Myth: Entrepreneurship Will Make You Rich

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.

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