Entrepreneurialism: The Least Risky Path

http://www.inc.com/inc-business-owners-council/2010/02/entrepreneurialism_the_least_r.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+inc/headlines+(Inc.com+Headlines)

A recent report by the Center for Labor Market Studies of Boston’s Northeastern University comes to this sober conclusion: the highest paying jobs are also the most secure jobs.

This report, which studies how each income group in America is withstanding the recession/depression (based on fourth quarter 2009 data), concludes that household income and underemployment are inexorably linked. The lowest decile of households have the greatest underemployment (20.6% for households with incomes under $12,000) while the most employed households are at the highest decile (1.6% underemployment for households with incomes greater than $138,000).

Income Decile Incidence of Underemployment (%) Lowest 20.6 Second 17.2 Third 12.7 Fourth 8.3 Fifth 6.1 Sixth 5.4 Seventh 4.4 Eighth 3.6 Ninth 2.5 Tenth 1.6

For anyone who worries about people who have the least—the least money, the least access, the least opportunity—these are matters of grave concern. Step back, however, from the emotional and moral aspects of this decaying social picture and view it purely from an economic perspective. The analysis is quite simple: The more valuable you are (in purely capitalistic terms), the more job security you have.

In America, you’ll find those who own their own businesses hold the greatest accumulation of wealth and therefore are the most secure–both financially and professionally. In a survey I co-sponsored in 2006, households with greater than $1 million in net worth (456 households surveyed) felt they could maintain their current standard of living for 13.4 months without income while households with less than $1 million (2,388 households surveyed) predicted only 3.5 months of run room without income.

This makes sense. Most Americans can only draw down on credit cards or meager savings in a cash flow crunch. The wealthier you are the more pockets you can pull from, such as your home equity, your savings and you business and personal credit.

It’s interesting that most people believe entrepreneurialism to be the path of greatest risk when in fact it delivers quite a bit of job security. After all, if you had to cut back on staff, who would you fire last?

SOURCES: Labor Underutilization Problems of U.S. Workers Across Household Income Groups at the End of the Great Recession by Andrew Sum and Ishwar Khatiwada The Influence of Affluence by Lewis Schiff and Russ Alan Prince

Analyzing Y Combinator

http://blog.awesomezombie.com/2009/12/analyzing-y-combinator.html

Founder Frankensteins

http://vcmike.wordpress.com/2010/01/27/founder-frankensteins/

I’ve written before about the dangers of “over-executive-ing” early stage startups, particularly during the early phases when entrepreneurship is much more needed than executiveship.

But the flip side is also true: as a startup approaches the moment of product-market fit, bringing in execution-oriented, market-facing, though still entrepreneurial, “business” talent is really helpful and important.

In my experience great young, technical founders often find this a worrisome prospect, imagining all the ways a business guy could spell ruin for their startup.  I call this the “Frankenstein problem.”  Founders imagine this horrible Frankenstein business guy — the fast talking, gum-chewing, slicked-back hair executive guy who wears fancy clothes, has his own assistant, and sits at his desk giving orders but rarely actually does anything productive himself.  While belittling this image by calling it Frankenstein, I also am the first to say that VCs often DO urge founders to hire a business guy who ends up being exactly the wrong type for an early stage startup culture.  I’ve learned this the hard way — about 7 years ago I recruited a fancy, big salaried Chief Revenue Officers to one of my portfolio companies who more or less fit the Frankenstein description above to a “T.”  Needless to say, he didn’t last long.

But, I’d still argue that the risk of hiring the wrong person, while real, is very often less than NOT hiring someone and substantially underachieving the company’s potential. I still haven’t figured out the best remedy to the Frankenstein problem, but am hoping the success seen by some great founders who brought in great business “guys” (Facebook, Twitter) will help debunk this myth.  In the meantime, the best I’ve been able to come up with is “Just do it.”

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