I saw a company advisor get all bent because so many people were taking out 401k loans. So we had to listen to him (a millionaire) and the CEO (also a millionaire) talk about how "cheap" money is at the moment and how they're both taking out mortgages and investing the money because their mortgage rates are so low. Then my boss said, verbatim, "I know, for a fact, with what you're making that any of you could get a loan at a credit union right now."
There's a lot of older people in my industry who take an executives word for gospel. It was heartbreaking to see this man gaslight everybody with his unwitting ignorance to how real people get by.
So if the shit hits the fan, you'll get canned AND wipe your savings out at the very moment you need it most... Never leverage up to buy equity in a business you don't control.
When things turn, they turn fast.
Source: My last company is basically going out of business.
Right now, I can't get a mortgage loan from a bank, but then again, I don't have a 401k either. I'm not sure of what scenario would make me do it if I did have a 401k.
Another shared that he used it for home repair. Another bought a car.
The downside seem to be 1) high fees 2) that money isn't making interest 3) you wind up paying tax on it when you pay the loan back with your regular pay.
We make 10% of this guy's salary. Comparing his apple to our orange is going to disenfranchise people.
Post money: Ruthlessly (or they may go all charitable and all that...)
- Actual domain expertise (a summer internship or talking to a few people doesn't count)
- A solid grasp on business fundamentals and managing teams effectively
- A strong network of people who serve as potential employees, partners, customers, mentors, etc. due to being outgoing and generally spending time on developing relationships
- An uncanny ability to recognize niche business problems that are underserved by existing options
- A willingness to laugh at concepts like "work-life balance", "happy marriage", and "spend more time with your kids"
- The ability to build a strong team from nothing and keep it strong by firing people who suck and rewarding people who are good
- Recognition of what you are and are not good at, and then finding good people to do the latter for you
- The ability to sell things effectively (no, if you build it they probably won't just come)
I'm sure others on HN have their own lists.
Do something you enjoy. Stop trying to study the success of other people and reverse engineer it. Not for anything else: you can be sure that they spent more time just doing the thing they wanted to do rather than study other people for tips.
I do get this feeling. I went through it. But then I realised that none of the stuff that matters to me is going to change. If you want to be able to jump into a big pool of gold coins like Scrooge McDuck...then maybe.
Also, if you are really interested in business the absolute last thing you should be doing is building lists of personal characteristics. Read what public companies are doing, read financial reports, etc. That is actual business (I don't think the OP is interested in business, he just wants success...which is something else...go into politics maybe?).
I think you're completely misconstruing what you responded to. That list is neither about becoming a billionaire nor about what to do to get there. It's describing talents or tendencies that make people build things worth millions, not billions.
I agree with everything except #5. My marriage & kids are irreplaceable.
So if you have everything else, which is a more rational bet:
- Investing in a low probability, massive payoff
- Investing in a lower (yet still high) payoff with less variation in expected outcome.
There are huge segments of the economy where you can buy a small business for at a 3 - 6 multiple of annual earnings. Many companies in this space are unsophisticated, so there is massive potential for operational improvement as well (introducing basic process, tech, and marketing strategies).
Ameatur level Chess is about figuring out a good "trick": a powerful pin or maybe a fork that the opponent didn't see. So low-level chess is a "winner's game".
High-level chess, at least computer chess, is more about making fewer mistakes than the opponent.
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Bogey Golf is another one. Playing for +18 leads to a score of ~88 after a round of golf, solid for an amateur. Not good enough for the pro-leagues. You get onto the green in 3-shots and only have 2-putts.
Pro-players of course take big, aggressive hits. Tiger Woods in his hayday would get onto the green in just 1-shot (throwing out his back and knee, it certainly wasn't a healthy swing). But a typical player who tried to hit that hard would end up missing their shots, whiffing the ball, or just straight up sending the ball out of bounds.
However, having played quite a bit against stockfish it certainly doesn't feel like that. It just crushes you, mercilessly and swiftly no matter what you do.
With those stats, you have to bet 28-29 times to have a 95% chance of winning your 50x upside. So depending on your maximum drawdown, you have to make a much smaller bet than what Kelly Criterion counsels.
In fact that seems to be a general thing - Kelly Criterion is generally about maximizing geometric returns, but the volatility will kill you - it takes lot of betting to have high odds of being close to those theoretical returns.
I'm not really experienced enough with the math to find strategies that maximize your expected growth when subjected to a certain drawdown restriction, but that's what people need when they are at lower net worth levels.
You want to have many simultaneous investments. You can model this with Black-Scholes, except you don't know any of the parameters. So in practice, just put x% of your available capital into venture bets and put your energy into picking good startups.
Not all startups are VC-backable; not all entrepreneurs are trying to build massive companies. Entrepreneurs, as a microcosm of all people, have a wide variety of values and goals.
So when the author says:
> A Better Formula For Regular Entrepreneurs
What's "better"? What's a "regular entrepreneur"? More precise language might be something like "A formula with a higher chance of success for entrepreneurs who value a likely moderately-positive outcome over an unlikely massively-positive outcome."
Personally, I'm going for broke. I want to create the largest possible positive impact that I can for humanity. VC incentives to seek unicorns may not be aligned with all entrepreneurs, especially the "regular entrepreneurs" above. But I think for some, the incentives and economics are aligned.
For someone on Main Street, however, the odds of any payoff are probably more important than the size of the potential payoff.
I'm talking about people that own insurance agencies, small city newspapers, boutique shops, fast food franchises, small consulting businesses in tech or elsewhere, car dealerships, convenience stores, bakeries, food shops, and so on.
To add to what the parent, Will, said - very few people in general possess extraordinary skill at anything. That's just reality. It's true of most business creators as well as it is the general population. Most entrepreneurs don't have access to the networks required to raise millions of dollars in venture capital, even if they wanted to. And given the very finite nature of such things (there are only so many VCs and so much money, and relatively few VC deals even in the largest economy that has 330m people), most could never get access to them. The numbers are badly against anyone that wants to attempt it.
You're not building the next giant company without extraordinary skill, most likely. Sure, there are some flukes that get through somehow, mostly that isn't the case however. Mostly, it takes extraordinarily skill at a thing, combined with immense luck, typically immense hard work, immense sacrifice, and access to elite networks. Yes, Joe/Jane Average can beat the odds, overcome everything that is dramatically stacked against them, it happens, and it's kind of like hitting the lottery. More likely they'll ruin their life chasing a nearly impossible dream.
99%+ of the population is eliminated from contention instantly. It's simply not a consideration, it's not a potential, and I believe most of them know it. Certainly all the small business operators I've ever talked to, they tend to understand their capabilities and limits very well, especially those that have been in business a while. They know better than to waste their time on fantasies (and that isn't a bad thing). Very few of them that I know did it to try to get very wealthy, mostly it was for all the other reasons: independence, not having a boss, charting your own course, pursuing a solid opportunity that becomes a good job, doing something they enjoy, etc. The VC game is an entirely different beast, it makes perfect sense that most entrepreneurs would have little interest in it.
However, generalizing that there's a "right" strategy for "regular entrepreneurs" is where I think the author gets into trouble. And I think more specific language would help.
I can give plenty for which a small competitior crashed a big one.
https://en.wikipedia.org/wiki/Advanced_Micro_Devices,_Inc._v....
Also, see Amazon vs any of the 3rd party Amazon Marketplace sellers subsequently displaced using the various Amazon home brands.
Also Amazon as it keeps eating up industries.
Wal-mart and its national take over resulting in the loss of multiple local retailers.
EA, Activision, Ubisoft and their all out consumption of almost every successful smaller game studio in the last couple decades.
Seems to be quite a few just off the top of my head. Take your pick, I'm sure you can Google and find even more.
Facebook > Snap
Luxxotica > Basically every glasses competitor
Well, going from 2017 to 2018 to 2019 seemed to show an obviously improving trend. But then I realized I needed to explain that it's not just a coincidence that 2017 had more projects that took over a year, compared to 2019.
Now, don’t get me wrong, each of them have definite skill sets, but when it comes to business strategy, they’re just guessing like the rest of us. Of course their guesses are more informed than mine, but they are still guesses.
What I’ve noticed makes for a very effective senior leader is the ability to ask the right questions - they may have little to know domain knowledge, but they still have a good ability to smoke out a bullshit story.
I'm the one with the high end financial education so they ask me for advice (fair enough). Yet circumstances differ so it's invariable a case of "do as I say, not as I do". No sister...leveraged derivatives with short DTEs aren't for you.
...weird parallel in a microcosm sense.
To become rich (not broke), listen instead to billionaires like Warren Buffett or millionaires like Jack Bogle. They both offer plans for average people to become wealthy. (With very high probabilities of happening. But it takes decades.)
See Bogleheads.org for details.
Lifestyle businesses won't drive the developed world into 10%+ GDP annual growth. But a few moonshots succeeding might actually be able to do that.
I'll keep listening to the billionaires, thank you very much. Am 100% willing to go bust (we're all going bust in the long-run).
