It’s more fun to be a pirate than to join the navy.Steve Jobs
What is Entrepreneurship?
Entrepreneurship is the creation of a new economic entity to do a job in society.
The hallmarks of entrepreneurship include a focus on solving a problem, creative exploration of solutions, experimentation to reduce uncertainty, formation and operation of a new organization, and dynamic planning based on new information. Skills in these areas are valuable not just in starting a new company, but in addressing new problems in existing organizations. Thus, many but not all of the elements of this handbook are relevant to those engaged in innovation within established enterprises.
Kerr and colleagues (2018) provide a comprehensive review of the academic literature on founder motives. (See “Notes” at the end of each chapter for links to references.) You can read that paper if you want to go deep. But, if not, here’s the TLDR. Founders are usually motivated by multiple factors to start businesses. These motives can be usefully divided into three broad categories: purpose, fun, and money.
Uma Valeti, a cardiologist by training, and founder of Upside Foods (formerly Memphis Meats), told me that he started the company because he wanted to detach slaughter from meat production. He recalled a birthday party he attended as a child in India in which there was a party celebrating life in front of the house, while others were killing an animal in back of the house. That event made a deep impression on him. Many years later when he worked on the technologies for growing human heart tissue in a medical context he recognized that his knowledge could be applied to another purpose in which he believed deeply. To pursue that purpose, he founded Upside.
Listen to some founder stories. A significant fraction will include phrases like “I had to do it” or “If I didn’t do it, who would?” or “I felt the world really needed this solution.” These are all expressions of purpose — a motive to create something new in order to provide a solution to a personally important problem to the world.
Steve Jobs said, “it’s more fun to be a pirate than to join the Navy.” That was certainly true for Jobs, but maybe not for you.
Some distinctive characteristics of the daily experience of being an entrepreneur include:
- Nearly complete autonomy (as long as you don’t run out of cash).
- Highly diverse tasks (from shopping for insurance to designing a user interface).
- Privilege of working with a small tight-knit team, largely of your own choosing.
- Ability to see immediate results of your work.
- Creating something from nothing, whether a product or a company culture.
- Continual opportunities to learn something new.
- Complete absence of boredom.
For me, these attributes are mostly positive, and my own skills and capabilities are pretty well suited for these aspects of entrepreneurship. Entrepreneurship also comes with some characteristics experienced as negative by some people:
- The complete absence of boredom may be experienced as unrelenting and intense demands on attention.
- Significant stress about possibility of running out of cash.
- May be a solitary effort, especially initially.
- Requirement to do what needs to be done, sometimes including packing boxes or cleaning the office, without an ability to delegate to competent corporate employees.
On balance, most entrepreneurs seem to find the daily work of entrepreneurship fun, and preferable to working within an established enterprise owned by someone else. For some entrepreneurs, the adrenaline and satisfaction from the daily work of entrepreneurship is the most important motive for their career choice. For me, entrepreneurship has been personally demanding. I am extremely thankful to have been a full-time CEO when I was 39-43 years old. I’ve enjoyed being a part-time co-founder many other times. I’ve also been a business owner with ultimate responsibility for an established business for twenty years, but that has a very different stress profile from starting something from nothing. I do not need to have the experience of full-time founder and CEO again, and can get just the right level of fun without a lot of stress from being an investor and advisor.
The mean financial outcome for a capable and educated entrepreneur is likely a bit higher than for those who work in corporate jobs. However, the mean value masks a huge amount of variation. The modal and median outcome predicts that you will fail to realize significant value and would have been better off financially if you had kept your job instead of becoming a founder. Large financial payoffs are realized by a small fraction of entrepreneurs. In approximate terms, about 25 percent will do better than break even financially relative to staying on a traditional career path. About 5 percent of founders with your skills and capabilities will become reasonably wealthy (say USD 5-10mm after-tax pay out), and 1-2 percent will become downright rich (say USD 20mm+ after-tax pay out). For most people, the only way to have a decent chance at becoming wealthy in life (other than being born into it) is to start a business. But, it’s just a decent chance, say 10 percent or so, depending on your definition of wealthy. The probability distribution is also quite different for different types of ventures (more on that below). On the other hand, for most of you, the down side is not that bad. You had an amazing adventure. Worst case you gave up (a) savings worth a year or so of living expenses and (b) the opportunity cost of not having earned a market-rate salary for the years your business struggled. Then you went back to a regular job and did just fine. (See Botelho and Chang; and Amornsiripanitch et al. for a more comprehensive exploration of the implications founders returning to corporate jobs.)
I don’t have a large enough sample for statistical validity, but of the 100 or so Wharton alumni entrepreneurs I have followed closely or invested in, 100 percent live comfortable lives, take vacations, and send kids to college. Five-ish are what most would consider rich (e.g., USD 100mm+). Ten-ish are pretty wealthy as a result of entrepreneurship. Twenty-ish did just fine – let’s say better than having taken a corporate job. The other 65 percent would likely have been better off financially if they had devoted the attention they gave to their venture to a corporate job, and many of those are back working at such jobs.
If you really want to dig into the details on financial outcomes, the Angel List data is probably the best. An index of the available data is here:
You can find the data on venture returns here, from which you can impute a probability of a successful financial outcome.
Angel List has also integrated its experience into a white paper here: https://angel.co/pdf/growth.pdf
Types of Ventures
Not all ventures assume the same level of risk and uncertainty.
Read this article from Outside Magazine about Steve Despain (or listen to the Audm version of the story linked in the article). Steve is the founder of Firebox Stoves, a small business tightly coupled to his personal passions and lifestyle. What motivates Steve? How attractive is the Firebox Stoves business to you? (Here, I’m not necessarily asking you about your passion for the outdoors…but about owning and running a small business aligned with your passions.)
Now consider Blake Scholl (founder of Boom Supersonic). Here is an interview I did with Blake when he had just recently founded his company.
What motivates Blake? What does the financial payoff probability distribution look like for Blake vs. Steve? To make this concrete, what is the probability of a zero outcome for each? What is the probability of USD 100mm outcome for each? Estimate some probabilities in the middle, say USD 1 mm and USD 10 mm.
Rich or King?
A key dilemma most founders make is to be rich or to be king. (See Wasserman for a full elaboration of the dilemma.) The skills and capabilities required to lead a large, successful organization are quite different from those required to kick start a new venture. Some founders, such as Bill Gates, Mark Zuckerberg, and Jeff Bezos, did just fine in making the required transition. More typically, a founder faces a dilemma. Do I prefer to retain full control and manage my own kingdom, even if small, or would I prefer to step aside if necessary to ensure a huge financial outcome for investors, including me. Founders do not have to make this decision on day one, but still benefit from thinking through their preferences in advance. A self assessment of your skills and capabilities, and your relative preference for financial success versus control, should influence the type of venture you start.
Founders are not typically kids. The mean age of founders of the fastest growing 0.1 percent of companies is 45. (See Jones, KIm, and Miranda.)
Founders do not require particular personality traits. No personality trait is predictive of success in entrepreneurship specifically, although the “big five” trait conscientiousness does predict career success more generally. (See Kerr, Kerr, and Xu.)
As long as you are not allergic to risk and uncertainty, your personality profile (e.g., introversion, agreeableness or lack thereof) probably does not disqualify you from entrepreneurship.
How do Founders Spend Their Time?
Every founder and every start-up is unique. Still, looking at the experiences of other founders can be instructive. Here is an unusually detailed analysis of how one founder spent his time in the first two years of his start-up.
Entrepreneurs often follow the hero’s journey and so their stories can be compelling. Take some time to immerse yourself in some entrepreneurial journeys. Select from the following options.
- Chip Wars. (This is a fantastic and comprehensive history of Silicon Valley and the semiconductor industry. This book will teach you about entrepreneurship, technological innovation, competitive advantage, and geopolitics.)
- Shoe Dog. (If you can’t stand to go deep on semiconductors, try running shoes.)
- Let my People Go Surfing. (Memoir by Yvon Chounaird, founder of Patagonia, and a pioneer in corporate responsibility.)
- The Wright Brothers. (Fantastically interesting book, at least to me.)
- Truck Full of Money. (Entrepreneurs can be quirky. Paul English, founder of Kayak, is the subject of a fascinating book that goes deep on character. If you like this one, then make sure to read Mountains Upon Mountains, Kidder’s biography of Paul Farmer, founder of Partners in Health – a social venture.)
- General Magic (film) – This is the basis of a case discussion in my course on Product Management (Wharton OIDD654), so you might wait on this one if you plan to take that course.
- Print the Legend (film) – about the formation and growth phase of Makerbot, the 3D printing company.
- (Docudrama just for fun.) The Entrepreneur – The story of Ray Croc, who built the modern McDonald’s corporation.
I know these films and books mostly feature white American males. (Chip Wars does feature Morris Chang, a Chinese-American entrepreneur, and includes mention of the remarkable contributions to the semiconductor industry of Lynn Conway, whose personal story as a transgender female is incredible.) If you have some suggestions for more diverse stories, please send them to me.
Interview of Uma Valeti, founder of Memphis Meats (now Upside Foods). by Karl T. Ulrich. SiriusXM Launchpad. February 28, 2017. https://shows.acast.com/wharton-entrep/episodes/uma-valeti
Mollick, Ethan. The Unicorn’s Shadow: Combating the Dangerous Myths that Hold Back Startups, Founders, and Investors. University of Pennsylvania Press, 2020.
Jones, Kim, and Miranda. https://ssrn.com/abstract=3158929
Wasserman, Noam. The founder’s dilemmas: Anticipating and avoiding the pitfalls that can sink a startup. Princeton University Press, 2012.
Tristan L. Botelho, Melody Chang (2022) The Evaluation of Founder Failure and Success by Hiring Firms: A Field Experiment. Organization Science 34(1):484-508.
Amornsiripanitch, Natee and Gompers, Paul and Hu, George and Levinson, Will and Mukharlyamov, Vladimir, “Failing Just Fine: Assessing Careers of Venture Capital-backed Entrepreneurs Via a Non-Wage Measure,” National Bureau of Economic Research Working Paper, No. 30179, June 2022. (Summarized by Harvard Business Review here https://hbswk.hbs.edu/item/why-a-failed-startup-might-be-good-for-your-career-after-all )
Azoulay, Pierre and Jones, Benjamin F. and Kim, J. Daniel and Miranda, Javier, Age and High-Growth Entrepreneurship (April 2018). NBER Working Paper No. w24489, Available at SSRN: https://ssrn.com/abstract=3158929
Kerr, Sari Pekkala, William R. Kerr, and Tina Xu. “Personality Traits of Entrepreneurs: A Review of Recent Literature.” Foundations and Trends in Entrepreneurship 14, no. 3 (July 2018): 279–356.
Angel List Power Law paper https://angel.co/pdf/growth.pdf