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Summary:

This year, I had the opportunity to serve as a mentor at Seedcamp. I hear pitches from wanna-be startups all the time in Silicon Valley, but the teams in London were different; the entrepreneurial dreamers that I met there typically had letters like PhD after their […]

iStock_000004934135SmallThis year, I had the opportunity to serve as a mentor at Seedcamp. I hear pitches from wanna-be startups all the time in Silicon Valley, but the teams in London were different; the entrepreneurial dreamers that I met there typically had letters like PhD after their names. As a result, their ideas were especially innovative -– and complex. So a few pitches in, I started to ask the question: Why do you want to build a startup around this technology? Very few of them had an answer.

One of the unfortunate side effects of all the publicity and hype surrounding startups is the idea that entrepreneurship is a guaranteed path to fame and riches. It isn’t. Building a startup is incredibly hard, stressful, chaotic and –- more often than not –- results in failure. That doesn’t mean it’s not a worthwhile thing to do, just that it’s not a good way to make money.

A more rational career path for money-making is one that rewards effort, in the form of promotions, increased security, salary and status. Startups, unfortunately, punish effort that doesn’t yield results. In fact, the biggest source of waste in a startup is building something nobody wants. While in an academic R&D lab, creation for creation’s sake will often get you praise, in a startup, it will often put you out of business.

So why become an entrepreneur instead of developing technology in an R&D lab? Three reasons: change the world, make customers’ lives better and create an organization of lasting value. If you only want to do one of these things, there are better options. But only startups combine all three.

Take this fictional example of a Seedcamp attendee (actually a composite), which I will refer to as Hairbrush 2.0. At the helm of Hairbrush 2.0 are dreamers with deep AI background. Their dream is to use AI to solve some of humanity’s big problems. Originally, they thought they could make a learning engine that would accurately predict consumer preferences, and tell people what products to buy. Imagine a shopping engine that does your shopping for you. Brilliant. And also very, very hard. So like good entrepreneurs, they went searching for an easier problem to start with, namely helping people find just the right –- you guessed it — hairbrush. This idea took them right off the rails.

They were busy building their product as if they were still in a research laboratory. They hired hair-styling experts to feed their expert system. Their algorithms were world-class. And yet nobody was using it.

The worst part? They didn’t know why.

Hairbrush 2.0 didn’t have contact with customers. Not only that, nobody in the company actually had a use for the product they were building. Trust me, these guys did not brush their hair.

There’s nothing wrong with starting small on the way towards a larger or more mainstream product. But to become an entrepreneur, you have to serve customers, stay true to your vision and build an organization — all at the same time. Indeed, that constant balancing of short- and long-term priorities, vision and data, customers and employees is what makes it almost impossibly hard.

That’s not to say the Hairbrush 2.0 team is doomed. They can make up for their lack of domain expertise by putting a product out early, spending a lot of time with potential customers, and being rigorous about measuring how real-life customers interact with it. But in order to do that, they’re going to have to keep two seemingly contradictory ideas in mind at the same time: that their vision is going to change the world, and that their vision is also horribly flawed. Which parts of the vision are which? There’s no way to answer that in the lab.

Attempting to hold two contradictory ideas simultaneously is known in psychology as cognitive dissonance. Most people go out of their way to avoid this sensation. That’s a perfectly normal reaction; our brains are supposed to experience pain when we try to do the possible and the impossible at the same time. Entrepreneurs are wired differently, however. It’s not that they don’t experience pain — trust me, creating a startup is extremely painful — but that they care more about realizing their vision. And there are much easier ways to get rich.

Eric Ries is a serial entrepreneur and author of the blog Startup Lessons Learned.

  1. I dont quite understand this post.

    From what I gather, most likely entrepreneurship won’t make you rich, but you also shouldn’t develop products as if you were in an academic lab?

    I guess ideas are 2 nickels a dozen, but it has to start from somewhere, right?

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  2. Hi Eric Ries,
    Excellent observation. Hope this will help guys who want to make “quick” money through startups.
    Regards
    J

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  3. May be coz getting a PHD takes only 3 yrs in Euro where its N years in US.

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  4. I think you ended this post a paragraph too early. What are these “easier ways to get rich?” Do tell…
    I imagine you would bring up job titles like lawyer and doctor, both of which are hardly easy professions to qualify for and to make money with. But please share…

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  5. Entrepreneurship may not be a guaranteed path to riches, but it sure as heck gives you a better shot than slaving away at a corporate job. I was a middle manager making low six figures but realizing that unless I wanted to climb to the VP level, my odds of ever being financially independent and living the life I wanted were low. Now, owning my own small companies that are mostly service-based and web-based, I have the work-life balance I want. Instead of begging my boss for a raise, I go out and sign a new client that could mean an extra $25k per year revenue. The power of increasing my own income is the part I find the most rewarding.

    The article is right in that it is hard and not for everyone. I have friends who’ve tried and gone back to the routine of corporate life; nothing wrong with that at all, to each their own.

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  6. hairbrush 2.0 is a great example of why it is so important to understand the business you are in before you build a product for the customers. join the customers and join your community while you’re building, if not before.

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  7. I guess the point is to develop products that people want and don’t expect to get rich.

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  8. “A more rational career path for money-making is one that rewards effort, in the form of promotions, increased security, salary and status.”

    What are some concrete examples? Moreover, it appears you’re suggesting that entrepreneurship is more risky than an alternative career path. However, on this issue, I agree with Jim Collins in that entrepreneurship is less risky but more ambiguous when compared to an alternative career path.

    (See: http://www.inc.com/magazine/20090401/in-times-like-these-you-get-a-chance_pagen_2.html )

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  9. Great article!

    One thing that Timothy Ferris talks about in his book 4-Hour Work Week is the notion that not all start-ups are created equal. That is to say, a web startup is very different from a green tech start-up, social enterprise or “muse” business.

    What I take away from this is: Yes, most businesses will not make you rich – but if that is specifically one of your goals; you should acknowledge that up front and (choose &) build your business/startup accordingly. The end result may be entirely different that if you were going to “make the customers as happy as possible” or “change the world”.

    If you’re looking to make a lot of money – you’re absolutely right: a web start-up in an over crowded space might be a not-so-good idea but that doesn’t mean there aren’t a lot of possibilities for monetization on the web or other industries.

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  10. the author of this post appears to be clueless.

    Fact: Enterpreneurship stands far and above other pursuits in the creation of wealth. any wealth management professional will tell you that no other pursuit comes even close.

    Fact: Confusing bad startups with all startups is a sign that the author is confused. Nothing else.

    Please, please try out your storyline before you write.

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    1. Net wealth across the population, yes, entrepreneurship creates more wealth than most pursuits. Individual wealth, no, most entrepreneurs don’t make serious cash from their efforts.

      Ask any VC what percentage of their investments pay off. It’s not a large percentage.

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      1. Dude you are comparing the wrong things…the point is that entrepreneurship pays better than a number of other professions…So compare the chances of making rich as a career work for somebody else vs entrepreneurs.

        I think there is no doubt the entrepreneurs would come out ahead of most…

        I agree with les that the author seems clueless about the bigger picture and available options…

        -Jitendra

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