Writing about entrepreneurship often defaults to featuring entrepreneurs as adventurous risk takers. And, generally, it focuses either on the world famous list of college drop outs (Bill Gates, Mark Zuckerberg, Sergey Brin, Larry Page, etc.) or Elon Musk (who is in a category of his own). This is both lazy and misguided because it misunderstands the relationship between financial risk and entrepreneurship.
None of the above folks took significant downside financial risk when they started their companies.
Brin, Gates, Page and Zuckerberg were drop outs from Stanford, Harvard, Stanfard and Harvard. They could have gone back to their prestigious schools if their companies didn’t work out. And, in the worst case, they would have ended their careers with tens of millions of dollars given they were setting out as programmers in an age that valued that skill.
Elon Musk didn’t set out to start SpaceX when he immigrated to the US. He struck gold with Zip2 first. His appetite to put his reputation on the line is commendable – but, let’s not confuse that with financial risk. He could lose all his money and make millions writing books and speaking if he ever wanted to. That he doesn’t is wonderful. But, let’s not pretend he’d be living on the streets otherwise.
In his book, Originals, Adam Grant has a good section on the real relationship between entrepreneurs and financial risk in a study of Warby Parker. As Warby Parker’s founders demonstrate, entrepreneurs actually need to masters of de-risking their venture. That’s why the best are obsessive about testing, rapidly iterating and finding product-market fit.
It is easy to see this in action when you are in any entrepreneurial hot-bed. Entrepreneurs rarely go out and put their savings on the line. Instead, they build a prototype on the side, attract enough venture capital interest and THEN quit their jobs to build a company. The existence of venture capital and (relatively) easy financing is key to entrepreneurial ecosystems. And, I’d argue that it is the sheer density of financing options in the Bay Area that ensures entrepreneurial minds, on average, find their way here and not the other way around. Regardless of causality, one wouldn’t exist without the other.
Finally, we generally discount the importance of privilege in the role of success. In all of the above cases and in most such stories, these entrepreneurs were based out of the United States – and often into families that had the capacity to help them if things went south. Family wealth aside, the right zip code is the biggest source of privilege on the planet. The best zip codes make it easy to build companies with plentiful access of capital and view failure as experience for the next attempt at building a successful venture.
What does all this mean? I think there are two lessons here. The first is to be dig deeper into stories that talk about entrepreneurs taking on heroic levels of financial risk. That’s not to say there won’t be exceptions. Instead, you’ll find that the exceptions prove the rule.
And, second, pay attention to conventional advice. Get to the best zip code possible, earn good educational credentials and work yourself into a position of privilege. The seeming risks that you take from a position of privilege won’t be risks at all.
A Learning a Day 