When people seek advice about whether to launch an entrepreneurial venture, as opposed to remaining in a steady, salaried job, they are often told about the dismal prospects of the average startup. The naysayers trot out statistics about the high percentage of startups that fail within the first few years and how founders usually find themselves earning less money than they could by working for a larger company.
Bloomberg’s Noah Smith, however, profiles some academic work showing that these statistics are misleading, and there may be logical reasons to become an entrepreneur from a financial perspective, even if you don’t end up hitting the lottery and selling your company for billions. The Berkeley professor profiled in the article studied entrepreneurs’ earnings over a long time period, not just during the possibly brief time that they are running a startup, and found that those who spent some time as an entrepreneur earned more over a lifetime than those who remained an employee for life. Why this would be the case can be debated, but it seems that by trying out entrepreneurship, you’re giving yourself a chance for a big payoff, and even if you fail, you’ve only lost a few years of higher salary. Arguably, your decision to have launched a venture could be helpful in making yourself attractive to potential employers, and your work for the startup itself could make you a better employee.
This sort of long range thinking was part of my thought process when I left the safe and comforting (well, not really) world of big law firms in 2010 to launch my own firm. Primarily, I made the move because I thought it was a good business decision, that there was a market out there for companies looking for a sophisticated legal practice without the higher cost and other disadvantages of big firms. But I also thought about what might happen if it didn’t work out well, and I needed to return to a larger firm. While there may be some in those firms for whom my choice makes me somehow suspect, I thought that enough would think of my experience as evidence of being a self-starter, such that I wouldn’t have a problem. Fortunately, my firm has been successful (knock on wood), and I haven’t needed or wanted to test this proposition.
I don’t want to downplay the negative aspects of launching an entrepreneurial venture, first and foremost of which is the stress of not being sure when your next paycheck will come, but if you have a good business idea and want to try it out, it may not be such a bad idea, even from a hard-headed, rational perspective.