entrepreneurship Archives - Page 4 of 4

December 8, 2014

Entrepreneurship And Its Discontents

Note: A version of this post appeared in the San Antonio Express News

Here’s one of my first principles:

Everybody who works in the for-profit world should own or start a business.

Now that I’ve said that, I’d like to spend most of the rest of this post describing all of the terrible things about starting or owning your own business. Entrepreneurship requires ignorance. Entrepreneurship induces anxiety and insomnia. It attracts terrible students. Entrepreneurs are people who are clearly running away from something.

Interestingly, entrepreneurs are the only people who have a chance to get super-duper rich.

Ignorance

A friend who started his business during the first Dot-Com boom and bust told me the most important key to starting a business is ignorance. Specifically, you have to be really clueless about how difficult starting and building a business will be. If first-time entrepreneurs knew how hard it would be, they would never start in the first place! Ignorance truly is bliss.

Anxiety

Anxiety appears to run in my family genetic code, although that ailment mostly missed me.

Genetic predispositions, we learn more and more, often need an environmental trigger. Well, for me, starting my own business in 2004 induced my first panic attack.

Meeting for lunch with friends one afternoon, I could not stop blurting out about all of the things that might go wrong with my business. I couldn’t read the menu, I could hardly sit down. No eating. Twitching. I don’t remember what my friends planned to talk about. All I could do was tell them how freaked out I was.

Insomnia

Insomnia, another thing I had hardly ever experienced, also kicked in after I started my business. It’s 2:45AM and I’m wide-awake.

You know, somebody should really start an Entrepreneur’s Insomnia Late-Night Diner.

Hey, that’s a good idea. Should I do it? Like, right now? Let’s see, first I should…Wait, no, just stop. Try again to sleep.

Goodnight Room. Goodnight Moon. Goodnight Nobody. Goodnight Mush. Ugh. Please, Sweet Mercy, let me sleep.

I mention the insomnia and anxiety because a friend sent me a text recently “Hey, can we meet for coffee? I’m kind of freaking out right now.”

Unfortunately, I diagnosed her problem before we even spoke: she’s an entrepreneur.

Weaker students

One of the most memorable parts of Thomas Stanley’s book The Millionaire Mind is his thesis that most successful entrepreneurs suffered as mediocre students. Students who achieve all As throughout their school years gravitate to highly academically selective professions such as medicine and law.

The C students, meanwhile, are forced to struggle. Without a clear path to academic success and a prestigious well-paid profession, the C students rely on a more improvisational approach that may lead them to start their own sandwich shop, out of desperation. Ten franchises later, they’re the ones hiring the straight-A Harvard Law attorney to work through the weekend to prepare the documents for their next business acquisition.

For that C student, entrepreneurship may be a decision forced by circumstance rather than a fully formed plan.

Unhappy and running from something

Speaking of forced circumstances, I can’t prove the following claim, but it seems anecdotally true in my life.

Before launching, all entrepreneurs are unhappy about something, and that something forces them to start their business.

Do you hate your boss? Are you desperate for a better work-life balance? Are you dying to be rich and its just killing you that you’ll never be paid more in your current job?

Contented people, the people happy to go to work and collect a paycheck, never feel the urge to jump into the parachute-less abyss of entrepreneurship.

Before I started my business, I was desperately unhappy and I said to my Dot-Com friend that it must be great not to work for The Man. He replied that most days he wished he could count on The Man for a paycheck.

Ok, fine then. But still, I didn’t listen to him.

The key to extraordinary wealth

For all its drawbacks, business ownership is not one path to riches.

It’s the only path.

All of the folks in the Forbes 400 list are business owners.[1] None of them got there by performing a large number of open-heart surgeries or preparing the legal documents for a leveraged buyout – as highly compensated and academically exclusive as the top of the medical and legal professions may be.

I’m not saying getting filthy rich is the most important life goal, nor am I saying it will make you happy. And, I also think there are more reasons to start a business than simply to get rich.

But! I do think people should understand that all of the most wealthy folks in this country are entrepreneurs.[2]

The steep path to extraordinary wealth goes to one group only: The ignorant, the anxious, the insomniacs, the C students, the discontented ones.

In short, the entrepreneurs.

Please see related posts:

On Entrepreneurship Part I – Equity v. Fixed Income

On Entrepreneurship Part II – Ownership v Salary

On Entrepreneurship Part III – The Air, The Taxes, The Retirement

Book Review of The Millionaire Mind

Book Review of The Millionaire Next Door

Video for Entrepreneurs – Personal Financial Statement

[1] Or heirs to business owners. Because inheriting wealth is increasingly a great tax-advantaged way to get wealthy.

[2] If you don’t own your own business, the next best thing to do – in order to be wealthy – is to start purchasing public stocks with any of your excess cash, and never sell. Pouring excess cash from your salary into the business ownership of stocks provides some wealth-building for the world’s employees.

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August 6, 2014August 6, 2014

Video For Entrepreneurs: Tracking Startup Capital in a Spreadsheet

I periodically produce instructional videos for a local micro lender named Accion Texas. They support and lend to young and startup companies that might otherwise get overlooked by the traditional banking industry. In fact one of the key conditions of being an Accion Texas customer is a prior rejection for a bank loan application.

The point of this video I made is to introduce Accion’s customers and potential customers to the value of tracking your startup costs in a spreadsheet. Since I am a huge proponent of entrepreneurship for building wealth, and since many entrepreneurs are not necessarily spreadsheet whizzes, I figured this may have appeal beyond just Accion Texas customers. I hope it will be useful to you.

Please see related posts:

Entrepreneurship I – Salary vs Ownership

Entrepreneurship II – Ownership vs. Working for Others

Entrepreneurship III – The Air, The Taxes, and Retirement

Excel Video Training – The Autofill Function

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September 1, 2013October 17, 2016

Book Review: The Millionaire Mind by Thomas J. Stanley

The Millionaire Mind by Thomas J. Stanley did not win the acclaim of its predecessor The Millionaire Next Door, but I consider it an equally valuable resource for personal financial education.

As with The Millionaire Next Door, which I reviewed earlier, Stanley conducts a type of ethnographic study of multi-millionaires, surveying them on attitudes, life experience, purchasing behavior, and habits of mind.1

A number of these insights stuck with me throughout the years, a good indication to me that Stanley’s got quite a bit to offer.

Small Business Owners

Many millionaires own their own businesses, and they typically either started it or continued a family-owned enterprise. Further, their businesses often lack the prestige of professions celebrated in the popular press.

Stanley takes pains, for example, to highlight the story of Mr. Richard, a junk-yard operator worth over $10 million, with an annual salary above $700,000. Avoiding the prestige professions is not only an accident, Stanley argues, but a strategy to avoid competing with other very smart people. Stanley returns frequently to this theme of wealth accumulation through entrepreneurship, which, of course, I believe in myself.

Not the best students

Interestingly, Stanley claims that his cohort of millionaires tends to be made up of people who received Bs and Cs in high school and college – but who found a vocation, after their school years ended, at which they excelled.

The traditional A students, he points out, tend to seek out competitive, prestigious professions such as law and medicine that require a flawless educational transcript. Many lawyers and doctors earn generous salaries but frequently do not join the ranks of multi-millionaires. There can be a huge difference at the high end of wealth creation between a good salary and ownership of a profitable business.

Cheap Cheap Cheap

Stanley’s favorite theme – sounded throughout The Millionaire Next Door as well as The Millionaire Mind, is that wealthy people are frugal.

This makes sense, as of course the less you pay for everything – from your car to your morning coffee – the more you have left over in net worth. On the other hand, much of the Advertising Infotainment Industrial Complex is dedicated to convincing us that the more you have, the more you need to show what you have, through a fancy watch 2 or a second home, or by hiring Rod Stewart for your 60^th Birthday.

Other insights

Stanley describes other characteristics of multi-millionaires. They tend to be long-term married (and only once), they tend to have iconoclastic ideas (somewhat), they show courage and respond well to setbacks, they seize business opportunities that others did not see, and they tend to reduce their borrowing once they’ve achieved some financial success.

All sounds like reasonable advice to me.

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Once again a scientist versed in the scientific method could easily critique his approach. He sent out surveys to a randomly selected number of households in certain zip codes likely to have millionaires. From there he received 733 completed responses from households with at least $1 million in net worth. Problem #1 – Survivorship bias. Just because these folks have a $1 million+ net worth, doesn’t negate the fact that many other people, or even a majority of other people, with exactly the same characteristics, are not millionaires. We can’t know how powerful the effect of these variables are without a study designed with a ‘control group’ to correct for survivorship bias. Problem #2 – Methodological tautology. Stanley targeted particular zip codes on purpose. He then makes comments about the types of neighborhoods millionaires live in, such as the fact that many millionaires live in older, well-established neighborhoods. That’s probably true, but you can’t make a scientific correlation between neighborhoods and millionaires if you picked the neighborhoods first! Nevertheless, I still think Stanley’s insights have the ring of truth, if not the scientific gold standard of proof. ↩
“You never actually own a Patek Philippe, you merely look after it for the next generation.” Also, it even tells time! Similar to, although not quite as well as, a digital watch that is essentially free at this point. Or like the free time-keeper that comes with your mobile communication device. ↩

August 26, 2013February 24, 2015

A Source of Angel Funds: Your IRA

Karen Blumenthal’s column in The Wall Street Journal over the weekend featured two of my favorite topics, self-directed IRAs and entrepreneurship, in a combined article. The details in the article, as well as the details of using a self-directed IRA to fund a small company, are complex.

· You can’t lend money personally to the firm
· You can’t guarantee a loan to the firm
· You can’t ‘self-deal,’ which might prohibit taking a salary from the company

But, the article goes on to describe, you may be able to fund, or buy early shares in, a start-up company. While of course by definition this involves extraordinary risk, it’s also the kind of thing which could in rare cases lead to a Mitt Romney-sized IRA.

Only a few investments in IRAs are outright banned by the IRS, such as life insurance and certain collectibles, as well as one’s own home.

For mid-career entrepreneurs or angel investors with some built-up retirement savings, it’s an intriguing thought that many do not know about.

Please see related posts on the IRA:

The Humble IRA

IRAs don’t matter to high income people

A rebuttal: The curious case of Mitt Romney

The magical Roth IRA and inter-generational wealth transfer

The 2012 IRA Contribution Infographic

The DIY Movement and the IRA

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May 18, 2013January 26, 2016

On Entrepreneurship, Part III – the air, the taxes, the retirement

The air is just different owning business equity rather than earning a fixed income with a salary. Can you smell it?

I left Goldman in 2004 and have been downwardly mobile, career-wise, ever since.

I’ve also never been happier.

I’ve written before that one of the keys to feeling and being wealthy is do something that you love and that you would do regardless of the compensation.

Now, I can’t prove the following statements, but I believe them to be true:

Working for yourself, in a business you founded, makes it much more likely that you’ll do something you love.

Working for someone else, for a salary, makes it much more likely that you’ll be asked to come in on Saturdays to work on the TPS reports. And, um, Yeeeeahhh, that’d be great.

It’s weird to say this, but it’s true: Doing the TPS reports for your own business doesn’t feel that bad. Even on Saturdays, it’s kinda fun.

Doing the TPS reports on a Saturday for someone else, however, encourages the kind of anomic existentialism that puts you in deep communion with the overwhelming sadness of the universe.

In life, there’s no getting away from the TPS reports on Saturdays, there’s only a choice about how it will feel. One of my main arguments for starting your own business is that it feels different.

And now for some less important, but still relevant, arguments in favor of entrepreneurship.

Taxes

The tax code was written by and for business owners,[1] not by or for salaried employees. So if you’re ever curious why taxes for salaried employees seem unfair, whereas businesses seem to pay less in taxes, that’s why.

Retirement

Did you know you can save about 3 times more per year in tax-advantaged retirement accounts if you’re a business owner than you can as a white-collar employee earning a salary, with a 401K plan? It’s true. But don’t just trust me, look it up on The Google. The Google never lies.

More importantly, many successful business people want to control the timing and conditions of their own retirement, on their own terms.

When you do someone else’s TPS reports, the company gets to ‘retire’ you when they choose. When you do your own, you choose.

Not everyone wants to work forever, but for those people who do, business ownership gives you the control and options.