A while ago, one of my Twitter followers sent me the following message:
“Hey Banker, any chance you can do a post about your business?
I am at the start of my career (early 20s) and entrepreneurship seems enticing, both for the potential to make money for yourself and the doors it can open into MBAs.
How did you know when it was time to pull the trigger, and did you sink any of your savings into the business when you did? How did it fit into your FIRE goals?”
The message was referring to my unsuccessful foray into entrepreneurship back when I was 26. You can read more about it here.
We then chatted a bit more and he added the following observations:
“I think the core tension for me is that FIRE prioritises saving responsibly but lots of entrepreneurial talks and books focus on the all-in aspect of it.”
I never thought about my entrepreneurship experience as an idea for a post, but I certainly found the questions insightful. I agreed to give it some thought and share some perspectives on the topic.
Winners And Losers
If you spend enough time in the personal finance corner of Twitter and Instagram, you will likely walk away with the following impression:
Entrepreneurship is for winners. 9 – 5 jobs are for losers. Period.
It’s gotten so bad that one of my favourite bloggers, Nick Maggiulli from Dollars and Data has penned an excellent post on this subject.
It’s an enjoyable, balanced read and his visual evidence for survivorship bias couldn’t be punchier:
As far as my experience goes, I certainly fall into the “losers” category.
I spent two years trying to get my business off the ground. When it finally gained some steam, I took a year off work to focus on it full time.
Then, after a year of back-breaking work, I had to face up to the fact that things weren’t going anywhere – and headed back for the office. As you can imagine, I didn’t feel that good about myself at the time.
I didn’t know about it back then, but the experience was far more valuable than the money I never made or the time I could have spent otherwise.
Two years later, it was one of the factors that helped me score a spot in a fantastic MBA program.
It then helped me persevere through some tough stretches at work while many of my colleagues capitulated and headed for “greener” pastures. By that point in time, I knew the difference between the rose-tinted version of entrepreneurship and the real thing.
But most importantly, it helped me zero in on the kind of work I enjoyed – and the activities I would much rather leave to others.
I realized I looked forward to cold calling sales prospects and engaging with potential clients, and that I didn’t mind hearing a frequent “no” in the process.
I also found it enjoyable to develop true subject matter expertise in a specific area – and to use that expertise to help others.
And I certainly didn’t mind the hard work (to a reasonable extent).
What I didn’t like, however, was the operational aspect of running a business. Hiring and managing people. Taking care of mundane finance and accounting tasks. All the office admin.
It was that process of self-discovery that made me realize that investment banking might be a good fit for me. Despite what M&A bankers like to tell themselves, it is essentially a sales job, albeit one with a multi-year sales cycle and with someone else taking care of all the admin.
That realization may well have been the most valuable aspect of my entrepreneurship experience.
The one fact that’s often lost in the noise is that very few people actually have what it takes to be an entrepreneur.
If you fit the bill, great. But if you don’t, that’s fine as well. And if it takes some experimentation to understand it, then so be it. Either way, you are better off.
Burning The Ships
In case you haven’t come across it before, the story goes as follows:
A general leads his military to invade a hostile country. Upon disembarking from their fleet, he orders his men to burn the ships – leaving them with the option of conquering the country or being killed.
That’s certainly the approach many entrepreneurship books seem to encourage. But is that really the experience of most successful entrepreneurs?
Jeff Bezos was a highly paid hedge fund employee. Bill Gates was a very bright, well-educated kid from an affluent family.
Michael Bloomberg amassed a multi-million fortune while at Salomon Brothers – and that’s before his $10m payoff upon getting kicked out.
Sure, most entrepreneurs have proper skin in the game. But it’s not like they’ll go to the breadline if their business isn’t successful.
More often than not, they’ve got the combination of money and desirable skills to fall back on if things go south. Can you imagine whiz kids Zuckerberg or Musk not being able to line up a great gig if Facebook or PayPal failed?
And by the way, you don’t need to “drop out of Harvard”. You can easily defer your coursework and I’d be surprised if someone as smart as Gates or Zuckerberg didn’t take advantage of that option.
Thus, the narrative of “risking it all” is false marketing at best, intentional delusion at worst.
Yes, it may require some upfront investment by you, depending on the business model and your approach. But given the flood of VC money sloshing around in the system, a differentiated idea and the skills to execute on it represent the most important factors in securing financing.
There’s no need to sell all of your possessions and put all of your relatives at the risk of living in abject poverty for the rest of their lives.
Risk and Reward
The biggest risk you take in striking out on your own isn’t money, career prospects, or the stigma of failure. Instead, it is time. There are many people out there who struggle for years before folding and going back to corporate employment.
The only way to hedge that risk is to make sure you are developing highly marketable, transferable skills in the process – and to call it quits when you stop making progress.
As with all calculated risks, you will never have the benefit of hindsight. That being said, the risk-reward tradeoff is probably to the upside.
Yes, you may well end up with a slight delay in your career progression. Perhaps it takes you a few years longer to reach financial independence.
If you are unhappy with that trade-off, chances are that entrepreneurship isn’t for you in the first place – and that’s okay.
Happy (self) employment!
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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8 thoughts on “What No One Tells You About Entrepreneurship”
Great post! I agree – 9-to-5’s are often considered as worth less than working for yourself in certain circles. As you said, it requires a certain person to be an entrepreneur and some people will be happier and more successful in a 9-to-5.
I personally find entrepreneurship very enticing, but would never burn all my bridges to pursue it. That’s why I have 2 plans:
Plan A: Make it as a blogger and digital entrepreneur. Earn a lot of money and develop long-lasting passive income streams such as book royalties and ecommerce earnings.
Plan B: If digital entrepreneurship doesn’t prove as lucrative as I would have hoped, I still have my normal work of teaching Pilates and German, which more than covers my expenses. Save 50+% of earnings and slowly build up a passive investing portfolio over 10-15 years.
Plan A is the flashy, exciting option and Plan B is the reliable, failsafe one. Either way, I’m pursuing something that i enjoy.
You are right – and that’s exactly why I think the whole “all in”, “burn the ships” advice is so horribly misplaced. Why would you try and limit optionality down the road? Rational people don’t behave that way.
And your last point is also very important. Too many people rush into entrepreneurship because it’s the “cool” thing to do, without reflecting on whether it’s the right fit for them.
The reality is that entrepreneurship is for the few, not the many.
I love this post, and I am speaking as someone who failed at starting an online business a few years go too.
For a lot of people.. to some extent like me, trying to grow your income in a desirable industry will pay far more over the long term than lurching from one business idea to the next.
Not all business owners make huge money and the majority of self employed/ small business owners I know personally are slaves to multiple different bosses (the customer) and end up actually earning less than if they just got a 9-5, or earn no money at all.
Extremes to everything I guess.
Spot on. The other big risk you assume upon self-employment is that after a couple of years, lining up a corporate job gets increasingly hard.
Not impossible, but harder nonetheless, especially if you haven’t got a successful venture to show for your self-employment effort.
Very few people can be the next Elon Musk. For the majority, a good 9-5 is actually the value-maximizing option.
It definitely seems easier being an entrepreneur if you already have a financial safety net. I’ve been working on being more entrepreneurial for over a year now and it’s fun, but also exhausting. Once you open the business doors, It’s kind of never ending. I’ve got to figure out a point where enough is enough. But there’s so much endless opportunity now.
Sam, thanks for stopping by. Yours was one of the first blogs I stumbled upon when researching financial independence. Always good to bump into another ex-banker 🙂
Are you referring to an entrepreneurial venture beyond Financial Samurai? I always thought that was entrepreneurial (and successful) enough to fit most people’s description of running a business!
Dear Damien, interesting to read your thoughts on transitioning into entrepreneurship – or not. My master thesis (about 20 years ago) was about how to determine the likelyhood of success for entrepreneurs and the strongest indicator was “lack of options”, your story about the general ordering his men to burn his ships ringed a bell. In Switzerland the most successful entrepreneurs are usually immigrants opening food-shops: It’s their only option. They will make it work. But sure, if you have more options there might be better choices available. Admin is something I also dislike and focusing on your strength may pay-out more if the rest is taken care of. Great post, got to read more about your previous entrepreneurial adventure! Cheers, Matt
The best thing about my stint as an entrepreneur was that I learned how truly hard it is to be one.
Makes it much easier to stick it out through tough times in banking when some of my peers are leaving for “greener” pastures of entrepreneurship.
Not everything is as easy as Musk and Bezos make it seem!