Over the course of my entrepreneurial career, I’ve been asked the same question dozens of times by many different aspiring entrepreneurs.
“How did you know when to make the jump?”
Usually, these people are weighing the pros and cons of leaving a stable job to launch themselves into the entrepreneurial abyss. And while our Twitter feeds and Techcrunch articles tend to idealize entrepreneurship, there are cons. And they’re right to consider them.
Entrepreneurship is hard. One of the most well-known and best-selling books on entrepreneurship is titled “The Hard Thing about Hard Things”! It says “hard things” twice, for crying out loud!
Given the inevitably difficult nature of starting and growing your own business, the question I always have in return is “why do you want to be an entrepreneur?”
And the answers usually come down to a few reasons.
Let’s be honest and get this one out of the way first.
Many aspiring entrepreneurs are looking at their current salaries and saying “this ain’t never gonna get me that big house on the hill!” And that’s probably true. And it’s also true that many of the wealthiest people we encounter are entrepreneurs of some sort.
But it’s important to realize when you see those financially successful people, we’re viewing a sample of entrepreneurs that’s subject to survivorship bias. We don’t see those who didn’t make it financially, because they’re less visible — and unfortunately, there are many more of them.
If your primary drive as an aspiring entrepreneur is money, then don’t look at the best case scenarios. Look at what an MBA student would call expected value.
The basic formula for expected value is the sum of the potential outcomes of a given course, multiplied by their weighted probabilities. This gives you a mathematically quantifiable way to weigh outcomes against each other in terms of real numbers.
So, for example, and we’ll keep this simple, ignoring taxes and discounting — let’s say you have a 99% chance of keeping your current job where you make $70,000/year. Over the next five years, the expected value of staying the course is:
$70,000 * 99%) + ($0 * 1%) = $69,300 annually. We’ll multiply that by 5 (years) to get $346,500 expected value over the next 5 years.
Now let’s take a look at the other side.
With your new business idea, let’s say that over five years, there’s a 1% chance you make $10 million, a 3% chance you make $1 million, a 50% you don’t make any money at all, and a 46% chance (the remainder) that you replace your current salary. (These numbers are generally reasonable, but obviously vary by the individual, the idea, and the market.)
Here’s the calculation:
($10m * 1%) + ($1m * 3%) + (0 * 50%) + ($350k * 46%) = $291,000 expected value over 5 years.
So, in this case, even though you have an actual chance of making $1-10 million, the expected value of becoming an entrepreneur is lower than your current salary.
In other words, money may not be the best reason to become an entrepreneur. It’s important to realize, though, that those example variables are not yours — if you can increase your chances of success (something we’re trying to do for entrepreneurs through ZipBooks Pros), your expected value as an entrepreneur could end up be higher than anything else you could do.
- Freedom to “be your own boss”
So many people I talk to say “it must be so nice to be your own boss.”
There’s a sense in which that’s true; generally, I get to set strategy and dictate what I do each day. But setting direction is just one thing a boss does; perhaps more importantly, a boss is there to bring accountability.
And in that sense, my “boss” is more demanding than any other I’ve ever had. My boss isn’t my manager; my boss is an amalgamation of my company’s employees, our customers, our investors, and my family.
Each of those stakeholders cares deeply about what happens with ZipBooks (my accounting software startup), and I’d be devastated to let them down. The accountability that brings stays with me day and night, and it regularly keeps me up. And it translates into long hours, sleepless nights, and sacrifice of a lot of things I’d like to do otherwise.
In many startups and small businesses, the founders or owners find that not only do they still have a boss, but that “boss” is both exacting and unrelenting.
- Realizing a vision
Some aspiring entrepreneurs lay awake at night dreaming of the way the world should be, rather than the way it is.
A founder I’ve gotten to know a little bit, David Blake of Degreed, is a great example of this. He’s truly going to work every day to untether education from formal degrees, because he believes that’s the wrong way for the world to operate. And a lot of success has followed.
The downside here is that when the world’s turning one way, it’s really hard to get it to go another. But when you’re truly guided by that vision, that’ll give you a lot of momentum in overcoming obstacles.
- You can’t not do it
I may be biased, because this is one of my own answers to the question — but I think it’s a great answer for “why” you want to be an entrepreneur.
When I was finishing up business school, I had a great offer from Google to work full-time as a product manager. I was flattered — and having interned there, knew it would be a great opportunity. But, instead of getting excited about Google or talking with potential mentors there or calculating and negotiating salary, stock, and bonus, I found myself exploring new business ideas, and eventually, opening up a text editor and starting to program what ended up being ZipBooks.
If that sounds like you, I think that’s a very strong signal that you’re ready to make the jump. But again, if that’s you, you don’t need to read this article — you’re probably already working on something!
One caveat: I always made sure I had a backup plan. When I was graduating from business school, I was married with three kids, and I saw that as a big responsibility. At every point along the way, if the worst case scenario happened with ZipBooks, I’ve known with a high level of confidence how I’d continue to meet my family responsibilities.
In the end, I simply couldn’t pull myself away from entrepreneurship. And for me, that was powerful. It meant there wasn’t a “logic” to my decision — I wasn’t debating pros and cons, because my decision had already been made.
I was irrevocably drawn to it, almost like a destiny. For me, logic went out the window. When that time came, there was nothing to do but start something.
Tim Chaves is CEO at ZipBooks, modern accounting software for small businesses. Tim previously founded and sold two small businesses, and holds an MBA from Harvard Business School.