One of the capacities that will be invaluable to you as you begin to work through the 4 Steps to Aligning Your Money and Your Purpose, is developing a different—and I believe more realistic—relationship to risk. Indeed, if there’s one single trait that sets all the self-educated millionaires I interviewed for this book apart from other people, it’s their relationship to risk.
Critics of my book will likely say that what sets them apart is they simply took bigger risks than others: the people I interviewed were simply the winners at the roulette wheel, and I failed to talk about all the people who played at the wheel and got wiped out. (This line of critique would charge me with a fallacy of statistical reasoning known as survivorship bias: making assertions about some process based on conclusions drawn only via looking at the “winners” of that process, without taking into account the experience of the—usually much larger—sample of losers.)
And yet, I don’t believe the people I feature in this book simply took a bigger bet than everyone else, and happened to get lucky and win. Rather, I’ve seen that they have systematically and intentionally developed a style of working which allows them to take lots of small bets—bet, after bet, after bet, after bet—all the while making sure that they don’t get wiped out of the game if one or many of them go south. In other words, I believe that for most of the people featured in this book, a trait even more important than luck was resilience.
Most people, when they think of the idea of starting a business, see it as an incredibly risky proposition, one that entails not just egg-in-the-face, but total ruin. They are nearly hysterical about the risks they could incur if they left their safe, boring jobs. Images of would-be entrepreneurs living homeless on the street after their ventures failed keep many people who dream of starting their own business stuck in comfortable, boring corporate jobs for the rest of their lives.
I believe this is a distorted view of entrepreneurialism. Most of the self-educated people featured in this book all took pains to make sure that their “downside was not so exposed,” to use the parlance of investing: they made sure that a failed business would not mean total ruin, it would just mean a few scrapes, a few good lessons learned, and up they are again at a new one. No biggie. They are calm, relaxed, and cool about failure, not hysterical and terrified, because they view failure as necessary for learning.
Take the story of Mike Faith, owner of Headsets.com, which does millions in sales each year of headsets for hands-free phoning. Mike was mildly dyslexic, and started falling behind in the UK’s equivalent of high school.
He never felt he fit into an academic environment—abstract academic skills were neither his strength nor his passion—so he decided to leave school at age fifteen.
His career after that, for many years, began to look like a ping-pong match of entrepreneurial ventures, one after the other after the other in rapid succession. He started in door-to-door sales at fifteen, selling window insulation, all the while living at home with his parents (living at home with parents is a powerful way to limit one’s financial downside, as many twenty-somethings are now being forced to discover.)
He was so good at sales, he bought his first car at seventeen with money he earned, and bought his first home at twenty-one, enabling him to finally move out. Soon, he got into the business of buying up assets of bankrupt companies, and selling them at auction for a tidy profit. He then got involved in the rising UK property market of the late eighties. When that crashed, he lost everything. “By my mid-twenties, I had made my first million, and lost my first million.”
For many people skeptical of starting a business, this is the end of story in their minds: welcome to life as a desperate pauper they imagine, the penance for taking too much risk.
But for Mike, this was only the beginning. (Indeed, a great many of the people I interviewed for this book have at least one bankruptcy under their belt.) Here’s where the differing mind-set around risk comes in. Ruin? Eh, says Mike. “It’s good for you to go through that experience. I think for someone to be successful in business, you’ve got to have that edge where you’re prepared to take chances and fail, and—here’s the key—pick yourself back up.”
Here’s where the resilience comes in. For Mike, his failure wasn’t condemnation to perpetual ruin. He started out with the assumption that life has risk. Rather than see failure as something to be avoided at all costs (as most of us see it), he instead designed his life and mindset around the inevitability of failure, and how to cope with it. Instead of viewing his first big failure as ruin, he simply decided to view it an opportunity for an interesting change in life plans.
Mike and his wife sold all their remaining possessions in 1990. With $1,000 in their pockets, they followed generations of enterprising spirits before them, and moved to America.
He took a day job at a software company, but soon he was back at his entrepreneurial ventures on the side. He started a company to the labor law posters that HR departments were legally required to display at workplaces. Soon he had a hundred thousand customers. Then he got into selling posters with area code and zip code maps, and turned that into a $2 million business within years.
“We were using phone headsets in the poster business. The headsets were pretty crappy. It was hard to get any service on them. And I couldn’t buy what I wanted anywhere. I tried and I couldn’t get it. To me, that’s enough of a data point to say there’s a business there. Because if I can’t find it I know I’m know I’m not the only one. Other people can’t find it. There’s an unserved niche in the market, something people can’t find but they want. It’s just a question of how big the niche is. And I thought, ‘everyone uses the phone, this is a big market.’ I decided to be in the headset business. Six weeks later I was in the headset business.” The company now does $30 million a year in phone headset sales.
Hearing Mike talk, you could be forgiven if you thought you were listening to a different breed of human. The way he—and nearly all the entrepreneurs I interviewed in this book—relate to risk is completely different from the way most of us do. To be sure, they aren’t banking their entire life future on one single dream or bust (say, becoming a rock star, à la David Gilmour.) But rather than never try their hand at any dream at all, and sticking a safe-but-boring course instead, they keep trying one dream after the next, maximizing their inner and outer resilience for the inevitable failures. They fail early and often, and turn course on a dime, until something begins to gain traction.
“I can’t help it. It’s an addiction. It’s a compulsion,” Mike told me with a mischievous grin, from his fancy San Francisco offices. Nearly everyone I interviewed for this book has this attitude about starting businesses. What makes it different than say, a gambling addiction, is that these people are masters of making sure they stay in the game when luck inevitably turns against them. Unlike a gambling addict, they have consciously cultivated a lifestyle of resilience. They are ready to pick themselves up, dust themselves off, adjust course, and try something else when they fail. That is the essence of learning. Without failure, there is no learning. These people are not addicts of gambling; they are addicts of learning, in the real world. And learning in the real world involves failure. Lots of it.
“People who have been successful are still as likely to get it wrong as right going forward. They just try more things,” Mike told me. “That’s the difference.” Mike’s advice for young people who want to combine their passion with their money? “Start with the passion and the drive. You’ve got to have that hunger. From that passion and desire, go actually do some stuff. Try some little businesses. Get some failure under your belt. Find out what works and doesn’t work, and don’t worry about the failures, worry about learning.”
By far the most common objection many people raise in discussions about whether it makes sense to try an entrepreneurial side-gig out, in service of your pursuing your dreams, is the oft-cited statistic that 95% of small businesses fail within their first five years. This statistic brings up images of 95% of all small businesses owners ending up on the streets, begging for change to feed their kids after they sell off their house to pay off business debts.
“That statistic is a bunch of crap,” Josh Kaufman, author of The Personal MBA: Master the Art of Business, told me. He pointed out to me that the statistic is based on the number of people who file Schedule C forms (profit of loss from business activities) and other forms related to business ownership, then stop filing such forms at some point.
Yet, as he says, “It’s calculated on the number of businesses that cease to exist within five years, not that go bankrupt or whose owners lives are ruined for ever and ever. Sometimes companies are making money, but they’re not making enough to make it worth it, so they go do something else. Sometimes the business got acquired. That’s a really good thing. ‘My business ceased to exist because I got paid a lot of money to sell it to some other company and it got absorbed.’ All of the many ways that a business could cease to exist are wrapped up in that one number, which gets interpreted as a doomsday ‘Oh my gosh, so many people are failing in business and ending up in the soup lines!’ kind of statistic.”
One of the best ways to avoid this kind of horror-story scenario when reaching for your dreams, even if your business doesn’t end up working out, is to start a service business. Usually, overhead and start-up costs are low, you don’t need to borrow a lot (or any) to get started, and you can begin generating revenue immediately. Even if the business doesn’t work out, the consequences of failure are usually minimal, and if you do end up being one of those 95% who fail to file a Schedule C in a subsequent year, you’re not going to end up on the street begging for change. It’s just not that big of a deal. You can close up shop on that business, go back to your day job, and try something different another time, no big deal.
“The very best things you can do when starting a new business,” Josh told me, “are, #1, keep your overhead as low as possible, and #2, make sure you’re getting recurring revenue as quickly as possible. If your revenue is semi-predictable, you can just grow and grow based on the cash that the business is throwing off, instead of having to get investments, loans, and so forth.”
In his book, which he presents as a business education in a book without the need for $100,000 of debt, Josh talks about a concept called “iteration velocity.” He quotes Google CEO Eric Schmidt: “Our goal is to have more at bats per unit of time and money than anyone else.” Josh (who has an undergraduate degree from the University of Cincinnati, but who educated himself in his real-world business savvy without an MBA), writes that “When creating a new offering, your primary goal should be to work through each iteration cycle as quickly as possible. Iteration is a structured form of learning that helps you make your offering better; the faster you learn, the more quickly you’ll be able to improve.”
Basically, it means, try something new but small and low-risk, see how it works, keep it if it works well, and don’t be afraid to turn on a dime (or “pivot,” as many entrepreneurs say), if it doesn’t work. It involves intentionally exposing yourself to lots of small, survivable failures, so that you can get feedback from the real world, adjusting course as quickly as possible to avoid investing too many resources down a dead-end path.
I’m amazed at how many people won’t go for their dreams, because they’re scared of that 95% failure statistic, or some version of it.
Let’s consider an analogy.
While I have absolutely no scientific data to back this up, it seems to me a reasonable guess that 95% of all dates are failures.
Now, imagine what would happen to our species if all people, when they heard of the low success rates of individual dates leading past the first date, freaked out and said, “OH MY GOD! I’M NEVER GOING TO GO ON A DATE AGAIN! I MIGHT GET REJECTED!” This generation would be the last.
Fortunately, when it comes to dating, humans see that there is a big difference between the high likelihood that any single date will fail, and the very low likelihood that all of your dates for the rest of your life will fail.
Doing something entrepreneurial is, much like dating, a numbers game. If you can keep your emotional losses low each iteration, and not jump off a building if the business (or date) fails, well then, you can keep trying and trying. Eventually, most everyone can find a creative blending of passion and money which works for them, just as eventually, most everyone can find a great date which leads to something more.
Beyond the pure numbers-game aspect of these two different human endeavors, here’s another parallel between creative entrepreneurship and dating: if you don’t allow yourself to get completely devastated and wiped out from a failure, you can actually learn from your failures, and thus improve your odds with each iteration.
I could insert a lot of jokes here about my countless dating blunders and bloopers in my twenties; they could fill a book. But suffice it to say that, when I finally went on my first date with my wife Jena, I had learned enough from all these blunders to avoid the clod-head mistakes of my past, and to woo her properly that one spring night in 2008. And that was the date that really mattered. You only need one, in a whole lifetime.
Next: Dustin Moskovitz’s Story
