An episode about the
financial risks and rewards of entrepreneurship and what they mean
for your motivation in starting a business. Here's some harsh data
about the financial risks and rewards:
- More than half of startups cease trading within the
first five years.
- Entrepreneurs on average earn significantly less income over 10
years than they would have earned in paid employment. There are
debates about the numbers but one study (Hamilton) suggests a 35%
- Entrepreneurs on average don’t earn a better return on their
investment by founding startups than they would have by investing
in publicly traded
stocks (in fact they earn less from a risk return
- Nevertheless, the majority of affluent people are
self-made entrepreneurs. Entrepreneurs make-up less than 20% of the
workforce in America, but account for 66% of the millionaires. Of
the millionaire entrepreneurs, 80% of them are self-made: they are
first generation wealth holders (Stanley).
What are we to make of such statistics? I argue that the high
financial risk (and potentially high reward) make it even more
important to do entrepreneurship for intrinsic motivations:
- Purpose: building a business because you want to make a dent on
the universe and you believe that what you are doing will make
peoples' lives better.
- Autonomy: being an entrepreneur because it gives you freedom to
live and work as you want to (not as someone else thinks you
- Mastery: overcoming the challenges of learning how to build a
business is rewarding in itself.
The episode ends with a discussion of the difference between
extrinsic and intrinsic motivations for making money itself. The
intrinsic motivation to make money is for the freedom (financial
freedom) that it gives you.