventured 11y ago

The title is misleading in the extreme: family money is merely one of the available options. You don't have to come from money, you can make your own opportunities by networking, finding investors, and so on. The 1870 - 1920 industrial revolution era of the US disproves this 'entrepreneurs come from families with money' premise. Most people starting businesses at that time came from relative poverty. That includes JD Rockefeller. China's boom of the last 30 years also disproves the family money premise. The radical majority of their millions of entrepreneurs over that time did not come from families with money.

lumberjack 11y ago

So people are not risking homelessness and being destitute to setup startups after all? That's a good thing. I think the smartest path for people without financial capital is to spend a decade getting industry experience and getting to know people in whatever field they aspire to disrupt.

mkempe 11y ago

It's not nature (genes), it's not nurture (family), and it's not class (inherited wealth). The entrepreneurial spirit is rooted in free-will and individual creativity. Anybody can do it, if and when they want to.

rawTruthHurts 11y ago
Yep; that's the line pretty much taught by Disney movies. And true it is, but much truer when you have the backup and the contacts that the average wealthy family (not Scrooge McDuck-wealthy, just wealthy) has, just like the real world teaches us every day.
- mkempe 11y ago
  Jean-Baptiste Say coined the term. I do believe he predates Walt Disney by quite a bit. The entrepreneur ventures with a plan to use money in such a way that he will make a profit from his activity. It's simple. It requires an adventurous character, some perceptive understanding of market prices, notions on how to make a profit from productive activity, and the will to act accordingly. The concept was needed because countless people were doing it in the 18th century, under the eyes of those now known as classical economists.
  - rawTruthHurts 11y ago
    Yep; that's the line pretty much taught by Jean-Baptiste Say. And true it is, but much truer when you have the backup and the contacts that the average wealthy family (not Scrooge McDuck-wealthy, just wealthy) has, just like the real world teaches us every day.